The troubled real estate market in Florida has started to hit home in insulated Nebraska, however indirectly.

In its latest earnings report, TierOne Corp., the biggest bank headquartered in Lincoln,  reported its own consequences from what’s happening in real estate elsewhere.  

The bank has been expanding its lending business far outside the bounds of Nebraska, from Florida to Arizona, and its earnings report showed a record year for profits in 2006, and continued double-digit growth in earnings fo the fourth quarter.  

But the stock fell xxx to xxx, presumably on loan performance news. At the end of last year, TierOne’s nonperforming loans were worth $30.11 million, 0.99 percent of loans, more than double the $14.4 million at the end of 2005.   

Nonperforming loans for TierOne are those on which the borrower is 90 days past due, said Ed Swotek,  senior vice president for investor relations of TierOne.

The bank attributed the increase in non-performing loans and assets primarily to a $16.2 million increase in nonperforming residential construction loans.

“These loans were made primarily to individual homebuyers on the west coast of Florida, which has and continues to experience a price correction in housing values and delays in housing construction,” the bank said.

Florida’s west coast has been a hot market for second homes and retirement homes.

Swotek explained the situation:   TierOne goes through mortgage brokers to people building these homes, and has a direct relationship with the homebuyer, who’s financing construction with a 12-month to 18-month loan.   Permanent financing happens later, either through TierOne or some other lender.

The local governments’ permit processes have been backlogged, Swotek said.

“So what you have is a homebuyer who wants to have their second home built, they have entered a contract to build this house, the builders down there file for a building permit, and because of the backlog, nothing happens,” Swotek said.   

So the homebuyer has been paying interest on the construction loan, there’s no permit, no ground broken, and meanwhile, “there  has been some cooling of housing values,” Swotek said.

“Some are just not making payments on their loan,” he said.  “They’re waiting for something to happen.” 

Swotek wouldn’t specify exactly where this has happened, citing federal regulations against selective disclosure.

“TierOne is on top of this, very closely, working directly with builders, with individual homebuyer,s with brokers and real estate firms, working with cities, to get permits issued to build homes,” Swotek said.  “We’ve been working very aggressively and continue to do that even today.”

Mike McMahon, managing partner of Sandler O’Neill & Partners, an investment bank that follows TierOne, said he was uneasy about TierOne’s nonperforming asset numbers, until he got an explanation, which he said satisfied him.

In fact, said Swotek, the nonperforming asset ratio, 0.99 percent, is close to the industry average, and demonstrates the transition of TierOne from a predominantly home lending institution to one that is more diversified.

The earnings report otherwise contained “pretty good numbers,” McMahon said.  

For the three months ended Dec. 31, diluted earnings per share increased 12.5 percent to $0.63 compared with $0.56 for the same period in 2005. Net income for the fourth quarter 2006 increased 14.8 percent to $10.9 million compared to $9.5 million for the same period in 2005.

“Results generated from core operations enabled our company to achieve record performance in 2006,” said Gilbert G. Lundstrom, chairman and chief executive officer. “We expect to continue to successfully execute on our core fundamentals and leverage our proven business model which will allow us to further strengthen shareholder value.”

For thirteen consecutive quarters, the bank said it has achieved double-digit earnings per share growth measured against comparable quarters a year earlier.

TierOne Corp. owns TierOne Bank, a $3.4 billion federally chartered savings bank and the largest publicly-traded financial institution headquartered in Nebraska.

Reach Richard Piersol at 473-7241 or dpiersol@journalstar.com.