# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

# FORM 10-Q

# [ X ] QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

# FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 2006

OR

# [   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

# FOR THE TRANSITION
PERIOD FROM _____ TO _____.

Commission file number:
000-50015

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|TierOne Corporation                                   
|------------------------------------------------------
|(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

|Wisconsin                                                      | 04-3638672                          
|-------------------------------------------------------------- | ------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.)
|1235 N Street                                               
|Lincoln, Nebraska                                              | 68508                               
|(Address of Principal Executive Offices)                       | (Zip Code)                          

|(402) 475-0521                                      
|----------------------------------------------------
|(Registrants Telephone Number, Including Area Code)

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes  X    No

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer     Accelerated
filer  X  Non-accelerated filer

Indicated by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
  Yes      No  X

As of May 3, 2006, there were
18,142,694 issued and outstanding shares of the Registrants common stock.

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# PART I - FINANCIAL
INFORMATION

|                            |                                                            
|--------------------------- | -----------------------------------------------------------
|Item 1 -                    | Financial Statements                                       
|Item 2 -                    | Managements Discussion and Analysis of Financial Condition
|                            | and Results of Operations                                  
|Item 3 -                    | Quantitative and Qualitative Disclosures About Market Risk 
|Item 4 -                    | Controls and Procedures                                    
|PART II - OTHER INFORMATION
|Item 1 -                    | Legal Proceedings                                          
|Item 1A -                   | Risk Factors                                               
|Item 2 -                    | Unregistered Sales of Equity Securities and Use of Proceeds
|Item 3 -                    | Defaults Upon Senior Securities                            
|Item 4 -                    | Submission of Matters to a Vote of Security Holders        
|Item 5 -                    | Other Information                                          
|Item 6 -                    | Exhibits                                                   
|Signatures                  | 47                                                         
|Exhibit Index               | 48                                                         

2

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# TierOne Corporation
and Subsidiaries Consolidated Statements of Financial Condition March 31, 2006
(Unaudited) and December 31, 2005

|(Dollars in thousands, except per share data)                    | March 31, 2006 | December 31, 2005
|---------------------------------------------------------------- | -------------- | -----------------
|ASSETS                                                           |                |                  
|Cash and due from banks                                          |                |                  
|Federal funds sold                                               |                |                  
|                                                                
|Total cash and cash equivalents                                  |                |                  
|                                                                
|Investment securities:                                           |                |                  
|Held to maturity, at cost which approximates fair value          |                |                  
|Available for sale, at fair value                                |                |                  
|Mortgage-backed securities, available for sale, at fair value    |                |                  
|Loans receivable:                                                |                |                  
|Net loans (includes loans held for sale of $13,853 and $8,666 at |                |                  
|March 31, 2006 and December 31, 2005, respectively)              |                |                  
|Allowance for loan losses                                        |                |                  
|                                                                
|Net loans after allowance for loan losses                        |                |                  
|                                                                
|FHLBank Topeka stock, at cost                                    |                |                  
|Premises and equipment, net                                      |                |                  
|Accrued interest receivable                                      |                |                  
|Goodwill                                                         |                |                  
|Other intangible assets, net                                     |                |                  
|Other assets                                                     |                |                  
|                                                                
|Total assets                                                     |                |                  
|                                                                
|LIABILITIES AND STOCKHOLDERS EQUITY                             |                |                  
|Liabilities:                                                     |                |                  
|Deposits                                                         |                |                  
|FHLBank Topeka advances and other borrowings                     |                |                  
|Advance payments from borrowers for taxes, insurance and         |                |                  
|other escrow funds                                               |                |                  
|Accrued interest payable                                         |                |                  
|Accrued expenses and other liabilities                           |                |                  
|                                                                
|Total liabilities                                                |                |                  
|                                                                
|Stockholders equity:                                            |                |                  
|Preferred stock, $0.01 par value. 10,000,000 shares authorized;  |                |                  
|none issued                                                      |                |                  
|Common stock, $0.01 par value. 60,000,000 shares authorized;     |                |                  
|18,154,773 and 18,150,773 shares issued and outstanding at       |                |                  
|March 31, 2006 and December 31, 2005, respectively               |                |                  
|Additional paid-in capital                                       |                |                  
|Retained earnings, substantially restricted                      |                |                  
|Treasury stock, at cost; 4,420,302 and 4,424,302 shares at       |                |                  
|March 31, 2006 and December 31, 2005, respectively               |                |                  
|Unallocated common stock held by Employee Stock                  |                |                  
|Ownership Plan                                                   |                |                  
|Unearned common stock held by Management Recognition             |                |                  
|and Retention Plan                                               |                |                  
|Accumulated other comprehensive loss, net                        |                |                  
|                                                                
|Total stockholders equity                                       |                |                  
|                                                                
|Total liabilities and stockholders equity                       |                |                  
|                                                                

See accompanying notes to
consolidated financial statements.

3

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# TierOne Corporation
and Subsidiaries Consolidated Statements of Income (Unaudited)

|                                                    | For the Three Months EndedMarch 31,
|--------------------------------------------------- | -----------------------------------
|
|Interest income:                                    |                                    
|Loans receivable                                    |                                    
|Investment securities                               |                                    
|Other interest-earning assets                       |                                    
|                                                   
|Total interest income                               |                                    
|                                                   
|Interest expense:                                   |                                    
|Deposits                                            |                                    
|FHLBank Topeka advances and other borrowings        |                                    
|                                                   
|Total interest expense                              |                                    
|                                                   
|Net interest income                                 |                                    
|Provision for loan losses                           |                                    
|                                                   
|Net interest income after provision for loan losses |                                    
|                                                   
|Noninterest income:                                 |                                    
|Fees and service charges                            |                                    
|Debit card fees                                     |                                    
|Income (loss) from real estate operations, net      |                                    
|Net gain (loss) on sales of:                        |                                    
|Investment securities                               |                                    
|Loans held for sale                                 |                                    
|Real estate owned                                   |                                    
|Other operating income                              |                                    
|                                                   
|Total noninterest income                            |                                    
|                                                   
|Noninterest expense:                                |                                    
|Salaries and employee benefits                      |                                    
|Occupancy, net                                      |                                    
|Data processing                                     |                                    
|Advertising                                         |                                    
|Other operating expense                             |                                    
|                                                   
|Total noninterest expense                           |                                    
|                                                   
|Income before income taxes                          |                                    
|Income tax expense                                  |                                    
|                                                   
|Net income                                          |                                    
|                                                   
|Net income per common share, basic                  |                                    
|                                                   
|Net income per common share, diluted                |                                    
|                                                   
|Dividends declared per common share                 |                                    
|                                                   
|Average common shares outstanding, basic (000s)    |                                    
|                                                   
|Average common shares outstanding, diluted (000s)  |                                    
|                                                   

See accompanying notes to
consolidated financial statements.

4

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# TierOne Corporation
and Subsidiaries Consolidated Statements of Changes in Stockholders Equity and
Comprehensive Income Three Months Ended March 31, 2006 and 2005 (Unaudited)

|(Dollars in thousands)                  | Common Stock | Additional Paid-In Capital | Retained Earnings, Substantially Restricted | Treasury Stock | Unallocated Common Stock Held by the Employee StockOwnership Plan | Unearned Common Stock Held by the ManagementRecognition andRetention Plan | Accumulated Other Comprehensive Loss, Net | Total Stockholders Equity
|--------------------------------------- | ------------ | -------------------------- | ------------------------------------------- | -------------- | ----------------------------------------------------------------- | ------------------------------------------------------------------------- | ----------------------------------------- | --------------------------
|Balance at December 31, 2004            |              |                            | $                                           | 226            |                                                                   | $                                                                         | 355,986                                   |                           
|                                       
|Common stock earned by employees        |              |                           
|in Employee Stock Ownership Plan        |              |                            |                                             | --             |                                                                   |                                                                           | 541                                       |                           
|Amortization of awards under the        |              |                           
|Management Recognition and              |              |                           
|Retention Plan                          |              |                            |                                             | --             |                                                                   |                                                                           | --                                        |                           
|Treasury stock reissued under 2003      |              |                           
|Stock Option Plan                       |              |                            |                                             | --             |                                                                   |                                                                           | (3                                        | )                         
|Repurchase of common stock              |              |                           
|(140,800 shares)                        |              |                            |                                             | --             |                                                                   |                                                                           | --                                        |                           
|Dividends paid ($0.05 per common share) |              |                            |                                             | --             |                                                                   |                                                                           | --                                        |                           
|Comprehensive income:                   |              |                           
|Net income                              |              |                            |                                             | --             |                                                                   |                                                                           | --                                        |                           
|Change in unrealized loss on            |              |                           
|available for sale securities, net of   |              |                           
|tax and reclassification adjustment     |              |                            |                                             | --             |                                                                   |                                                                           | --                                        |                           
|                                       
|Total comprehensive income              |              |                            |                                             | --             |                                                                   |                                                                           | --                                        |                           
|                                       
|Balance at March 31, 2005               |              |                            | $                                           | 226            |                                                                   | $                                                                         | 356,524                                   |                           
|                                       
|Balance at December 31, 2005            |              |                            | $                                           | 226            |                                                                   | $                                                                         | 358,587                                   |                           
|                                       
|Common stock earned by employees        |              |                           
|in Employee Stock Ownership Plan        |              |                            |                                             | --             |                                                                   |                                                                           | 818                                       |                           
|Transfer of unearned common stock held  |              |                           
|by the Management Recognition and       |              |                           
|Retention Plan upon adoption of         |              |                           
|SFAS No. 123(R)                         |              |                            |                                             | --             |                                                                   |                                                                           | (9,368                                    | )                         
|Amortization of awards under the        |              |                           
|Management Recognition and              |              |                           
|Retention Plan                          |              |                            |                                             | --             |                                                                   |                                                                           | 726                                       |                           
|Amortization of stock options under     |              |                           
|2003 Stock Option Plan upon             |              |                           
|adoption of SFAS No. 123(R)             |              |                            |                                             | --             |                                                                   |                                                                           | 420                                       |                           
|Treasury stock reissued under 2003      |              |                           
|Stock Option Plan                       |              |                            |                                             | --             |                                                                   |                                                                           | (11                                       | )                         
|Dividends paid ($0.06 per common share) |              |                            |                                             | --             |                                                                   |                                                                           | --                                        |                           
|Comprehensive income:                   |              |                           
|Net income                              |              |                            |                                             | --             |                                                                   |                                                                           | --                                        |                           
|Change in unrealized loss on            |              |                           
|available for sale securities, net of   |              |                           
|tax and reclassification adjustment     |              |                            |                                             | --             |                                                                   |                                                                           | --                                        |                           
|                                       
|Total comprehensive income              |              |                            |                                             | --             |                                                                   |                                                                           | --                                        |                           
|                                       
|Balance at March 31, 2006               |              |                            | $                                           | 226            |                                                                   | $                                                                         | 351,172                                   |                           
|                                       

See accompanying notes to
consolidated financial statements.

