As filed with the Securities and Exchange Commission on November 29, 2010

Registration No. 333-      

 

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

 

 

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

WESTERN LIBERTY BANCORP

(Exact name of registrant as specified in its charter)

 

 

 

8363 W. Sunset Road, Suite 350
Las Vegas, Nevada 89113
(702) 966-7400

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

George A. Rosenbaum, Jr., Chief Financial Officer

Western Liberty Bancorp

8363 W. Sunset Road, Suite 350

Las Vegas, Nevada 89113

(702) 966-7400

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copy to:

 

Jeffrey A. Horwitz, Esq.

Frank J. Lopez, Esq.

Proskauer Rose, LLP

1585 Broadway

New York, New York 10036

(212) 969-3000

(212) 969-2900

 

Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:  þ

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

 

 

SUBJECT TO COMPLETION, DATED NOVEMBER 29, 2010

 

 

PROSPECTUS FOR

UP TO 1,458,948 SHARES OF COMMON STOCK

 

This prospectus relates to the resale of up to 1,458,948 shares of Western Liberty Bancorp’s (“WLBC,” the “Company,” “we,” “us,” or “our”) common stock, par value $0.0001 per share (“Common Stock”) by certain selling security holders.

 

 

In addition, this prospectus relates to the issuance by us of 200,000 shares of Common Stock underlying restricted stock units (“Restricted Stock Units”) granted by us to certain of our current and former directors, officers and consultants in connection with the Acquisition. Each Restricted Stock Unit is immediately and fully vested and shall be settled for one share of Common Stock on the earlier to occur of (i) a change of control of WLBC and (ii) October 28, 2013. Such shares of Common Stock, when issued by us, are also being registered for resale by the selling security holders pursuant to this prospectus.

 

This prospectus provides you with detailed information about WLBC, Service1^st and other matters. You are encouraged to read carefully the entire document. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 3.

 

Our Common Stock is listed on the Nasdaq Global Market (“Nasdaq”) under the symbol “WLBC.”

 

Neither the SEC nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

The prospectus is dated          , 2010.

 

TABLE OF CONTENTS

 

 

SUMMARY

	•	368,306 Private Shares.
	•	503,708 shares of Common Stock issued upon exercise of all of our outstanding Private Warrants in accordance with the Amended Warrant Agreement.
	•	150,000 shares of Common Stock issued by us to certain current and former members of our Board in connection with the Acquisition.
	•	194,100 shares of Restricted Stock granted by us to certain of our current directors and officers in connection with the Acquisition.
	•	42,834 shares of Common Stock issuable upon exercise of warrants of Service1st. We will receive the proceeds from the exercise of the Service1st Warrants, but not from the sale of any of the aforementioned shares of Common Stock.

 

You should carefully consider the following risk factors, together with all of the other information included in this prospectus, before you decide whether to purchase any of our Common Stock.

 

As a newly-formed public bank holding company, we will incur significant legal, accounting, compliance and other expenses.

 

As a newly-formed public bank holding company, we will incur significant legal, accounting and other expenses. For example, we are required to prepare and file quarterly, annual and current reports with the SEC, as well as comply with a myriad of rules applicable to public companies, such as the proxy rules, beneficial ownership reporting requirements and other obligations. In addition, the Sarbanes-Oxley Act of 2002 and the rules implemented by the SEC in response to that legislation have required significant changes in corporate governance practices of public companies. While we have had to comply with such rules and regulations in the past, we expect these rules and regulations to significantly affect legal and financial compliance, and to make some activities more time-consuming and costly.

 

Additionally, as a newly-formed bank holding company, we are required to prepare supplemental qualitative disclosure regarding our assets and operations as set forth in Article 9 of Regulation S-X and Industry Guide No. 3, which includes information such as portfolio loan composition, yield, costs, loan terms, maturities, re-pricing characteristics, credit ratings and risk elements such as non-accrual and past due items, which will add to our legal and compliance costs going forward.

 

As the provider of financial services, our business and earnings are significantly affected by general business and economic conditions, particularly in the real estate industry, and accordingly, our business and earnings could be further harmed in the event of a continuation or deepening of the current U.S. recession or further market deterioration or disruption.

 

The global and U.S. economies and the local economies in the Nevada market, where substantially all of our loan portfolio was originated, experienced a steep decline beginning in 2007, which has continued throughout 2010. The financial markets and the financial services industry in particular suffered unprecedented disruption, causing many financial institutions to fail or require government intervention to avoid failure. These conditions were largely the result of the erosion of the U.S. and global credit markets, including a significant and rapid deterioration of the mortgage lending and related real estate markets. We give you no assurance that economic conditions that have adversely affected the financial services industry and the capital, credit, and real estate markets generally, will improve in the near term.

