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

# FORM 10-Q

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

# FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 2008

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

---

|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, a non-accelerated filer or
a smaller reporting company. See definitions of large accelerated filer,
accelerated filer, and smaller reporting company in Rule 12b-2 of
the Exchange Act. (Check one):

Large accelerated filer |_|    
Accelerated filer |X|     Non-accelerated filer |_|     Smaller reporting company |_|

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 November 7, 2008 there were
18,035,192 issued and outstanding shares of the Registrants common stock.

---

# 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                                           | 71
|------------- | ----------------------------------------------------------- | --
|Item 1A -     | Risk Factors                                                | 71
|Item 2 -      | Unregistered Sales of Equity Securities and Use of Proceeds | 75
|Item 3 -      | Defaults Upon Senior Securities                             | 75
|Item 4 -      | Submission of Matters to a Vote of Security Holders         | 75
|Item 5 -      | Other Information                                           | 75
|Item 6 -      | Exhibits                                                    | 75
|Signatures    | 76                                                         
|Exhibit Index | 77                                                         

2

---

# 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. In addition to the risk factors described in Part 2, Item 1A. of
this Quarterly Report on Form 10-Q, factors that could result in material variations
include, but are not limited to:

| |  | General
 economic  conditions  and  trends,  either  nationally  or in some or all of the areas
in which we and our  customers          conduct our businesses;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  | Changes
in deposit flows,  and in the demand for deposits,  loans,  investment  products and
other  financial  services in the          markets we serve;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Changes
in the quality or composition of our loan portfolio,  or the unanticipated deterioration
of our loan portfolio;
| | - | -----------------------------------------------------------------------------------------------------------------------

| |  | Changes
in our underlying assumptions or any unanticipated issues that could impact managements
judgment regarding our allowance and provisions for loan losses;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Changes
in real estate values, which could impact the quality of the assets securing the loans in
our portfolios;
| | - | -----------------------------------------------------------------------------------------------------------------

| |  | Changes
in the financial or operating performance of our customers businesses;
| | - | -------------------------------------------------------------------------------

| |  | Unanticipated
issues associated with increases in the levels of losses, customer bankruptcies, claims
and assessments;
| | - | ----------------------------------------------------------------------------------------------------------------------

| |  | Our
timely development of new lines of business and competitive products or services within
our existing lines of business in a changing environment, and the acceptance of such
products and services by our customers;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Any
interruption or breach of security resulting in failures or disruption in customer
account management, general ledger, deposit operations, lending or other systems;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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;
| | - | ------------------------------------------------

| |  | Unanticipated
issues relating to the recovery of insurance proceeds for claims arising out of our prior
relationship with TransLand Financial Services, Inc.;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Unanticipated
issues related to our ability to achieve expected results pursuant to our plan to address
asset quality, restore long-term profitability and increase capital;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Actions
by federal and state agencies;
| | - | --------------------------------------

| |  | Changes
in liquidity levels in capital markets; and
| | - | ---------------------------------------------------

| |  | Other
factors discussed in documents we may file 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.

3

---

# Item 1  Financial
Statements

# TierOne Corporation
and SubsidiariesConsolidated Statements of Financial Condition  September 30, 2008
(Unaudited) and December 31, 2007

|(Dollars in thousands, except per share data)                    | September 30, 2008 | December 31, 2007
|---------------------------------------------------------------- | ------------------ | -----------------
|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 $11,532 and $9,348 at |                    |                  
|September 30, 2008 and December 31, 2007, 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                                     |                    |                  
|Mortgage servicing rights, 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;    |                    |                  
|18,036,134 and 18,058,946 shares issued at                       |                    |                  
|September 30, 2008 and December 31, 2007, respectively           |                    |                  
|Additional paid-in capital                                       |                    |                  
|Retained earnings, substantially restricted                      |                    |                  
|Treasury stock, at cost; 4,538,941 and 4,516,129 shares at       |                    |                  
|September 30, 2008 and December 31, 2007, respectively           |                    |                  
|Unallocated common stock held by Employee Stock                  |                    |                  
|Ownership Plan                                                   |                    |                  
|Accumulated other comprehensive loss, net                        |                    |                  
|                                                                
|Total stockholders equity                                       |                    |                  
|                                                                
|Total liabilities and stockholders equity                       |                    |                  
|                                                                

See accompanying notes to
consolidated financial statements.

4

---

# TierOne Corporation
and SubsidiariesConsolidated Statements of Operations  (Unaudited)

|                                                           | For the Three Months Ended
September 30, | For the Nine Months Ended
September 30,
|---------------------------------------------------------- | ---------------------------------------- | ---------------------------------------
|
|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 (loss) after provision for loan losses |                                          |                                        
|                                                          
|Noninterest income:                                        |                                          |                                        
|Fees and service charges                                   |                                          |                                        
|Debit card fees                                            |                                          |                                        
|Loss from real estate operations, net                      |                                          |                                        
|Loss on impairment of securities                           |                                          |                                        
|Net gain (loss) on sales of:                               |                                          |                                        
|Loans held for sale                                        |                                          |                                        
|Real estate owned                                          |                                          |                                        
|Other operating income                                     |                                          |                                        
|                                                          
|Total noninterest income                                   |                                          |                                        
|                                                          
|Noninterest expense:                                       |                                          |                                        
|Salaries and employee benefits                             |                                          |                                        
|Goodwill impairment                                        |                                          |                                        
|Occupancy, net                                             |                                          |                                        
|Data processing                                            |                                          |                                        
|Advertising                                                |                                          |                                        
|Other operating expense                                    |                                          |                                        
|                                                          
|Total noninterest expense                                  |                                          |                                        
|                                                          
|Income (loss) before income taxes                          |                                          |                                        
|Income tax expense (benefit)                               |                                          |                                        
|                                                          
|Net income (loss)                                          |                                          |                                        
|                                                          
|Net income (loss) per common share, basic                  |                                          |                                        
|                                                          
|Net income (loss) 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.

5

---

# TierOne Corporation
and Subsidiaries  Consolidated Statements of Changes in Stockholders Equity and
Comprehensive IncomeFor the Nine Months Ended September 30, 2008 and 2007  (Unaudited)

|(Dollars in thousands)                   | Common Stock | AdditionalPaid-In Capital | Retained Earnings,SubstantiallyRestricted | Treasury Stock | Unallocated Common Stock Held  by the Employee Stock Ownership Plan | Accumulated OtherComprehensive Loss, Net | Total Stockholders Equity
|---------------------------------------- | ------------ | ------------------------- | ----------------------------------------- | -------------- | ------------------------------------------------------------------- | ---------------------------------------- | --------------------------
|Balance at December 31, 2006             |              |                           | $                                         | 226            |                                                                     | $                                        | 358,733                   
|                                        
|Common stock earned by employees         |              |                          
|in Employee Stock Ownership Plan         |              |                           |                                           | --             |                                                                     |                                          | 1,951                     
|Amortization of awards under the         |              |                          
|Management Recognition and               |              |                          
|Retention Plan                           |              |                           |                                           | --             |                                                                     |                                          | 2,178                     
|Amortization of stock options  under     |              |                          
|2003 Stock Option Plan                   |              |                           |                                           | --             |                                                                     |                                          | 1,261                     
|Repurchase of common stock               |              |                          
|(7,111 shares)                           |              |                           |                                           | --             |                                                                     |                                          | --                        
|Treasury stock reissued under 2003       |              |                          
|Stock Option Plan                        |              |                           |                                           | --             |                                                                     |                                          | (108                      
|Excess tax benefit realized from stock-  |              |                          
|based compensation plans                 |              |                           |                                           | --             |                                                                     |                                          | 423                       
|Dividends paid ($0.23 per common share)  |              |                           |                                           | --             |                                                                     |                                          | --                        
|Cumulative effect of adoption of FASB    |              |                          
|Interpretation No. 48 on January 1, 2007 |              |                           |                                           | --             |                                                                     |                                          | --                        
|Comprehensive income:                    |              |                          
|Net income                               |              |                           |                                           | --             |                                                                     |                                          | --                        
|Change in unrealized loss on             |              |                          
|available for sale securities, net of    |              |                          
|tax and reclassification adjustment      |              |                           |                                           | --             |                                                                     |                                          | --                        
|                                        
|Total comprehensive income               |              |                           |                                           | --             |                                                                     |                                          | --                        
|                                        
|Balance at September 30, 2007            |              |                           | $                                         | 226            |                                                                     | $                                        | 364,438                   
|                                        
|Balance at December 31, 2007             |              |                           | $                                         | 226            |                                                                     | $                                        | 366,042                   
|                                        
|Common stock earned by employees         |              |                          
|in Employee Stock Ownership Plan         |              |                           |                                           | --             |                                                                     |                                          | (27                       
|Amortization of awards under the         |              |                          
|Management Recognition and               |              |                          
|Retention Plan                           |              |                           |                                           | --             |                                                                     |                                          | 1,001                     
|Amortization of stock options under      |              |                          
|2003 Stock Option Plan                   |              |                           |                                           | --             |                                                                     |                                          | 683                       
|Repurchase of common stock               |              |                          
|(23,812 shares)                          |              |                           |                                           | --             |                                                                     |                                          | --                        
|Treasury stock reissued under 2003       |              |                          
|Stock Option Plan                        |              |                           |                                           | --             |                                                                     |                                          | (5                        
|Excess tax expense realized from stock-  |              |                          
|based compensation plans                 |              |                           |                                           | --             |                                                                     |                                          | (459                      
|Dividends paid ($0.12 per common share)  |              |                           |                                           | --             |                                                                     |                                          | --                        
|Comprehensive loss:                      |              |                          
|Net loss                                 |              |                           |                                           | --             |                                                                     |                                          | --                        
|Change in unrealized loss on             |              |                          
|available for sale securities, net of    |              |                          
|tax                                      |              |                           |                                           | --             |                                                                     |                                          | --                        
|                                        
|Total comprehensive loss                 |              |                           |                                           | --             |                                                                     |                                          | --                        
|                                        
|Balance at September 30, 2008            |              |                           | $                                         | 226            |                                                                     | $                                        | 367,235                   
|                                        

See accompanying notes to
consolidated financial statements.

6

---

# TierOne Corporation
and Subsidiaries Consolidated Statements of Cash Flows (continued) (Unaudited)

|                                                                                         | For the Nine Months Ended
September 30,
|---------------------------------------------------------------------------------------- | ---------------------------------------
|
|Cash flows from operating activities:                                                    |                                        
|Net income (loss)                                                                        |                                        
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                        
|Net discount accretion of investment and mortgage-backed securities                      |                                        
|Premises and equipment depreciation and amortization                                     |                                        
|Amortization of other intangible assets                                                  |                                        
|Accretion of discount on FHLBank Topeka advances                                         |                                        
|Employee Stock Ownership Plan compensation expense                                       |                                        
|2003 Management Recognition and Retention Plan compensation expense                      |                                        
|2003 Stock Option Plan compensation expense                                              |                                        
|Net accretion of discounts on net loans                                                  |                                        
|FHLBank Topeka stock dividend                                                            |                                        
|Deferred income tax expense (benefit)                                                    |                                        
|Goodwill impairment                                                                      |                                        
|Impairment of investment securities                                                      |                                        
|Provision for loan losses                                                                |                                        
|Provision for real estate owned losses                                                   |                                        
|Provision for uncollectible receivable                                                   |                                        
|Mortgage servicing rights originated, net                                                |                                        
|Mortgage servicing rights valuation allowance                                            |                                        
|Proceeds from sales of loans held for sale                                               |                                        
|Originations and purchases of loans held for sale                                        |                                        
|Excess tax expense (benefit) from stock-based compensation plans                         |                                        
|Net (gain) loss on sales of:                                                             |                                        
|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                                      |                                        
|Decrease in loans receivable                                                             |                                        
|Sale of FHLBank Topeka stock                                                             |                                        
|Additions to premises and equipment                                                      |                                        
|Proceeds from sale of premises and equipment                                             |                                        
|Proceeds from sale of real estate owned                                                  |                                        
|                                                                                        
|Net cash provided by (used in) investing activities                                      |                                        
|                                                                                        

See accompanying notes to
consolidated financial statements.

7

---

# TierOne Corporation
and Subsidiaries Consolidated Statements of Cash Flows (continued) (Unaudited)

|                                                                                     | For the Nine Months Ended
September 30,
|------------------------------------------------------------------------------------ | ---------------------------------------
|
|Cash flows from financing activities:                                                |                                        
|Net increase (decrease) in deposits                                                  |                                        
|Net advances (repayment) on FHLBank Topeka line of credit, 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 in advances from borrowers for taxes, insurance and                     |                                        
|other escrow funds                                                                   |                                        
|Repurchase of common stock                                                           |                                        
|Dividends paid on common stock                                                       |                                        
|Excess tax benefit realized from the exercise of stock options                       |                                        
|Excess tax benefit (expense) realized from the vesting of Management Recognition and |                                        
|Retention Plan shares                                                                |                                        
|Proceeds from the exercise of stock options                                          |                                        
|                                                                                    
|Net cash provided by (used in) financing activities                                  |                                        
|                                                                                    
|Net increase (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.

8

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TierOne Corporation and
SubsidiariesNotes 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. (d/b/a TierOne Financial),
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
assets of the Company, on an unconsolidated basis, primarily consist of 100% of the
Banks common stock. The Company has no significant independent source of income and
therefore depends on cash distributions from the Bank to meet its funding requirements.

The
accompanying interim consolidated financial statements as of September 30, 2008 and for
the three and nine months ended September 30, 2008 and 2007 are unaudited. 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, 2007. The results of operations
for the three and nine months ended September 30, 2008 are not necessarily indicative of
the results which may be expected for the entire calendar year 2008.

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

# Note 2 
Termination of Acquisition Agreement

On
May 17, 2007, the Company, CapitalSource Inc. and CapitalSource TRS Inc. entered into an
Agreement and Plan of Merger (Merger Agreement). On March 20, 2008, the
Company terminated the Merger Agreement. Pursuant to the terms of the Merger Agreement,
either party had the right to terminate the Merger Agreement if the proposed merger was
not completed by February 17, 2008. No termination fee was payable by either company as a
result of the termination of the Merger Agreement.

9

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TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

# Note 3  Earnings
Per Share

Basic
earnings (loss) per share (EPS) is computed by dividing net income (loss) by
the weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other contracts to
issue common stock were exercised. Diluted earnings per share is computed after giving
consideration to the weighted average dilutive effect of our 2003 Stock Option Plan
shares and 2003 Management Recognition and Retention Plan shares. All stock options are
assumed to be 100% vested for purposes of EPS computations. Due to our net loss for the
nine months ended September 30, 2008, no potentially dilutive shares were included in the
loss per share calculation for the nine months ended September 30, 2008 as including such
shares would be anti-dilutive. The following table is a reconciliation of basic and
diluted EPS:

|                                                       | For the Three Months Ended September 30,
|------------------------------------------------------ | ----------------------------------------
|
|
|Net income (loss)                                      |                                         
|                                                      
|Total weighted average basic common shares outstanding |                                         
|Effect of dilutive securities:                         |                                         
|2003 Stock Option Plan                                 |                                         
|2003 Management Recognition and Retention Plan         |                                         
|                                                      
|Total weighted average basic and diluted               |                                         
|common shares outstanding                              |                                         
|                                                      
|Net income (loss) per common share                     |                                         
|                                                      

|                                                       | For the Nine Months Ended September 30,
|------------------------------------------------------ | ---------------------------------------
|
|
|Net income (loss)                                      |                                        
|                                                      
|Total weighted average basic common shares outstanding |                                        
|Effect of dilutive securities:                         |                                        
|2003 Stock Option Plan                                 |                                        
|2003 Management Recognition and Retention Plan         |                                        
|                                                      
|Total weighted average basic and diluted               |                                        
|common shares outstanding                              |                                        
|                                                      
|Net income (loss) per common share                     |                                        
|                                                      

10

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TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

# Note 4  Investment
and Mortgage-Backed Securities

Investment
Security Composition. The amortized cost, gross unrealized gains and losses and fair value
of investment and mortgage-backed securities by major security category at September 30,
2008 and December 31, 2007 are as follows:

|                                                  | September 30, 2008
|------------------------------------------------- | ------------------
|
|
|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, 2007
|------------------------------------------------- | -----------------
|
|
|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 September 30, 2008 to be market related, with no
permanent sector or issuer credit concerns or impairments. We had seven securities with
unrealized losses totaling $76,000 for 12 consecutive months or longer as of September 30,
2008. The unrealized losses are believed to be temporary. 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.
At September 30, 2008, we have the ability and intent to hold these securities until
maturity.

