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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2003
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 (I.R.S. Employer Identification No.)
Incorporation or Organization)
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 an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of May 9, 2003, a total of
22,575,075 shares of the Registrant's common stock were issued and outstanding.
PART I - FINANCIAL INFORMATION
Interim financial information required by Rule 10-01 of Regulation S-X and Item
303 of Regulation S-K is included in this Form 10-Q as referenced below.
Page
Item 1 - Financial Statements ............................................. 3
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 14
Item 3 - Quantitative and Qualitative Disclosures About Market Risk ....... 25
Item 4 - Controls and Procedures .......................................... 25
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings ................................................ 26
Item 2 - Changes in Securities and Use of Proceeds ........................ 26
Item 3 - Defaults Upon Senior Securities .................................. 26
Item 4 - Submission of Matters to a Vote of Security Holders .............. 26
Item 5 - Other Information ................................................ 27
Item 6 - Exhibits and Reports on Form 8-K ................................. 27
Signatures ................................................................ 29
2
TierOne Corporation and Subsidiaries
Consolidated Balance Sheets
March 31, 2003 (Unaudited) and December 31, 2002
(dollars in thousands, except per share data)
March 31, 2003 December 31, 2002
-------------- -----------------
Assets
Cash and due from banks $ 26,720 $ 33,037
Federal funds sold -- --
----------- -----------
Total cash and cash equivalents 26,720 33,037
Investment securities:
Held to maturity 153 157
Available for sale 34,668 30,546
Mortgage-backed securities, available for sale 110,547 30,369
Loans held for sale 10,874 8,504
Loans receivable, net 1,875,191 1,765,744
Federal Home Loan Bank stock 29,069 21,459
Premises and equipment, net 28,139 26,810
Accrued interest receivable 9,480 9,084
Other assets 20,062 19,825
----------- -----------
Total assets $ 2,144,903 $ 1,945,535
=========== ===========
Liabilities and Shareholders' Equity
Liabilities:
Deposits $ 1,155,049 $ 1,128,880
Advances from Federal Home Loan Bank and other borrowings 582,115 418,329
Advance payments from borrowers for taxes, insurance and
other escrow funds 30,267 29,453
Accrued interest payable 6,433 6,812
Accrued expenses and other liabilities 24,875 22,165
----------- -----------
Total liabilities 1,798,739 1,605,639
----------- -----------
Shareholders' 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;
22,575,075 shares issued and outstanding 226 226
Additional paid-in capital 355,948 355,741
Retained earnings, substantially restricted 7,713 2,018
Unallocated common stock held by Employee Stock
Ownership Plan (17,308) (17,684)
Accumulated other comprehensive loss (415) (405)
----------- -----------
Total shareholders' equity 346,164 339,896
Commitments and contingent liabilities
----------- -----------
Total liabilities and shareholders' equity $ 2,144,903 $ 1,945,535
=========== ===========
See accompanying notes to consolidated financial statements.
3
TierOne Corporation and Subsidiaries
Consolidated Statements of Income
Three Months Ended March 31, 2003 and 2002 (Unaudited)
(dollars in thousands, except per share data)
March 31,
--------------------------
2003 2002
-------- -------
Interest income:
Loans receivable $ 26,793 $23,143
Investment securities 1,032 1,244
Other interest-earning assets 99 198
-------- -------
Total interest income 27,924 24,585
-------- -------
Interest expense:
Deposits 6,223 8,159
Advances from Federal Home Loan Bank and other borrowings 4,064 2,920
-------- -------
Total interest expense 10,287 11,079
-------- -------
Net interest income 17,637 13,506
Provision for loan losses 1,172 564
-------- -------
Net interest income after provision for loan losses 16,465 12,942
-------- -------
Other income:
Fees and service charges 967 1,816
Income (loss) from real estate operations, net (18) 149
Net gain on sales of:
Loans held for sale 1,955 705
Real estate owned 14 --
Other operating income 711 570
-------- -------
Total other income 3,629 3,240
-------- -------
Other expense:
Salaries and employee benefits 6,319 5,146
Occupancy, net 1,431 1,438
Data processing 411 364
Advertising 724 947
Other operating expense 2,208 1,816
-------- -------
Total other expense 11,093 9,711
-------- -------
Income before income taxes 9,001 6,471
Income tax expense 3,306 2,336
-------- -------
Net income $ 5,695 $ 4,135
======== =======
Net income per common share, basic and diluted* $ 0.27
========
Average common shares outstanding (000's)* 20,826
========
* Information applicable to post stock conversion period only. The Company
completed its initial public offering on October 1, 2002.
See accompanying notes to consolidated financial statements.
4
TierOne Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
and Comprehensive Income
Three Months Ended March 31, 2003 (Unaudited)
(dollars in thousands)
Retained Unallocated common Accumulated
Additional earnings, stock held by the other Total
Common paid-in substantially Employee Stock comprehensive shareholders'
stock capital restricted Ownership Plan loss equity
------ ---------- ------------- ------------------ ------------- -------------
Balance at December 31, 2002 $226 $355,741 $2,018 $(17,684) $(405) $ 339,896
---- -------- ------ -------- ----- ---------
Common stock allocated
to participants in Employee
Stock Ownership Plan -- 207 -- 376 -- 583
Comprehensive income:
Net income -- -- 5,695 -- -- 5,695
Change in unrealized
loss on available for
sale securities, net
of tax and reclassification
adjustment -- -- -- -- (10) (10)
---- -------- ------ -------- ----- ---------
Total comprehensive income -- -- 5,695 -- (10) 5,685
---- -------- ------ -------- ----- ---------
Balance at March 31, 2003 $226 $355,948 $7,713 $(17,308) $(415) $ 346,164
==== ======== ====== ======== ===== =========
See accompanying notes to consolidated financial statements.