5

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# TierOne Corporation
and Subsidiaries  Consolidated Statements of Cash Flows  Three Months Ended March 31,
2006 and 2005  (Unaudited)

|                                                                                    | Three months ended March 31,
|----------------------------------------------------------------------------------- | ----------------------------
|
|Reconciliation of net income to net cash provided by operating activities:          |                             
|Net income                                                                          |                             
|Adjustments to reconcile net income to net cash provided by                         |                             
|operating activities:                                                               |                             
|Net premium amortization of investment and mortgage-backed securities               |                             
|Depreciation and amortization                                                       |                             
|Amortization of intangible assets                                                   |                             
|Amortization of discount on FHLBank Topeka advances                                 |                             
|Employee Stock Ownership Plan compensation expense                                  |                             
|2003 Management Recognition and Retention Plan employee compensation expense        |                             
|2003 Stock Option Plan employee compensation expense                                |                             
|Amortization of premiums (accretion of discounts) on net loans                      |                             
|FHLBank Topeka stock dividend                                                       |                             
|Deferred income tax expense (benefit)                                               |                             
|Provision for loan losses                                                           |                             
|Proceeds from sales of loans held for sale                                          |                             
|Originations and purchases of loans held for sale                                   |                             
|Net (gain) loss on sales of:                                                        |                             
|Investment securities                                                               |                             
|Loans held for sale                                                                 |                             
|Real estate owned                                                                   |                             
|Premises and equipment                                                              |                             
|Changes in certain assets and liabilities:                                          |                             
|Accrued interest receivable                                                         |                             
|Other assets                                                                        |                             
|Accrued interest payable                                                            |                             
|Accrued expenses and other liabilities                                              |                             
|                                                                                   
|Net cash provided by operating activities                                           |                             
|                                                                                   
|Cash flows from investing activities:                                               |                             
|Purchase of investment and mortgage-backed securities, available for sale           |                             
|Proceeds from sale of investment and mortgage-backed securities, available for sale |                             
|Proceeds from maturities of investment securities, available for sale               |                             
|Proceeds from principal repayments of investment and mortgage-backed                |                             
|securities, available for sale and held to maturity                                 |                             
|Increase in loans receivable                                                        |                             
|Additions to premises and equipment                                                 |                             
|Proceeds from sale of premises and equipment                                        |                             
|Proceeds from sale of real estate owned                                             |                             
|                                                                                   
|Net cash used in investing activities                                               |                             
|                                                                                   

See accompanying notes to
consolidated financial statements.

6

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# TierOne Corporation
and Subsidiaries Consolidated Statements of Cash Flows (continued)Three Months Ended
March 31, 2006 and 2005  (Unaudited)

|                                                                               | Three months ended March 31,
|------------------------------------------------------------------------------ | ----------------------------
|
|Cash flows from financing activities:                                          |                             
|Net increase (decrease) in deposits                                            |                             
|Net advances (repayment) on FHLBank Topeka line of credit and                  |                             
|short-term advances and other borrowings                                       |                             
|Proceeds from FHLBank Topeka long-term advances and other borrowings           |                             
|Repayments of FHLBank Topeka long-term advances and other borrowings           |                             
|Net increase (decrease) in advances from borrowers for taxes, insurance and    |                             
|other escrow funds                                                             |                             
|Repurchase of common stock                                                     |                             
|Dividends paid on common stock                                                 |                             
|Tax benefit realized from the exercise of stock options                        |                             
|Proceeds from the exercise of stock options                                    |                             
|                                                                              
|Net cash provided by (used in) financing activities                            |                             
|                                                                              
|Net decrease in cash and cash equivalents                                      |                             
|Cash and cash equivalents at beginning of period                               |                             
|                                                                              
|Cash and cash equivalents at end of period                                     |                             
|                                                                              
|Supplemental disclosures of cash flow information:                             |                             
|Cash paid during period for:                                                   |                             
|Interest                                                                       |                             
|Income taxes, net of refunds                                                   |                             
|                                                                              
|Noncash investing activities:                                                  |                             
|Transfers from loans to real estate owned and other assets through foreclosure |                             
|                                                                              

See accompanying notes to
consolidated financial statements.

7

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

# Note 1  Basis of
Presentation and Consolidation

TierOne
Corporation (Company) is a Wisconsin corporation headquartered in Lincoln,
Nebraska. TierOne Corporation is the holding company for TierOne Bank (Bank).
The Bank has two wholly owned subsidiaries, TMS Corporation of the Americas
(TMS) and United Farm & Ranch Management, Inc. (UFARM). TMS is
the holding company of TierOne Investments and Insurance, Inc., a wholly owned subsidiary
that administers the sale of securities and insurance products, and TierOne Reinsurance
Company, a wholly owned subsidiary that reinsures credit life and disability insurance
policies. UFARM provides agricultural customers with professional farm and ranch
management and real estate brokerage services. The accompanying unaudited consolidated
financial statements include the accounts of the Bank and its wholly owned subsidiaries.

The
accompanying interim consolidated financial statements as of March 31, 2006 and for the
three months ended March 31, 2006 and 2005 have not been audited by independent auditors.
All significant intercompany accounts and transactions have been eliminated in
consolidation. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the financial position and operating
results for interim periods. The unaudited consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles
(GAAP) for interim financial information, in accordance with instructions to
Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange
Commission (SEC), and do not include all of the information and notes required
for complete, audited financial statements. The unaudited consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2005. The results of operations for the three months ended March 31, 2006 are
not necessarily indicative of the results which may be expected for the entire calendar
year 2006.

As
used in this report, unless the context otherwise requires, the terms we,
us, or our refer to the Company and the Bank.

8

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

# Note 2  Critical
Accounting Policies

Various
elements of our accounting policies, by nature, are inherently subject to estimation
techniques, valuation assumptions and other subjective assessments. Our policies with
respect to the methodologies used to determine the allowance for loan losses, judgments
regarding goodwill and other intangible assets, valuation of mortgage servicing rights,
valuation and measurement of derivatives and commitments and evaluation of investment and
mortgage-backed securities for impairment are our most critical accounting policies
because they are important to the presentation of our financial condition and results of
operations, involve a high degree of complexity and require management to make difficult
and subjective judgments which often require assumptions or estimates about highly
uncertain matters. The use of different judgments, assumptions and estimates could result
in material differences in our reported financial condition and results of operations.

Allowance
for Loan Losses. We have identified the allowance for loan losses as a
critical accounting policy where amounts are sensitive to material variation. This policy
is significantly affected by our judgment and uncertainties and there is a likelihood that
materially different amounts could be reported under different, but reasonably plausible,
conditions or assumptions. The allowance for loan losses is considered a critical
accounting estimate because there is a large degree of judgment in:

| |  | Assigning
individual loans to specific risk levels (pass, special mention, substandard, doubtful
and loss);
| | - | -----------------------------------------------------------------------------------------------------------

| |  | Valuing
the underlying collateral securing the loans;
| | - | -----------------------------------------------------

| |  | Determining
the appropriate reserve factor to be applied to specific risk levels for special mention
loans and those adversely classified (substandard, doubtful and loss); and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Determining
reserve factors to be applied to pass loans based upon loan type.
| | - | -----------------------------------------------------------------------------

We
establish provisions for loan losses, which are charges to our operating results, in order
to maintain a level of total allowance for loan losses that, in managements belief,
cover all known and inherent losses that are both probable and reasonably estimable at
each reporting date. Management reviews the loan portfolio no less frequently than
quarterly in order to identify those inherent losses and to assess the overall collection
probability of the loan portfolio. Managements review includes a quantitative
analysis by loan category, using historical loss experience, classifying loans pursuant to
a grading system and consideration of a series of qualitative loss factors. The evaluation
process includes, among other things:

| |  | Trends
and levels of delinquent, nonperforming or impaired loans;
| | - | -------------------------------------------------------------------

| |  | Trends
and levels of charge-offs and recoveries;
| | - | ------------------------------------------------

| |  | Trends
in volume and underwriting terms or guarantees for loans;
| | - | ----------------------------------------------------------------

| |  | Impact
of changes in underwriting standards, risk tolerances or other changes in lending
practices;
| | - | ---------------------------------------------------------------------------------------------------

| |  | Changes
in the value of collateral securing loans;
| | - | --------------------------------------------------

9

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

| |  | Total
loans outstanding and the volume of loan originations;
| | - | ------------------------------------------------------------

| |  | Type,
size, terms and geographic concentration of loans held;
| | - | -------------------------------------------------------------

| |  | Changes
in qualifications or experience of the lending staff;
| | - | -------------------------------------------------------------

| |  | Changes
in local or national economic or industry conditions;
| | - | -------------------------------------------------------------

| |  | Number
of loans requiring heightened management oversight;
| | - | ----------------------------------------------------------

| |  | Changes
in credit concentrations; and
| | - | -------------------------------------

| |  | Changes
in regulatory requirements.
| | - | -----------------------------------

This
evaluation is inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available or as future events change.

The
allowance for loan losses consists of two elements. The first element is an allocated
allowance established for specific loans identified by the credit review function that are
evaluated individually for impairment and are considered to be impaired. A loan is
considered impaired when, based on current information and events, it is probable that we
will be unable to collect the scheduled payments of principal and interest when due
according to the contractual terms of the loan agreement. Impairment is measured by:

| |  | The
fair value of the collateral if the loan is collateral dependent;
| | - | ---------------------------------------------------------------------

| |  | The
present value of expected future cash flows; or
| | - | ---------------------------------------------------

| |  | The
loans observable market price.
| | - | -----------------------------------

The
second element is an estimated allowance established for losses which are probable and
reasonable to estimate on each category of outstanding loans. While management uses
available information to recognize probable losses on loans inherent in the portfolio,
future additions to the allowance may be necessary based on changes in economic conditions
and other factors. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review our allowance for loan losses. Such agencies may
require us to recognize additions to the allowance based on their judgment of information
available to them at the time of their examination.

Goodwill
and Other Intangible Assets. Goodwill represents the excess price paid over
the fair value of the tangible and intangible assets and liabilities acquired in
connection with the August 27, 2004 acquisition of United Nebraska Financial Co.
(UNFC). In accordance with Statement of Financial Accounting Standard
(SFAS) No. 142, Goodwill and Other Intangible Assets, goodwill and
indefinite-lived intangible balances are not being amortized, but are tested for
impairment annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also
requires that intangible assets with estimated useful lives be amortized over their
respective estimated useful lives to their residual values and reviewed for impairment in
accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived
Assets.

10

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

Our
policy is to evaluate annually the carrying value of our reporting unit goodwill and
identifiable assets not subject to amortization. Goodwill was established in connection
with the UNFC acquisition and was supported by third-party valuations as of August 27,
2004.

We
have identified a single reporting unit for purposes of goodwill impairment testing. The
impairment test is therefore performed on a consolidated basis. We perform our goodwill
impairment analysis on an annual basis during the third quarter. Additional impairment
analysis may be performed if circumstances or events occur which may have an impact on the
fair value of our goodwill. Generally, fair value represents a multiple of earnings or
discounted projected cash flows. Potential impairment is indicated when the carrying value
of the entity, including goodwill, exceeds its fair value. If the potential for impairment
exists, the fair value of the entity is subsequently measured against the fair value of
its underlying assets and liabilities, excluding goodwill, to estimate an implied fair
value of the entitys goodwill. Impairment loss is recognized for any excess of the
carrying value of the entitys goodwill over the implied fair value. We performed our
impairment analysis as of September 30, 2005 and concluded that no potential impairment of
goodwill existed as the fair value of our goodwill exceeded its carrying value.

The
value of core deposit intangible assets acquired in connection with the UNFC transaction,
which is subject to amortization, is included in the Consolidated Statements of
Financial Condition as other intangible assets. Determining the amount of identifiable
intangible assets and their average lives involves multiple assumptions and estimates and
is typically determined by performing a discounted cash flow analysis, which involves a
combination of any or all of the following assumptions: customer attrition, account
runoff, alternative funding costs, deposit servicing costs and discount rates. The core
deposit intangible assets have been estimated to have a 10-year life with an accelerated
rate of amortization.

We
review our core deposit intangible assets for impairment whenever events or changes in
circumstances indicate that we may not recover our investment in the underlying assets or
liabilities which gave rise to these intangible assets.