11

---

TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

# Note 5  Loans
Receivable

Loan
Portfolio Composition.  Loans receivable at September 30, 2008 and December 31, 2007 are
summarized in the following table:

|                                                                                                    | September 30, 2008 | December 31, 2007
|--------------------------------------------------------------------------------------------------- | ------------------ | -----------------
|
|Real estate loans:                                                                                  |                    |                  
|One-to-four family residential (1)                                                                  |                    |                  
|Second mortgage residential                                                                         |                    |                  
|Multi-family residential                                                                            |                    |                  
|Commercial real estate                                                                              |                    |                  
|Land and land development                                                                           |                    |                  
|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                                                                                  |                    |                  
|Loans in process (2)                                                                                |                    |                  
|                                                                                                   
|Net loans                                                                                           |                    |                  
|Allowance for loan losses                                                                           |                    |                  
|                                                                                                   
|Net loans after allowance for loan losses                                                           |                    |                  
|                                                                                                   
|(1) Includes loans held for sale                                                                    |                    |                  
|                                                                                                   
|(2) Loans in process represents the undisbursed portion of construction and land development loans.
|                                                                                                   

12

---

TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

Impaired
Loans.  Information about our impaired loans and the allowance for loan losses
related  to impaired loans is as follows:

|(Dollars in thousands)                                                                                  | September 30, 2008 | December 31, 2007
|------------------------------------------------------------------------------------------------------- | ------------------ | -----------------
|Impaired loans (1)                                                                                      |                    |                  
|Allowance for loan losses related to impaired loans (2)                                                 |                    |                  
|                                                                                                       
|(1) Impaired loans are performing and nonperforming loans which management believes it will not collect
|all principal and interest due under the original loan terms.                                          
|(2) Allowance for loan losses related to impaired loans is included in the total allowance for loan    
|losses of $63.0 million and $66.5 million at September 30, 2008 and December 31, 2007, respectively.   
|                                                                                                       

The
decrease in our allowance for loan losses related to impaired loans was primarily attributable to charge-offs during
the nine months ended September 30, 2008.

# Note 6  Goodwill
and Other Intangible Assets

Goodwill.          We
recorded goodwill as a result of our 2004 acquisition of United Nebraska
          Financial Co. (UNFC). In accordance with Statement of Financial
          Accounting Standard (SFAS) No. 142, Goodwill and Other
Intangible           Assets, we tested this goodwill for impairment annually during
the third           quarter of each year, or between annual assessment dates whenever
events or           significant changes in circumstances indicate that the carrying value
may be           impaired. We performed a goodwill impairment test as of March 31, 2008
due to           adverse changes in the business climate. As a result of a decline in the
market           value of our common stock to levels below our book value, we determined
that the           entire amount of our goodwill was impaired, and we recorded a $42.1
million           goodwill impairment charge to write-off our goodwill at March 31, 2008.
The           changes in the carrying amount of goodwill for the three and nine months
ended           September 30, 2008 and 2007 are as follows:

|                                                               | Three Months Ended September 30, | Nine Months Ended September 30,
|-------------------------------------------------------------- | -------------------------------- | -------------------------------
|
|Balance at beginning of period                                 |                                  |                                
|Adjustment due to adoption of FASB Interpretation No. 48       |                                  |                                
|Realized tax benefit associated with United Nebraska Financial |                                  |                                
|Co. acquisition                                                |                                  |                                
|Goodwill impairment                                            |                                  |                                
|                                                              
|Balance at end of period                                       |                                  |                                
|                                                              

13

---

TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

Other
Intangible Assets. Our only identifiable other intangible asset is the
value of core deposits acquired as part of the UNFC and Marine Bank transactions. The core
deposit intangible assets have been estimated to have nine- to ten-year lives. Core
deposit intangible assets are amortized using an accelerated method of amortization which
is recorded in other operating expense.

Other
Intangible Asset Activity. The changes in the carrying amount of acquired
intangible assets for the three and nine months ended September 30, 2008 and 2007 are as
follows:

|                                          | Three Months Ended September 30, | Nine Months Ended September 30,
|----------------------------------------- | -------------------------------- | -------------------------------
|
|Balance at beginning of period            |                                  |                                
|Realized tax benefit associated with      |                                  |                                
|United Nebraska Financial Co. acquisition |                                  |                                
|Amortization expense                      |                                  |                                
|                                         
|Balance at end of period                  |                                  |                                
|                                         

Other
Intangible Asset Estimated Amortization. Estimated amortization expense
related to our core deposit intangible assets for the year ending December 31, 2008 and
the five years thereafter are as follows:

|(Dollars in thousands)                             
|---------------------------------------------------
|Estimated Amortization Expense For the Year Ending:
|December 31, 2008                                  
|December 31, 2009                                  
|December 31, 2010                                  
|December 31, 2011                                  
|December 31, 2012                                  
|December 31, 2013                                  
|                                                   

14

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TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

# Note 7  Mortgage
Servicing Rights

On
January 1, 2007, we adopted SFAS No. 156, Accounting for Servicing of Financial Assets
 an Amendment of FASB Statement No. 140(SFAS No. 156). In
accordance with SFAS No. 156, we utilize the amortization method for all of our mortgage
servicing right assets, thus, carrying our mortgage servicing rights at the lower of
cost or market (fair value). Under the amortization method, we amortize mortgage
servicing rights in proportion to and over the period of net servicing income. Income
generated as a result of newly acquired servicing assets is reported as net gain on sale
of loans in the Consolidated Statements of Operations. Loan servicing fees, net of
amortization of mortgage servicing rights, are recorded in fees and service charges in the
Consolidated Statements of Operations.

We
primarily service one-to-four family residential mortgage loans. We obtain mortgage
servicing right assets when we deliver loans, both originated and purchased, as an
agent into the secondary market on a servicing-retained basis. Initial fair value of
the servicing right is calculated by a discounted cash flow model based on market value
assumptions at the time of origination.

The
balance of capitalized mortgage servicing rights, net of valuation allowances, at
September 30, 2008 and December 31, 2007 was $16.1 million and $14.5 million,
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)             | September 30, 2008 | December 31, 2007
|---------------------------------- | ------------------ | -----------------
|Serviced loan portfolio balance    | $1,590,004         | $1,459,498       
|Fair value                         | $17,936            | $18,310          
|Prepayment speed                   | 4.74% - 47.16%     | 6.62% - 26.07%   
|Weighted average prepayment speed  | 10.90%             | 10.37%           
|Fair value with 10% adverse change | $17,350            | $17,860          
|Fair value with 20% adverse change | $16,744            | $17,166          
|Discount rate                      | 11.00% - 14.00%    | 9.50% - 13.00%   
|Weighted average discount rate     | 11.94%             | 10.63%           
|Fair value with 10% adverse change | $17,205            | $17,866          
|Fair value with 20% adverse change | $16,477            | $17,178          
|                                  

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 assumptions 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 mortgage servicing rights is calculated
without changing any other assumption. In reality, changes in one assumption may result in
changes in another that might magnify or counteract the sensitivities.

15

---

TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

Mortgage
Servicing Rights Activity.  The following table summarizes mortgage
servicing rights activity including amortization expense:

|                                      | Three Months Ended
September 30, | Nine Months Ended
September 30,
|------------------------------------- | -------------------------------- | -------------------------------
|
|Balance at beginning of period        |                                  |                                
|Mortgage servicing rights capitalized |                                  |                                
|Amortization expense                  |                                  |                                
|Valuation adjustment                  |                                  |                                
|                                     
|Balance at end of period              |                                  |                                
|                                     

Mortgage
 Servicing  Rights  Valuation  Allowance.  The  valuation  allowance on mortgage
 servicing  rights is  summarized in the following table for the periods presented:

|                                                | Three Months Ended
September 30, | Nine Months Ended
September 30,
|----------------------------------------------- | -------------------------------- | -------------------------------
|
|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. The
amortization expense and valuation adjustment are recorded as a reduction of fees and
service charges in the accompanying Consolidated Statements of Operations.

16

---

TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

# Note 8  Deposits

Deposit
Composition.  Deposits at September 30, 2008 and December 31, 2007 are summarized
in the following table:

|                                | September 30, 2008 | December 31, 2007
|------------------------------- | ------------------ | -----------------
|
|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 0.99%                  |                    |                  
|1.00% to 1.99%                  |                    |                  
|2.00% to 2.99%                  |                    |                  
|3.00% to 3.99%                  |                    |                  
|4.00% to 4.99%                  |                    |                  
|5.00% to 5.99%                  |                    |                  
|                               
|Total time deposits             |                    |                  
|                               
|Total time deposits as a        |                    |                  
|percentage of total deposits    |                    |                  
|                               
|Total deposits                  |                    |                  
|                               

Time
Deposit Maturity.  The scheduled maturities of time deposits at September 30,
2008 are presented in the following table:

|(Dollars in thousands)                       | Amount | Percent
|-------------------------------------------- | ------ | -------
|Amount Maturing During the 12 Months Ending: |        |        
|September 30, 2009                           |        |        
|September 30, 2010                           |        |        
|September 30, 2011                           |        |        
|September 30, 2012                           |        |        
|September 30, 2013                           |        |        
|Thereafter                                   |        |        
|                                            
|Total time deposits                          |        |        
|                                            

17

---

TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

Time
Deposits of $100,000 or More.The following table shows the maturities of
our time deposits of $100,000 or more at September 30, 2008 by the time remaining to
maturity.

|(Dollars in thousands)                    | Amount | Weighted Average Rate
|----------------------------------------- | ------ | ---------------------
|Amount Maturing During the Quarter Ended: |        |                      
|December 31, 2008                         |        |                      
|March 31, 2009                            |        |                      
|June 30, 2009                             |        |                      
|September 30, 2009                        |        |                      
|Thereafter                                |        |                      
|                                         
|Total time deposits of $100,000 or more   |        |                      
|                                         

Time
Deposits of $250,000 or More.The Emergency Economic Stabilization Act
of 2008 included a provision that temporarily raises the Federal Deposit Insurance
Corporation (FDIC) insurance coverage limit on non-retirement accounts from
$100,000 to $250,000 per account holder per institution. This increase in the insurance
coverage limit is effective until December 31, 2009. The following table shows the
maturities of our time deposits of $250,000 or more at September 30, 2008 by the time
remaining to maturity.

|(Dollars in thousands)                    | Amount | Weighted Average Rate
|----------------------------------------- | ------ | ---------------------
|Amount Maturing During the Quarter Ended: |        |                      
|December 31, 2008                         |        |                      
|March 31, 2009                            |        |                      
|June 30, 2009                             |        |                      
|September 30, 2009                        |        |                      
|Thereafter                                |        |                      
|                                         
|Total time deposits of $250,000 or more   |        |                      
|                                         

18

---

TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

# Note 9  FHLBank
Topeka Advances and Other Borrowings

At
September 30, 2008 and December 31, 2007, we were indebted on notes as shown in the
following table:

|(Dollars in thousands)                  | September 30, 2008 | December 31, 2007
|--------------------------------------- | ------------------ | -----------------
|Permanent fixed-rate notes payable to   |                    |                  
|the FHLBank Topeka                      |                    |                  
|Convertible fixed-rate notes payable to |                    |                  
|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). We did not have an outstanding balance on our
FHLBank line of credit at both September 30, 2008 and December 31, 2007. The line of
credit with the FHLBank expires in November 2008. We expect the line of credit agreement
to be renewed in the ordinary course of business.

Pursuant
to our collateral agreement with the FHLBank, such advances are secured by our
qualifying residential, multi-family residential and commercial real estate mortgages,
residential construction, commercial construction and agricultural real estate loans.
Under our collateral agreement with the FHLBank, our borrowing capacity at September 30,
2008 was $742.2 million. Other qualifying collateral can be pledged in the event
additional borrowing capacity is required.

Our
retail repurchase agreements are primarily collateralized by governmental agency and
municipal obligations (investment securities).

19

---

TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

# Note 10 
Stock-Based Benefit Plans

General.         We
account for our stock-based benefit plans using 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.

Stock-Based
Employee Compensation Expense. Amounts recognized in the financial
statements with respect to our Employee Stock Ownership Plan (ESOP) and
stock-based employee compensation plans are presented in the following table:

|                                                | Three Months Ended September 30, | Nine Months Ended September 30,
|----------------------------------------------- | -------------------------------- | -------------------------------
|
|Stock-based employee compensation expense:      |                                  |                                
|Employee Stock Ownership Plan                   |                                  |                                
|Management Recognition and Retention Plan       |                                  |                                
|2003 Stock Option Plan                          |                                  |                                
|                                               
|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, we established an ESOP for the benefit of our employees. The ESOP is a
qualified pension plan under Internal Revenue Service guidelines that 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 Financial Accounting Standards Board
(FASB) 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. The excess
fair value of ESOP shares over cost is recorded as compensation expense but is not
deductible for tax purposes. As shares are committed to be released from collateral, we
report compensation expense equal to the average market price of the shares and the shares
become outstanding for 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.

20

---

TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

|                                                               | At or for the
Three Months Ended
September 30, | At or for the
Nine Months Ended
September 30,
|-------------------------------------------------------------- | ---------------------------------------------- | ---------------------------------------------
|
|Employee Stock Ownership Plan compensation expense             |                                                |                                              
|Employee Stock Ownership Plan shares allocated to employees    |                                                |                                              
|Employee Stock Ownership Plan shares unallocated               |                                                |                                              
|Fair value of Employee Stock Ownership Plan unallocated shares |                                                |                                              
|                                                              

Management
Recognition and Retention Plan. We established the 2003 Management Recognition and
Retention Plan (MRRP) which is a stock-based incentive plan. The shares
awarded by the MRRP vest to participants at the rate of 20% per year. 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 value of our
stock as of the date the awards were made. Stockholders approved 903,003 shares to be
granted under the MRRP and 85,283 shares are still available for future grants as of
September 30, 2008. The following table summarizes shares of our common stock that were
subject to award and have been granted pursuant to the MRRP as of September 30, 2008 and
2007:

|                                                    | At or for the
Three Months Ended
September 30, | At or for the
Nine Months Ended
September 30,
|--------------------------------------------------- | ---------------------------------------------- | ---------------------------------------------
|
|Nonvested shares outstanding at beginning of period |                                                |                                              
|Shares granted                                      |                                                |                                              
|Shares vested                                       |                                                |                                              
|Shares forfeited                                    |                                                |                                              
|                                                   
|Nonvested shares outstanding at end of period       |                                                |                                              
|                                                   

Compensation
expense related to the MRRP totaled $47,000 and $726,000 for the three-month periods ended
September 30, 2008 and 2007, respectively. Compensation expense related to the MRRP
totaled $1.0 million and $2.2 million for the nine-month periods ended September 30, 2008
and 2007, respectively. The weighted average grant date fair value of outstanding shares
awarded by the MRRP was $15.57 and $18.64 at September 30, 2008 and 2007, respectively. As
of September 30, 2008, we had $324,000 of total unrecognized employee compensation expense
related to unvested MRRP shares which are expected to be recognized over a weighted
average period of 29 months. We realized excess tax benefits related to MRRP shares of
zero and $5,000 during the three months ended September 30, 2008 and 2007, respectively.
We realized excess tax benefits related to MRRP shares of $10,000 and $378,000 during the
nine months ended September 30, 2008 and 2007, respectively.

21

---

TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

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. 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. Stockholders approved 2,257,508 stock options to be granted under
the SOP and 349,758 of these stock options remain available for future grants as of
September 30, 2008.

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 at the date of grant. We have utilized
historical experience to determine the expected life of the stock options and to estimate
future forfeitures. 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.