5
TierOne Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2003 and 2002 (Unaudited)
(dollars in thousands)
March 31,
----------------------
2003 2002
--------- --------
Reconciliation of net income to net cash provided by (used in) operating activities:
Net income $ 5,695 $ 4,135
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Net amortization (accretion) of investment and mortgage-backed securities 5 (46)
Depreciation and amortization 670 545
Employee Stock Ownership Plan expense 583 --
Amortization on loans receivable, net 1,115 236
Deferred income tax expense (benefit) (97) 40
Provision for loan losses 1,172 564
Proceeds from sales of loans held for sale 140,590 85,724
Originations and purchases of loans held for sale (141,005) (85,773)
Net gain on sales of:
Loans receivable held for sale (1,955) (705)
Real estate owned (14) --
Premises and equipment -- (3)
Changes in certain assets and liabilities:
Accrued interest receivable (396) 181
Other assets (43) (1,325)
Accrued interest payable (379) (387)
Accrued expenses and other liabilities 2,710 (8,365)
--------- --------
Net cash provided by (used in) operating activities 8,651 (5,179)
--------- --------
Cash flows from investing activities:
Purchase of investment and mortgage-backed securities, available for sale (90,000) (33,835)
Proceeds from maturities of investment securities, available for sale 2,000 12,490
Proceeds from principal repayments of investment
and mortgage-backed securities 3,684 10,682
Decrease (increase) in loans receivable (112,409) 27,410
Sale of Federal Home Loan Bank stock -- 2,931
Purchase of Federal Home Loan Bank stock (7,610) (776)
Additions to premises and equipment (1,999) (4,424)
Proceeds from sale of premises and equipment -- 9
Proceeds from sale of real estate owned 597 170
--------- --------
Net cash provided by (used in) investing activities (205,737) 14,657
--------- --------
See accompanying notes to consolidated financial statements.
6
TierOne Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Three Months Ended March 31, 2003 and 2002 (Unaudited)
(dollars in thousands)
March 31,
----------------------
2003 2002
--------- --------
Cash flows from financing activities:
Net increase in deposits 26,169 25,828
Net increase (decrease) in advance payments from borrowers for taxes,
insurance and other escrow funds 814 (4,366)
Proceeds from Federal Home Loan Bank advances 145,000 --
Repayments of Federal Home Loan Bank advances (20,000) --
Net advances (repayments) on Federal Home Loan Bank
line of credit and other borrowings 38,786 (43,100)
--------- --------
Net cash provided by (used in) financing activities 190,769 (21,638)
--------- --------
Net decrease in cash and cash equivalents (6,317) (12,160)
Cash and cash equivalents at beginning of period 33,037 34,441
--------- --------
Cash and cash equivalents at end of period $ 26,720 $ 22,281
========= ========
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ 10,666 $ 8,728
Income taxes, net of refunds $ 436 $ 547
========= ========
Noncash investing activities:
Transfers from loans to real estate owned and
other assets through foreclosure $ 675 $ 253
========= ========
See accompanying notes to consolidated financial statements.
7
TierOne Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
1. Basis of Presentation
TierOne Corporation (the "Company") is a Wisconsin corporation
headquartered in Lincoln, Nebraska. TierOne Corporation became the bank holding
company for TierOne Bank (the "Bank") in connection with the public stock
conversion of TierOne Bank which was completed in October 2002. TierOne Bank
operates from 58 banking offices located in Nebraska, southwest Iowa and
northern Kansas and two loan production offices in Colorado.
2. Basis of Consolidation
The consolidated financial statements include the accounts of the Bank and
its wholly owned subsidiary, TMS Corporation of the Americas ("TMS"). TMS is the
holding company of TierOne Investments and Insurance, Inc., a wholly owned
subsidiary that administers the sale of insurance and securities products and
TierOne Reinsurance Company, which reinsures credit life and disability
insurance policies.
The accompanying interim consolidated financial statements as of March 31,
2003 and for the three month periods ended March 31, 2003 and 2002 have not been
audited by independent auditors. All significant intercompany accounts and
transactions have been eliminated in consolidation. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation. The interim consolidated financial statements should be
read in conjunction with the audited financial statements and notes thereto
included in the Company's Annual Report to Shareholders for the year ended
December 31, 2002. The results of operations for the three months ended March
31, 2003, are not necessarily indicative of the results which may be expected
for the entire calendar year 2003.
8
TierOne Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
3. Investment Securities
Investment securities at March 31, 2003 and December 31, 2002 are
summarized below:
Gross Unrealized
---------------------
March 31, 2003 Amortized Cost Gains Losses Fair Value
- ------------------------------------- -------------- ------- -------- ----------
(dollars in thousands)
Held to Maturity:
Municipal obligations $ 153 $ -- $ -- $ 153
Available for Sale:
Mortgage-backed securities 110,142 675 270 110,547
U.S. government agency obligations -- -- -- --
Corporate securities 29,471 59 867 28,663
Asset Management Fund - ARM Fund 6,000 5 -- 6,005
-------- ------ -------- --------
$145,766 $ 739 $ 1,137 $145,368
======== ====== ======== ========
Gross Unrealized
---------------------
December 31, 2002 Amortized Cost Gains Losses Fair Value
- ------------------------------------- -------------- ------- -------- ----------
(dollars in thousands)
Held to Maturity:
Municipal obligations $ 157 $ -- $ -- $ 157
Available for Sale:
Mortgage-backed securities 29,881 488 -- 30,369
U.S. government agency obligations 2,000 -- -- 2,000
Corporate securities 23,418 16 888 22,546
Asset Management Fund - ARM Fund 6,000 -- -- 6,000
-------- ------ -------- --------
$ 61,456 $ 504 $ 888 $ 61,072
======== ====== ======== ========
9
TierOne Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
4. Loan Portfolio Composition
Loans receivable at March 31, 2003 and December 31, 2002 are summarized
below.