Mortgage
Servicing Rights. We capitalize the estimated value of mortgage servicing
rights upon the sale of loans. The estimated value takes into consideration contractually
known amounts, such as loan balance, term and interest rate. These estimates are impacted
by loan prepayment speeds, servicing costs and discount rates used to compute a present
value of the cash flow stream. We evaluate the fair value of mortgage servicing rights on
a quarterly basis using current prepayment speed, cash flow and discount rate estimates.
Changes in these estimates impact fair value, and could require us to record a valuation
allowance or recovery. The fair value of mortgage servicing rights is highly sensitive to
changes in assumptions. Changes in prepayment speed assumptions have the most significant
impact on the fair value of mortgage servicing rights. Generally, as interest rates
decline, prepayments accelerate with increased refinance activity, which results in a
decrease in the fair value of mortgage servicing rights. As interest rates rise,
prepayments generally slow, which results in an increase in the fair value of mortgage
servicing rights. All assumptions are reviewed for reasonableness on a quarterly basis and
adjusted as necessary to reflect current and anticipated market conditions. Thus, any
measurement of fair value is limited by the conditions existing and the assumptions
utilized as of a particular point in time, and those assumptions may not be appropriate if
applied at a different point in time.

11

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

Derivatives
and Commitments.We account for our derivatives and hedging activities in
accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activity, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments
and Certain Hedging Activities and SFAS No. 149, Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities.

In
the normal course of business, we enter into contractual commitments, including loan
commitments and rate lock commitments to extend credit to finance residential mortgages.
These commitments, which contain fixed expiration dates, offer the borrower an interest
rate guarantee provided the loan meets underwriting guidelines and closes within the time
frame established by us. Interest rate risk arises on these commitments and subsequently
closed loans if interest rates increase or decrease between the time of the interest rate
lock and the delivery of the loan to the investor. Loan commitments related to mortgage
loans that are intended to be sold are considered derivatives in accordance with the
guidance of SEC Staff Accounting Bulletin (SAB) No. 105, Application of
Accounting Principles to Loan Commitments. Accordingly, the fair value of these
derivatives at the end of the reporting period is based on a quoted market price that
closely approximates the amount that would have been recognized if the loan commitment was
funded and sold.

To
mitigate the effect of interest rate risk inherent in providing loan commitments, we hedge
our commitments by entering into mandatory or best efforts delivery forward loan sale
contracts. These forward contracts are marked-to-market through earnings and are not
designated as accounting hedges under SFAS No. 133. The change in the fair value of loan
commitments and the change in the fair value of forward sales contracts generally move in
opposite directions and, accordingly, the impact of changes in these valuations on net
income during the loan commitment period is generally inconsequential.

Although
the forward loan sale contracts also serve as an economic hedge of loans held for sale,
forward contracts have not been designated as accounting hedges under SFAS No. 133 and,
accordingly, loans held for sale are accounted for at the lower of cost or market in
accordance with SFAS No. 65, Accounting for Certain Mortgage Banking Activities.

Investment
and Mortgage-Backed Securities. We evaluate available for sale and held to
maturity investment securities for impairment on a quarterly basis. An impairment charge
in the Consolidated Statements of Income is recognized when the decline in the fair value
of investment securities below their cost basis is judged to be other-than-temporary. We
consider various factors in determining whether we should recognize an impairment charge,
including, but not limited to, the length of time and extent to which the fair value has
been less than its cost basis and our ability and intent to hold the investment security
for a period of time sufficient to allow for any anticipated recovery in fair value.

12

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

# Note 3 
Stock-Based Compensation

Effective
January 1, 2006, we adopted SFAS No. 123(R) Share-Based Payment (SFAS No.
123(R)). SFAS No. 123(R) requires that compensation expense related to stock-based
payment transactions be recognized in the financial statements and that expense be
measured based on the fair value of the equity or liability instrument issued. SFAS No.
123(R) also requires that forfeitures be estimated over the vesting period of the
instrument. We adopted SFAS No. 123(R) using the modified-prospective method and have
applied this method to the accounting for our stock options and restricted shares. Under
the modified-prospective method, stock-based employee compensation expense recognized
after adoption includes: (a) stock-based expense for all awards granted prior to, but not
yet vested as of January 1, 2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), and (b) stock-based employee compensation
expense for all awards granted subsequent to January 1, 2006, based on grant date fair
value estimated in accordance with the provisions of SFAS No. 123(R). Prior to January 1,
2006, as permitted by SFAS No. 123, we accounted for stock-based payments to employees
using Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and, therefore recorded no stock-based employee
compensation expense for employee stock options. Results for periods prior to January 1,
2006 have not been restated.

Had
stock-based employee compensation expense for our stock option plans and employee stock
purchase plans been determined based on a calculated fair value using the Black-Scholes
model at the grant date for awards subsequent to the distribution, consistent with the
recognition provisions of SFAS No. 123(R), our net income and earnings per share would
have been impacted as follows for the three month period ended March 31, 2005:

|                                                             | Three Months Ended
|------------------------------------------------------------ | ------------------
|
|Net income (as reported)                                     |                   
|Add: stock-based employee compensation expense               |                   
|included in reported net income, net of related tax effects  |                   
|Deduct: total stock-based employee compensation expense      |                   
|determined under the fair value based method for all awards, |                   
|net of related tax effects                                   |                   
|                                                            
|Pro forma net income                                         |                   
|                                                            
|Basic earnings per share (as reported)                       |                   
|Pro forma basic earnings per share                           |                   
|Diluted earnings per share (as reported)                     |                   
|Pro forma diluted earnings per share                         |                   
|                                                            

13

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

Amounts
recognized in the financial statements with respect to our stock-based employee
compensation plans are presented in the following table:

|                                                  | Three Months Ended March 31,
|------------------------------------------------- | ----------------------------
|
|Stock-based employee compensation expense:        |                             
|Employee Stock Ownership Plan expense             |                             
|Management Recognition and Retention Plan expense |                             
|2003 Stock Option Plan expense                    |                             
|                                                 
|Amount of stock-based compensation expense,       |                             
|before income tax benefit                         |                             
|                                                 
|Amount of related income tax benefit recognized   |                             
|                                                 

Employee
Stock Ownership Plan.Concurrent with the conversion from mutual to stock
ownership in October 2002, we established an Employee Stock Ownership Plan
(ESOP) for the benefit of our employees. The ESOP is a qualified pension plan
under Internal Revenue Service guidelines which covers all full-time employees who have
completed 1,000 hours of service. Upon formation, the ESOP purchased 1,806,006 shares
of common stock issued in the initial public offering with the proceeds of an $18,060,060
loan from the Company.

We
account for our ESOP in accordance with Statement of Position 93-6, Employers
Accounting for Employee Stock Ownership Plans. Accordingly, expense is recognized
based on the market value (average stock price) of shares scheduled to be released from
the ESOP trust. As shares are committed to be released from collateral, we report employee
compensation expense equal to the average market price of the shares and the shares become
outstanding for earnings per share (EPS) computations. Our contributions and
dividends on allocated and unallocated ESOP shares are used to pay down the loan.
Accordingly, we have recorded the obligation with an offsetting amount of unearned
compensation in stockholders equity in the accompanying Consolidated Statements of
Financial Condition.

14

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

|                                                               | At or for the Three Months Ended March 31,
|-------------------------------------------------------------- | ------------------------------------------
|
|Employee Stock Ownership Plan compensation expense             |                                           
|Employee Stock Ownership Plan shares allocated to employees    |                                           
|Employeee Stock Ownership Plan shares unallocated              |                                           
|Fair value of Employee Stock Ownership Plan unallocated shares |                                           
|                                                              

15

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

2003
Management Recognition and Retention Plan. We established the 2003
Management Recognition and Retention Plan (MRRP) which is a stock-based
incentive plan that was approved by our shareholders at our 2003 Annual Meeting of
Shareholders. The shares awarded by the MRRP vest to participants at the rate of 20% per
year. Employee compensation expense for this plan is being recorded over a 60-month
period, using the straight-line amortization method adjusted for forfeitures, and is based
on the market price of our stock as of the date the awards were made. Shareholders
approved 903,003 shares to be granted under the MRRP and 100,653 shares are still
available for future grants as of March 31, 2006. The following table summarizes shares of
our common stock which were subject to award and have been granted pursuant to the MRRP at
March 31, 2006:

|                                        | Number of Shares | Weighted Average Grant Date Fair Value
|--------------------------------------- | ---------------- | --------------------------------------
|Shares outstanding at December 31, 2005 |                  |                                       
|Shares granted                          |                  |                                       
|Shares vested                           |                  |                                       
|Shares forfeited                        |                  |                                       
|                                       
|Shares outstanding at March 31, 2006    |                  |                                       
|                                       

Employee
compensation expense related to the MRRP totaled $726,000 and $719,000 for the three
months ended March 31, 2006 and 2005, respectively. As of March 31, 2006, we had $6.3
million of total unrecognized employee compensation expense related to unvested MRRP
shares. These expenses are expected to be recognized over a weighted average period of 2.3
years.

2003
Stock Option Plan. We established the 2003 Stock Option Plan
(SOP) under which 2,257,508 shares of our common stock were reserved for the
grant of stock options to directors, officers and employees. Stock options awarded under
the SOP vest to participants at the rate of 20% per year. Employee compensation expense
for this plan is being recorded over a 60-month period, using the straight-line
amortization method adjusted for forfeitures, and is based on the fair value of our stock options
as of the date the awards were made. The exercise price of the options is equal to the
market price of the common stock on the grant date. Shareholders approved 2,257,508
stock options to be granted under the SOP and 359,758 of these stock options are still
available for future grants as of March 31, 2006.

The
fair value of each option was estimated on the date of the grant using the Black-Scholes
model. The dividend yield was calculated based on the annual dividends paid and the 12
month average closing stock price at the time of the grant. Expected volatility was based
on historical volatility of our stock price. We have utilized historical experience to
determine the expected life of the stock options. All inputs into the Black-Scholes model
are estimates at the time of the grant. Actual results in the future could materially
differ from these estimates, however such results would not impact future reported net
income.

16

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

The
following table details the inputs into the Black-Scholes model for stock options granted
during the years ended December 31, 2004 and 2003. There were no stock options granted
during the year ended December 31, 2005 or three months ended March 31, 2006.

|                                                     | Year Ended December 31,
|---------------------------------------------------- | -----------------------
|
|Dividend yield                                       |                        
|Expected volatility                                  |                        
|Risk-free interest rate                              |                        
|Expected life of stock options                       |                        
|Weighted average fair value of stock options granted |                        
|                                                    

The
following table details stock options issued, exercised and forfeited during the three
months ended March 31, 2006:

|(Dollars in thousands, except per share data)  | Number of Shares | Weighted Average Exercise Price | Weighted Average RemainingContractual Term(In Years) | Average Intrinsic Value
|---------------------------------------------- | ---------------- | ------------------------------- | ---------------------------------------------------- | -----------------------
|Stock options outstanding at December 31, 2005 |                  |                                 |                                                      | 1,864,750              
|Stock options granted                          |                  |                                 |                                                      | --                     
|Stock options exercised                        |                  |                                 |                                                      | (4,000                 
|Stock options forfeited                        |                  |                                 |                                                      | (2,500                 
|                                              
|Stock options outstanding at March 31, 2006    |                  |                                 |                                                      | 1,858,250              
|                                              
|Stock options exercisable at March 31, 2006    |                  |                                 |                                                      | 729,100                
|                                              

The
total intrinsic value (market value on the exercise date less the strike price) of the
stock options exercised during the three months ended March 31, 2006 and 2005 was $48,000
and $3,000, respectively. At March 31, 2006, there was $3.5 million of total unrecognized
compensation expense related to unvested stock options which will be expensed over a
weighted average period of 2.2 years.