 

Our business and earnings are sensitive to general business, economic and market conditions in the United States. These conditions include changes in short-term and long-term interest rates, inflation, deflation, fluctuation in the real estate and debt capital markets, developments in national and regional economies and changes in government policies and regulations.

 

Our business and earnings are particularly sensitive to economic and market conditions affecting the real estate industry because a large portion of our loan portfolio consists of commercial real estate and construction loans. Real estate values have been declining in Nevada, steeply in some cases, which has affected collateral values and has resulted in increased provisions for loan losses for Nevada banks.

 

While generally containing lower risk than unsecured loans, commercial real estate and construction loans generally involve a high degree of credit risk. Such loans also generally involve larger individual loan balances. In addition, real estate construction loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because many real estate construction borrowers’ ability to repay their loans is dependent on successful development of their properties, as well as the factors affecting residential real estate borrowers. Risk of loss on a construction loan depends largely upon whether the initial estimate of the property’s value at completion of construction equals or exceeds the cost of property construction (including interest), the ability of the borrowers to stabilize leasing or rental income to qualify for permanent financing and the availability of permanent take-out financing, itself a market we believe that is

largely non-existent at present. During the construction phase, a number of factors can result in delays and cost overruns. Construction and commercial real estate loans also involve greater risk because they may not be fully amortizing over the loan period, but have a balloon payment due at maturity. A borrower’s ability to make a balloon payment may depend on the borrower being able to refinance the loan, timely sell the underlying property or liquidate other assets.

 

The current U.S. recession has resulted in a reduction in the value of many of the real estate assets securing a large portion of our loans. Any increase in the number of delinquencies or defaults would result in higher levels of nonperforming assets, net charge-offs and provisions for loan losses, adversely affecting our results of operations and financial condition.

 

Our geographic concentration is tied to business, economic and regulatory conditions in Nevada.

 

Unfavorable business, economic or regulatory conditions in Nevada, where we conduct the majority of our business, could have a significant adverse impact on our business, financial condition and results of operations. In addition, because our business is concentrated in Nevada, and our entire loan portfolio originated from Nevada, we could also be adversely affected by any material change in Nevada law or regulation and may be exposed to economic and regulatory risks that are greater than the risks we would face if the business were spread more evenly by geographic region.

 

Furthermore, the recent decline in Nevada in the value of real estate assets and local business revenues, particularly in the gaming and hospitality industries, could continue and will likely have a significant adverse impact on business, financial conditions and results of operations. There can be no assurance that the real estate market or local industry revenues will not continue to decline. Further erosion in asset values in Nevada could impact our existing loans and could make it difficult for us to find attractive alternatives to deploy our capital, impeding our ability to grow our business.

 

The Las Vegas market is substantially dependent on gaming and tourism revenue, and the downturn in the gaming and tourism industries has indirectly had an adverse impact on Nevada banks.

 

The economy of the Las Vegas area is unique in the United States for its level of dependence on services and industries related to gaming and tourism. Regardless of whether a Nevada bank has substantial customer relationships in the gaming and tourism industries, a downturn in the Nevada economy adversely affects the bank’s customers, resulting in an increase in loan delinquencies and foreclosures, a reduction in the demand for products and services, and a reduction of the value of collateral for loans, with an associated adverse impact on the bank’s business, financial condition, results of operations, and prospects.

 

An event or state of affairs that adversely affects the gaming or tourism industry adversely impacts the Las Vegas economy generally. Gaming and tourism revenue is particularly vulnerable to fluctuations in the economy. Virtually any development or event that dissuades travel or spending related to gaming and tourism adversely affects the Las Vegas economy. The Las Vegas economy is more susceptible than the economies of many other cities to such issues as higher gasoline and other fuel prices, increased airfares, unemployment levels, recession, rising interest rates, and other economic conditions, whether domestic or foreign. Gaming and tourism are also susceptible to political conditions or events, such as military hostilities and acts of terrorism, whether domestic or foreign. In addition, Las Vegas competes with other areas of the country and other parts of the world for gaming revenue, and it is possible that the expansion of gaming operations in other states, such as California, and other countries would significantly reduce gaming revenue in the Las Vegas area.

 

The soundness of other financial institutions with which we do business could adversely affect us.

 

The financial services industry and the securities markets have been materially adversely affected by significant declines in values of almost all asset classes and by extreme lack of liquidity in the capital and credit markets. Financial institutions specifically have been subject to increased volatility and an overall loss in investor confidence. Financial institutions are interrelated as a result of trading, clearing, counterparty, investment, or other relationships, including loan participations, derivatives, and hedging transactions and

investments in securities or loans originated or issued by financial institutions or supported by the loans they originate. Many of these transactions expose a financial institution to credit or investment risk arising out of default by the counterparty. In addition, a bank’s credit risk may be exacerbated if the collateral it holds cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or other exposure. These circumstances could lead to impairments or write-downs in a bank’s securities portfolio and periodic gains or losses on other investments under mark-to-market accounting treatment. We could incur additional losses to our securities portfolio in the future as a result of these issues. These types of losses could have a material adverse effect on our business, financial condition or results of operation. Furthermore, if we are unable to ascertain the credit quality of certain potential counterparties, we may not pursue otherwise attractive opportunities and we may be unable to effectively grow our business.