March 31, 2003 December 31, 2002
------------------------ ------------------------
Amount % Amount %
- ------------------------------------------------------------- ------ ----------- ------
(dollars in thousands)
Real estate loans:
One-to-four family residential (1) $ 680,287 33.66% $ 573,209 30.00%
Multi-family residential 86,273 4.27% 79,953 4.18%
Commercial real estate and land 395,208 19.56% 398,076 20.83%
Residential construction 170,841 8.45% 156,322 8.18%
Commercial construction 142,757 7.06% 143,020 7.49%
----------- ------ ----------- ------
Total real estate loans 1,475,366 73.00% 1,350,580 70.68%
----------- ------ ----------- ------
Commercial business 51,099 2.53% 33,375 1.75%
----------- ------ ----------- ------
Warehouse mortgage lines of credit 198,001 9.80% 236,492 12.38%
----------- ------ ----------- ------
Consumer loans:
Home equity 35,720 1.77% 37,522 1.96%
Home equity line of credit 101,865 5.04% 94,801 4.96%
Home improvement 77,729 3.85% 82,081 4.30%
Automobile 63,983 3.17% 60,707 3.18%
Other 17,019 0.84% 15,131 0.79%
----------- ------ ----------- ------
Total consumer loans 296,316 14.67% 290,242 15.19%
----------- ------ ----------- ------
Total loans 2,020,782 100.00% 1,910,689 100.00%
====== ======
Less:
Unearned premiums and discounts 8,164 4,688
Discounts on loans acquired through merger (162) (174)
Undisbursed portion of construction and
land loans in process (124,142) (123,331)
Deferred loan fees (593) (516)
Allowance for loan losses (17,984) (17,108)
----------- -----------
Net loans $ 1,886,065 $ 1,774,248
=========== ===========
(1) Includes loans held for sale $ 10,874 $ 8,504
=========== ===========
10
TierOne Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
The following table sets forth the activity in the allowance for loan losses
during the periods indicated.
At or for the
Three Months Ended
March 31,
------------------------
2003 2002
-------- --------
(dollars in thousands)
Allowance for loan losses, beginning of period $ 17,108 $ 13,464
Provision for loan losses 1,172 564
Charge-offs (345) (204)
Recoveries on loans previously charged off 49 19
-------- --------
Allowance for loan losses, end of period $ 17,984 $ 13,843
======== ========
Allowance for loan losses as a percent of
net loans, exclusive of allowance for loan losses 0.94% 1.00%
11
TierOne Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
The following table sets forth information with respect to nonperforming
assets and troubled debt restructurings at the dates indicated. It is our policy
to cease accruing interest on loans 90 days or more past due and to charge off
all accrued interest.
March 31, December 31,
2003 2002
--------- ------------
(dollars in thousands)
Non-accruing loans:
One-to-four family residential $ 675 $1,161
Multi-family residential -- --
Commercial real estate and land 3,795 3,795
Residential construction 290 106
Commercial construction -- --
Commercial business loans -- --
Warehouse mortgage lines of credit -- --
Consumer 357 427
------ ------
Total non-accruing loans 5,117 5,489
Real estate owned, net (1) 2,059 1,967
------ ------
Total nonperforming assets 7,176 7,456
Troubled debt restructurings 206 209
------ ------
Total nonperforming assets and troubled debt restructurings $7,382 $7,665
====== ======
Allowance for loan losses as a percent of nonperforming loans 351.46% 311.68%
Total nonperforming loans as a percent of net loans, exclusive
of allowance for loan losses 0.27% 0.31%
Total nonperforming assets as a percent of total assets 0.33% 0.38%
Allowance for loan losses as a percent of net loans,
exclusive of allowance for loan losses 0.94% 0.96%
(1) Real estate owned balances are shown net of related loss allowances.
Includes both real property and other repossessed collateral consisting
primarily of automobiles.