Cash
received from the exercise of stock options for the three months ended March 31, 2006 and
2005 was $81,000 and $9,000, respectively. The tax benefit realized from the exercise of
stock options during the three months ended March 31, 2006 and 2005 was $17,000 and
$1,000, respectively.

17

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

# Note 4  Goodwill
and Other Intangible Assets

Goodwill
had a net carrying amount of $42.3 million at March 31, 2006. This amount represents the
excess price paid over the fair value of the tangible and intangible assets and
liabilities acquired in connection with the August 27, 2004 acquisition of UNFC. We
evaluate goodwill for impairment annually in accordance with SFAS No. 142, Goodwill and
Other Intangible Assets. There have been no changes in the carrying amount of goodwill
during the three months ended March 31, 2006 due to impairment as we are not aware of any
facts or circumstances that would indicate our carrying value exceeded fair value.

Our
only identifiable other intangible asset is the value of core deposits acquired as part of
the UNFC transaction. The core deposit intangible assets have been estimated to have a
10-year life, with an accelerated rate of amortization.

The
changes in the net carrying amounts of other intangible assets for the three months ended
March 31, 2006 and 2005 are as follows:

|                               | Three Months Ended
March 31,
|------------------------------ | ----------------------------
|
|Balance at beginning of period |                             
|Additions                      |                             
|Amortization expense           |                             
|                              
|Balance at end of period       |                             
|                              

Estimated
amortization expense for core deposit intangible assets for the year ending December 31,
2006 and five years thereafter is as follows:

|(Dollars in thousands)         | Core Deposit Intangible Asset
|------------------------------ | -----------------------------
|Estimated Amortization Expense |                              
|For the Year Ending:           |                              
|December 31, 2006              |                              
|December 31, 2007              |                              
|December 31, 2008              |                              
|December 31, 2009              |                              
|December 31, 2010              |                              
|December 31, 2011              |                              
|                              

18

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

# Note 5  Investment
and Mortgage-Backed Securities

The
carrying value, gross unrealized gains and losses and fair value of investment and
mortgage-backed securities by major security category at March 31, 2006 and December 31,
2005 are as follows:

|                                                  | March 31, 2006
|------------------------------------------------- | --------------
|
|
|Held to maturity:                                 |               
|Municipal obligations                             |               
|                                                 
|Available for sale:                               |               
|Mortgage-backed securities                        |               
|U.S. Government securities and agency obligations |               
|Corporate securities                              |               
|Municipal obligations                             |               
|Agency equity securities                          |               
|Asset Management Fund - ARM Fund                  |               
|                                                 
|Total investment and mortgage-backed              |               
|securities, available for sale                    |               
|                                                 

|                                                  | December 31, 2005
|------------------------------------------------- | -----------------
|
|
|Held to maturity:                                 |                  
|Municipal obligations                             |                  
|                                                 
|Available for sale:                               |                  
|Mortgage-backed securities                        |                  
|U.S. Government securities and agency obligations |                  
|Corporate securities                              |                  
|Municipal obligations                             |                  
|Agency equity securities                          |                  
|Asset Management Fund - ARM Fund                  |                  
|                                                 
|Total investment and mortgage-backed              |                  
|securities, available for sale                    |                  
|                                                 

We
believe all unrealized losses as of March 31, 2006 to be market related, with no permanent
sector or issuer credit concerns or impairments. We had 118 securities with unrealized
losses totaling $1.9 million for 12 consecutive months or longer as of March 31, 2006. The
unrealized losses are believed to be temporarily, not permanently, impaired in value. An
impairment is deemed temporary if the positive evidence indicating that an
investments carrying amount is recoverable within a reasonable time period outweighs
negative evidence to the contrary. As of March 31, 2006, we intended to hold
these securities until maturity.

19

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

# Note 6  Loan
Portfolio Composition

Loans
receivable at March 31, 2006 and December 31, 2005 are summarized in the following table:

|                                          | March 31, 2006 | December 31, 2005
|----------------------------------------- | -------------- | -----------------
|
|Real estate loans:                        |                |                  
|One-to-four family residential (1)        |                |                  
|Second mortgage residential               |                |                  
|Multi-family residential                  |                |                  
|Commercial real estate and land           |                |                  
|Residential construction                  |                |                  
|Commercial construction                   |                |                  
|Agriculture                               |                |                  
|                                         
|Total real estate loans                   |                |                  
|                                         
|Business                                  |                |                  
|                                         
|Agriculture - operating                   |                |                  
|                                         
|Warehouse mortgage lines of credit        |                |                  
|                                         
|Consumer loans:                           |                |                  
|Home equity                               |                |                  
|Home equity lines of credit               |                |                  
|Home improvement                          |                |                  
|Automobile                                |                |                  
|Other                                     |                |                  
|                                         
|Total consumer loans                      |                |                  
|                                         
|Total loans                               |                |                  
|                                         
|Unamortized premiums, discounts and       |                |                  
|deferred loan fees                        |                |                  
|Undisbursed portion of construction and   |                |                  
|land development loans in process         |                |                  
|                                         
|Net loans                                 |                |                  
|Allowance for loan losses                 |                |                  
|                                         
|Net loans after allowance for loan losses |                |                  
|                                         
|(1) Includes loans held for sale          |                |                  
|                                         

20

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

# Note 7  Allowance
for Loan Losses

The
activity in the allowance for loan losses during the three months ended March 31, 2006 and
2005 is summarized in the following table:

|                                                       | At or for the Three Months Ended
March 31,
|------------------------------------------------------ | ------------------------------------------
|
|Allowance for loan losses at beginning of period       |                                           
|Provision for loan losses                              |                                           
|Charge-offs                                            |                                           
|Recoveries on loans previously charged-off             |                                           
|                                                      
|Allowance for loan losses at end of period             |                                           
|                                                      
|Allowance for loan losses as a percentage of net loans |                                           
|                                                      

21

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

# Note 8 Nonperforming
Assets

The
following table sets forth information with respect to nonperforming assets and troubled
debt restructurings at March 31, 2006 and December 31, 2005. It is our policy to cease
accruing interest on loans 90 days or more past due and to charge off accrued interest.
Included in the following table, under nonperforming loans and troubled debt
restructurings, are impaired loans of $5.6 million and $9.4 million at March 31, 2006 and
December 31, 2005, respectively. Our allowance for loan losses specifically allocated to
impaired loans totaled $732,000 and $1.1 million at March 31, 2006 and December 31, 2005,
respectively.

|(Dollars in thousands)                                                                       | March 31, 2006 | December 31, 2005
|-------------------------------------------------------------------------------------------- | -------------- | -----------------
|Nonperforming loans:                                                                         |                |                  
|One-to-four family residential                                                               |                |                  
|Second mortgage residential                                                                  |                |                  
|Multi-family residential                                                                     |                |                  
|Commercial real estate and land                                                              |                |                  
|Residential construction                                                                     |                |                  
|Agriculture                                                                                  |                |                  
|Business                                                                                     |                |                  
|Agriculture - operating                                                                      |                |                  
|Consumer                                                                                     |                |                  
|                                                                                            
|Total nonperforming loans                                                                    |                |                  
|Real estate owned, net (1)                                                                   |                |                  
|                                                                                            
|Total nonperforming assets                                                                   |                |                  
|Troubled debt restructurings                                                                 |                |                  
|                                                                                            
|Total nonperforming assets and troubled debt restructurings                                  |                |                  
|                                                                                            
|Total nonperforming loans as a percentage of net loans                                       |                |                  
|                                                                                            
|Total nonperforming assets as a percentage of total assets                                   |                |                  
|                                                                                            
|Total nonperforming assets and troubled debt restructurings                                  |                |                  
|as a percentage of total assets                                                              |                |                  
|                                                                                            
|Allowance for loan losses as a percentage of net loans                                       |                |                  
|                                                                                            
|Allowance for loan losses as a percentage of nonperforming loans                             |                |                  
|                                                                                            
|(1)  Real estate owned balances are shown net of related loss allowances. Includes both real |                |                  
|property and other repossessed collateral consisting primarily of automobiles                |                |                  
|                                                                                            

22

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

# Note 9  Mortgage
Servicing Rights

The
balance of capitalized mortgage servicing rights, net of valuation allowances, included in
other assets at March 31, 2006 and December 31, 2005 was $11.8 million and $11.7
million, respectively. The fair values of these rights were approximately $14.8 million
and $15.0 million at March 31, 2006 and December 31, 2005, respectively. The following are
the key assumptions used in measuring the fair values of capitalized mortgage servicing
rights and the sensitivity of the fair values to changes in those assumptions:

|(Dollars in thousands)             | March 31, 2006  | December 31, 2005
|---------------------------------- | --------------- | -----------------
|Serviced loan portfolio balance    | $1,216,432      | $1,201,759       
|Fair value                         | $14,776         | $14,954          
|Prepayment speed                   | 9.00% - 27.10%  | 9.00% - 26.40%   
|Weighted average prepayment speed  | 12.18%          | 11.52%           
|Fair value with 10% adverse change | $14,154         | $14,405          
|Fair value with 20% adverse change | $13,605         | $13,847          
|Discount rate                      | 10.00% - 14.00% | 10.00% - 15.00%  
|Weighted average discount rate     | 11.38%          | 11.40%           
|Fair value with 10% adverse change | $14,238         | $14,453          
|Fair value with 20% adverse change | $13,760         | $13,942          
|                                  

The
sensitivity of the fair values is hypothetical and should be used with caution. As the
figures indicate, changes in fair value based on a variation in assumptions generally
cannot be extrapolated because the relationship of the change in assumption to the change
in fair value may not be linear. Also, in the table, the effect of a variation in a
particular assumption on the fair value of the capitalized mortgage servicing rights is
calculated without changing any other assumption. In reality, changes in one assumption
may result in changes in another which might magnify or counteract the sensitivities.

The
following table summarizes activity in capitalized mortgage servicing rights, including
amortization expense:

|                                      | Three Months Ended
March 31,
|------------------------------------- | ----------------------------
|
|Balance at beginning of period        |                             
|Mortgage servicing rights capitalized |                             
|Amortization expense                  |                             
|Valuation adjustment                  |                             
|                                     
|Balance at end of period              |                             
|                                     

23

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

The
valuation allowance on mortgage servicing rights is summarized in the following table for
the three months ended March 31, 2006 and 2005:

|                                                | Three Months Ended
March 31,
|----------------------------------------------- | ----------------------------
|
|Balance at beginning of period                  |                             
|Changes in mortgage servicing valuation reserve |                             
|                                               
|Balance at end of period                        |                             
|                                               

We
evaluate the fair value of mortgage servicing rights on a quarterly basis using current
prepayment speeds, cash flow and discount rate estimates. Changes in these estimates
impact fair value and could require us to record a valuation allowance or recovery. During
the year ended December 31, 2005, the balance of our mortgage servicing rights valuation
allowance was recaptured into earnings. Our evaluation of mortgage servicing rights at
March 31, 2006 indicated that no valuation allowance was necessary. There was a valuation
allowance established for capitalized mortgage servicing rights of $680,000 at March 31,
2005. The amortization expense and valuation adjustment is recorded as a reduction of fees
and service charges in the accompanying Consolidated Statements of Income.