The
following table details the inputs into the Black-Scholes model for stock options granted
during the three and nine months ended September 30, 2008.

|                                                     | Three and Nine Months Ended
|---------------------------------------------------- | ---------------------------
|
|Dividend yield                                       |                            
|Expected volatility                                  |                            
|Risk-free interest rate                              |                            
|Expected life of stock options                       |                            
|Weighted average fair value of stock options granted |                            
|                                                    

22

---

TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

Stock
Option Activity.  The following table details stock options granted,
exercised and forfeited during the three months ended September 30, 2008:

|(Dollars in thousands, except per share data)   | Number of Shares | Weighted Average Exercise Price | Weighted Average RemainingContractual Term(In Years) | Aggregate IntrinsicValue
|----------------------------------------------- | ---------------- | ------------------------------- | ---------------------------------------------------- | ------------------------
|Stock options outstanding at June 30, 2008      |                  |                                 |                                                      | 1,790,726               
|Stock options granted                           |                  |                                 |                                                      | 10,000                  
|Stock options exercised                         |                  |                                 |                                                      | --                      
|Stock options forfeited                         |                  |                                 |                                                      | (1,000                  
|                                               
|Stock options outstanding at September 30, 2008 |                  |                                 |                                                      | 1,799,726               
|                                               
|Stock options exercisable at September 30, 2008 |                  |                                 |                                                      | 1,775,726               
|                                               

The
following table details stock options granted, exercised and forfeited during the three
months ended September 30, 2007:

|(Dollars in thousands, except per share data)   | Number of Shares | Weighted Average Exercise Price | Weighted Average RemainingContractual Term(In Years) | Aggregate IntrinsicValue
|----------------------------------------------- | ---------------- | ------------------------------- | ---------------------------------------------------- | ------------------------
|Stock options outstanding at June 30, 2007      |                  |                                 |                                                      | 1,798,226               
|Stock options granted                           |                  |                                 |                                                      | --                      
|Stock options exercised                         |                  |                                 |                                                      | --                      
|Stock options forfeited                         |                  |                                 |                                                      | --                      
|                                               
|Stock options outstanding at September 30, 2007 |                  |                                 |                                                      | 1,798,226               
|                                               
|Stock options exercisable at September 30, 2007 |                  |                                 |                                                      | 1,410,676               
|                                               

The
following table details stock options granted, exercised and forfeited during the nine
months ended September 30, 2008:

|(Dollars in thousands, except per share data)   | Number of Shares | Weighted Average Exercise Price | Weighted Average RemainingContractual Term(In Years) | Aggregate IntrinsicValue
|----------------------------------------------- | ---------------- | ------------------------------- | ---------------------------------------------------- | ------------------------
|Stock options outstanding at December 31, 2007  |                  |                                 |                                                      | 1,792,226               
|Stock options granted                           |                  |                                 |                                                      | 10,000                  
|Stock options exercised                         |                  |                                 |                                                      | (1,000                  
|Stock options forfeited                         |                  |                                 |                                                      | (1,500                  
|                                               
|Stock options outstanding at September 30, 2008 |                  |                                 |                                                      | 1,799,726               
|                                               
|Stock options exercisable at September 30, 2008 |                  |                                 |                                                      | 1,775,726               
|                                               

23

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TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

The
following table details stock options granted, exercised and forfeited during the nine
months ended September 30, 2007:

|(Dollars in thousands, except per share data)   | Number of Shares | Weighted Average Exercise Price | Weighted Average RemainingContractual Term(In Years) | Aggregate IntrinsicValue
|----------------------------------------------- | ---------------- | ------------------------------- | ---------------------------------------------------- | ------------------------
|Stock options outstanding at December 31, 2006  |                  |                                 |                                                      | 1,818,626               
|Stock options granted                           |                  |                                 |                                                      | --                      
|Stock options exercised                         |                  |                                 |                                                      | (19,900                 
|Stock options forfeited                         |                  |                                 |                                                      | (500                    
|                                               
|Stock options outstanding at September 30, 2007 |                  |                                 |                                                      | 1,798,226               
|                                               
|Stock options exercisable at September 30, 2007 |                  |                                 |                                                      | 1,410,676               
|                                               

The
following table details the intrinsic value, cash received and tax benefit realized from
the exercise of stock options during the three and nine months ended September 30, 2008
and 2007:

|                                     | Three Months Ended
September 30, | Nine Months Ended
September 30,
|------------------------------------ | -------------------------------- | -------------------------------
|
|Intrinsic value (market value on the |                                  |                                
|exercise date less the strike price) |                                  |                                
|Cash received from the exercise of   |                                  |                                
|stock options                        |                                  |                                
|Tax benefit realized from the        |                                  |                                
|exercise of stock options            |                                  |                                
|                                    

At
September 30, 2008, there was $80,000 of total unrecognized compensation expense related
to unvested stock options that will be expensed over a weighted average period of 29
months.

24

---

TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

# Note 11 
Unrecognized Tax Benefits

We
adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes 
an Interpretation of FASB Statement No. 109, on January 1, 2007 and, as a result,
recognized no material adjustment in our liability for unrecognized tax benefits.
Unrecognized tax benefits, excluding interest and penalties, were $150,000 at September
30, 2008. Unrecognized tax benefits of $147,000 and interest and penalties of $8,000 would
favorably affect our effective tax rate if recognized in future periods. The following
table summarizes our unrecognized tax benefits for the nine months ended September 30,
2008:

|(Dollars in thousands)                                                             | Unrecognized Tax Benefits
|---------------------------------------------------------------------------------- | -------------------------
|Unrecognized tax benefits at December 31, 2007                                     |                          
|Changes in unrecognized tax benefits for the nine months ended:                    |                          
|September 30, 2008                                                                 |                          
|Changes in unrecognized tax benefits due to lapse of statute of limitations        |                          
|Changes in unrecognized tax benefits related to deferred loan fees due to a change |                          
|in a tax accounting method approved by the Internal Revenue Service                |                          
|                                                                                  
|Unrecognized tax benefits at September 30, 2008                                    |                          
|                                                                                  

Any
interest and penalties related to uncertain tax positions are recorded in income tax
expense in the Consolidated Statements of Operations. At September 30, 2008, we had
approximately $8,000 of accrued interest payable related to uncertain tax positions
recorded in our Consolidated Statements of Financial Condition.

We
anticipate that a reduction in unrecognized tax benefits of up to $32,000 is reasonably
possible during the next 12 months. This potential reduction is primarily attributable to
the expiration of the statute of limitations related to the 2005 tax period.

The
tax years of 2005 through 2007 remain open for examination by federal and state taxing
authorities.

25

---

TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

# Note 12  Fair
Value Measurements

Effective
January 1, 2008, we adopted the provisions of SFAS No. 157, Fair Value
Measurements, for financial assets and financial liabilities. In accordance with FASB
Staff Position No. 157-2, Effective Date of FASB Statement No. 157, we delayed
application of SFAS No. 157 for non-financial assets and non-financial liabilities until
January 1, 2009. SFAS No. 157 defines fair value, establishes a framework for measuring
fair value in GAAP and expands disclosures about fair value measurements.

SFAS
No. 157 defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. A fair value
measurement assumes that the transaction to sell the asset or transfer the liability
occurs in the principal market for the asset or liability or, in the absence of a
principal market, the most advantageous market for the asset or liability. The price in
the principal (or most advantageous) market used to measure the fair value of the asset or
liability shall not be adjusted for transaction costs. An orderly transaction is a
transaction that assumes exposure to the market for a period prior to the measurement date
to allow for marketing activities that are usual and customary for transactions involving
such assets and liabilities; it is not a forced transaction. Market participants are
buyers and sellers in the principal market that are (a) independent, (b) knowledgeable,
(c) able to transact, and (d) willing to transact.

SFAS
No. 157 requires the use of valuation techniques that are consistent with the market
approach, the income approach and/or the cost approach. The market approach uses prices
and other relevant information generated by market transactions involving identical or
comparable assets and liabilities. The income approach uses valuation techniques to
convert future amounts, such as cash flows or earnings, to a single present amount on a
discounted basis. The cost approach is based on the amount that currently would be
required to replace the service capacity of an asset (replacement cost). Valuation
techniques should be consistently applied. Inputs to valuation techniques refer to the
assumptions that market participants would use in pricing the asset or liability. Inputs
may be observable, meaning those that reflect the assumptions market participants would
use in pricing the asset or liability developed based on market data obtained from
independent sources, or unobservable, meaning those that reflect the reporting
entitys own assumptions about the assumptions market participants would use in
pricing the asset or liability developed based on the best information available in the
circumstances. In that regard, SFAS No. 157 establishes a fair value hierarchy for
valuation inputs that gives the highest priority to quoted prices in active markets for
identical assets or liabilities and the lowest priority to unobservable inputs.

26

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TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

The fair value hierarchy is as
follows:

| |  | Level
1 Inputs   Unadjusted quoted prices in active markets for identical
assets or liabilities that the reporting entity has the ability to access at the
measurement date.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Level
2 Inputs   Inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly or indirectly. These might
include quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are not active, inputs
other than quoted prices that are observable for the asset or liability (such as interest
rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived
principally from or corroborated by market data by correlation or other means.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Level
3 Inputs   Unobservable inputs for determining the fair values of
assets or liabilities that reflect an entitys own assumptions about the assumptions
that market participants would use in pricing the assets or liabilities.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In
general, fair value is based upon quoted market prices, where available. If such quoted
market prices are not available, fair value is based upon internally developed models that
primarily use, as inputs, observable market-based parameters. Valuation adjustments may be
made to ensure that financial instruments are recorded at fair value. These adjustments
may include amounts that reflect counterparty credit quality and creditworthiness, among
other things, as well as unobservable parameters. Any such valuation adjustments are
applied consistently over time. Our valuation methodologies may produce a fair value
calculation that may not be indicative of net realizable value or reflective of future
fair values. While management believes our valuation methodologies are appropriate and
consistent with other market participants, the use of different methodologies or
assumptions to determine the fair value of certain financial instruments could result in a
different estimate of fair value at the reporting date.

A
description of the valuation methodologies used for instruments measured at fair value, as
well as the general classification of such instruments pursuant to the valuation
hierarchy, is set forth below. These valuation methodologies were applied to all of our
financial assets and financial liabilities carried at fair value effective January 1,
2008.

The
following disclosures exclude certain nonfinancial assets and liabilities which are
deferred under the provisions of FASB Staff Position 157-2. These include foreclosed real
estate, long-lived assets, goodwill and core deposit premiums, which are all written down
to fair value upon impairment. The FASBs deferral is intended to allow additional
time to consider the effect of various implementation issues relating to these
non-financial instruments and defers disclosures under SFAS No. 157 until
January 1, 2009.

27

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TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

# Valuation methods for
instruments measured at fair value on a recurring basis

The
following is a description of our valuation methodologies used for instruments measured at
fair value on a recurring basis:

Investment
Securities, Available for Sale  This portfolio comprises the majority
of the assets which we record at fair value. Securities classified as available for sale,
which include U.S. Government securities and agency obligations, corporate securities and
Asset Management Fund, are priced utilizing observable data from an active market. These
measurements are classified as Level 1.

Changes
in the fair value of available for sale investment securities are included in other
comprehensive income (loss) to the extent the changes are not considered other than
temporary impairments. Other than temporary impairment tests are performed on a quarterly
basis and any decline in the fair value of an individual security below its cost that is
deemed to be other than temporary results in a write-down to estimated fair value. These
write-downs are included as a component of earnings as realized losses. We recorded
impairment charges of $355,000 and $949,000 during the three and nine months ended
September 30, 2008, respectively.

Municipal
obligations, mortgage-backed securities and agency equity securities are valued using a
type of matrix, or grid, pricing in which securities are benchmarked against the treasury
rate based on credit rating. These model and matrix measurements are classified as
Level 2 in the fair value hierarchy.

Derivatives.          Our
derivative instruments are loan commitments and forward loan sales related           to
personal mortgage loan origination activity. The fair values of mortgage loan
          commitments and forward sales contracts are based on quoted prices for similar
          loans in the secondary market. However, these prices are adjusted by a factor
          which considers the likelihood that the commitment will ultimately result in a
          closed loan. Based on the unobservable nature of this adjustment, these
          measurements are classified as Level 3. The fair value of derivatives was
          $151,000 and $136,000 at September 30, 2008 and December 31, 2007,
respectively.           The $15,000 change in the fair value amount is included in the
gain on the sale           of loans in the accompanying Consolidated Statements of
Operations.

28

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TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

The
following table summarizes financial assets and financial liabilities measured at fair
value on a recurring basis as of September 30, 2008, segregated by the level of the
valuation inputs within the fair value hierarchy utilized to measure fair value:

|(Dollars in thousands)                          | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Total Fair Value
|----------------------------------------------- | -------------- | -------------- | -------------- | ----------------
|Securities, available for sale:                 |                |                |                |                 
|Mortgage-backed securities                      |                |                | $              | --              
|U.S. Government securities and                  |                |               
|agency obligations                              |                |                |                | 142,594         
|Corporate securities                            |                |                |                | 3,605           
|Municipal obligations                           |                |                |                | --              
|Agency equity securities                        |                |                |                | --              
|Asset Management Fund - ARM Fund                |                |                |                | 4,906           
|                                               
|Total investment securities, available for sale |                |                |                | 151,105         
|                                               
|SFAS No. 133 derivatives:                       |                |               
|Loan commitments                                |                |                |                | --              
|Forward loan sales                              |                |                |                | --              
|                                               
|Total SFAS No. 133 derivatives                  |                |                |                | --              
|                                               
|Total assets measured at fair value             |                |                | $              | 151,105         
|                                               

# Valuation methods for
instruments measured at fair value on a nonrecurring basis

The
following is a description of our valuation methodologies used for other financial
instruments measured at fair value on a nonrecurring basis. Except as noted  below for
impaired loans, no fair value adjustments on these instruments were recognized in the
current period.

Collateral
Dependent Impaired Loans. While the overall loan portfolio is not carried
at fair value, adjustments are recorded on certain loans to reflect partial write-downs
that are based on the value of the underlying collateral. In determining the value of real
estate collateral, we rely on external appraisals and assessment of property values by our
internal staff. In the case of non-real estate collateral, reliance is placed on a variety
of sources, including external estimates of value and judgments based on the experience
and expertise of internal specialists. Because many of these inputs are not observable,
the measurements are classified as Level 3. The carrying value of these impaired
loans was $158.1 million at September 30, 2008. Charge-offs on impaired loans during
the three and nine months ended September 30, 2008 were $7.3 million and $78.2
million, respectively. The related allowance increased by $328,000 for the three months
ended September 30, 2008 and decreased by $11.6 million for the nine months ended
September 30, 2008, respectively. The allowance for loan losses related to impaired loans
was $13.0 million at September 30, 2008 compared to $24.6 million at December 31, 2007.

29

---

TierOne Corporation and
SubsidiariesNotes to Consolidated Financial Statements  (Unaudited)

Loans
Held for Sale. Loans held for sale are carried at the lower of cost or market
value. The portfolio consists primarily of fixed rate single-family residential real
estate loans.

Single-family
residential real estate loan measurements are based on quoted market prices for
similar loans in the secondary market. These measurements are classified as Level 2 as
they utilize quoted market prices for similar assets in an active market.

FHLBank
Topeka Stock. At September 30, 2008, we held $46.7 million of FHLBank
Topeka stock which represents our carrying value which is approximately equal to fair
value. Fair value measurements for these securities are classified as Level 3 based on
their undeliverable nature related to credit risk.

Mortgage
Servicing Rights. We initially measure our mortgage servicing rights at
fair value, and amortize them over the period of estimated net servicing income. They are
periodically assessed for impairment based on fair value at the reporting date. Mortgage
servicing rights do not trade in an active market with readily observable prices.
Accordingly, the fair value is estimated based on a valuation model which calculates the
present value of estimated future net servicing income. The model incorporates assumptions
that market participants use in estimating future net servicing income, including
estimates of prepayment speeds, market discount rates, cost to service, float earnings
rates and other ancillary income, including late fees. The fair value measurements are
classified as Level 3. A valuation allowance of $76,000 was recorded as a reduction
of fees and services charges during the nine months ended September 30, 2008. The
valuation allowance was zero at December 31, 2007.