12
TierOne Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
5. Mortgage Servicing Rights
Mortgage servicing rights are included in the Consolidated Balance Sheets
under the caption "Other assets." The activity of mortgage servicing rights is
summarized as follows for the following periods:
Three Months Ended Year Ended
March 31, December 31,
-------------------- --------------------
2003 2002 2002 2001
------- ------- ------- -------
(dollars in thousands)
Balance at beginning of period $ 6,290 $ 4,577 $ 4,577 $ 1,101
Mortgage servicing rights capitalized 1,719 1,115 6,302 4,830
Amortization expense (1,246) (294) (2,619) (1,004)
Valuation adjustment (590) -- (1,970) (350)
------- ------- ------- -------
Balance at end of period $ 6,173 $ 5,398 $ 6,290 $ 4,577
======= ======= ======= =======
The activity of the valuation allowance on mortgage servicing rights is
summarized as follows for the following periods:
Three Months Ended Year Ended
March 31, December 31,
-------------------- --------------------
2003 2002 2002 2001
------- ------- ------- -------
(dollars in thousands)
Balance at beginning of period $ 2,320 $ 350 $ 350 $ --
Amounts charged to operations 590 -- 1,970 350
------- ------- ------- -------
Ending balance $ 2,910 $ 350 $ 2,320 $ 350
======= ======= ======= =======
The estimated fair value of mortgage servicing rights at March 31, 2003
totaled approximately $6.2 million on a balance of $776.8 million of serviced
loans at such date. The following table compares the key assumptions used in
measuring the fair values of mortgage servicing rights for the periods
presented:
March 31, 2003 December 31, 2002
-------------- -----------------
(dollars in thousands)
Fair value $6,173 $6,290
Prepayment speed 9.7% - 98.6% 9.2% - 74.0%
Weighted average prepayment speed 38.0% 29.9%
Fair value with 10% adverse change $5,662 $5,894
Fair value with 20% adverse change $5,318 $5,545
Discount rate 9.0% - 15.0% 9.0% - 15.0%
Weighted average discount rate 10.0% 9.9%
Fair value with 10% adverse change $5,930 $6,143
Fair value with 20% adverse change $5,814 $6,004
13
TierOne Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
The Bank, a subsidiary of the Company, is a $2.1 billion federally
chartered savings bank headquartered in Lincoln, Nebraska. Established in 1907,
the Bank offers a wide variety of full-service consumer and commercial banking
products and services to customers through a geographically diverse network of
58 banking offices in Nebraska, Iowa and Kansas and two loan production offices
in Colorado. Leading products offered include residential and commercial real
estate financing; consumer, construction and business loans; lines of credit;
consumer and business checking and savings plans; investment and insurance
services; and telephone and Internet banking access.
The Company's results of operations depend, to a large extent, on net
interest income, which is the difference between the income earned on its loan
and investment portfolios and the cost of funds, consisting of the interest paid
on deposits and borrowings. Results of operations are also affected by
provisions for loan losses, loan sale activities and loan servicing.
Non-interest expense principally consists of compensation and employee benefits,
office occupancy and equipment expense, data processing, advertising and
business promotion and other expense. Our results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in interest rates, government policies and actions of
regulatory authorities. Future changes in applicable law, regulations or
government policies may materially impact our financial condition and results of
operations.
Forward-Looking Statements
In the normal course of business, in an effort to help keep our
shareholders and the public informed about the Company's operations, we may from
time to time issue or make certain statements, either in writing or orally, that
are or contain forward-looking statements, as that term is defined in the
federal securities laws. Generally, these statements relate to business plans or
strategies, projected or anticipated benefits from potential acquisitions,
projections involving anticipated revenues, earnings, profitability or other
aspects of operating results or other future developments in our affairs or the
industry in which we may conduct business. These forward-looking statements,
which are based on various assumptions (some of which are beyond our control),
may be identified by reference to a future period or periods or by the use of
forward-looking terminology such as "anticipate," "believe," "commitment,"
"consider," "continue," "could," "encourage," "estimate," "expect," "intend,"
"in the event of," "may," "plan," "present," "propose," "prospect," "update,"
"whether," "will," "would," future or conditional verb tenses, similar terms,
variations on such terms or negatives of such terms. Although we believe that
the anticipated results
14
TierOne Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
or other expectations reflected in such forward-looking statements are based on
reasonable assumptions, we can give no assurance that those results or
expectations will be attained. Actual results could differ materially from those
indicated in such statements due to risks, uncertainties and changes with
respect to a variety of factors, including, but not limited to, the following:
competitive pressure among depository and other financial institutions may
increase significantly; changes in the interest rate environment may reduce
interest margins and net interest income, as well as adversely affect loan
origination and sales activities and the value of certain assets, such as
investment securities and mortgage servicing rights; general economic or
business conditions, either nationally or in regions in which we do business,
may be less favorable than expected, resulting in, among other things, a
deterioration in credit quality or a reduced demand for credit; legislation or
changes in regulatory requirements, including without limitation, capital
requirements, or accounting standards may adversely affect us and the business
in which we are engaged; adverse changes may occur in the securities markets;
our competitors may have greater financial resources and develop products and
technology that enable those competitors to compete more successfully than us;
and the growth and profitability of our non-interest income may be less than
expected.
We undertake no obligation to update forward-looking statements to reflect
events or circumstances occurring after the date of this Form 10-Q.
As used in this report, unless the context otherwise requires, the terms
"we," "us," or "our" refer to TierOne Corporation and our wholly owned
subsidiary TierOne Bank, a federally chartered stock savings bank.
15
TierOne Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Critical Accounting Policies
We have identified the evaluation of the allowance for loan losses as a
critical accounting policy where amounts are sensitive to material variation.
This policy is significantly affected by our judgment and uncertainties and
there is a likelihood that materially different amounts would be reported under
different, but reasonably plausible, conditions or assumptions. We establish
provisions for loan losses, which are charges to our operating results, in order
to maintain a level of total allowance for losses that management believes
covers all known and inherent losses that are both probable and reasonably
estimable at each reporting date. Management performs reviews no less than
quarterly in order to identify these inherent losses and to assess the overall
collection probability for the loan portfolio. Our reviews consist of a
quantitative analysis by loan category, using historical loss experience, and
consideration of a series of qualitative loss factors. For each primary type of
loan, we establish a loss factor reflecting our estimate of the known and
inherent losses in each loan type using both quantitative analysis as well as
qualitative factors. Our evaluation process includes, among other things, an
analysis of delinquency trends, nonperforming loan trends, the levels of
charge-offs and recoveries, prior loss experience, total loans outstanding, the
volume of loan originations, the type, size, terms and geographic concentration
of loans held by us, the value of collateral securing loans, the number of loans
requiring heightened management oversight, general economic conditions and loan
loss information for other institutions. The amount of the allowance for loan
losses is only an estimate and actual losses may vary from these estimates.