24

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

# Note 10  Deposits

Deposits
at March 31, 2006 and December 31, 2005 are summarized in the following table:

|                                | March 31, 2006 | December 31, 2005
|------------------------------- | -------------- | -----------------
|
|Transaction accounts:           |                |                  
|Noninterest-bearing checking    |                |                  
|Savings                         |                |                  
|Interest-bearing checking       |                |                  
|Money market                    |                |                  
|                               
|Total transaction accounts      |                |                  
|                               
|Total transaction accounts as a |                |                  
|percentage of total deposits    |                |                  
|                               
|Time deposits:                  |                |                  
|0.00% to 2.99%                  |                |                  
|3.00% to 4.99%                  |                |                  
|5.00% to 6.99%                  |                |                  
|                               
|Total time deposits             |                |                  
|                               
|Total time deposits as a        |                |                  
|percentage of total deposits    |                |                  
|                               
|Total deposits                  |                |                  
|                               

The
scheduled maturities of time deposits at March 31, 2006 are presented in the following
table:

|(Dollars in thousands)                       | Amount | Percent
|-------------------------------------------- | ------ | -------
|Amount Maturing During the 12 Months Ending: |        |        
|March 31, 2007                               |        |        
|March 31, 2008                               |        |        
|March 31, 2009                               |        |        
|Thereafter                                   |        |        
|                                            
|Total time deposits                          |        |        
|                                            

25

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

# Note 11  FHLBank
Topeka Advances and Other Borrowings

At
March 31, 2006 and December 31, 2005, we were indebted on notes as shown in the following
table:

|(Dollars in thousands)                  | March 31, 2006 | December 31, 2005
|--------------------------------------- | -------------- | -----------------
|Permanent fixed-rate notes payable to   |                |                  
|the FHLBank Topeka                      |                |                  
|Convertible fixed-rate notes payable to |                |                  
|the FHLBank Topeka                      |                |                  
|Line of credit with the FHLBank Topeka  |                |                  
|Retail repurchase agreements            |                |                  
|Junior subordinated debentures          |                |                  
|                                       
|Total FHLBank Topeka advances and       |                |                  
|other borrowings                        |                |                  
|                                       
|Weighted average interest rate          |                |                  
|                                       

The
convertible fixed-rate notes are convertible to adjustable-rate notes at the option of the
FHLBank Topeka (FHLBank). The line of credit with the FHLBank expires in
November 2006. We expect the line of credit agreement with the FHLBank will be renewed in
the ordinary course of business.

26

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TierOne Corporation and
Subsidiaries Notes to Consolidated Financial Statements(Unaudited)

# Note 12  Current
Accounting Pronouncements

For
discussion regarding accounting pronouncements, interpretations, exposure drafts and other
formal accounting guidance and the impact on our financial condition and results of
operations, reference is made to our Annual Report on Form 10-K for the year ended
December 31, 2005. The following discussion identifies certain recently issued accounting
guidance.

In
February 2006, the Financial Accounting Standards Board (FASB) issued
Statement No. 155, Accounting for Certain Hybrid Financial Instruments  an
Amendment of FASB Statements No. 133 and 140, (SFAS No. 155), to address
issues which had arisen related to SFAS Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. Under SFAS No. 155, companies may elect to measure
at fair value entire financial instruments containing embedded derivatives that would
otherwise have to be accounted for separately. Additionally, SFAS No. 155 requires
companies to identify interests in securitized financial assets that are freestanding
derivatives or contain embedded derivatives that would have to be accounted for
separately, clarifies which interest- and principal-only strips are subject to SFAS
No. 133 and amends SFAS No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities(SFAS No. 140), to revise the
conditions of a qualifying special purpose entity due to the new requirement to identify
whether interests in securitized financial assets are freestanding derivatives or contain
embedded derivatives. SFAS No. 155 is effective for all financial instruments acquired,
issued or subject to a remeasurement (new basis) event after the beginning of a
companys first fiscal year beginning after September 15, 2006. We do not anticipate
that the adoption of SFAS No. 155 will have a material impact on our Consolidated
Statement of Financial Condition or Consolidated Statement of Income.

In
March 2006, FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets
 an Amendment of FASB Statement No. 140(SFAS No. 156). SFAS No. 156
amends SFAS No. 140 with respect to the accounting for separately recognized servicing
assets and servicing liabilities. SFAS No. 156 has the following requirements: (a)
requires an entity to recognize a servicing asset or servicing liability each time it
undertakes an obligation to service a financial asset by entering into a servicing
contract; (b) requires all separately recognized servicing assets and servicing
liabilities to be initially measured at fair value, if practical; (c) permits an entity
to choose either the amortization method or fair value measurement method for each class
of separately recognized servicing assets and servicing liabilities; (d) at its initial
adoption, permits a one-time reclassification of available for sale securities to trading
securities by entities with recognized servicing rights, without calling into question the
treatment of other available for sale securities under SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, provided that the available for
sale securities are identified in some manner as offsetting the entitys exposure to
changes in fair value of servicing assets or servicing liabilities that a servicer elects
to subsequently measure at fair value; and (e) requires separate presentation of servicing
assets and servicing liabilities subsequently measured at fair value in the statement of
financial position and additional disclosures for all separately recognized servicing
assets and servicing liabilities. SFAS No. 156 is effective as of a companys first
fiscal year beginning after September 15, 2006. We are evaluating the impact that SFAS No. 156
may have on our consolidated financial statements.

27

---

Item 2  Managements
Discussion and Analysis of Financial Condition and Results of Operations.

# General

TierOne
Bank (Bank), a subsidiary of TierOne Corporation (Company), is a
$3.3 billion federally chartered stock savings bank headquartered in Lincoln, Nebraska.
Established in 1907, the Bank offers customers a wide variety of full-service consumer,
commercial and agricultural banking products and services through a network of 69 banking
offices located in Nebraska, Iowa and Kansas and nine loan production offices located in
Arizona, Colorado, Florida, Minnesota, Nevada and North Carolina. Product offerings
include residential, commercial and agricultural real estate loans; consumer,
construction, business and agricultural operating loans; warehouse mortgage lines of
credit; consumer and business checking and savings plans; investment and insurance
services; and telephone and internet banking.

Our
results of operations are dependent primarily on net interest income, which is the
difference between the interest earned on our assets, primarily our loan and securities
portfolios, and our cost of funds, which consists of the interest paid on our deposits and
borrowings. Our net income is also affected by our provision for loan losses, noninterest
income, noninterest expense and income tax expense. Noninterest income generally includes
fees and service charges, debit card fees, net income from real estate operations, net
gain on sales of investment securities, loans held for sale and real estate owned and
other operating income. Noninterest expense consists of salaries and employee benefits,
occupancy(net), data processing, advertising and other operating expense. Our earnings are
significantly affected by general economic and competitive conditions, particularly
changes in market interest rates and U.S. Treasury yield curves, government policies and
actions of regulatory authorities.

As
used in this report, unless the context otherwise requires, the terms we,
us, or our refer to the Company and the Bank.

28

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# Forward-Looking
Statements

Statements
contained in this quarterly report on Form 10-Q which are not historical facts may be
forward-looking statements as that term is defined in the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties
which could cause actual results to differ materially from those currently anticipated due
to a number of factors. Factors which could result in material variations include, but are
not limited to:

| |  | Strength
of the United States economy in general and the strength of the local economies in which
we conduct our operations;
| | - | ----------------------------------------------------------------------------------------------------------------------------

| |  | Changes
in interest rates or other competitive factors which could affect net interest margins,
net interest income and noninterest income;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------

| |  | Changes
in the demand for loans, deposits and other financial services in our market area;
| | - | ------------------------------------------------------------------------------------------

| |  | Increases
in the levels of losses, customer bankruptcies, claims and assessments;
| | - | ---------------------------------------------------------------------------------

| |  | Unanticipated
issues associated with the execution of our strategic plan;
| | - | -------------------------------------------------------------------------

| |  | Changes
in fiscal, monetary, regulatory, trade and tax policies and laws;
| | - | -------------------------------------------------------------------------

| |  | Increased
competitive challenges and expanding product and pricing pressures among financial
institutions;
| | - | ----------------------------------------------------------------------------------------------------------

| |  | Changes
in accounting policies or procedures as may be required by various regulatory agencies;
| | - | -----------------------------------------------------------------------------------------------

| |  | Changes
in consumer spending and savings habits; and
| | - | ----------------------------------------------------

| |  | Other
factors discussed in documents (including this report) filed with the Securities and
Exchange Commission from time to time.
| | - | ---------------------------------------------------------------------------------------------------------------------------------

These
factors should be considered in evaluating the forward-looking statements and undue
reliance should not be placed on such statements. We undertake no obligation, and disclaim
any obligation, to update information contained in this quarterly report on Form 10-Q,
including these forward-looking statements, to reflect events or circumstances that occur
after the date of the filing of this quarterly report on Form 10-Q.

29

---

# Comparison of Financial
Condition at March 31, 2006 and December 31, 2005

# Assets

General.          Our
total assets were $3.3 billion at March 31, 2006, an increase of $81.5           million,
or 2.5%, compared to $3.2 billion at December 31, 2005. The increase           was
primarily the result of a $112.8 million increase in net loans partially           offset
by a $29.2 million decline in cash and cash equivalents.

Investment
and Mortgage-Backed Securities. Our available for sale investment
securities totaled $100.1 million at March 31, 2006, a decrease of $2.5 million, or 2.5%,
compared to $102.6 million at December 31, 2005. The decrease in our available for sale
investment securities was primarily due to $4.2 million in proceeds received from maturing
and sold investment securities partially offset by security purchases of $2.0 million. Our
mortgage-backed securities, all of which are recorded as available for sale, totaled $18.0
million at March 31, 2006, a decrease of $1.7 million, or 8.7%, compared to $19.8 million
at December 31, 2005. The decrease in our mortgage-backed securities was the result of
$1.7 million of principal payments received during the three months ended March 31, 2006.

Loans
Receivable. Net loans totaled $3.0 billion at March 31, 2006, an increase
of $112.8 million, or 4.0%, compared to December 31, 2005. During the three months ended
March 31, 2006, we originated $1.2 billion of loans and purchased $105.0 million of loans.
These increases were partially offset by $1.1 billion of principal repayments and $44.4
million of loan sales.

|(Dollars in thousands)                  | March 31, 2006 | December 31, 2005 | Increase (Decrease) | % Change 
|--------------------------------------- | -------------- | ----------------- | ------------------- | ---------
|One-to-four family residential (1)      |                |                   | $                   | 375,676  
|Second mortgage residential             |                |                   |                     | 147,205  
|Multi-family residential                |                |                   |                     | 172,661  
|Commercial real estate and land         |                |                   |                     | 743,722  
|Residential construction                |                |                   |                     | 999,687  
|Commercial construction                 |                |                   |                     | 388,960  
|Agriculture                             |                |                   |                     | 60,632   
|Business                                |                |                   |                     | 201,904  
|Agriculture - operating                 |                |                   |                     | 68,182   
|Warehouse mortgage lines of credit      |                |                   |                     | 102,454  
|Consumer                                |                |                   |                     | 402,245  
|                                       
|Total loans                             |                |                   |                     | 3,663,328
|                                       
|Unamortized premiums, discounts         |                |                  
|and deferred loan fees                  |                |                   |                     | 3,751    
|Undisbursed portion of construction and |                |                  
|land development loans in process       |                |                   |                     | (709,597 
|                                       
|Net loans                               |                |                   | $                   | 2,957,482
|                                       
|(1) Includes loans held for sale        |                |                  
|                                       

30

---

The
increase in multi-family residential, commercial real estate and land, residential and
commercial construction and business loans was primarily the result of our ongoing
strategy to build a loan portfolio to increase yields and reduce interest rate risk by
focusing on loans with relatively higher yields, adjustable interest rates and/or shorter
terms to maturity. The increase in our construction and commercial real estate and land
loan portfolio was primarily attributable to loan origination activity related to our loan
production offices (located in Arizona, Colorado, Florida, Minnesota, Nevada and North
Carolina) which are strategically positioned in high growth areas of the United States. The
increase in business loans at March 31, 2006 was primarily the result of expanded lending
capabilities resulting from the addition of commercial banking personnel specializing in
corporate banking. The decline in our one-to-four family residential loan portfolio was
primarily the result of decreased demand for adjustable-rate residential loans as
borrowers migrate to fixed-rate loans. Generally, we originate adjustable-rate,
one-to-four family residential mortgage loans for retention in our portfolio. We sell
substantially all newly originated fixed-rate, one-to-four family residential mortgage
loans in the secondary market on a servicing retained basis which produces noninterest
income in the form of net gains and losses on sales and loan servicing fees. The decrease
in our second mortgage loan portfolio was primarily the result of loan repayments and
prepayments.