 

Our earnings may be significantly affected by the fiscal and monetary policies of the federal government and its agencies.

 

The Federal Reserve System (the “Federal Reserve”) regulates the supply of money and credit in the United States. Federal Reserve policies determine in large part cost of funds for lending and investing and the return earned on those loans and investments, both of which impact net interest margin, and can materially affect the value of financial instruments, such as debt securities. Its policies can also affect borrowers, potentially increasing the risk that they may fail to repay their loans. Changes in Federal Reserve policies will be beyond our control and difficult to predict or anticipate. To the extent that changes in Federal Reserve policies have a disproportionate effect on our cost of funding or on the health of our borrowers, such changes could materially affect our operating results.

 

If there was a depletion of the FDIC’s Deposit Insurance Fund, the FDIC could impose additional assessments on the banking industry.

 

If there was a depletion of the Federal Deposit Insurance Corporation’s (“FDIC”) Deposit Insurance Fund, we believe that the FDIC would impose additional assessments on the banking industry. In such case, our profitability would be reduced by any special assessments from the FDIC to replenish the Deposit Insurance Fund. Please see the discussion in the section entitled “Supervision and Regulation — Deposit Insurance.”

 

The financial services industry is heavily regulated by federal and state agencies.

 

Federal and state regulation is to protect depositors, federal deposit insurance funds and the banking system as a whole, not security holders. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect the business going forward in substantial and unpredictable ways including limiting the types of financial services and products we may offer and/or increasing the ability of nonbanks to offer competing financial services and products. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies and damage to our reputation. For further discussion of applicable regulations, please see the section entitled “Supervision and Regulation.”

 

Potential acquisitions through government-assisted transactions are decided upon by the agencies that will regulate us. To the extent that our regulators took actions that were not in our interests, it could have a negative impact on our growth prospects.

 

We operate in a highly regulated environment and changes in the laws and regulations that govern our operations, changes in the accounting principles that are applicable to us, and our failure to comply with the foregoing, may adversely affect us.

 

We are subject to extensive regulation, supervision, and legislation that governs almost all aspects of our operations. See the section entitled “Supervision and Regulation.” The laws and regulations applicable to the banking industry could change at any time and are primarily intended for the protection of customers,

depositors, and the deposit insurance funds, not stockholders. Changes in these laws or in applicable accounting principles could make it more difficult and expensive for us to comply with laws, regulations, or accounting principles and could affect the way we conduct business.

 

Moreover, the United States, state, and foreign governments have taken extraordinary actions to deal with the worldwide financial crisis and the severe decline in the global economy. Many of these actions have been in effect for only a limited time and have produced limited or no relief to the capital, credit, and real estate markets. We cannot assure you that these actions or other actions under consideration will ultimately be successful. Although we cannot reliably predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to our investors and stockholders. Compliance with the initiatives may increase our costs and limit our ability to pursue business opportunities.

 

Any current or future litigation, regulatory investigations, proceedings, inquiries or changes could have a significant impact on the financial services industry.

 

The financial services industry has experienced unprecedented market value declines caused primarily by the current U.S. recession and real estate market deterioration. As a result of the current market perceptions of stockholder advocacy groups as well as the current U.S. Administration in Washington, D.C., litigation, proceedings, inquiries or regulatory changes are all distinct possibilities for financial institutions. Such actions or changes could result in significant costs. Because we are a relatively new financial institution, any costs and/or burdens imposed by such actions or changes could affect us disproportionately from how they affect our competitors.

 

The Emergency Economic Stabilization Act of 2008 (EESA) and the American Recovery and Reinvestment Act of 2009 (ARRA) may not stabilize the financial services industry or the U.S. economy.

 

The EESA was signed into law on October 3, 2008. The legislation was intended to alleviate the financial crisis affecting the U.S. banking system. A number of programs have been developed and implemented under EESA. The EESA may not have the intended effect and therefore the condition of the financial services industry may worsen instead of improve. The failure of the EESA to improve the condition of the U.S. banking system could significantly adversely impact business, financial condition, financial results and/or access to funding or capital, as well as the trading price of our Common Stock.

 

The ARRA was signed into law on February 17, 2009. The legislation was intended to provide immediate and long-term solutions to the current U.S. recession. The ARRA may not have the intended effect; therefore, the current U.S. recession and the condition of the financial services industry may worsen instead of improve. The failure of the ARRA to improve the current U.S. recession and/or improve the condition of the U.S. banking system could significantly adversely impact business, financial condition, financial results and/or access to funding or capital, as well as the trading price of our Common Stock.