16
TierOne Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Comparison of Financial Condition at March 31, 2003 and December 31, 2002
Our total assets were $2.1 billion at March 31, 2003, a $199.4 million, or
10.2%, increase from December 31, 2002. Our available for sale investment
securities amounted to $34.7 million at March 31, 2003, a $4.1 million, or
13.5%, increase from December 31, 2002 primarily due to security purchases of
$6.0 million partially offset by $2.0 million of maturities during the three
months ended March 31, 2003. Our mortgage-backed securities portfolio amounted
to $110.5 million at March 31, 2003, a $80.2 million, or 264.0%, increase from
December 31, 2002. During the three months ended March 31, 2003, we purchased
two Federal National Mortgage Association ("FNMA") fixed-rate mortgage-backed
security pools in an effort to grow our investment securities portfolio while
further diversifying our asset base. Net loans receivable, including loans held
for sale, totaled $1.9 billion at March 31, 2003, a $111.8 million, or 6.3%,
increase from December 31, 2002. At March 31, 2003 our one-to-four family
residential loans were $680.3 million, a $107.1 million, or 18.7%, increase
compared to December 31, 2002. During the three months ended March 31, 2003 we
purchased for our portfolio $142.3 million of adjustable-rate and $48.8 million
of fixed-rate one-to-four family residential loans in geographically diverse
markets throughout the United States.
Our total deposits increased by $26.2 million to $1.2 billion at March 31,
2003 as compared to December 31, 2002 as we continued our efforts to increase
the level of our core deposits, especially checking accounts. At March 31, 2003,
our interest-bearing and non-interest-bearing checking accounts amounted to
$346.4 million in the aggregate, a $20.4 million, or 6.3%, increase from the
aggregate amount at December 31, 2002. Our money market accounts totaled $283.3
million, a $13.0 million, or 4.8%, increase compared to December 31, 2002. In
addition, our certificates of deposit declined $9.3 million, or 1.8%, to $507.4
million at March 31, 2003 as compared to $516.7 million at December 31, 2002.
Our FHLB advances and other borrowings amounted to $582.1 million at March 31,
2003, a $163.8 million, or 39.2%, increase from December 31, 2002. We have
utilized FHLB advances as the primary funding source for growing our loans
receivable and investment securities portfolios.
Our shareholders' equity increased by $6.3 million to $346.2 million at
March 31, 2003 compared to $339.9 million at December 31, 2002 primarily
reflecting $5.7 million in net income earned for the three months ended March
31, 2003.
17
TierOne Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Comparison of Operating Results for the Three Months Ended March 31, 2003 and
2002
General. Our net income increased by $1.6 million, or 37.7%, to $5.7
million for the three months ended March 31, 2003 compared to $4.1 million for
the three months ended March 31, 2002. Our net income increased during 2003 due
primarily to increased loans receivable interest income and reductions in the
average rates paid on deposits and borrowings. Our average interest rate spread
declined to 3.17% for the three months ended March 31, 2003 compared to 3.20%
for the three months ended March 31, 2002. Our net interest margin improved to
3.70% for the three months ended March 31, 2003 as compared to 3.62% for the
three months ended March 31, 2002 due in part to the investment of stock
conversion proceeds. Likewise, our ratio of average interest-earning assets to
average interest-bearing liabilities increased to 124.74% for the three months
ended March 31, 2003 as compared to 114.07% for the three months ended March 31,
2002.
Interest Income. Our total interest income for the three months ended
March 31, 2003 was $27.9 million compared to $24.6 million for the three months
ended March 31, 2002. Total interest income during the three months ended March
31, 2003 increased due to the increase in the average balance of
interest-earning assets, primarily loans, partially offset by a decline in the
average yield. The average balance of loans during the three months ended March
31, 2003 and 2002 was $1.8 billion and $1.3 billion, respectively. The average
yield earned on net loans receivable was 6.04% for the three months ended March
31, 2003 compared to 6.92% for the three months ended March 31, 2002 which was
indicative of the lower interest rate environment which continued to fuel a high
level of refinance activity during 2002 and the three months ended March 31,
2003. Average yields also were lower on our investment and mortgage-backed
securities during the three months ended March 31, 2003 as compared to the three
months ended March 31, 2002.
Interest Expense. Our total interest expense for the three months ended
March 31, 2003 was $10.3 million as compared to $11.1 million for the same
period in 2002. The primary reason for the decrease in our interest expense
during the three months ended March 31, 2003 was a reduction in the average rate
on deposits to 2.27% from 3.03% for the same period in 2002. The average rate on
our certificates of deposit was 3.44% for the three months ended March 31, 2003
as compared to 4.14% for the same period in 2002. The average rates on our
interest-bearing checking accounts, money market accounts and savings accounts
also declined during the three months ended March 31, 2003 as compared with the
same period in 2002. Interest expense on FHLB advances and other borrowings
increased by $1.1 million, or 39.2%, for the three months ended March 31, 2003
as compared with the same period in 2002 due to a higher average balance of
borrowings at March 31, 2003 as compared to March 31, 2002 as the Bank continued
to fund loan and investment securities portfolio growth primarily through
additional borrowings. The increased cost of borrowings was partially offset by
a decline in the average rate paid on borrowings from 5.06% for the three months
ended March 31, 2002 to 3.79% for the three months ended March 31, 2003.
18
TierOne Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The
following table details 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, and the net interest margin. Tax-exempt income and yields
have not been adjusted to a tax-equivalent basis.