In
March 2006, one of Omaha, Nebraskas largest residential construction builders sought
Chapter 11 bankruptcy relief following the unexpected death of its company president. As
one of a number of Omaha area lending institutions, we originally had a total of
approximately $9.3 million of loan commitments to this builder and affiliated
parties, including the deceased builder, his widow and two entities that sought Chapter 11
relief. Only $8.1 million of the commitments were actually funded and of the funded loans,
$6.8 million are to the entities seeking Chapter 11 relief. Included in the funded loans
are 27 residential homes of which 19 are 95% or more complete and a 121-lot residential
land development loan totaling $1.8 million. Loans in the amount of $1.3 million to the
deceased and his widow are not under the protection of the bankruptcy court and are
secured by either the personal residence or four completed model homes. None of these
loans were 90 days or more past due at March 31, 2006. At the present time, the homes are
listed for sale with real estate brokers and one home recently sold with the Bank
collecting all principal and interest due on that loan. Based upon available information,
we believe that we are secured with respect to all of the remaining funded loans.

Allowance
for Loan Losses. Our allowance for loan losses increased $909,000, or 2.9%,
to $31.8 million at March 31, 2006 compared to $30.9 million at December 31, 2005. Our
allowance for loan losses as a percentage of nonperforming loans declined to 172.54% at
March 31, 2006 compared to 214.30% at December 31, 2005. Our ratio of the allowance for
loan losses to net loans was 1.07% and 1.09% at March 31, 2006 and December 31, 2005,
respectively.

Premises
and Equipment.Premises and equipment increased $998,000, or 2.5%, to $40.5
million at March 31, 2006 compared to $39.5 million at December 31, 2005. The increase was
attributable to $2.2 million in asset additions which were partially offset by
depreciation and amortization expense of $914,000 for the three months ended March 31,
2006. Significant additions during the three months ended March 31, 2006 included the new,
full-service banking facilities in Omaha and Hastings, Nebraska. Our new banking facility
in Omaha, Nebraska was opened during the three months ended March 31, 2006 while our new
Hastings banking facility is expected to open on May 8, 2006.

31

---

FHLBank
Topeka Stock. FHLBank Topeka (FHLBank) stock totaled $59.3
million at March 31, 2006, an increase of $769,000, or 1.3%, compared to $58.5 million at
December 31, 2005.

Goodwill
and Other Intangible Assets.Goodwill totaled $42.3 million at March 31,
2006 and December 31, 2005 and relates to the 2004 acquisition of United Nebraska
Financial Co. (UNFC). Other intangible assets totaled $9.6 million at March
31, 2006, a decrease of $441,000, or 4.4%, compared to $10.0 million at December 31, 2005
and relates to the core deposit intangible assets recorded as a result of the UNFC
acquisition. The decrease was attributable to amortization during the three months ended
March 31, 2006.

Other
Assets.Other assets increased $1.6 million, or 5.7%, to $30.1 million at
March 31, 2006 compared to $28.5 million at December 31, 2005. At March 31, 2006, the
largest item recorded in other assets was net mortgage servicing assets of $11.8 million.
The remainder consisted of prepaid expenses, miscellaneous receivables and other
assets.

# Liabilities and
Stockholders Equity

General.        Our
total liabilities were $3.0 billion at March 31, 2006, an increase of $71.0
          million, or 2.4%, compared to $2.9 billion at December 31, 2005. We utilized
          FHLBank advances to fund lending activities during the three months ended March
          31, 2006.

Deposits.         Deposits
declined $4.2 million, or 0.2%, to $2.0 billion at March 31, 2006.

|(Dollars in thousands)       | March 31, 2006 | December 31, 2005 | Increase (Decrease) | % Change 
|---------------------------- | -------------- | ----------------- | ------------------- | ---------
|Noninterest-bearing checking |                |                   | $                   | 122,744  
|Savings                      |                |                   |                     | 56,481   
|Interest-bearing checking    |                |                   |                     | 387,124  
|Money market                 |                |                   |                     | 410,991  
|Time deposits                |                |                   |                     | 1,056,801
|                            
|Total deposits               |                |                   | $                   | 2,034,141
|                            

The
decline in deposits was primarily attributable to $57.6 million of brokered time deposits
which matured during the three months ended March 31, 2006 partially offset by a $53.4
million increase in retail generated deposits. Our brokered time deposits totaled $20.4
million at March 31, 2006 compared to $78.0 million at December 31, 2005. The weighted
average rate of our time deposits was 3.74% at March 31, 2006 compared to 3.52% at
December 31, 2005. Our transaction accounts (checking, savings and money market) totaled
$977.3 million at March 31, 2006, an increase of $45.1 million, or 4.8%, compared to
$932.2 million at December 31, 2005. The weighted average rate of our transaction accounts
was 1.59% at March 31, 2006 compared to 1.35% at December 31, 2005.

32

---

FHLBank
Advances and Other Borrowings. Our FHLBank advances and other borrowings
totaled $886.8 million at March 31, 2006, an increase of $71.9 million, or 8.8%, compared
to $814.9 million at December 31, 2005. The increase in FHLBank advances and other
borrowings at March 31, 2006 was primarily attributable to borrowing an additional $115.0
million of convertible fixed-rate advances from the FHLBank and an outstanding balance on
our FHLBank line of credit of $52.6 million at March 31, 2006 partially offset by the
repayment of $90.1 million of FHLBank advances. We utilized FHLBank advances as our
primary funding source for loan origination and purchase activity during the three months
ended March 31, 2006. The weighted average interest rate on our FHLBank advances and other
borrowings was 3.99% at March 31, 2006, an increase of 22 basis points compared to 3.77%
at December 31, 2005. The increase in the weighted average interest rate on our FHLB
advances and other borrowings was primarily attributable to rising interest rates.

Stockholders
Equity. At March 31, 2006, stockholders equity totaled $319.3
million, an increase of $10.5 million, or 3.4%, compared to $308.9 million at December 31,
2005. The increase in stockholders equity primarily reflects net income of $9.2
million during the three months ended March 31, 2006, $1.2 million related to common stock
earned by participants in the Employee Stock Ownership Plan (ESOP), $726,000
related to amortization of awards under the 2003 Management Recognition and Retention Plan
(MRRP) and $420,000 related to amortization of stock options under the 2003
Stock Option Plan (SOP). These increases were partially offset by $978,000 in
cash dividends paid to our stockholders. We paid cash dividends of $0.06 per common share
on March 31, 2006 to shareholders of record on March 15, 2006.

On
July 27, 2004, we announced that our Board of Directors had authorized the repurchase of
up to 1,828,581 shares of our outstanding common stock. There is no stated expiration date
for this authorization. We did not repurchase any shares of our outstanding common stock
during the three months ended March 31, 2006. At March 31, 2006, the total remaining
common stock repurchase authority is 1,680,043 shares. For further discussion regarding
our common stock repurchases, see Part II, Item 2 Unregistered Sales of Equity
Securities and Use of Proceeds.

Comparison of Operating Results
for the Three Months Ended March 31, 2006 and 2005

Net
Income. Net income for the three months ended March 31, 2006 was $9.2
million, or $0.54 per diluted share ($0.56 per basic share), compared to net income of
$7.2 million, or $0.43 per diluted share ($0.44 per basic share), for the three months
ended March 31, 2005.

Net
Interest Income. Net interest income is the most significant component of
our earnings and consists primarily of interest income on interest-earning assets
offset by
interest expense on interest-bearing liabilities.
Changes in net interest income result from changes in volume, net interest spread and net
interest margin. Volume relates to the level of interest-earning assets and
interest-bearing liabilities. Net interest spread refers to the difference between the
yield on interest-earning assets and the rate paid on interest-bearing liabilities. Net
interest margin refers to net interest income divided by total interest-earning assets and
is influenced by the level and mix of interest-earning assets and interest-bearing
liabilities. Net interest income before provision for loan losses totaled $29.1 million
for the three months ended March 31, 2006, an increase of $4.8 million, or 19.7%, compared
to $24.3 million for the three months ended March 31, 2005. The increase in net interest
income was primarily due to increases in the average yield earned and average balance of
loans receivable.

33

---

Our
average interest rate spread for the three months ended March 31, 2006 and 2005 was 3.57%
and 3.24%, respectively. The increase in our average interest rate spread was attributable
to the increase in the yield earned on interest-earning assets being greater than the
increase in our average rate paid on interest-bearing liabilities. The average yield on
interest-earning assets was 6.67% for the three months ended March 31, 2006 compared to
5.62% for the three months ended March 31, 2005. The increase in the average yield earned
on interest-earning assets was primarily related to an increase in the average yield
earned on loans receivable. Our average yield earned on loans receivable for the three
months ended March 31, 2006 and 2005 was 6.82% and 5.76%, respectively. This increase was
primarily the result of our lending strategy to focus on loans with relatively higher
yields, adjustable interest rates and/or shorter terms to maturity. Our average rate paid
on interest bearing liabilities was 3.10% for the three months ended March 31, 2006
compared to 2.38% for the three months ended March 31, 2005.

Our
net interest margin (net interest income (annualized) divided by average interest-earning
assets) increased to 3.87% for the three months ended March 31, 2006 compared to 3.46% for
the three months ended March 31, 2005. The increase in our net interest margin was the
result of increases in the average yield and average balance of interest-earning assets.
The average balance of our total interest-earning assets was $3.0 billion for the three
months ended March 31, 2006, an increase of $197.0 million, or 7.0%, compared to $2.8
billion for the three months ended March 31, 2005.

