Audit Failure of TierOne Bank

This report covers the audit failure of TierOne Bank that was hiding millions of dollars in loan losses from investors and banking regulators during the financial crisis in 2008 and finally filed for bankruptcy in 2010.
Incorporated in 1907, the TierOne Bank acts as First Federal Savings and Loan Association located in Lincoln, Nebraska. After a change of the name to First Federal Lincoln Bank in 1995 and a rechange to TierOne Bank in 2002, the bank was established as a wholly owned subsidiary of TierOne Corporation. In the same year TierOne completed a mutual-to-stock conversion and shares of TierOne Corporation began to sellwere sold in an Initial Public Offering (IPO). The shares were traded on NASDAQ. Before the IPO, the main business was to set the focus on was set on residential and agricultural loans in the Nebraska/Iowa/Kansas region. With the IPO, especially with the obtained capital from stock conversions, TierOne expanded its operations into areas outside of the thrift’s traditional geographical market. For example, in 2004, the bank engaged in high-risk types of lending in regions such as Las Vegas, Florida and Arizona, which were experiencing unusual, rapid escalation in market values. From 2002 through 2005, TierOne opened or acquired nine loan production offices (LPO), covering six states. The primary purpose of the LPOs was to originate construction and land development loans. This shift in the corporation’s strategy made the bank particularly vulnerable to the fallout from the financial crisis, as these areas were hit the hardest by the precipitous fall in real estate prices, which began in late 2006 and early 2007.
Thus TierOne failed because of significant loan losses from its concentration of construction and land development loans. A huge problem was that TierOne’s board and management did not provide effective