Three Months Ended March 31,
--------------------------------------------------------------------------
2003 2002
----------------------------------- ------------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
---------- -------- ---------- ---------- -------- ----------
(dollars in thousands)
Interest-earning assets:
Fed funds sold $ 32,759 $ 99 1.21% $ 45,364 $ 193 1.70%
Investment securities (1) 57,797 544 3.76% 65,313 679 4.16%
Mortgage-backed securities (1) 39,156 488 4.99% 43,208 570 5.28%
Loans receivable (2) 1,775,506 26,793 6.04% 1,337,320 23,143 6.92%
---------- ------- ---------- -------
Total interest-earning assets 1,905,218 27,924 5.86% 1,491,205 24,585 6.59%
------- ------ ------- ------
Non-interest-earning assets 84,491 42,468
---------- ----------
Total assets $1,989,709 $1,533,673
========== ==========
Interest-bearing liabilities:
Interest-bearing checking accounts $ 298,053 $ 834 1.12% $ 241,213 $ 1,135 1.88%
Regular savings accounts 16,854 30 0.71% 13,508 43 1.27%
Money market accounts 272,610 967 1.42% 292,388 1,504 2.06%
Certificate accounts 510,729 4,392 3.44% 529,234 5,477 4.14%
---------- ------- ---------- -------
Total interest-bearing deposits 1,098,246 6,223 2.27% 1,076,343 8,159 3.03%
FHLB advances and other borrowings 429,102 4,064 3.79% 230,938 2,920 5.06%
---------- ------- ---------- -------
Total interest-bearing liabilities 1,527,348 10,287 2.69% 1,307,281 11,079 3.39%
------- ------ ------- ------
Non-interest-bearing accounts 40,401 25,938
Other liabilities 79,128 76,696
---------- ----------
Total liabilities 1,646,877 1,409,915
Shareholders' equity 342,832 123,758
---------- ----------
Total liabilities and shareholders' equity $1,989,709 $1,533,673
========== ==========
Net interest-earnings assets $ 377,870 $ 183,924
========== ==========
Net interest income; average
interest rate spread $17,637 3.17% $13,506 3.20%
======= ====== ======= ======
Net interest margin (3) 3.70% 3.62%
====== ======
Average interest-earning assets to average
interest-bearing liabilities 124.74% 114.07%
====== ======
(1) Includes securities available for sale and held to maturity. Investment
securities also include Federal Home Loan Bank stock.
(2) Includes non-accrual loans during the respective periods. Calculated net
of deferred fees and discounts, loans in process and allowance for loan
losses.
(3) Equals net interest income (annualized) divided by average
interest-earning assets.
19
TierOne Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Rate/Volume Analysis. The following table shows the extent to which
changes in interest rates and changes in volume of interest-related assets and
liabilities affected our interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (1) changes in
rate (change in rate multiplied by prior year volume) and (2) changes in volume
(change in volume multiplied by prior year rate). The combined effect of changes
in both rate and volume has been allocated proportionately to the change due to
rate and the change due to volume.
Three Months Ended March 31, 2003
vs.
Three Months Ended March 31, 2002
-------------------------------------
Increase (Decrease)
Due To Total
---------------------- Increase
Rate Volume (Decrease)
------- ------- ----------
(dollars in thousands)
Interest income:
Federal funds sold $ (48) $ (46) $ (94)
Investment securities (61) (74) (135)
Mortgage-backed securities (31) (51) (82)
Loans receivable, net (2,340) 5,990 3,650
------- ------- -------
Total interest income (2,480) 5,819 3,339
------- ------- -------
Interest expense:
Interest-bearing checking accounts (717) 416 (301)
Savings accounts (31) 18 (13)
Money market accounts (441) (96) (537)
Certificate accounts (899) (186) (1,085)
------- ------- -------
Total deposits (2,088) 152 (1,936)
FHLB advances and other borrowings (473) 1,617 1,144
------- ------- -------
Total interest expense (2,561) 1,769 (792)
------- ------- -------
Net change in net interest income $ 81 $ 4,050 $ 4,131
======= ======= =======
20
TierOne Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Provision for Loan Losses. We made a provision for loan losses of $1.2
million for the three months ended March 31, 2003 as compared to $564,000 for
the three months ended March 31, 2002. Our portfolio of commercial real estate
and land loans, construction loans (residential and commercial), commercial
business loans and consumer loans totaled $1.1 billion at March 31, 2003, an
increase of $228.7 million, or 27.6%, as compared to March 31, 2002. These loans
are deemed to have higher levels of known and inherent losses than one-to-four
family residential loans. As such, we have made provisions that are considered
appropriate to cover probable losses. At March 31, 2003, our total nonperforming
assets amounted to $7.2 million, or 0.33% of total assets, as compared to $7.5
million, or 0.38% of total assets, at December 31, 2002. During the three months
ended March 31, 2003 and 2002 we charged off an aggregate of $345,000 and
$204,000, respectively, of loans, primarily related to consumer loans, and had
$49,000 and $19,000, respectively, in recoveries of previous charge-offs.
Other Income. Our other income increased by $389,000, or 12.0%, to $3.6
million for the three months ended March 31, 2003 as compared to $3.2 million
for the three months ended March 31, 2002. This increase was primarily the
result of a $1.3 million increase in gains on loans held for sale, a $344,000
increase in checking account fees and a $239,000 increase in loan fees offset in
large part by a $952,000 increase in the amortization of mortgage servicing
rights and a $590,000 mortgage servicing rights impairment charge. The increase
in our mortgage servicing rights valuation allowance was deemed necessary due to
the continued low interest rate environment which has resulted in a continued
high level of mortgage refinancing activity. Total deposit account fees and
charges, driven by continued growth in new core deposit relationships, rose
35.0% to $1.3 million for the three months ended March 31, 2003 as compared to
$983,000 for the three months ended March 31, 2002.