34

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Average
Balances, Net Interest Income, Yields Earned and Cost of Funds.The following
table shows for the periods indicated the total dollar amount of interest from average
interest-earning assets and the resulting yields, as well as the interest expense on
average interest-bearing liabilities, expressed both in dollars and rates, interest rate
spread and net interest margin. All average balances are based on daily balances.

|                                                                                                                                      | Three Months Ended March 31,
|------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------
|
|
|Interest-earning assets:                                                                                                              |                             
|Federal funds sold                                                                                                                    |                             
|Investment securities (1)                                                                                                             |                             
|Mortgage-backed securities (1)                                                                                                        |                             
|Loans receivable (2)                                                                                                                  |                             
|                                                                                                                                     
|Total interest-earning assets                                                                                                         |                             
|Noninterest-earning assets                                                                                                            |                             
|                                                                                                                                     
|Total assets                                                                                                                          |                             
|                                                                                                                                     
|Interest-bearing liabilities:                                                                                                         |                             
|Interest-bearing checking accounts                                                                                                    |                             
|Savings accounts                                                                                                                      |                             
|Money market accounts                                                                                                                 |                             
|Time deposits                                                                                                                         |                             
|                                                                                                                                     
|Total interest-bearing deposits                                                                                                       |                             
|FHLBank Topeka advances and                                                                                                           |                             
|other borrowings                                                                                                                      |                             
|                                                                                                                                     
|Total interest-bearing liabilities                                                                                                    |                             
|                                                                                                                                     
|Noninterest-bearing accounts                                                                                                          |                             
|Other liabilities                                                                                                                     |                             
|                                                                                                                                     
|Total liabilities                                                                                                                     |                             
|Stockholders equity                                                                                                                  |                             
|                                                                                                                                     
|Total liabilities and stockholders equity                                                                                            |                             
|                                                                                                                                     
|Net interest-earning assets                                                                                                           |                             
|Net interest income; average                                                                                                          |                             
|interest rate spread                                                                                                                  |                             
|Net interest margin (3)                                                                                                               |                             
|Average interest-earning assets to average                                                                                            |                             
|interest-bearing liabilities                                                                                                          |                             
|                                                                                                                                     
|(1)  Includes securities available for sale and held to maturity. Investment securities also include FHLBank Topeka stock.           
|(2)  Includes nonperforming loans during the respective periods. Calculated net of unamortized premiums, discounts and deferred fees,
|undisbursed portion of construction and land development loans in process and allowance for loan losses.                             
|(3)  Equals net interest income (annualized) divided by average interest-earning assets.                                             
|                                                                                                                                     

35

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Rate/Volume
Analysis. The following table shows the extent to which changes in interest
rates and changes in the volume of interest-related assets and liabilities affected our
interest income and expense during the periods indicated. For each category of
interest-earning assets and interest-bearing liabilities, information is provided on
changes attributable to: (1) changes in rate (change in rate multiplied by prior year
volume), and (2) changes in volume (change in volume multiplied by prior year rate). The
combined effect of changes in both rate and volume has been allocated proportionately to
the change due to rate and the change due to volume.

|                                                                                                              | Three Months Ended March 31, 2006
Compared to
Three Months Ended March 31, 2005
|------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------
|
|
|Interest income:                                                                                              |                                                                                
|Federal funds sold                                                                                            |                                                                                
|Investment securities                                                                                         |                                                                                
|Mortgage-backed securities                                                                                    |                                                                                
|Loans receivable (1)                                                                                          |                                                                                
|                                                                                                             
|Total interest income                                                                                         |                                                                                
|                                                                                                             
|Interest expense:                                                                                             |                                                                                
|Interest-bearing checking accounts                                                                            |                                                                                
|Savings accounts                                                                                              |                                                                                
|Money market accounts                                                                                         |                                                                                
|Time deposits                                                                                                 |                                                                                
|                                                                                                             
|Total interest expense on deposits                                                                            |                                                                                
|FHLBank Topeka advances and                                                                                   |                                                                                
|other borrowings                                                                                              |                                                                                
|                                                                                                             
|Total interest expense                                                                                        |                                                                                
|                                                                                                             
|Net change in net interest income                                                                             |                                                                                
|                                                                                                             
|(1)  Calculated net of unamortized premiums, discounts and deferred fees, undisbursed portion of construction
|and land development loans in process and allowance for loan losses.                                         
|                                                                                                             

Interest
Income.Our total interest income for the three months ended March 31, 2006 was
$50.2 million, an increase of $10.7 million, or 27.1%, compared to $39.5 million for the
three months ended March 31, 2005. The increase in total interest income was primarily
attributable to an increase in interest income on loans receivable. Interest income on
loans receivable totaled $48.1 million for the three months ended March 31, 2006, an
increase of $10.6 million, or 28.4%, compared to $37.5 million for the three months ended
March 31, 2005. The increase in interest income on loans receivable was primarily
attributable to an increase in the average yield earned. The average yield earned on loans
receivable increased to 6.82% for the three months ended March 31, 2006 compared to 5.76%
for the three months ended March 31, 2005. Additionally, the average balance of loans
receivable increased $222.5 million, or 8.6%, to $2.8 billion for the three months ended
March 31, 2006 compared to $2.6 billion for the three months ended March 31, 2005. The
increase in the average yield earned and average balance of loans receivable is the result
of our lending strategy to focus on loans with relatively higher yields, adjustable
interest rates and/or shorter terms to maturity.

36

---

Interest
Expense.Our total interest expense for the three months ended March 31, 2006 was
$21.1 million, an increase of $5.9 million, or 38.9%, compared to $15.2 million for the
three months ended March 31, 2005. Interest expense on deposits totaled $13.1 million for
the three months ended March 31, 2006, an increase of $4.2 million, or 47.7%, compared to
$8.9 million for the three months ended March 31, 2005. Interest expense on FHLBank
advances and other borrowings increased $1.6 million, or 26.3%, to $7.9 million for the
three months ended March 31, 2006 compared to $6.3 million for the three months ended
March 31, 2005. The increase in interest expense was primarily the result of an increase
in the average rate paid on interest-bearing liabilities. This increase was primarily the
result of a series of interest rate increases set forth by the Federal Reserve Board
throughout 2005 and the three months ended March 31, 2006 which affects the rates we pay
on interest-bearing liabilities. The average rate paid on interest-bearing deposits was
2.78% and 1.97% for the three months ended March 31, 2006 and 2005, respectively. The
average rate paid on FHLBank advances and other borrowings increased to 3.83% for the
three months ended March 31, 2006 compared to 3.37% for the three months ended March 31,
2005. Additionally, the average balance of our interest-bearing liabilities totaled $2.7
billion for the three months ended March 31, 2006, an increase of $165.6 million, or 6.5%,
compared to $2.6 billion for the three months ended March 31, 2005. The average balance of
our interest-bearing deposits increased $83.6 million, or 4.6%, to $1.9 billion for the
three months ended March 31, 2006 compared to $1.8 billion for the three months ended
March 31, 2005. The average balance of our FHLBank advances and other borrowings totaled
$825.6 million for the three months ended March 31, 2006, an increase of $82.1 million, or
11.0%, compared to $743.5 million for the three months ended March 31, 2005.

Provision
for Loan Losses. We establish provisions for loan losses in order to
maintain the allowance for loan losses at a level we believe, to the best of our
knowledge, covers all known and inherent losses in the portfolio that are both probable
and reasonable to estimate at each reporting date. Management performs reviews no less
than quarterly in order to identify these inherent losses and to assess the overall
collection probability for the loan portfolio. Our reviews consist of a quantitative
analysis by loan category, using historical loss experience, and consideration of a series
of qualitative loss factors.

We
made a provision for loan losses of $1.3 million for the three months ended March 31, 2006
compared to $788,000 for the three months ended March 31, 2005, an increase of $543,000,
or 68.9%. At March 31, 2006 our nonperforming loans totaled $18.4 million, or 0.62% of net
loans, compared to $14.4 million, or 0.51% of net loans, at December 31, 2005. The
increase in nonperforming loans was primarily attributable to five loans totaling $8.4
million being classified as nonperforming at March 31, 2006 partially offset by three
loans totaling $3.3 million which were classified as nonperforming at December 31, 2005
which were foreclosed on and subsequently sold during the three months ended March 31,
2006. Our focus on loans with relatively higher yields, adjustable interest rates and/or
shorter terms to maturity also subjects us to a potentially higher degree of credit risk.
We anticipate that our current level of nonperforming loans as a percentage of net loans may
continue for the foreseeable future. Our loan delinquency rate (30 or more
days delinquent) at March 31, 2006 as a percentage of total loans was 1.11% compared to
1.09% at December 31, 2005. During the three months ended March 31, 2006 and 2005, we
charged-off, net of recoveries, $422,000 and $367,000, respectively. Charge-offs during
the three months ended March 31, 2006 consisted primarily of automobile and other
consumer-related loans. At March 31, 2006 and December 31, 2005, our allowance for loan
losses amounted to 1.07% and 1.09%, respectively, of net loans.

37

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Noninterest
Income.Noninterest income for the three months ended March 31, 2006 was $6.4
million, an increase of $431,000, or 7.2%, compared to $6.0 million for the three months
ended March 31, 2005.

|                                                | Three Months Ended March 31, | 
|----------------------------------------------- | ---------------------------- | 
|
|Deposit account fees and service charges        |                              | 
|Debit card fees                                 |                              | 
|Lending fees and service charges                |                              | 
|Mortgage servicing rights valuation adjustments |                              | 
|Commissions and management fee income           |                              | 
|Income (loss) from real estate operations, net  |                              | 
|Net gain (loss) on sales of:                    |                              | 
|Investment securities                           |                              | 
|Loans held for sale                             |                              | 
|Real estate owned                               |                              | 
|Other operating income                          |                              | 
|                                               
|Total noninterest income                        |                              | 
|                                               

The
increase in deposit account and debit card fees and service charges was largely due to an
increase in the number of transaction accounts and increased service fee rates on our
depository products. The increase in our lending fees and service charges was primarily
attributable to our increased lending volumes and our increased loan origination
capabilities supplemented by our nine loan production offices. During 2005, the balance of
our mortgage servicing rights valuation allowance was recaptured into earnings. Increases
in noninterest income during the three months ended March 31, 2006 were partially offset
by a decline in commissions related to annuity and mutual fund sales.

38

---

Noninterest
Expense.Our noninterest expense increased by $1.3 million, or 7.3%, to $19.3
million for the three months ended March 31, 2006 compared to $18.0 million for the three
months ended March 31, 2005.

|                                           | Three Months Ended March 31, | 
|------------------------------------------ | ---------------------------- | 
|
|Employee compensation                      |                              | 
|Employee benefits                          |                              | 
|Payroll taxes                              |                              | 
|Management Recognition and Retention Plan  |                              | 
|Employee Stock Ownership Plan              |                              | 
|2003 Stock Option Plan                     |                              | 
|Occupancy, net                             |                              | 
|Data processing                            |                              | 
|Advertising                                |                              | 
|Core deposit intangible asset amortization |                              | 
|Professional services                      |                              | 
|Other                                      |                              | 
|                                          
|Total noninterest expense                  |                              | 
|                                          

The
increase in employee compensation, employee benefits and payroll taxes resulted from
continued personnel growth and normal salary increases. At March 31, 2006 we had 792
full-time equivalent employees compared to 738 full-time equivalent employees at March 31,
2005. In accordance with SFAS No. 123(R), Share-Based Payment, we began expensing
stock options on January 1, 2006 using the modified-prospective application method. The
increase in noninterest expense for the three months ended March 31, 2006 was partially
offset by a reduction in professional service fees related to the integration of the UNFC
acquisition and the implementation of Sarbanes-Oxley compliance in 2005.

Income
Tax Expense.Our income tax expense increased by $1.4 million, or 31.4%, to $5.7
million for the three months ended March 31, 2006 compared to $4.3 million for the same
period in 2005. The increase in income tax expense for the three months ended March 31,
2006 compared to the same period in 2005 was primarily due to an increase in net income
and an increase in our effective income tax rate. The effective income tax rate for the
three months ended March 31, 2006 was 38.1% compared to 37.5% for the three months ended
March 31, 2005.

39

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# Liquidity

Our
primary sources of funds are deposits; amortization of loans; loan prepayments and
maturity of loans; FHLBank advances; repayment, maturity or sale of investment and
mortgage-backed securities; and other funds provided from operations. While scheduled
payments from the amortization of loans and mortgage-backed securities and maturing
investment securities are relatively predictable sources of funds, deposit flows and loan
prepayments can be greatly influenced by general interest rates, economic conditions and
competition. Additionally, we utilize other borrowings and brokered time deposits as
additional funding sources.

Deposits,
particularly core deposits, provide a more preferable source of funding than FHLBank
advances and other borrowings. However, to the extent that competitive or market factors
do not allow us to meet our funding needs with deposits alone, FHLBank advances and other
borrowings provide a readily available alternative source of liquidity. Deposits decreased
$4.2 million, or 0.2%, to $2.0 billion at March 31, 2006 compared to December 31, 2005. At
March 31, 2006, we had time deposits maturing within the next 12 months amounting to
$845.9 million. Based upon historical experience, we anticipate that a significant portion
of the maturing time deposits will be redeposited with us.