Effective
January 1, 2008, we adopted the provisions of SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities  Including an amendment of FASB Statement
No. 115. SFAS No. 159 allows us to choose to measure eligible items at fair value at
specified election dates. Unrealized gains and losses on items for which the fair value
measurement option has been elected are reported in earnings at each subsequent reporting
date. The fair value option (a) may be applied instrument by instrument, with certain
exceptions, thus we may record identical financial assets and liabilities at fair value or
by another measurement basis permitted under generally accepted accounting principals, (b)
is irrevocable (unless a new election date occurs) and (c) is applied only to entire
instruments and not to portions of instruments. Adoption of SFAS No. 159 on January 1,
2008 did not have any impact on our consolidated financial statements.

30

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

The
following is a discussion and analysis of the Companys financial condition and
results of operations including information on the Companys critical accounting
policies, asset/liability management, liquidity and capital resources and contractual
obligations. Information contained in this Managements Discussion and Analysis
should be read in conjunction with the disclosure regarding Forward-Looking Statements and
the risk factors described in Part 2, Item 1A. of this Quarterly Report on Form 10-Q.

# General

TierOne
Bank (Bank), a subsidiary of TierOne Corporation (Company), is a
$3.2 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. 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 results of operations are 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, data processing, advertising and other operating expense.
Our results of operations are significantly affected by general economic and competitive
conditions, particularly changes in market interest rates and U.S. Treasury yield curves,
governmental 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.

31

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# Recent Developments

Termination
of Acquisition Agreement. On May 17, 2007, we entered into and announced an
Agreement and Plan of Merger (Merger Agreement) with CapitalSource Inc. and
CapitalSource TRS Inc. On March 20, 2008, our Board of Directors terminated the Merger
Agreement. Pursuant to the terms of the Merger Agreement, either party had the right to
terminate the Merger Agreement if the proposed merger was not completed by February 17,
2008. No termination fee was payable by either company as a result of the termination of
the Merger Agreement.

TransLand
Financial Services Loan Sale. On June 25, 2008, we announced the sale of
over 300 delinquent residential construction loans previously originated by TransLand
Financial Services Inc. (TransLand), a Florida-based mortgage brokerage firm.
This sale comprised $12.7 million, net of charge-offs, of our total nonperforming
residential construction loans.

Loan
Production Office Closings. On June 30, 2008, we announced the closing of
all of our loan production offices in an effort to focus our lending activity in our
primary market area of Nebraska, Iowa and Kansas. We completed the closure of all of our
loan production offices during the three months ended September 30, 2008. The lending
offices that were closed were located in Phoenix, Arizona; Colorado Springs, Denver and
Fort Collins, Colorado; Orlando, Florida; Minneapolis, Minnesota; Las Vegas, Nevada and
Charlotte and Raleigh, North Carolina. We will continue to service loans made to existing
customers. At the current time, customer transition and collection support functions for
existing customers will continue in Charlotte, Las Vegas, Minneapolis and Orlando.

Board
of Director Appointment. On September 22, 2008, we announced that Ann
Lindley Spence had submitted her resignation as a director of the Company and the Bank. On
that same day, to fill the vacancy created by Ms. Spences retirement, the
Companys Board of Directors appointed Samuel P. Baird as an independent director of
the Company for a term expiring at the 2010 annual meeting of stockholders. Mr. Baird, who
was Director of the Nebraska Department of Banking and Finance from 1999-2004, has over 35
years of experience in banking, real estate, insurance and law. Mr. Baird was also
appointed to the Audit and Compensation Committees of the Companys Board of
Directors as well as director of the Bank.

Regulatory
Developments.  As a result of operating losses which were reported during the
previous four quarterly periods during the current economic downturn, the Company is
subject to certain limitations imposed by the Office of Thrift Supervision (OTS). We
are restricted from: (1) paying dividends, (2) repurchasing common stock, and (3) making
any payments on trust preferred securities without the prior written notice of
non-objection of the OTS. To support our capital position during the current period of
market volatility, the Bank currently has no requests pending before the OTS to pay
dividends or repurchase stock. The Company has also agreed with the OTS to contribute
additional capital above levels required for the Bank to be deemed well-capitalized for
regulatory purposes. The Company has contributed $19.1 million to the Bank during the first nine months of 2008 and subsequent
to September 30, 2008, contributed an additional $10.0 million to the Bank. The Bank is
required to maintain a ratio of 11.0% (as opposed to 10.0%) with respect to
total risk-based capital to risk-weighted assets and a ratio of 8.5% (as opposed
to 6.0%) with respect to Tier 1 capital to risk-weighted assets. As of September
30, 2008, the Bank exceeded these elevated ratios before the subsequent $10.0 million
capital contribution. See Item 2 - Managements Discussion and Analysis of Financial
Condition and Results of Operations - Regulatory Capital.

32

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# 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 recognize income, determine the allowance for loan
losses, evaluating investment and mortgage-backed securities for impairment, evaluating
goodwill and other intangible assets, valuation of mortgage servicing rights, valuation
and measurement of derivatives and commitments, valuation of real estate owned and
estimating income taxes are our most critical accounting policies. These policies are
important to the presentation of our financial condition and results of operations,
involve a higher 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.

Income
Recognition. We recognize interest income by methods that conform to U.S.
generally accepted accounting principles (GAAP). In the event management
believes collection of all or a portion of contractual interest on a loan has become
doubtful, which generally occurs after a loan is contractually delinquent 90 days or more,
we discontinue the accrual of interest and charge-off all previously accrued interest.
Interest received on nonperforming loans is included in income only if principal recovery
is reasonably assured. A nonperforming loan is restored to accrual status when it is
brought current and the collectibility of the total contractual principal and interest is
no longer in doubt.

Allowance
for Loan Losses. We have identified the allowance for loan losses as a
critical accounting policy where amounts are subject 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,
covers 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:

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

33

---

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

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

| |  | 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;
| | - | --------------------------------------------------

| |  | 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 concentration; and
| | - | ------------------------------------

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

In addition, we use information about
specific borrower situations, including their financial position, work-out plans and
estimated collateral values under various liquidation scenarios to estimate the risk and
amount of potential loss.

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

The
allowance for loan losses has 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.

34

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Investment
and Mortgage-Backed Securities. We evaluate our available for sale and held
to maturity investment securities for impairment on a quarterly basis. An impairment
charge in the Consolidated Statements of Operations is recognized when the decline in the
fair value of investment securities below their cost basis is determined to be
other-than-temporary. Various factors are utilized in determining whether we should record
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.

Goodwill
and Other Intangible Assets. We recorded goodwill as a result of our 2004
acquisition of United Nebraska Financial Co. (UNFC). We tested this goodwill
for impairment annually during the third quarter of each year, or between annual
assessment dates whenever events or significant changes in circumstances indicate that the
carrying value may be impaired. We performed a goodwill impairment test as of March 31,
2008 due to adverse changes in the business climate. As a result of a decline in the
market value of our common stock to levels below our book value, we determined that the
entire amount of our goodwill was impaired, and we recorded a $42.1 million goodwill
impairment charge to write-off our goodwill at March 31, 2008.

The
value of core deposit intangible assets acquired in connection with the UNFC transaction
and our acquisition of Marine Banks banking office in Omaha, Nebraska, 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. Core deposit intangible assets
are amortized using an accelerated method of amortization which is recorded in the
Consolidated Statements of Operations as other operating expense.

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 the identifiable intangible assets. No events or
circumstances triggered an impairment analysis of our core deposit intangible assets
during the nine months ended September 30, 2008.

Mortgage
Servicing Rights.On January 1, 2007 we adopted Statement of Financial
Accounting Standard (SFAS) No. 156, Accounting for Servicing of Financial
Assets  an Amendment of FASB Statement No. 140(SFAS No. 156). In
accordance with SFAS No. 156, we utilize the amortization method for all of our mortgage
servicing right assets, thus, carrying our mortgage servicing rights at the lower of
cost or market (fair value). Under the amortization method, we amortize mortgage
servicing rights in proportion to and over the period of net servicing income. Income
generated as a result of new servicing assets is reported as net gain on sale of loans
held for sale in the Consolidated Statements of Operations. Loan servicing fees, net of
amortization of mortgage servicing rights, is recorded in fees and service charges in the
Consolidated Statements of Operations.

35

---

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. We currently do not utilize direct financial hedges to mitigate the effect
of changes in the fair value of our mortgage servicing rights.

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 No. 109, Written Loan Commitments Recorded at
Fair Value Through Earnings. 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 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.

36

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Real
Estate Owned. Property and other assets acquired through foreclosure of
defaulted mortgage or other collateralized loans are carried at the lower of cost or fair
value, less estimated costs to sell the property and other assets. The fair value of real
estate owned is generally determined from appraisals obtained by independent appraisers.
Development and improvement costs relating to such property are capitalized to the extent
they are deemed to be recoverable.

An
allowance for losses on real estate and other assets owned is designed to include amounts
for estimated losses as a result of impairment in value of real property after
repossession. We review our real estate owned for impairment in value whenever events or
circumstances indicate that the carrying value of the property or other assets may not be
recoverable.

Income
Taxes. We estimate income taxes payable based on the amount we expect to
owe various tax authorities. Accrued income taxes represent the net estimated amount due
to, or to be received from, taxing authorities. In estimating accrued income taxes, we
assess the relative merits and risks of the appropriate tax treatment of transactions,
taking into account the applicable statutory, judicial and regulatory guidance in the
context of our tax position. Although we utilize current information to record income
taxes, underlying assumptions may change over time as a result of unanticipated events or
circumstances.

Under
current federal income tax rules we have the ability to carry back net operating losses
two years and recover federal income taxes paid. Therefore, we expect to generate federal income tax cash
refunds for the net operating loss we will incur for 2008. We utilize this ability
to carry back our federal net operating losses to support our position that the benefit of
our deferred tax assets will be realized. Furthermore, we will have exhausted our ability
to carry back net operating losses at December 31, 2008. If  we continue to experience net losses and our future level of net
deferred tax assets should increase in 2009, we may be required to establish a valuation
allowance against our deferred tax assets. For example, in the event our provision for
loan losses significantly exceeds our loan charge-offs in future years, we may be required
to establish a valuation allowance against our deferred tax assets. The establishment of a
valuation allowance related to our deferred tax assets could adversely affect our future
results of operations.

On
January 1, 2007, we adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 requires that we
determine whether a tax position is more likely than not to be sustained upon examination,
including resolution of any related appeals or litigation processes, based on the
technical merits of the position. Once it is determined that a position meets the
recognition threshold, the position is measured to determine the amount of benefit to be
recognized in the financial statements. Any interest and penalties related to uncertain
tax positions are recorded in income tax expense in the Consolidated Statements of
Operations.

37

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# Comparison of Financial
Condition at September 30, 2008 and December 31, 2007

# Assets

General.          Our
total assets were $3.2 billion at September 30, 2008, a decrease of $321.0
          million, or 9.1%, compared to $3.5 billion at December 31, 2007.

Cash
and Cash Equivalents. Our cash and cash equivalents totaled $123.7 million
at September 30, 2008, a decrease of $117.7 million, or 48.8%, compared to $241.5 million
at December 31, 2007. The decrease was primarily attributable to decreases in deposits and
FHLBank advances and an increase in investment securities.

Investment
Securities. Our available for sale investment securities totaled $163.1
million at September 30 , 2008, an increase of $32.6 million, or 25.0%, compared to $130.5
million at December 31, 2007. During the nine months ended September 30, 2008, security
purchases totaled $363.9 million which were substantially offset by maturing investment
securities totaling $331.5 million. The securities purchased during 2008 were primarily
agency obligations that were purchased to collateralize deposits. Losses due to
other-than-temporary impairment were $355,000 and $949,000 on investment securities for
the three and nine months ended September 30, 2008, respectively.

Mortgage-Backed
Securities. Our mortgage-backed securities, all of which are recorded as
available for sale, totaled $3.6 million at September 30, 2008, a decrease of $3.1
million, or 46.0%, compared to $6.7 million at December 31, 2007. The decrease in our
mortgage-backed securities was the result of $3.1 million of principal payments received
during the nine months ended September 30, 2008.

38

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Loans
Receivable. Net loans totaled $2.8 billion at September 30, 2008, a
decrease of $198.4 million, or 6.7%, compared to $3.0 billion at December 31, 2007. During
the nine months ended September 30, 2008, we originated $948.9 million of loans (exclusive
of warehouse mortgage lines of credit) and purchased $339.4 million of loans. These
increases were offset by $1.3 billion of principal repayments and charge-offs and $340.6
million of loan sales. The following table details the composition of our loan portfolio
at the dates indicated:

|(Dollars in thousands)                                                                              | September 30, 2008 | December 31, 2007 | Increase (Decrease) | % Change 
|--------------------------------------------------------------------------------------------------- | ------------------ | ----------------- | ------------------- | ---------
|One-to-four family residential (1)                                                                  |                    |                   | $                   | 364,989  
|Second mortgage residential                                                                         |                    |                   |                     | 80,182   
|Multi-family residential                                                                            |                    |                   |                     | 181,613  
|Commercial real estate                                                                              |                    |                   |                     | 335,668  
|Land and land development                                                                           |                    |                   |                     | 419,070  
|Residential construction                                                                            |                    |                   |                     | 269,097  
|Commercial construction                                                                             |                    |                   |                     | 424,898  
|Agriculture - real estate                                                                           |                    |                   |                     | 100,533  
|Business                                                                                            |                    |                   |                     | 234,151  
|Agriculture - operating                                                                             |                    |                   |                     | 106,980  
|Warehouse mortgage lines of credit                                                                  |                    |                   |                     | 72,583   
|Consumer                                                                                            |                    |                   |                     | 378,568  
|                                                                                                   
|Total loans                                                                                         |                    |                   |                     | 2,968,332
|                                                                                                   
|Unamortized premiums, discounts                                                                     |                    |                  
|and deferred loan fees                                                                              |                    |                   |                     | 9,526    
|Loans in process (2):                                                                               |                    |                  
|Land and land development                                                                           |                    |                   |                     | (55,336  
|Residential construction                                                                            |                    |                   |                     | (41,037  
|Commercial construction                                                                             |                    |                   |                     | (103,779 
|                                                                                                   
|Net loans                                                                                           |                    |                   | $                   | 2,777,706
|                                                                                                   
|(1) Includes loans held for sale                                                                    |                    |                   | $                   | 11,532   
|                                                                                                   
|(2) Loans in process represents the undisbursed portion of construction and land development loans.
|                                                                                                   

At
September 30, 2008, the outstanding balance (net of loans in process) of our residential
construction loans was $228.1 million, a decrease of $146.0 million, or 39.0%, compared to
$374.0 million at December 31, 2007. The outstanding balance (net of loans in process) of
our land and land development loans was $363.7 million at September 30, 2008, a decrease
of $24.8 million, or 6.4%, compared to $388.6 million at December 31, 2007. The
outstanding balance (net of loans in process) of our commercial construction loans was
$321.1 million at September 30, 2008, a decrease of $67.8 million, or 17.4%, compared to
$388.9 million at December 31, 2007.

The
increase in multi-family residential loans at September 30, 2008 was primarily the result
of the completion of construction on several multi-family development projects. Upon
completion of construction, the loans were reclassified to multi-family residential from
commercial construction.

The
decrease in net loans at September 30, 2008 was primarily attributable to a decrease in
loan originations. We have also tightened our credit policies and reduced our exposure in
selected business lines and geographic markets due to the continued deterioration in these
real estate markets and the economy in general. See Loan Quality and Nonperforming
Assets for a discussion on the business lines and geographic markets in which we
have reduced our exposure.

39

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Redefining
our Primary Lending Market Area.As previously discussed, on June 30, 2008
we announced the closing of all of our loan production offices in an effort to focus our
lending activity in our primary market area of Nebraska, Iowa and Kansas. At September 30,
2008, $1.6 billion, or 52.5%, of our total loans were secured by property located in
Nebraska, Iowa and Kansas. Loans collateralized by property in states in which we formerly
operated a loan production office (Arizona, Colorado, Florida, Minnesota, Nevada and North
Carolina) totaled $815.5 million, or 27.5%, of our total loan portfolio at September 30,
2008. Loans in all other states totaled $594.7 million, or 20.0%, of our total loan
portfolio.