Other Expense. Our other expense increased by $1.4 million, or 14.2%, to
$11.1 million for the three months ended March 31, 2003 as compared to $9.7
million for the three months ended March 31, 2002. This increase resulted
primarily from a $583,000 expense associated with the Company's Employee Stock
Ownership Plan which was implemented in October 2002 as part of the Bank's
mutual to stock conversion and a $543,000 increase in compensation expense
related to salary increases and continued additions of business line personnel.
Income Tax Expense. Our income tax expense increased by $970,000, or
41.5%, to $3.3 million for the three months ended March 31, 2003 as compared to
$2.3 million for the three months ended March 31, 2002. The effective income tax
rate for the three months ended March 31, 2003 was 36.7% as compared to 36.1%
for the three months ended March 31, 2002. The increase in income tax expense
for the three months ended March 31, 2003 as compared to the three months ended
March 31, 2002 primarily reflects the increase in net income.
21
TierOne Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Commitments
Our primary sources of funds are from deposits, amortization of loans and
investment securities, loan and investment security prepayments and maturities,
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. Excess funds are maintained in short-term,
interest-bearing assets that provide additional liquidity. We also utilize
outside borrowings, primarily from the FHLBank Topeka (formerly known as the
Federal Home Loan Bank of Topeka), as an additional funding source.
We use our liquidity to fund existing and future loan commitments, to fund
maturing certificates of deposit and demand deposit withdrawals, to invest in
other interest-earning assets, and to meet operating expenses. At March 31,
2003, we had certificates of deposit maturing within the next 12 months
amounting to $307.2 million. Based upon historical experience, we anticipate
that a significant portion of the maturing certificates of deposit will be
redeposited with us.
In addition to cash flow from loan and security payments and prepayments
as well as from sales of available for sale securities, we have significant
borrowing capacity available to fund our liquidity needs. We have increased our
utilization of borrowings as a cost efficient addition to deposits as a source
of funds. The average balance of our borrowings was $429.1 million and $230.9
million for three months ended March 31, 2003 and 2002, respectively. To date,
substantially all of our borrowings have consisted of advances from the FHLBank
Topeka. Pursuant to blanket collateral agreements with FHLBank Topeka, the
Company's qualifying first mortgage, multi-family, commercial real estate,
second mortgage and construction loans secure such advances.
22
TierOne Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
We have not used, and have no present intention to use, any significant
off-balance sheet financing arrangements for liquidity purposes. 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. At March 31, 2003, the maximum total amount of such recourse was
approximately $6.8 million. Based on historical experience, at March 31, 2003,
we had established a reserve of $424,000 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, limited purpose entities that could materially affect our
liquidity or capital resources. We have not traded, and do not intend to trade,
in commodity contracts.
We anticipate that we will continue to have sufficient funds and
alternative funding sources to meet our current commitments.
Regulatory Capital
At March 31, 2003 the Bank's regulatory capital exceeded regulatory limits set
by the Office of Thrift Supervision. The current requirements and the Bank's
actual levels at March 31, 2003 are set forth below:
Required Capital Actual Capital Excess Capital
--------------------- -------------------- ---------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(dollars in thousands)
Tangible capital $ 32,141 1.50% $243,450 11.36% $211,309 9.86%
Core capital 85,710 4.00% 243,450 11.36% 157,740 7.36%
Risk-based capital 137,679 8.00% 261,434 15.19% 123,755 7.19%
23
TierOne Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Selected Operating Ratios
Set forth below are selected operating ratios (annualized where
appropriate) for the three months ended March 31, 2003 and 2002.
Three Months Ended
March 31,
-------------------
2003 2002
------- -------
Selected Operating Ratios:
Average yield on interest-earning assets 5.86% 6.59%
Average rate on interest-bearing liabilities 2.69% 3.39%
Average interest rate spread 3.17% 3.20%
Net interest margin 3.70% 3.62%
Average interest-earning assets to average
interest-bearing liabilities 124.74% 114.07%
Net interest income after provision for loan
losses to non-interest expense 148.43% 133.28%
Total non-interest expense to average assets 2.23% 2.55%
Efficiency ratio 52.16% 57.99%
Return on average assets 1.14% 1.09%
Return on average equity 6.64% 13.36%
Average equity to average assets 17.23% 8.13%
24
Item 3 - Quantitative and Qualitative Disclosures About Market Risk.
For a discussion of our asset and liability management policies as well as
the methods used to manage our exposure to the risk of loss from adverse changes
in market prices and rates market, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - How We Manage Our Risks" and -
"Quantitative and Qualitative Disclosures About Market Risk" in the Company's
Annual Report to Shareholders for the year ended December 31, 2002. There has
been no material change in our asset and liability position or the market value
of our equity since December 31, 2002.
Item 4 - Controls and Procedures.
Our chief executive officer and chief financial officer directly
supervised and participated in evaluating the effectiveness of the design and
operation of our disclosure controls and procedures (which evaluation was
conducted within 90 days of the filing date of this quarterly report) and
concluded that these controls and procedures are effective. There were no
significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
Disclosure controls and procedures are our controls and other procedures
that are designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Securities Exchange Act of 1934
(the "Exchange Act") is recorded, processed, summarized and reported, within the
time periods specified in the Securities and Exchange Commission's rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
us in the reports that we file under the Exchange Act is accumulated and
communicated to our management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions regarding required
disclosure.
25
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.