In
addition to cash flows generated by loan and securities payments and prepayments, we have
additional borrowing capacity to fund our asset growth. We continue to utilize borrowings
as a cost efficient addition to deposits as a source of funds. The average balance of our
FHLBank advances and other borrowings was $825.6 million for the three months ended March
31, 2006 compared to $834.6 million for the year ended December 31, 2005 and $743.5
million for the three months ended March 31, 2005. To date, substantially all of our
borrowings have consisted of FHLBank advances. Pursuant to blanket collateral agreements
with the FHLBank, we have pledged qualifying residential, multi-family residential and
commercial real estate mortgages, residential construction, commercial construction and
agricultural real estate loans as collateral for our FHLBank advances.

40

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# Aggregate Contractual
Obligations and Off-Balance Sheet Arrangements

We
have sufficient liquidity to fund existing and future loan commitments, to fund maturing
time deposits and demand deposit withdrawals, to invest in other interest-earning assets
and to meet operating expenses. At March 31, 2006, we had the following contractual
obligations (excluding bank deposits and interest) and lending commitments:

|                                        |  | Due In
|--------------------------------------- |  | ------
|
|Contractual obligations:                |  |       
|FHLBank Topeka advances                 |  |       
|and other borrowings                    |  |       
|Recourse obligations on assets          |  |       
|Purchase investment securities          |  |       
|Annual rental commitments under non-    |  |       
|cancellable operating leases            |  |       
|                                       
|Total contractual obligations           |  |       
|                                       
|Lending commitments:                    |  |       
|Commitments to originate loans          |  |       
|Commitments to sell loans               |  |       
|Commitments to purchase loans           |  |       
|Undisbursed portion of construction and |  |       
|land development loans in process       |  |       
|Standby letters of credit               |  |       
|Unused lines of credit:                 |  |       
|Warehouse mortgage lines of credit      |  |       
|Business loans                          |  |       
|Consumer loans                          |  |       
|                                       
|Total lending commitments and           |  |       
|unused lines of credit                  |  |       
|                                       
|Total contractual obligations, lending  |  |       
|commitments and unused lines of credit  |  |       
|                                       

We
have not used, and have no intention to use, any significant off-balance sheet financing
arrangements for liquidity purposes or otherwise. Our primary financial instruments with
off-balance sheet risk are limited to loan servicing for others, our obligations to fund
loans to customers pursuant to existing commitments and commitments to purchase and sell
mortgage loans. In addition, we have certain risks due to limited recourse arrangements on
loans serviced for others and recourse obligations related to loan sales. At March 31,
2006, the maximum total dollar amount of such recourse was approximately $15.7 million.
Based on historical experience, at March 31, 2006, we had established a liability of
$726,000 with respect to this recourse obligation. In addition, we have not had, and have
no intention to have, any significant transactions, arrangements or other relationships
with any unconsolidated, special purpose entities.

41

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# Regulatory Capital

We
are subject to various regulatory capital requirements administered by federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and
additional discretionary actions by regulators that, if undertaken, could have a direct
material adverse effect on our financial condition and results of operations. Under
capital adequacy guidelines and the regulatory framework for prompt corrective action, we
must meet specific capital guidelines that involve quantitative measures of our assets,
liabilities and certain off-balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.

Quantitative
measures that have been established by regulation to ensure capital adequacy require that
we maintain minimum capital amounts and ratios (set forth in the following table). Our
primary regulatory agency, the Office of Thrift Supervision (OTS), requires
that we maintain minimum ratios of tangible capital (as defined in the regulations) of
1.5%, core capital (as defined) of 4.0% and total risk-based capital (as defined) of 8.0%.
As of March 31, 2006, we exceed all capital requirements to which we are
subject.

As
of March 31, 2006 and December 31, 2005, the most recent notifications from the OTS
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. There are no conditions or events since the notification that we
believe have changed the Banks category. The actual capital amounts and ratios as of
March 31, 2006 and December 31, 2005 are presented in the following table:

|                            | Actual | For Capital
Adequacy Purposes | To be Well Capitalized
Under Prompt Corrective
Action Provisions
|--------------------------- | ------ | ----------------------------- | ----------------------------------------------------------------
|
|As of March 31, 2006:       |        |                               |                                                                 
|Total risk-based capital    |        |                              
|(to risk-weighted assets)   |        |                               | $                                                               
|Tier 1 capital (to adjusted |        |                              
|tangible assets)            |        |                               |                                                                 
|Tangible capital (to        |        |                              
|tangible assets)            |        |                               |                                                                 
|Tier 1 capital (to risk-    |        |                              
|weighted assets)            |        |                               |                                                                 
|As of December 31, 2005:    |        |                              
|Total risk-based capital    |        |                              
|(to risk-weighted assets)   |        |                               | $                                                               
|Tier 1 capital (to adjusted |        |                              
|tangible assets)            |        |                               |                                                                 
|Tangible capital (to        |        |                              
|tangible assets)            |        |                               |                                                                 
|Tier 1 capital (to risk-    |        |                              
|weighted assets)            |        |                               |                                                                 
|                           

42

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# Selected Financial Data

|                                                                                                                  | At or For the Three Months Ended March 31,
|----------------------------------------------------------------------------------------------------------------- | ------------------------------------------
|
|Selected Statement of Income Data:                                                                                |                                           
|Total interest income                                                                                             |                                           
|Total interest expense                                                                                            |                                           
|                                                                                                                 
|Net interest income                                                                                               |                                           
|Provision for loan losses                                                                                         |                                           
|                                                                                                                 
|Net interest income after provision                                                                               |                                           
|for loan losses                                                                                                   |                                           
|                                                                                                                 
|Total noninterest income                                                                                          |                                           
|Total noninterest expense                                                                                         |                                           
|                                                                                                                 
|Income before income taxes                                                                                        |                                           
|Income tax expense                                                                                                |                                           
|                                                                                                                 
|Net income                                                                                                        |                                           
|                                                                                                                 
|Net income per common share, basic                                                                                |                                           
|Net income per common share, diluted                                                                              |                                           
|Dividends declared per common share                                                                               |                                           
|                                                                                                                 
|Selected Financial Condition Data:                                                                                |                                           
|Total assets                                                                                                      |                                           
|Cash and cash equivalents                                                                                         |                                           
|Investment securities                                                                                             |                                           
|Mortgage-backed securities                                                                                        |                                           
|Net loans after allowance for loan losses                                                                         |                                           
|Deposits                                                                                                          |                                           
|FHLBank Topeka advances and                                                                                       |                                           
|other borrowings                                                                                                  |                                           
|Stockholders equity                                                                                              |                                           
|                                                                                                                 
|Selected Operating Ratios:                                                                                        |                                           
|Average yield on interest-earning assets                                                                          |                                           
|Average rate on interest-bearing liabilities                                                                      |                                           
|Average interest rate spread                                                                                      |                                           
|Net interest margin                                                                                               |                                           
|Average interest-earning assets to                                                                                |                                           
|average interest-bearing liabilities                                                                              |                                           
|Net interest income after provision for                                                                           |                                           
|loan losses to noninterest expense                                                                                |                                           
|Total noninterest expense to average assets                                                                       |                                           
|Efficiency ratio (1)                                                                                              |                                           
|Return on average assets                                                                                          |                                           
|Return on average equity                                                                                          |                                           
|Average equity to average assets                                                                                  |                                           
|Return on tangible equity (2)                                                                                     |                                           
|                                                                                                                 
|(1)  Efficiency ratio is calculated as total noninterest expense, less amortization expense of intangible assets,
|as a percentage of the sum of net interest income and noninterest income.                                        
|(2)  Return on tangible equity is calculated as annualized net income as a percentage of average stockholders   
|equity adjusted for goodwill and other intangible assets.                                                        
|                                                                                                                 

43

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# Item 3 
Quantitative and Qualitative Disclosures About Market Risk.

For
a discussion of our asset and liability management policies as well as the methods used to
manage our exposure to the risk of loss from adverse changes in market prices and rates
market, see Managements Discussion and Analysis of Financial Condition and
Results of Operations  Asset and Liability Management and Quantitative
and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for
the year ended December 31, 2005. There has been no material change in our market risk
position since our prior disclosures.

# Item 4  Controls
and Procedures.

Our
management evaluated, with the participation of our Chief Executive Officer and Chief
Financial Officer, the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based on such
evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that
our disclosure controls and procedures were effective as of the date of such evaluation to
ensure that material information relating to us, including our consolidated subsidiaries,
was made known to them by others within those entities, particularly during the period in
which this report was being prepared. There was no change in our internal control over
financial reporting that occurred during the period covered by this report that has
materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

44

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# PART II  OTHER
INFORMATION

# Item 1  Legal
Proceedings.

There
have been no substantive changes with respect to legal proceedings during the three months
ended March 31, 2006. Disclosures regarding legal proceedings are incorporated by
reference to Part I, Item 3, Legal Proceedings in our Annual Report on Form
10-K for the year ended December 31, 2005.

# Item 1A  Risk
Factors.

There
were no material changes in the risk factors previously disclosed in our Annual Report on
Form 10-K for the year ended December 31, 2005.

# Item 2 
Unregistered Sales of Equity Securities and Use of Proceeds.

The
following table details the Companys purchases of common stock during the three
months ended March 31, 2006:

|                                        | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs* | Maximum Number of Shares that May Yet Be Purchased Under Plans or Programs
|--------------------------------------- | -------------------------------- | ---------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------------------------
|January 2006                            |                                  |                              |                                                                                   |                                                                           
|Beginning Date - January 1, 2006        |                                  |                             
|Ending Date - January 31, 2006          |                                  |                              |                                                                                   | --                                                                        
|February 2006                           |                                  |                             
|Beginning Date - February 1, 2006       |                                  |                             
|Ending Date - February 28, 2006         |                                  |                              |                                                                                   | --                                                                        
|March 2006                              |                                  |                             
|Beginning Date - March 1, 2006          |                                  |                             
|Ending Date - March 31, 2006            |                                  |                              |                                                                                   | --                                                                        
|                                       
|Total shares purchased during the three |                                  |                             
|months ended March 31, 2006             |                                  |                              |                                                                                   | --                                                                        
|                                       

* Information related to our publicly
announced plan authorizing purchases of common stock during the three months ended March
31, 2006, is as follows:

|Date Purchase Plan Announced | Number of Shares Approved for Purchase | Expiration Date of Purchase Plan
|---------------------------- | -------------------------------------- | --------------------------------
|July 27, 2004                | 1,828,581                              | No stated expiration date       
|                            

45

---

# Item 3  Defaults
Upon Senior Securities.

There are no matters required to be
reported under this item.

# Item 4  Submission
of Matters to a Vote of Security Holders.

There are no matters required to be
reported under this item.

# Item 5  Other
Information.

There are no matters required to be
reported under this item.

# Item 6  Exhibits.

The exhibits filed or incorporated as
part of this Form 10-Q are specified in the Exhibit Index.

46

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# SIGNATURES

Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                   | TIERONE CORPORATION                              
|------------------ | -------------------------------------------------
|Date:  May 3, 2006 | By:  /s/ Gilbert G. Lundstrom                    
|                   | Gilbert G. Lundstrom                             
|                   | Chairman of the Board and Chief Executive Officer
|Date:  May 3, 2006 | By:  /s/ Eugene B. Witkowicz                     
|                   | Eugene B. Witkowicz                              
|                   | Executive Vice President and                     
|                   | Chief Financial Officer                          

47

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# EXHIBIT INDEX

|No.  | Exhibits                                                                                          
|---- | --------------------------------------------------------------------------------------------------
|31.1 | Section 302 Certification of the Chief Executive Officer                                          
|31.2 | Section 302 Certification of the Chief Financial Officer                                          
|32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|    

48