Loan
Portfolio Concentration by State.The following table details the
concentration of our total loan portfolio by state at the dates indicated:

|(Dollars in thousands)                            | At September 30, 2008 | % | At December 31, 2007 | %        
|------------------------------------------------- | --------------------- | - | -------------------- | ---------
|Within our Primary Market Area:                   |                       |   |                      |          
|Nebraska                                          |                       |   | $                    | 1,366,529
|Iowa                                              |                       |   |                      | 126,008  
|Kansas                                            |                       |   |                      | 65,575   
|                                                 
|Total within our primary market area              |                       |   |                      | 1,558,112
|                                                 
|Within Former Loan Production Office States:      |                       |  
|Nevada                                            |                       |   |                      | 199,173  
|Colorado                                          |                       |   |                      | 197,722  
|Arizona                                           |                       |   |                      | 143,249  
|Minnesota                                         |                       |   |                      | 120,602  
|North Carolina                                    |                       |   |                      | 73,446   
|Florida                                           |                       |   |                      | 81,328   
|                                                 
|Total within former loan production office states |                       |   |                      | 815,520  
|                                                 
|Other States:                                     |                       |  
|South Carolina                                    |                       |   |                      | 73,970   
|California                                        |                       |   |                      | 63,896   
|Texas                                             |                       |   |                      | 78,699   
|Illinois                                          |                       |   |                      | 68,237   
|Oregon                                            |                       |   |                      | 43,324   
|Washington                                        |                       |   |                      | 21,445   
|Other States                                      |                       |   |                      | 245,129  
|                                                 
|Total other states                                |                       |   |                      | 594,700  
|                                                 
|Total loans                                       |                       |   | $                    | 2,968,332
|                                                 

40

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# Loan Quality and
Nonperforming Assets

Reports
listing all delinquent loans (loans 30 or more days delinquent), classified assets and
real estate owned are reviewed by management and our Board of Directors no less frequently
than quarterly. The procedures we take with respect to delinquencies vary depending on the
nature of the loan, period and cause of delinquency and whether the borrower is habitually
delinquent. When a borrower fails to make a required payment on a loan, we take a number
of steps to have the borrower cure the delinquency and restore the loan to current status.
In the event payment is not then received or the loan not otherwise satisfied, collection
letters are sent and telephone calls are generally made. If the loan is still not brought
current or satisfied and it becomes necessary for us to take legal action, which typically
occurs after a loan is 90 days or more delinquent, we will commence recovery proceedings
against the property securing the loan. If a legal action is instituted and the loan is
not brought current, paid in full, or refinanced before the recovery sale, the property
securing the loan generally is sold and, if purchased by us, becomes real estate owned or
a repossessed asset.

During
2007 and 2008, our levels of delinquent loans, nonperforming loans (loans 90 or more days
delinquent) and impaired loans increased significantly due to deterioration in the
nations economic conditions. The real estate market did not show improvement during
the first nine months of 2008, placing continued financial stress on customers,
particularly those engaged in residential development. This downturn in the residential
housing market has reduced demand and market prices for developed residential lots and
vacant land as well as completed homes. Where there is reduced demand for new homes,
certain residential developers may be required to hold their properties for longer periods
of time or be forced to sell their properties at a significantly reduced price which may
result in greater holding costs and lower or deferred cash inflows. These factors have
resulted in, and may continue to result in, greater credit risks for lenders.
Additionally, significantly tightened credit standards have made it more difficult for
potential borrowers to obtain financing and for current borrowers to refinance existing
loans.

Our
current levels of delinquent, nonperforming and impaired loans are primarily attributable
to the continued deterioration in the real estate market and the economy in general. We
have been further impacted by the erosion of property values and an overall increase in
housing inventory (both developed lots and completed houses) in many of the areas of the
country in which we do business and where the collateral for our loans resides. In
response to these conditions, we have tightened credit policies and reduced our exposure
in selected business lines and geographic markets.

41

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Delinquent
Loans.  The following table shows loans delinquent 30 - 89 days in our loan
portfolio as of the dates indicated:

|(Dollars in thousands)                     | September 30, 2008 | December 31, 2007
|------------------------------------------ | ------------------ | -----------------
|One-to-four family residential             |                    |                  
|Second mortgage residential                |                    |                  
|Multi-family residential                   |                    |                  
|Commercial real estate                     |                    |                  
|Land and land development                  |                    |                  
|Residential construction                   |                    |                  
|Commercial construction                    |                    |                  
|Agriculture - real estate                  |                    |                  
|Business                                   |                    |                  
|Agriculture - operating                    |                    |                  
|Consumer                                   |                    |                  
|                                          
|Total delinquent loans                     |                    |                  
|                                          
|Delinquent loans as a percentage of        |                    |                  
|net loans before allowance for loan losses |                    |                  
|                                          

42

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Nonperforming Loans and Real Estate Owned.The following table sets forth
information regarding nonperforming loans (90 or more days delinquent), real estate owned
and troubled debt restructurings. It is our policy to cease accruing interest on loans
contractually delinquent 90 days or more and charge-off all accrued interest. We did not
have any accruing loans 90 days or more past due at the dates shown.

|(Dollars in thousands)                                                                                   | September 30, 2008 | December 31, 2007
|-------------------------------------------------------------------------------------------------------- | ------------------ | -----------------
|Nonperforming loans:                                                                                     |                    |                  
|One-to-four family residential                                                                           |                    |                  
|Second mortgage residential                                                                              |                    |                  
|Multi-family residential                                                                                 |                    |                  
|Commercial real estate                                                                                   |                    |                  
|Land and land development                                                                                |                    |                  
|Residential construction                                                                                 |                    |                  
|Commercial construction                                                                                  |                    |                  
|Agriculture - real estate                                                                                |                    |                  
|Business                                                                                                 |                    |                  
|Agriculture - operating                                                                                  |                    |                  
|Consumer                                                                                                 |                    |                  
|                                                                                                        
|Total nonperforming loans                                                                                |                    |                  
|Real estate owned and repossessed assets, 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                                                                          |                    |                  
|                                                                                                        
|(1) Real estate owned and repossessed assets balances are shown net of related loss allowances. Includes
|both real property and other repossessed collateral.                                                    
|                                                                                                        

43

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Delinquent
and Nonperforming Loans by State.The following table details our
delinquent and nonperforming loans by state, on a net loan basis, as of September 30,
2008:

|(Dollars in thousands)                            | Net Loan Balance at September 30, 2008 | Loans,300-889 Days Delinquent | Nonperforming Loans | Total Delinquent and Nonperforming Loans
|------------------------------------------------- | -------------------------------------- | ----------------------------- | ------------------- | ----------------------------------------
|Within our Primary Market Area:                   |                                        |                               |                     |                                         
|Nebraska                                          |                                        |                               | $                   | 1,316,581                               
|Iowa                                              |                                        |                               |                     | 109,475                                 
|Kansas                                            |                                        |                               |                     | 65,132                                  
|                                                 
|Total within our primary market area              |                                        |                               |                     | 1,491,188                               
|                                                 
|Within Former Loan Production Office States:      |                                        |                              
|Nevada                                            |                                        |                               |                     | 184,442                                 
|Colorado                                          |                                        |                               |                     | 173,979                                 
|Arizona                                           |                                        |                               |                     | 123,670                                 
|Minnesota                                         |                                        |                               |                     | 117,599                                 
|Florida                                           |                                        |                               |                     | 77,459                                  
|North Carolina                                    |                                        |                               |                     | 64,290                                  
|                                                 
|Total within former loan production office states |                                        |                               |                     | 741,439                                 
|                                                 
|Other States:                                     |                                        |                              
|South Carolina                                    |                                        |                               |                     | 64,775                                  
|California                                        |                                        |                               |                     | 63,897                                  
|Other States                                      |                                        |                               |                     | 416,407                                 
|                                                 
|Total other states                                |                                        |                               |                     | 545,079                                 
|                                                 
|Total net loans                                   |                                        |                               | $                   | 2,777,706                               
|                                                 

Nonperforming
Loans. At September 30, 2008, our nonperforming loans totaled $141.0 million of which
$17.1 million, or 12.1%, was secured by property located in our primary market area of
Nebraska, Iowa and Kansas. Former loan production office states had $112.3 million, or 79.6%, of
total nonperforming loans at September 30, 2008. Other states comprised the remaining
$11.6 million, or 8.3%, of nonperforming loans at September 30, 2008.

The
change in the nonperforming loans is primarily attributable to the following:

| | Land
and Land Development.At September 30, 2008, nonperforming land
development loans consisted of 16 residential properties in the Las Vegas, Nevada area
totaling $50.5 million, seven residential properties in Nebraska totaling $4.3 million,
six residential properties in Arizona totaling $3.9 million, one residential property in
Florida totaling $3.8 million and eight residential properties located in other states
totaling $2.0 million. With the exception of a very limited number of local or existing
borrowers, we have not committed to any additional land and land development
loans since the end of 2006.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

44

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| | Residential
Construction Loans. Due to the continued erosion of housing values and
increased housing inventory in several markets throughout the country, we have, and may
continue to experience, increased levels of nonperforming residential construction loans.
Nonperforming residential construction loans totaled $41.8 million at September 30, 2008,
a decrease of $15.9 million, or 27.6%, compared to $57.7 million at December 31, 2007. At
September 30, 2008, our nonperforming residential construction loans primarily consisted
of six properties in Nevada totaling $10.5 million, 16 properties in South Carolina
totaling $9.2 million, seven properties in Florida totaling $7.4 million, eight
properties in Arizona totaling $6.7 million, 11 properties in North Carolina totaling
$4.4 million, 10 properties in Nebraska totaling $2.0 million and three properties in
Minnesota totaling $1.6 million. The decrease in nonperforming residential construction
loans is primarily the result of net charge-offs of $27.1 million during the nine months
ended September 30, 2008 and the sale of the delinquent TransLand portfolio.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
June 25, 2008, we sold over 300 delinquent residential construction loans previously
originated by TransLand. This sale of TransLand-related loans, net of charge-offs,
represented $12.7 million of our total nonperforming residential construction loans.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Commercial
Construction.Nonperforming commercial construction loans totaled $18.5
million at September 30, 2008. These nonperforming commercial construction loans
represent two upscale condominium developments located in the Las Vegas metro area. We
continue in our efforts to negotiate contracts to complete both projects with local
builders under the supervision of a receiver or court-appointed trustee.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

45

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Real
Estate Owned and Repossessed Assets. When we acquire real estate owned
property or other assets through foreclosure, deed in lieu of foreclosure or repossession,
it is initially recorded at the lower of the recorded investment in the corresponding loan
or the fair value of the related assets at the date of foreclosure, less costs to sell. If
there is a further deterioration in value, we provide for a specific valuation allowance
and charge operations for the decline in value. We generally obtain an appraisal or
brokers price opinion on all real estate subject to foreclosure proceedings prior to
the time of foreclosure. It is our policy to require appraisals on a periodic basis on
foreclosed properties as well as conduct inspections of such properties.

Real
Estate Owned and Repossessed Asset Activity. The following table sets forth
the activity of our real estate owned and repossessed assets for the periods indicated:

|                                      | Three Months Ended September 30, | Nine Months Ended September 30,
|------------------------------------- | -------------------------------- | -------------------------------
|
|Balance at beginning of period        |                                  |                                
|Loan foreclosures and other additions |                                  |                                
|Sales                                 |                                  |                                
|Provisions for losses                 |                                  |                                
|Net gain (loss) on disposal           |                                  |                                
|                                     
|Balance at end of period              |                                  |                                
|                                     

At
September 30, 2008, real estate owned consisted primarily of 66 residential properties
totaling $11.5 million and six commercial properties totaling $7.3 million. Our level of
real estate owned and repossessed assets may continue to increase in future periods.
Additionally, our holding period and provision for losses on real estate owned may
increase in future periods due to continued deterioration of the real estate market and
the economy in general.

46

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Allowance
for Loan Losses.The activity in the allowance for loan losses during the three
and nine months ended September 30, 2008 and 2007 is summarized in the following table:

|                                                 | At or for the Three Months Ended
September 30, | At or for the Nine Months Ended
September 30,
|------------------------------------------------ | ---------------------------------------------- | ---------------------------------------------
|
|Allowance for loan losses at beginning of period |                                                |                                              
|Charge-offs:                                     |                                                |                                              
|One-to-four family residential                   |                                                |                                              
|Second mortgage residential                      |                                                |                                              
|Multi-family residential                         |                                                |                                              
|Land and land development                        |                                                |                                              
|Commercial real estate                           |                                                |                                              
|Residential construction                         |                                                |                                              
|Commercial construction                          |                                                |                                              
|Business                                         |                                                |                                              
|Consumer                                         |                                                |                                              
|                                                
|Total charge-offs                                |                                                |                                              
|Recoveries on loans previously charged-off       |                                                |                                              
|Change in reserve for unfunded loan commitments  |                                                |                                              
|Provision for loan losses                        |                                                |                                              
|                                                
|Allowance for loan losses at end of period       |                                                |                                              
|                                                
|Allowance for loan losses as a percentage        |                                                |                                              
|of net loans                                     |                                                |                                              
|Allowance for loan losses as a percentage of     |                                                |                                              
|nonperforming loans                              |                                                |                                              
|Ratio of net charge-offs during the period as a  |                                                |                                              
|percentage of average loans outstanding          |                                                |                                              
|during the period                                |                                                |                                              
|                                                

During
the three months ended September 30, 2008 and 2007, we charged-off, net of recoveries,
$8.0 million and $1.9 million, respectively. For the nine months ended September 30, 2008
and 2007, we charged-off $77.8 million and $3.5 million, respectively. Charge-offs, net of
recoveries, during the nine months ended September 30, 2008 consisted primarily of $31.5
million of land and land development loans, $27.1 million of residential construction
loans, $7.7 million of one-to-four family residential loans, $6.7 million of commercial
construction loans, $2.3 million of business loans and $2.2 million of consumer loans.
Elevated provisions for loan losses may continue to negatively affect our financial
performance in future periods.

47

---

During
2007 and 2008, our levels of delinquent loans, nonperforming loans (loans 90 or more days
delinquent) and impaired loans increased significantly. We have been further impacted by
the erosion of property values and an overall increase in housing inventory (both
developed lots and completed houses) in many of the areas of the country in which we do
business and where the collateral for our loans resides. Additionally, significantly
tightened credit standards in the marketplace generally have made it more difficult for
potential borrowers to obtain financing and for current borrowers to refinance existing
loans. The following tables detail our nonperforming and impaired loans by loan type and
state for the periods presented:

|                               | Nonperforming Loans | Impaired Loans
|------------------------------ | ------------------- | --------------
|
|One-to-four family residential |                     |               
|Second mortgage residential    |                     |               
|Multi-family residential       |                     |               
|Commercial real estate         |                     |               
|Land and land development      |                     |               
|Residential construction       |                     |               
|Commercial construction        |                     |               
|Agriculture - real estate      |                     |               
|Business                       |                     |               
|Agriculture - operating        |                     |               
|Consumer                       |                     |               
|                              
|Total                          |                     |               
|                              

|                                                  | At September 30, 2008
|------------------------------------------------- | ---------------------
|
|Within our Primary Market Area:                   |                      
|Nebraska                                          |                      
|Iowa                                              |                      
|Kansas                                            |                      
|                                                 
|Total within our primary market area              |                      
|                                                 
|Within Former Loan Production Office States:      |                      
|Nevada                                            |                      
|Colorado                                          |                      
|Arizona                                           |                      
|Minnesota                                         |                      
|Florida                                           |                      
|North Carolina                                    |                      
|                                                 
|Total within former loan production office states |                      
|                                                 
|Other States:                                     |                      
|South Carolina                                    |                      
|California                                        |                      
|Other States                                      |                      
|                                                 
|Total other states                                |                      
|                                                 
|Total net loans                                   |                      
|                                                 

48

---

Our
allowance for loan losses related to impaired loans totaled $13.0 million at September 30,
2008 compared to $24.6 million at December 31, 2007. Actual losses are dependent upon
future events and, as such, further changes to the level of allowance for loan losses may
become necessary based on changes in economic conditions and other factors.