There are no matters required to be reported under this item. Reference is
made to the Bank's ongoing litigation regarding its goodwill claims against the
U.S. Government as described in "Business of TierOne Bank - Legal Proceedings"
in the Company's Annual Report on Form 10-K for the year ended December 31,
2002. There is no change in the status of the litigation.
Item 2 - Changes in Securities and Use of Proceeds.
There are no matters required to be reported under this item.
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 April 23, 2003, TierOne Corporation held its first Annual Meeting of
Shareholders to obtain approval for four proxy proposals submitted on behalf of
the Company's Board of Directors. Shareholders of record as of February 24, 2003
received proxy materials and were considered eligible to vote for these
proposals. Following is a brief summary of each proposal and the result of the
vote.
1. The following directors were elected by the requisite plurality of the
votes cast to serve on the Company's Board of Directors for the term
indicated: LaVern F. Roschewski (one-year), Ann Lindley Spence (one-year),
James A. Laphen (two-year), Campbell R. McConnell (two-year), Gilbert G.
Lundstrom (three-year) and Joyce Person Pocras (three-year).
FOR AGAINST ABSTAIN BROKER NON-VOTES
---------- --------- ------- ----------------
2. To adopt the 2003 Stock Option Plan 12,556,644 1,240,970 37,654 5,492,519
3. To adopt the 2003 Recognition and
Retention Plan and Trust Agreement 12,330,761 1,463,051 41,456 5,492,519
4. To ratify the appointment of KPMG LLP
as the independent auditors for the
year ended December 31, 2003 18,684,280 600,214 43,293 N/A
26
Item 5 - Other Information.
There are no matters required to be reported under this item.
Item 6 - Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this Form 10-Q and this
list includes the Exhibit Index.
No. Exhibits Location
- ------ --------------------------------------------------------------------------------------- --------------
3.1 Articles of Incorporation of TierOne Corporation (1)
3.2 Bylaws of TierOne Corporation (1)
4.0 Form of Stock Certificate of TierOne Corporation (1)
10.1 Employment Agreement between TierOne Bank and Gilbert G. Lundstrom (1)
10.2 Employment Agreement between TierOne Bank and James A. Laphen (1)
10.3 Form of Employment Agreement between TierOne Corporation and Gilbert G. Lundstrom (1)
10.4 Form of Employment Agreement between TierOne Corporation and James A. Laphen (1)
10.5 Supplemental Retirement Plan (1)
10.6 Form of Change in Control Agreement between TierOne Bank and certain executive officers (1)
10.7 Form of Change in Control Agreement between TierOne Bank and certain executive officers (1)
10.8 Form of TierOne Bank Employee Severance Plan (1)
10.9 Form of Employee Stock Ownership Plan Supplemental Executive Retirement Plan (1)
10.10 Form of 401(k) Plan Supplemental Executive Retirement Plan (1)
10.11 Director's Deferred Compensation Plan (1)
10.12 Amended and Restated Consultation Plan for Directors (1)
10.13 TierOne Bank Management Incentive Compensation Plan (2)
10.14 TierOne Bank Deferred Compensation Plan (2)
10.15 2003 TierOne Corporation Stock Option Plan (3)
10.16 2003 TierOne Corporation Recognition and Retention Plan and Trust Agreement (3)
99.1 Certification of Chairman of the Board and Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Filed Herewith
99.2 Certification of Chairman of the Board and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Filed Herewith
- --------------------------------------------------------------------------------
(1) Incorporated by reference from TierOne Corporation's Registration
Statement on Form S-1, filed on April 3, 2002, as amended and declared
effective on August 12, 2002 (File No. 333-85838).
(2) Incorporated by reference from TierOne Corporation's Annual Report on Form
10-K for the year ended December 31, 2002 filed on March 28, 2003.
(3) Incorporated by reference from TierOne Corporation's Definitive Proxy
Statement for the Annual Meeting of Shareholders filed on March 11, 2003.
27
(b) Reports on Form 8-K:
Date Item and Description
- ---------------- -----------------------------------------------------------
January 30, 2003 Item 9. On January 29, 2003, the Company issued a press
release reporting its earnings for the three months and
year ended December 31, 2002.
April 23, 2003 Item 9. On April 22, 2003, the Company issued a press
release reporting its earnings for the three months ended
March 31, 2003.
April 25, 2003 Item 5. On April 23, 2003 the Company issued a press
release announcing the results of the Company's first
annual meeting of shareholders held on April 23, 2003. In
addition, On April 25, 2003, the Company announced that it
would purchase shares of common stock in open market
transactions to fund the 2003 Recognition and Retention
Plan and Trust Agreement.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TIERONE CORPORATION
Date: May 9, 2003 By: /s/ Gilbert G. Lundstrom
------------------------------------
Gilbert G. Lundstrom
Chairman of the Board and Chief
Executive Officer
Date: May 9, 2003 By: /s/ Eugene B. Witkowicz
------------------------------------
Eugene B. Witkowicz
Executive Vice President and
Chief Financial Officer
29
CERTIFICATION PURSUANT TO RULE 13a-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gilbert G. Lundstrom, the Chairman of the Board and Chief Executive Officer
of TierOne Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TierOne Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 9, 2003 /s/ Gilbert G. Lundstrom
----------------------------------------
Gilbert G. Lundstrom
Chairman of the Board and Chief
Executive Officer
30
CERTIFICATION PURSUANT TO RULE 13a-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Eugene B. Witkowicz, the Executive Vice President and Chief Financial Officer
of TierOne Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TierOne Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 9, 2003 /s/ Eugene B. Witkowicz
----------------------------------------
Eugene B. Witkowicz
Executive Vice President
and Chief Financial Officer
31