FHLBank
Topeka Stock. FHLBank Topeka (FHLBank) stock totaled $46.7
million at September 30, 2008, a decrease of $19.1 million, or 29.0%, compared to $65.8
million at December 31, 2007. The decrease was attributable to a stock redemption totaling
$21.0 million partially offset by FHLBank dividends paid in stock received during the nine
months ended September 30, 2008 totaling $1.9 million.

Premises
and Equipment.Premises and equipment decreased $1.7 million, or 4.5%, to
$36.3 million at September 30, 2008 compared to $38.0 million at December 31, 2007. The
decrease was attributable to $3.1 million of depreciation and amortization expense which
was partially offset by $1.3 million in asset additions.

Goodwill. At
December 31, 2007 we had $42.1 million of goodwill that was           recorded as a
result of our 2004 acquisition of UNFC. In accordance with SFAS           No. 142, Goodwill
and Other Intangible Assets, we tested this goodwill           for impairment
annually during the third quarter of each year, or between annual           assessment
dates whenever events or significant changes in circumstances           indicated that
the carrying value may be impaired. We performed a goodwill           impairment test as
of March 31, 2008 due to adverse changes in the business           climate. As a result
of a decline in the market value of our common stock to           levels below our book
value, we determined that the entire amount of our           goodwill was impaired, and
we recorded a $42.1 million goodwill impairment           charge to write-off our
goodwill at March 31, 2008.

Other
Intangible Assets. Other intangible assets totaled $5.0 million at
September 30, 2008, a decrease of $1.7 million, or 25.2%, compared to $6.7 million at
December 31, 2007 and relates to the core deposit intangible assets recorded as a result
of the UNFC acquisition and the Marine Bank transaction. The decrease was attributable to
$1.2 million in amortization during the nine months ended September 30, 2008 and a
$543,000 realized tax benefit associated with the UNFC acquisition.

Other
Assets.Other assets increased $27.8 million, or 45.7%, to $88.8 million at
September 30, 2008 compared to $61.0 million at December 31, 2007. Other assets consists
primarily of prepaid expenses, miscellaneous receivables and other assets. At September
30, 2008, other assets included income taxes receivable of $26.6 million, real estate
owned and repossessed assets totaling $18.8 million and deferred tax benefits totaling
$14.2 million. The increase in other assets was primarily attributable to an $18.6 million
increase in income taxes receivable and a $12.4 million increase in real estate owned and
repossessed assets partially offset by a $4.5 million decrease in deferred tax benefits.

We
have recorded a significant amount of deferred tax assets for deductible temporary
differences, the largest of which relates to the allowance for loan losses. For income tax
purposes only net charge-offs are deductible, not the provision for loan losses. Under
GAAP, a valuation allowance is required to be recognized if it is more likely than
not that a deferred tax asset will not be realized. At September 30, 2008, we
determined that no valuation allowance related to our deferred tax assets was necessary.

49

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# Liabilities and
Stockholders Equity

General.          Our
total liabilities were $2.9 billion at September 30, 2008, a decrease of           $249.2
million, or 7.8%, compared to $3.2 billion at December 31, 2007. The           decline in
total liabilities was attributable to a decrease in deposits and           FHLBank
advances.

Deposits.          Deposits
declined $223.7 million, or 9.2%, to $2.2 billion at September 30, 2008
          compared to December 31, 2007.

|(Dollars in thousands)       | September 30, 2008 | December 31, 2007 | Increase (Decrease) | % Change 
|---------------------------- | ------------------ | ----------------- | ------------------- | ---------
|Noninterest-bearing checking |                    |                   | $                   | 157,292  
|Savings                      |                    |                   |                     | 206,812  
|Interest-bearing checking    |                    |                   |                     | 311,151  
|Money market                 |                    |                   |                     | 264,995  
|Time deposits                |                    |                   |                     | 1,266,569
|                            
|Total deposits               |                    |                   | $                   | 2,206,819
|                            

Our
transaction accounts (checking, savings and money market) totaled $940.3 million at
September 30, 2008, a decrease of $91.2 million, or 8.8%, compared to $1.0 billion at
December 31, 2007. The number of transaction accounts increased by a net 3,146 accounts,
or 2.4%, to 136,546 accounts compared to 133,400 accounts at December 31, 2007. The
weighted average interest rate of our transaction accounts was 1.06% at September 30, 2008
compared to 1.96% at December 31, 2007. The decrease in deposits, particularly time
deposits, resulted from a less aggressive deposit pricing strategy due to the current
interest rate environment. The weighted average interest rate of our time deposits was
3.59% at September 30, 2008 compared to 4.96% at December 31, 2007.

FHLBank
Advances and Other Borrowings. Our FHLBank advances and other borrowings
totaled $677.4 million at September 30, 2008, a decrease of $11.9 million, or 1.7%,
compared to $689.3 million at December 31, 2007. The decrease in FHLBank advances and
other borrowings at September 30, 2008 was primarily attributable to the repayment of a
$25.0 million FHLBank convertible advance as it was called by the FHLBank. We did not have
an outstanding balance on our FHLBank line of credit at both September 30, 2008 and
December 31, 2007. The weighted average interest rate on our FHLBank advances and other
borrowings was 4.34% at September 30, 2008, a decrease of 16 basis points compared to
4.50% at December 31, 2007.

Accrued
Expenses and Other Liabilities. Our accrued expenses and other liabilities
totaled $29.5 million at September 30, 2008, a decrease of $6.3 million, or 17.7%,
compared to $35.9 million at December 31, 2007. The primary items comprising accrued
expenses and other liabilities are deferred compensation agreements, loan servicing
payments and other miscellaneous accrued expenses.

Stockholders
Equity. At September 30, 2008, stockholders equity totaled $273.7
million, a decrease of $71.9 million, or 20.8%, compared to $345.6 million at December 31,
2007. The decrease in stockholders equity was primarily the result of a net loss of
$71.5 million and cash dividends paid of $2.0 million during the nine months ended
September 30, 2008. The decrease was partially offset by $1.1 million related to common
stock earned by participants in the Employee Stock Ownership Plan (ESOP), $1.0
million related to amortization of awards under the 2003 Management Recognition and
Retention Plan (MRRP) and $683,000 related to amortization of stock options
under the 2003 Stock Option Plan (SOP). We paid cash dividends of $0.08 per
share on March 31, 2008 to stockholders of record on March 14, 2008 and $0.04 per share on
July 8, 2008 to stockholders of record on June 30, 2008. We have suspended the payment of
our quarterly cash dividend in order to preserve our capital.

50

---

On
March 20, 2008, we announced that our Board of Directors had authorized the repurchase of
up to 1,797,592 shares of our outstanding common stock. There is no stated expiration date
for this authorization. We repurchased 23,812 shares of our outstanding common stock to
support employee benefit programs during the nine months ended September 30, 2008. We did
not repurchase any shares of our outstanding common stock during the three months ended
September 30, 2008. The weighted average price paid per repurchased common share was $9.06
for the nine months ended September 30, 2008. At September 30, 2008, the total remaining
common stock repurchase authority was 1,773,780 shares.

Comparison of Operating Results
for the Three and Nine Months Ended September 30, 2008 and 2007

Net
Income (Loss). Net income for the three months ended September 30, 2008 was
$2.1 million, or $0.13 per diluted and basic share, compared to a net loss of $5.9
million, or $0.35 per diluted and basic share, for the three months ended September 30,
2007. Net loss for the nine months ended September 30, 2008 was $71.5 million, or $4.24
per diluted and basic share, compared to net income of $6.0 million, or $0.35 per diluted
share ($0.36 per basic share), for the nine months ended September 30, 2007. The net loss
for the nine months ended September 30, 2008 included a non-cash, after-tax charge of
$42.1 million for the write-off of goodwill originally recorded in connection with the
acquisition of UNFC. Our results for the three and nine months ended September 30, 2008
were also negatively impacted by provisions for loan losses totaling $6.0 million and
$73.6 million, respectively. Financial performance for the three and nine months ended
September 30, 2008 compared to the same periods in 2007 was also negatively impacted by a
decline in net interest income due to the tightening of interest rate margins and the
nonaccrual of interest on nonperforming loans.

Net
Interest Income. Net interest income is the most significant component of
our earnings and consists 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, average interest rate spread and net interest margin for the three and
nine months ended September 30, 2008 compared to the same periods in 2007 were negatively
affected by the increased balance of our nonperforming loans as we do not recognize
interest income on nonperforming loans (loans 90 days or more past due). We had
nonperforming loans totaling $141.0 million and $78.4 million at September 30, 2008 and
2007, respectively.

51

---

Net
interest income before provision for loan losses totaled $21.9 million for the three
months ended September 30, 2008, a decrease of $7.4 million, or 25.4%, compared to $29.3
million for the three months ended September 30, 2007. The decrease in net interest income
for the three months ended September 30, 2008 compared to the three months ended September
30, 2007 was primarily attributable to a 135 basis point decrease in the average yield
earned on loans receivable and a $274.4 million decline in the average balance of loans
receivable. For the nine months ended September 30, 2008, our net interest income totaled
$67.8 million, a decrease of $23.4 million, or 25.6%, compared to $91.2 million for the
nine months ended September 30, 2007. The decrease in net interest income for the nine
months ended September 30, 2008 compared to the same period in 2007 was primarily
attributable to a 113 basis point decline in the average yield earned on loans receivable
and a $212.2 million decrease in the average balance of loans receivable.

Our
average interest rate spread for the three months ended September 30, 2008 and 2007 was
2.64% and 3.14%, respectively. Our average interest rate spread was 2.59% for the nine
months ended September 30, 2008 compared to 3.33% for the nine months ended September 30,
2007. The decrease in our average interest rate spread was primarily attributable to the
decrease in the average yield earned on loans receivable, an increased balance of
nonperforming loans and the decrease in the average balance of loans receivable.

The
average yield on interest-earning assets was 5.84% for the three months ended September
30, 2008, a 147 basis point decrease compared to 7.31% for the three months ended
September 30, 2007. The average yield on interest-earning assets was 6.05% for the nine
months ended September 30, 2008, a 130 basis point decrease compared to 7.35% for the nine
months ended September 30, 2007. The decrease in the average yield earned on
interest-earning assets for the three and nine month periods ended September 30, 2008 was
primarily related to a decrease in the average yield earned on loans receivable. Our
average yield earned on loans receivable for the three months ended September 30, 2008 and
2007 was 6.14% and 7.49%, respectively. Our average yield earned on loans receivable for
the nine months ended September 30, 2008 and 2007 was 6.38% and 7.51%, respectively.

Our
net interest margin (net interest income (annualized) divided by average interest-earning
assets) declined to 2.92% for the three months ended September 30, 2008 compared to 3.58%
for the three months ended September 30, 2007. Our net interest margin was 2.91% for the
nine months ended September 30, 2008 compared to 3.76% for the nine months ended September
30, 2007. The decrease in our net interest margin was attributable to the factors
described above.

We
anticipate that our average interest rate spread and net interest margin may continue to
decline during the remainder of 2008 due to the continued deterioration of the real estate
market and the economy in general. The current economic environment could lead to further
increases in our level of nonperforming loans and decreased lending volume which would
have a negative impact on our average interest rate spread and net interest margin.
Furthermore, our average interest rate spread and net interest margin may further compress
due to continued disruption in the capital markets.

52

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Average
Balances, Net Interest Income, Yields Earned and Cost of Funds.The following
tables show 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, net interest
margin and average interest rate spread. All average balances

|                                                                                                                                     | Three Months Ended September 30,
|------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------
|
|
|Interest-earning assets:                                                                                                             |                                 
|Federal funds sold                                                                                                                   |                                 
|Investment securities (1)                                                                                                            |                                 
|Mortgage-backed securities                                                                                                           |                                 
|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,
|loans in process and allowance for loan losses.                                                                                      |                                 
|(3) Equals net interest income (annualized) divided by average interest-earning assets.                                             
|                                                                                                                                    

53

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|                                                                                                                                     | Nine Months Ended September 30,
|------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------
|
|
|Interest-earning assets:                                                                                                             |                                
|Federal funds sold                                                                                                                   |                                
|Investment securities (1)                                                                                                            |                                
|Mortgage-backed securities                                                                                                           |                                
|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,
|loans in process and allowance for loan losses.                                                                                     
|(3) Equals net interest income (annualized) divided by average interest-earning assets.                                             
|                                                                                                                                    

54

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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 September 30, 2008
Compared to
Three Months Ended September 30, 2007 | Nine Months Ended September 30, 2008
Compared to
Nine Months Ended September 30, 2007
|------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------
|
|
|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, loans
|in process and allowance for loan losses.                                     
|                                                                              

55

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Interest
Income.Our total interest income for the three months ended September 30, 2008
was $43.8 million, a decrease of $16.1 million, or 27.0%, compared to $59.9 million for
the three months ended September 30, 2007. Interest income on loans receivable totaled
$41.7 million for the three months ended September 30, 2008, a decrease of $14.3 million,
or 25.6%, compared to $56.0 million for the three months ended September 30, 2007. The
average balance of loans receivable decreased $274.4 million, or 9.2%, to $2.7 billion for
the three months ended September 30, 2008 compared to $3.0 billion for the three months
ended September 30, 2007. The average yield earned on loans receivable declined to 6.14%
for the three months ended September 30, 2008 compared to 7.49% for the three months ended
September 30, 2007.

For
the nine months ended September 30, 2008 our total interest income was $140.9 million, a
decrease of $37.2 million, or 20.9%, compared to $178.1 million for the nine months ended
September 30, 2007. Interest income on loans receivable totaled $133.0 million for the
nine months ended September 30, 2008, a decrease of $35.5 million, or 21.1%, compared to
$168.5 million for the nine months ended September 30, 2007. The average balance of loans
receivable decreased $212.2 million, or 7.1%, to $2.8 billion for the nine months ended
September 30, 2008 compared to $3.0 billion for the nine months ended September 30, 2007.
The average yield earned on loans receivable declined to 6.38% for the nine months ended
September 30, 2008 compared to 7.51% for the nine months ended September 30, 2007.

The
decrease in interest income for the three and nine months ended September 30, 2008
compared to the same period one year ago was primarily attributable to the decline in the
average yield earned on loans receivable and a decrease in the average balance of loans
receivable. Additionally, interest income on loans receivable was negatively affected by
an increased balance of nonperforming loans as we do not recognize interest income on
loans 90 days or more past due. At September 30, 2008 our nonperforming loans totaled
$141.0 million, an increase of $62.7 million, or 80.0%, compared to $78.4 million at
September 30, 2007.

Interest
Expense.Our total interest expense for the three months ended September 30, 2008
was $21.9 million, a decrease of $8.7 million, or 28.5%, compared to $30.6 million for the
three months ended September 30, 2007. Interest expense on deposits totaled $14.5 million
for the three months ended September 30, 2008, a decrease of $7.4 million, or 33.8%,
compared to $21.8 million for the three months ended September 30, 2007. The average
balance of our interest-bearing deposits declined $88.2 million, or 4.1%, to $2.1 billion
for the three months ended September 30, 2008 compared to the three months ended September
30, 2007. The average rate paid on interest-bearing deposits was 2.81% and 4.07% for the
three months ended September 30, 2008 and 2007, respectively. Interest expense on FHLBank
advances and other borrowings declined $1.3 million, or 15.2%, to $7.4 million for the
three months ended September 30, 2008 compared to $8.8 million for the three months ended
September 30, 2007. The average balance of our FHLBank advances and other borrowings
totaled $673.9 million for the three months ended September 30, 2008, a decrease of $111.5
million, or 14.2%, compared to $785.4 million for the three months ended September 30,
2007. The average rate paid on FHLBank advances and other borrowings was 4.41% and 4.46%
for the three months ended September 30, 2008 and 2007, respectively. Additionally, the
average balance of our interest-bearing liabilities totaled $2.7 billion for the three
months ended September 30, 2008, a decrease of $199.6 million, or 6.8%, compared to $2.9
billion for the three months ended September 30, 2007.

56

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The
decrease in interest expense for the three months ended September 30, 2008 compared to the
same period one year ago was primarily attributable to the decrease in the average rate
paid on deposits.

Our
total interest expense for the nine months ended September 30, 2008 was $73.1 million, a
decrease of $13.8 million, or 15.9%, compared to $86.9 million for the nine months ended
September 30, 2007. Interest expense on deposits totaled $50.9 million for the nine months
ended September 30, 2008, a decrease of $8.2 million, or 13.9%, compared to $59.1 million
for the nine months ended September 30, 2007. The average balance of our interest-bearing
deposits increased $109.1 million, or 5.4%, to $2.1 billion for the nine months ended
September 30, 2008 compared to $2.0 billion for the nine months ended September 30, 2007.
The average rate paid on interest-bearing deposits was 3.16% and 3.87% for the nine months
ended September 30, 2008 and 2007, respectively. Interest expense on FHLBank advances and
other borrowings declined $5.6 million, or 20.1%, to $22.2 million for the nine months
ended September 30, 2008 compared to $27.8 million for the nine months ended September 30,
2007. The average balance of our FHLBank advances and other borrowings totaled $669.6
million for the nine months ended September 30, 2008, a decrease of $179.6 million, or
21.2%, compared to $849.2 million for the nine months ended September 30, 2007. The
average rate paid on FHLBank advances and other borrowings was 4.43% and 4.37% for the
nine months ended September 30, 2008 and 2007, respectively. Additionally, the average
balance of our interest-bearing liabilities totaled $2.8 billion for the nine months ended
September 30, 2008, a decrease of $70.5 million, or 2.4%, compared to the nine months
ended September 30, 2007.

The
decrease in interest expense for the nine months ended September 30, 2008 compared to the
nine months ended September 30, 2007 was primarily attributable to the decrease in the
average rate of interest-bearing deposits and the decrease in the average balance of
FHLBank advances and other borrowings.

57

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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
frequently 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, classifying
loans pursuant to a grading system and consideration of a series of qualitative loss
factors. This evaluation process includes, among other things:

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

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

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

| |  | 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;
| | - | --------------------------------------------------

| |  | 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 concentration; and
| | - | ------------------------------------

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

In addition, we use information about
specific borrower situations, including their financial position, work-out plans and
estimated collateral values under various liquidation scenarios to estimate the risk and
amount of potential loss.

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

We
recorded a provision for loan losses of $6.0 million for the three months ended September
30, 2008 compared to $17.5 million for the three months ended September 30, 2007, a
decrease of $11.5 million. This decrease is attributable to a decline in net loans, a
reduction in charge-offs and a reduction in the volume of newly impaired loans. For the
nine months ended September 30, 2008 our provision for loan losses totaled $73.6 million,
an increase of $44.4 million compared to $29.2 million for the nine months ended September
30, 2007. The increase in our provision for loan losses for the nine month period ended
September 30, 2008 compared to the same period in 2007 was primarily attributable to the
increase in our nonperforming residential construction, land and land development and
commercial construction loans. The increase was also attributable to an increase in the
level of loans which were deemed impaired at September 30, 2008.

58

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The
following table details nonperforming and impaired loans for selected loan types for the
periods presented:

|                          | Nonperforming Loans | Impaired Loans
|------------------------- | ------------------- | --------------
|
|
|Residential construction  |                     |               
|Land and land development |                     |               
|Commercial construction   |                     |               
|All other loans           |                     |               
|                         
|Total                     |                     |               
|                         

Our
loan delinquency rate (30 or more days delinquent) at September 30, 2008 as a percentage
of net loans (before allowance for loan losses) was 6.88% compared to 6.08% at December
31, 2007 and 4.23% at September 30, 2007. The increase in our loan delinquency rate at
September 30, 2008 is primarily attributable to elevated levels of delinquent residential
construction, land and land development and commercial construction loans and a decrease
in net loans when compared to December 31, 2007 and September 30, 2007. Net loans totaled
$2.8 billion at September 30, 2008, a decrease of $198.4 million, or 6.7%, compared to
$3.0 billion at December 31, 2007. Net loans declined $243.2 million, or 8.0%, at
September 30, 2008 compared to $3.0 billion at September 30, 2007. Our level of
nonperforming loans and loan delinquencies may continue to increase for the foreseeable
future due to current economic conditions.

59

---

Noninterest
Income.Noninterest income for the three months ended September 30, 2008 was $8.9
million, an increase of $1.4 million, or 18.5%, compared to $7.5 million for the three
months ended September 30, 2007.

|                                                | Three Months Ended
September 30, | Increase
|----------------------------------------------- | -------------------------------- | --------
|
|Deposit account fees and service charges        |                                  |         
|Debit card fees                                 |                                  |         
|Lending fees and service charges                |                                  |         
|Mortgage servicing rights valuation adjustments |                                  |         
|Commissions and management fee income           |                                  |         
|Loss from real estate operations, net           |                                  |         
|Loss on impairment of securities                |                                  |         
|Net gain (loss) on sales of:                    |                                  |         
|Loans held for sale                             |                                  |         
|Real estate owned                               |                                  |         
|Other operating income                          |                                  |         
|                                               
|Total noninterest income                        |                                  |         
|                                               

The
increase in noninterest income for the three months ended September 30, 2008 compared to
the same period one year ago was primarily the result of a $1.7 million recovery of a
TransLand Financial Services, Inc. (TransLand) receivable previously written
off partially offset by a $355,000 impairment charge on equity securities. The impairment
charge on investment securities for the three months ended September 30, 2008 related to a
$346,000 loss on Freddie Mac preferred stock and a $9,000 loss on Farmer Mac preferred
stock.

Noninterest
income for the nine months ended September 30, 2008 was $24.2 million, an increase of $2.3
million, or 10.6%, compared to $21.9 million for the nine months ended September 30, 2007.

|                                                | Nine Months Ended
September 30, | Increase
|----------------------------------------------- | ------------------------------- | --------
|
|Deposit account fees and service charges        |                                 |         
|Debit card fees                                 |                                 |         
|Lending fees and service charges                |                                 |         
|Mortgage servicing rights valuation adjustments |                                 |         
|Commissions and management fee income           |                                 |         
|Loss from real estate operations, net           |                                 |         
|Loss on impairment of securities                |                                 |         
|Net gain (loss) on sales of:                    |                                 |         
|Loans held for sale                             |                                 |         
|Real estate owned                               |                                 |         
|Other operating income                          |                                 |         
|                                               
|Total noninterest income                        |                                 |         
|                                               

60

---

The
increase in noninterest income for the nine months ended September 30, 2008 compared to
the same period one year ago was primarily attributable to a $1.7 million recovery of the
TransLand receivable, a $1.6 million increase in deposit and debit card-related fees and
service charges and a $588,000 increase in commissions and management fee income partially
offset by a $949,000 impairment charge on investment securities. The impairment charge on
investment securities for the nine months ended September 30, 2008 related to a $505,000
loss on Freddie Mac preferred stock, a $435,000 loss on the Asset Management Fund (ARM
Fund) and a $9,000 loss on Farmer Mac preferred stock. The increase in commissions and
management fee income was primarily attributable to fees collected by UFARM (a subsidiary
that provides agricultural customers with professional farm and ranch management and real
estate brokerage services) and TierOne Financial (a subsidiary that administers the sale
of securities and insurance products).

Noninterest
Expense.Our noninterest expense decreased by $6.1 million, or 22.2%, to $21.5
million for the three months ended September 30, 2008 compared to $27.7 million for the
three months ended September 30, 2007.

|                                           | Three Months Ended
September 30, | Increase
|------------------------------------------ | -------------------------------- | --------
|
|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                      |                                  |         
|TransLand receivable write-off             |                                  |         
|Other                                      |                                  |         
|                                          
|Total noninterest expense                  |                                  |         
|                                          

The
decrease in noninterest expense for the three months ended September 30, 2008 compared to
the same period one year ago was primarily from the prior recognition of a one-time $4.8
million TransLand receivable write-off during the three months ended September 30, 2007.
Additionally, the decrease was also attributable to a $1.8 million reduction in
stock-based compensation expense. These decreases were partially offset by a $586,000
increase in Federal Deposit Insurance Corporation (FDIC) insurance premium
expense.

61

---

Our
noninterest expense increased by $36.2 million, or 50.3%, to $108.2 million for the nine
months ended September 30, 2008 compared to $72.0 million for the nine months ended
September 30, 2007.

|                                           | Nine Months Ended
September 30, | Increase
|------------------------------------------ | ------------------------------- | --------
|
|Employee compensation                      |                                 |         
|Employee benefits                          |                                 |         
|Payroll taxes                              |                                 |         
|Management Recognition and Retention Plan  |                                 |         
|Employee Stock Ownership Plan              |                                 |         
|2003 Stock Option Plan                     |                                 |         
|Goodwill impairment                        |                                 |         
|Occupancy, net                             |                                 |         
|Data processing                            |                                 |         
|Advertising                                |                                 |         
|Core deposit intangible asset amortization |                                 |         
|Professional services                      |                                 |         
|TransLand receivable write-off             |                                 |         
|Other                                      |                                 |         
|                                          
|Total noninterest expense                  |                                 |         
|                                          

The
increase in noninterest expense during the nine months ended September 30, 2008 compared
to the same period one year ago was primarily attributable to a $42.1 million goodwill
impairment charge and a $1.3 million increase in FDIC insurance premium expense partially
offset by the prior recognition of a one-time $4.8 million TransLand receivable write-off
and a $3.7 million reduction in stock-based compensation expense.

Income
Tax Expense(Benefit).Our income tax expense increased by $3.6 million, or 147.7%,
to $1.2 million for the three months ended September 30, 2008 compared to an income tax
benefit of $2.4 million for the three months ended September 30, 2007. The increase in our
income tax expense for the three months ended September 30, 2008 compared to the three
months ended September 30, 2007 was primarily attributable to an increase in income
resulting from a decrease in our provision for loan losses. The effective income tax rate
for the three months ended September 30, 2008 was 35.1% compared to an effective income
tax benefit rate of 29.2% for the three months ended September 30, 2007. Our income tax
expense decreased by $24.2 million for an income tax benefit of $18.3 million for the nine
months ended September 30, 2008 compared to income tax expense of $5.9 million for the
nine months ended September 30, 2007. The decrease in income tax expense for the nine
months ended September 30, 2008 compared to the same period in 2007 was primarily due to a
decrease in net income resulting from an increase in our provision for loan losses. Our
effective income tax benefit rate for the nine months ended September 30, 2008 was 20.4%
compared to an effective income tax rate of 49.9% for the nine months ended September 30,
2007. The decrease in our effective tax rate for the nine months ended September 30, 2008
was primarily attributable to the nonrecurring goodwill impairment charge which is a
nondeductible permanent tax item. Additionally, expenses initially considered
nondeductible totaling $2.0 million related to the Merger Agreement became deductible for
tax purposes as a result of the termination of the Merger Agreement.

62

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# Liquidity and Capital
Resources

Our
primary sources of funds are deposits; amortization of loans; loan prepayments and
maturity of loans; 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. We
utilize FHLBank advances and other borrowings as additional
funding sources.

We
actively manage our liquidity in an effort to maintain an adequate liquidity margin over
the level necessary to support expected and potential loan fundings and deposit
withdrawals. Our liquidity level may vary throughout the year, depending on economic
conditions, deposit fluctuations and loan funding needs. As of September 30, 2008, we
believe we have adequate liquidity to fund the daily operations of the Bank for the
foreseeable future.

During
the nine months ended September 30, 2008, net cash provided by operating activities was
$25.4 million. Net cash provided by investing activities during the nine months ended
September 30, 2008 was $100.4 million and primarily related to cash inflows from matured
investment securities, loan payoffs and periodic payments and the redemption of FHLBank
Topeka stock partially offset by the purchase of available for sale investment securities.
Net cash used in financing activities was $243.5 million for the nine months ended
September 30, 2008 and consisted primarily of cash outflows from a decline in deposits,
repayment of a FHLBank advance and cash dividends paid on our common stock.

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. The following
table details time deposits maturing during the next 12 months:

|(Dollars in thousands)                                 | Amount | Weighted Average Rate
|------------------------------------------------------ | ------ | ---------------------
|Amount Maturing During the Quarter Ended:              |        |                      
|December 31, 2008                                      |        |                      
|March 31, 2009                                         |        |                      
|June 30, 2009                                          |        |                      
|September 30, 2009                                     |        |                      
|                                                      
|Total time deposits maturing during the next 12 months |        |                      
|                                                      

We
anticipate that a significant portion of the maturing time deposits will be renewed with
us.

63

---

In
addition to cash flows generated by loan and securities payments and prepayments, we have
additional borrowing capacity to fund our asset growth. The average balance of our FHLBank
advances and other borrowings was $669.6 million for the nine months ended September 30,
2008 compared to $849.2 million for the nine months ended September 30, 2007. To date,
substantially all of our borrowings have consisted of FHLBank advances. Pursuant to
our collateral agreement 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. Under our collateral agreement with the FHLBank, our borrowing capacity
at September 30, 2008 was $742.2 million. Other collateral can be pledged in
the event additional borrowing capacity is required.

64

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# Aggregate Contractual
Obligations and Off-Balance Sheet Arrangements

We
believe 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 September 30, 2008, 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                                                                         |  |       
|Annual rental commitments under non-                                                                   |  |       
|cancellable operating leases                                                                           |  |       
|                                                                                                      
|Total contractual obligations (1)                                                                      |  |       
|                                                                                                      
|Lending commitments:                                                                                   |  |       
|Commitments to originate loans                                                                         |  |       
|Commitments to sell loans                                                                              |  |       
|Commitments to purchase loans                                                                          |  |       
|Loans in process (2)                                                                                   |  |       
|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                                                                 |  |       
|                                                                                                      
|(1) Unrealized tax benefits of $150,000, associated with FIN 48, are not included in the above table  
|as the timing and resolution of these unrealized benefits cannot be reasonably estimated at this time.
|(2) Loans in process represents the undisbursed portion of construction and land development loans.   
|                                                                                                      

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 September 30,
2008, the maximum total dollar amount of such recourse was approximately $20.2 million.
Based on historical experience, at September 30, 2008, we established a liability of
$734,000 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.

65

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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
possibly 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 (as set forth in the following table). Our
primary regulatory agency, the Office of Thrift Supervision, 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 September 30, 2008, we exceed all capital requirements to which we are subject.

The
Company has agreed with the OTS to contribute additional capital above levels required
for the Bank to be deemed well-capitalized for regulatory purposes. The
Company has contributed $19.1 million to the Bank during the first nine months of 2008 and subsequent to September 30, 2008,
contributed an additional $10.0 million to the Bank. The Bank is required to maintain a
ratio of 11.0% (as opposed to 10.0%) with respect to total risk-based
capital to risk-weighted assets and a ratio of 8.5% (as opposed to 6.0%)
with respect to Tier 1 capital to risk-weighted assets. As of September 30, 2008, the
Bank exceeded these elevated ratios before the subsequent $10.0 million capital
contribution.

66

---

At
September 30, 2008 and December 31, 2007, the Bank remains well
capitalized under the regulatory framework for prompt corrective action. The actual
capital amounts and ratios at September 30, 2008 and December 31, 2007 are presented
in the following table:

|                            | Actual | For Capital
Adequacy Purposes | To be Well Capitalized
Under Prompt Corrective
Action Provisions
|--------------------------- | ------ | ----------------------------- | ----------------------------------------------------------------
|
|At September 30, 2008:      |        |                               |                                                                 
|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)            |        |                               |                                                                 
|At December 31, 2007:       |        |                              
|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)            |        |                               |                                                                 
|                           

67

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# Selected Financial Data

|(Dollars in thousands, except per share data)   | At
September 30,
2008 | At
June 30,
2008 | At
March 31,
2008 | At
September 30,
2007
|----------------------------------------------- | --------------------- | ---------------- | ----------------- | ---------------------
|SELECTED STATEMENT OF FINANCIAL CONDITION DATA: |                       |                  |                   |                      
|Cash and cash equivalents                       |                       |                  | $                 | 123,726              
|Investment securities                           |                       |                  |                   | 163,165              
|Net loans after allowance for loan losses       |                       |                  |                   | 2,714,742            
|Goodwill                                        |                       |                  |                   | --                   
|Total assets                                    |                       |                  |                   | 3,216,747            
|Deposits                                        |                       |                  |                   | 2,206,819            
|FHLBank Topeka advances and other borrowings    |                       |                  |                   | 677,382              
|Stockholders equity                            |                       |                  |                   | 273,737              
|                                               

|                                                                                                                                 | For the Three Months Ended
|-------------------------------------------------------------------------------------------------------------------------------- | --------------------------
|
|SELECTED STATEMENT OF OPERATIONS DATA:                                                                                           |                           
|Total interest income                                                                                                            |                           
|Total interest expense                                                                                                           |                           
|                                                                                                                                
|Net interest income                                                                                                              |                           
|Provision for loan losses                                                                                                        |                           
|                                                                                                                                
|Net interest income (loss) after provision                                                                                       |                           
|for loan losses                                                                                                                  |                           
|                                                                                                                                
|Total noninterest income                                                                                                         |                           
|Total noninterest expense                                                                                                        |                           
|                                                                                                                                
|Income (loss) before income taxes                                                                                                |                           
|Income tax expense (benefit)                                                                                                     |                           
|                                                                                                                                
|Net income (loss)                                                                                                                |                           
|                                                                                                                                
|Net income (loss) per common share, basic                                                                                        |                           
|Net income (loss) per common share, diluted                                                                                      |                           
|Dividends declared per common share                                                                                              |                           
|                                                                                                                                
|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 (loss) 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)                                                                                                    |                           
|                                                                                                                                
|SELECTED ASSET QUALITY RATIOS:                                                                                                   |                           
|Nonperforming loans as a percentage of net loans                                                                                 |                           
|Nonperforming assets as a percentage of total assets                                                                             |                           
|Allowance for loan losses as a percentage of net loans                                                                           |                           
|                                                                                                                                
|(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.                                                                                       
|                                                                                                                                

68

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# New Accounting
Pronouncements

For
a discussion regarding accounting pronouncements, interpretations, exposure drafts and
other formal accounting guidance and the impact of these 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, 2007. The following discussion identifies certain recently issued
accounting guidance.

# Statements of Financial
Accounting Standards

In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51(SFAS No. 160). The
objective of this statement is to improve the relevance, comparability and transparency of
the financial information that a reporting entity provides in its consolidated financial
statements by establishing accounting and reporting standards. SFAS No. 160 is effective
for fiscal years beginning after December 15, 2008. We do not anticipate that the adoption
of SFAS No. 160 will have a material impact on our consolidated financial statements.

In
December 2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS No.
141R). The objective of this statement is to improve the relevance, representational
faithfulness and comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects. SFAS No. 141R establishes
principles and requirements for how the acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed and any
noncontrolling interest in the acquiree, recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase and determines what information
to disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS No. 141R applies prospectively to
business combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.

In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133 (SFAS No.
161). The objective of this statement is to enhance disclosures to provide adequate
information about how derivative and hedging activities affect an entitys financial
position, financial performance and cash flows. This statement requires enhanced
disclosures about an entitys derivative and hedging activities and thereby improves
the transparency of financial reporting. Under SFAS No. 161, entities will be required to
provide enhanced disclosures about how and why an entity utilizes derivative instruments,
how derivative instruments and related hedged items are accounted for under SFAS No. 133
and its related interpretations and how derivative instruments and related hedged items
affect an entitys financial position, financial performance and cash flows. SFAS No.
161 is effective for financial statements issued for fiscal years beginning after November
15, 2008. We do not anticipate that the adoption of SFAS No. 161 will have a material
impact on our consolidated financial statements.

In
May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS No. 162). SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles. SFAS No. 162 directs the
hierarchy to the entity, rather than the independent auditors, as the entity is
responsible for selecting accounting principles for financial statements that are
presented in conformity with generally accepted accounting principles. SFAS No. 162 is
effective 60 days following SEC approval of the Public Company Accounting Oversight Board
amendments to remove the hierarchy of generally accepted accounting principles from the
auditing standards. We do not anticipate that the adoption of SFAS No. 162 will have a
material impact on our consolidated financial statements.

69

---

# 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 interest
rates, 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, 2007. 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 in a timely manner 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.

70

---

# PART II  OTHER
INFORMATION

# Item 1  Legal
Proceedings.

We
are not involved in any pending legal proceedings other than routine legal proceedings
occurring in the ordinary course of business. Such routine legal proceedings, in the
aggregate, are believed by management to be immaterial to our consolidated financial
statements.

# Item 1A  Risk
Factors.

The
following risk factors supplement, and should be read in conjunction with, the risk
factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007.
You should carefully consider the risks and uncertainties described below, together with
the other risk factors and information included in this Quarterly Report on Form 10-Q and
our other reports filed with the SEC.

# If economic
conditions decline further, our financial condition and results of operations could
continue to be adversely affected.

Our
operating results are affected by national and local economic and competitive conditions,
including changes in market interest rates, the strength of the local economy,
governmental policies of the communities in which we do business and actions of regulatory
authorities. A further decline in the local or national economy could continue to
adversely affect our financial condition and results of operations. Deterioration in
economic conditions could result in the following consequences, any of which could have a
material adverse effect on our business, financial condition, results of operations and
cash flows:

| |  | A
decline in the demand for the products and services we offer;
| | - | ---------------------------------------------------------------

| |  | An
increase in nonperforming loans and loan charge-offs;
| | - | --------------------------------------------------------

| |  | An
increase in provisions for loan losses;
| | - | ------------------------------------------

| |  | An
increase in losses on real estate owned (acquired through foreclosure); and
| | - | ------------------------------------------------------------------------------

| |  | A
migration from low-yielding or noninterest bearing deposits to higher-yielding deposit
products.
| | - | --------------------------------------------------------------------------------------------------

# Negative conditions
in the real estate markets where we operate could adversely affect our financial results.

Real
estate values are affected by various factors, including general economic conditions,
governmental rules or policies and natural disasters. These factors could reduce our
earnings and consequently our financial condition because:

| |  | Borrowers
may not be able to repay their loans;
| | - | -----------------------------------------------

| |  | The
value of the collateral securing our loans may decline;
| | - | -----------------------------------------------------------

| |  | The
quality of our loan portfolio may decline; and
| | - | --------------------------------------------------

| |  | Customers
may not want or need our products and services.
| | - | ---------------------------------------------------------

Any of these scenarios could cause an
increase in delinquencies and nonperforming assets, require us to charge-off a higher
percentage of our loans, increase substantially our provision for loan losses or make
fewer loans which would reduce income.

71

---

# Legislative and
regulatory issues could adversely affect our financial condition and results of
operations.

We
are subject to extensive regulation, supervision and examination by the OTS
as our primary federal regulator, and by the FDIC, which insures our deposits. As a member of the FHLBank, we must also comply
with applicable regulations of the Federal Housing Finance Board and the FHLBank.
Regulation by these agencies is intended primarily for the protection of our depositors
and the Deposit Insurance Fund and not for the benefit of our stockholders. These
regulatory authorities conduct periodic examinations to assess our safety and soundness
and compliance with various regulatory requirements. Expenses related to supervisory or
enforcement activities stemming from these examinations and other actions taken by our
regulatory authorities could have a material adverse impact on us and our results of
operations.

Our
activities are also regulated under consumer protections laws applicable to our lending,
deposit and other activities. A sufficient claim against us under these laws could have a
material adverse affect on our financial condition and results of operations.

We may elect or be compelled to
seek additional capital in the future, but that capital may not be available when it is
needed.

We
are required by our regulatory authorities to maintain adequate levels of capital to
support our operations. In addition, we may elect to raise additional capital to support
the growth of our business or to finance acquisitions, if any, or we may elect to raise
additional capital for other reasons. Although we remain well-capitalized and have not had a
deterioration in our liquidity, the future cost and availability of capital may be
adversely affected by illiquid credit markets, economic conditions and a number of other
factors, many of which are outside of our control. Accordingly,
our ability to raise additional capital if needed or on terms acceptable to us cannot be assumed. If we
cannot raise additional capital when needed or on terms acceptable to us, it may have a
material adverse effect on our financial condition and results of operations.

# Recent developments
affecting the financial markets presently have an unknown effect on our business.

In
response to the recent crises affecting the financial markets, the federal government has
taken unprecedented steps in an attempt to stabilize and provide liquidity to the U.S.
financial markets.

Under
the Emergency Economic Stabilization Act of 2008 (EESA) and the Troubled Asset
Relief Program Capital Purchase Program (CPP), the U.S. Treasury will make
$250 billion of capital available to U.S. financial institutions by purchasing preferred
stock in these institutions. In conjunction with the purchase of preferred stock, the U.S.
Treasury will receive warrants to purchase common stock having an aggregate market price
equal to 15% of the preferred stock purchased. Participating financial institutions will
be required to adopt the Treasurys standards for executive compensation and
corporate governance for the period during which the Treasury holds securities issued
under the CPP.

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In
addition, the FDIC will temporarily provide a 100%
guarantee of the senior unsecured debt of all FDIC-insured institutions and their holding
companies, as well as deposits in noninterest bearing transaction deposit accounts under
the Temporary Liquidity Guarantee Program. Coverage under the Temporary Liquidity
Guarantee Program is available for 30 days without charge and thereafter at a cost of 75
basis points per annum for senior unsecured debt and 10 basis points per annum for
noninterest bearing transaction deposits exceeding $250,000 as we have opted to participate. We are assessing our participation in the CPP
but have not made a definitive decision
whether or not to participate. It is not clear at this time
whether our decision to participate or not in the CPP will have an effect on our business.

# Our loan origination
and purchase activity is highly concentrated in certain types of loans.

At
September 30, 2008, $1.6 billion, or 53.7%, of our total loans consisted of multi-family
residential, commercial real estate, land and land development, commercial construction
and business loans. These types of loans generally expose a lender to a greater risk of
non-payment and loss than one-to-four family residential mortgage loans because repayment
of such loans is dependent upon the successful operation of the property and the income
stream of the borrowers. Additionally, these types of loans typically involve larger loan
balances to single borrowers or groups of related borrowers compared to one-to-four family
residential mortgage loans. Also, many of the Banks commercial borrowers have more
than one loan outstanding. Consequently, an adverse development with respect to one loan
or one credit relationship may expose us to a significantly greater risk of loss compared
to an adverse development with respect to a one-to-four family residential mortgage loan.

At
September 30, 2008, $269.1 million, or 9.1%, of our total loans consisted of residential
construction loans. Our portfolio of residential construction loans increased dramatically
in 2004, 2005 and 2006 as a result of our emphasis on loans with relatively higher yields,
adjustable interest rates and/or shorter terms to maturity. Risk of loss on a residential
construction loan is dependent largely upon the accuracy of the initial estimate of the
propertys value when completed compared to the projected cost (including interest)
of construction and other assumptions, including the approximate time to sell the
property. Our ability to continue to originate and/or purchase residential construction
loans may be impaired by adverse changes in local and regional economic conditions in the
real estate markets, or by acts of nature. Due to the concentration of real estate
collateral, these events could have a material adverse impact on the value of collateral,
resulting in delinquencies and/or losses. Customer demand for loans secured by real estate
could be reduced by a weaker economy, an increase in unemployment, a decrease in real
estate values or an increase in interest rates.

# Our concentration of
loans in Nevada may expose us to increased credit risk that may cause us to record
additional provisions for loan losses and/or may result in future loan charge-offs.

At
September 30, 2008, $184.4 million, or 6.6%, of our net loans were collateralized by
properties in the state of Nevada, primarily in Las Vegas. Our loans in the Las Vegas area
are primarily composed of land development, commercial construction and residential
construction loans. At September 30, 2008, our nonperforming land development, commercial
construction and residential construction loans in the state of Nevada totaled $50.5
million, $18.5 million and $10.5 million, respectively.

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# Potential future loan
losses may increase.

We
maintain an allowance for loan losses that represents managements best estimate of
probable losses within our existing loan portfolio. The level of the allowance for loan
losses reflects managements continuing evaluation of industry concentrations,
specific credit risks, loan loss experience, current loan portfolio quality, present
economic, political and regulatory conditions and unidentified losses inherent in the
current loan portfolio. During 2007 and the first nine months of 2008, our levels of
delinquent loans, nonperforming loans (loans 90 or more days delinquent), impaired loans
and charge-offs increased significantly. These increases were primarily attributable to
the continued deterioration in the real estate market and the economy in general. We have
been further impacted by the erosion of property values and an overall increase in housing
inventory (both developed lots and completed houses) in many of the areas of the country
in which we do business and where the collateral for our loans resides. Additionally,
significantly tightened credit standards have made it more difficult for potential
borrowers to obtain financing and for current borrowers to refinance existing loans. If
the recent trend is prolonged and losses continue to increase, our results of operations
will continue to be negatively impacted.

# Our allowance for
loan losses may be inadequate.

An
inadequate allowance for loan losses could adversely affect our results of operations. We
are exposed to the risk that our customers may be unable to repay their loans according to
their terms and that any collateral securing the payment of their loans may not be
sufficient to assure full repayment. We evaluate the collectibility of our loan portfolio
and provide for an allowance for loan losses which is based on our historical loan loss
experience for each group of loans as further adjusted for specific factors.

If
our evaluation is incorrect, our allowance for loan losses may not be sufficient to cover
losses inherent in the loan portfolio, resulting in additions to our allowance for loan
losses. Increases in the allowance for loan losses result in an expense for the period.
If, as a result of general economic conditions or a decrease in asset quality, management
determines that additional increases in the allowance for loan losses are warranted, we
may incur additional expenses. We can make no assurances that our allowance for loan
losses will be adequate to cover loan losses inherent in our portfolio.

Our
loans are primarily secured by real estate, including regional concentrations of loans in
areas of the United States that are susceptible to tornados, earthquakes, hurricanes or
other natural disasters. If a natural disaster were to occur in one of our major market
areas, loan losses could occur that are not incorporated in the existing allowance for
loan losses.

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

We
repurchased 23,812 shares of our outstanding common stock to support employee benefit
programs during the nine months ended September 30, 2008. There were no repurchases of
common stock during the three months ended September 30, 2008.

# 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.

On
August 28, 2008, we held our Annual Meeting of Stockholders to obtain approval for two
proxy proposals submitted on behalf of our Board of Directors. Following is a brief
summary of each proposal and the result of the vote.

|Proposal                                            | Term Expiration | For        | Withheld / Against | Abstain | Broker Non-Votes
|--------------------------------------------------- | --------------- | ---------- | ------------------ | ------- | ----------------
|1. To elect two directors for a three-year term and |                 |            |                    |         |                 
|until their successors are elected and qualified.  
|James A. Laphen                                     | 2011            | 12,754,511 | 2,541,268          | N/A     | N/A             
|Campbell R. McConnell                               | 2011            | 12,743,043 | 2,552,736          | N/A     | N/A             
|                                                   
|2. To ratify the appointment of KPMG LLP as the    
|independent auditors for the year ending           
|December 31, 2008.                                  | N/A             | 15,033,941 | 219,867            | 41,971  | N/A             
|                                                   

The
terms of office for the following directors continued after our Annual Meeting of
Stockholders: Gilbert G. Lundstrom and Joyce Person Pocras (terms expire in 2009) and
Charles W. Hoskins and Samuel P. Baird (term expires in 2010).

# 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.

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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:  November 7, 2008 | By:/s/ Gilbert G. Lundstrom                      
|                        | Gilbert G. Lundstrom                             
|                        | Chairman of the Board and Chief Executive Officer
|Date:  November 7, 2008 | By:/s/ Eugene B. Witkowicz                       
|                        | Eugene B. Witkowicz                              
|                        | Executive Vice President and                     
|                        | Chief Financial Officer                          

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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
|    

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