 

Current market volatility and industry developments may adversely affect business and financial results.

 

The volatility in the capital and credit markets along with the housing declines during the last few years has resulted in significant pressure on the financial services industry. If current volatility and market conditions continue or worsen, there can be no assurance that the financial services industry, results of operations or the business will not continue to be significantly adversely impacted. We may have further increases in loan losses, deterioration of capital or limitations on their access to funding or capital, if needed.

 

Further, if other financial institutions fail to be adequately capitalized or funded, it may negatively impact business and financial results. In the past, we have routinely interacted with numerous financial institutions in the ordinary course of business and have therefore been exposed to operational and credit risk to those institutions. Failures of such institutions may significantly adversely impact our operations going forward.

Strategies to manage interest rate risk may yield results other than those anticipated.

 

Changes in the interest rate environment are difficult to predict. Net interest margins can expand or contract, and this can significantly impact overall earnings. Changes in interest rates can also adversely affect the application of critical management estimates, their projected returns on investments, as well as the determination of fair values of certain assets. We have certain assets and liabilities with fixed interest rates. Unexpected and dramatic changes in interest rates may materially impact our operating results.

 

Negative public opinion could damage our reputation and adversely impact our business and revenues.

 

Financial institutions’ earnings and capital are subject to risks associated with negative public opinion. Negative public opinion could result from actual, alleged or perceived conduct in any number of activities, including lending practices, the failure of any product or service to meet customers’ expectations or applicable regulatory requirements, corporate governance, acquisitions, as a defendant in litigation, or from actions taken by government regulators or community organizations. Negative public opinion could adversely affect our ability to attract and/or retain customers and can expose us to litigation or regulatory action. We are highly dependent on our customer relationships. Any negative perception of us which impacted our customer relationships could materially affect our business prospects by reducing our deposit base.

 

Changes in interest rates could adversely affect our profitability, business and prospects.

 

Most of the assets and liabilities of a bank holding company are monetary in nature, exposed to significant risks from changes in interest rates that can affect net income and the valuation of assets and liabilities. Increases or decreases in prevailing interest rates could have an adverse effect on our business, asset quality, and prospects. Our operating income and net income will depend to a great extent on our net interest margin, the difference between the interest yields we receive on loans, securities, and other interest-earning assets and the interest rates we pay on interest-bearing deposits, borrowings, and other liabilities. These rates are highly sensitive to many factors beyond our control, including competition, general economic conditions, and monetary and fiscal policies of various governmental and regulatory authorities, including the Federal Reserve. If the rate of interest we pay on interest-bearing deposits, borrowings, and other liabilities increases more than the rate of interest we receive on loans, securities, and other interest-earning assets, our net interest income and therefore our earnings could be adversely affected. Our earnings could also be adversely affected if the rates on our loans and other investments fall more quickly than those on our deposits and other liabilities.

 

In addition, loan volumes are affected by market interest rates on loans. Rising interest rates generally are associated with a lower volume of loan originations while lower interest rates are usually associated with increased loan originations. Conversely, in rising interest rate environments loan repayment rates decline and in a falling interest rate environment loan repayment rates increase. We cannot assure you that we will be able to minimize our risk exposure to changing interest rates. In addition, an increase in the general level of interest rates may adversely affect the ability of certain borrowers to pay the interest on and principal of their obligations.

 

Interest rates also affect how much money we can lend. When rates rise, the cost of borrowing increases. Accordingly, changes in market interest rates could materially and adversely affect our net interest spread, asset quality, loan origination volume, business, financial condition, results of operations, and cash flows.

 

Increasing our existing market share may depend on market acceptance and regulatory approval of new products and services.

 

Our ability to increase our market share will depend, in part, on our ability to create and adapt products and services to evolving industry standards. There is increasing pressure on financial services companies to provide products and services at lower prices. This can reduce net interest margin and revenues from fee-based products and services. In addition, the widespread adoption of new technologies, including internet-based services, could require us to make substantial expenditures to modify or adapt our existing products and services. We may not successfully introduce new products and services, achieve market acceptance of products

and services and/or be able to develop and maintain loyal customers. Market share expansion will also require fixed asset (branch) expansion to service a larger customer base and to access broader markets. There is no guarantee of a positive return on these expenditures.

 

The historical financial information included in this prospectus is not necessarily indicative of our future performance.

 

The historical financial information included in this prospectus is not necessarily indicative of future financial position, results of operations and cash flows. The results of future periods may be different as a result of, among other things, the additional costs associated with being a public bank holding company and the pace of growth of our business in the future, which is likely to differ from the historical growth reflected in the financial information presented herein.

 

Service1^st has experienced significant losses since it began operations in January of 2007. There is no assurance that it will become profitable.

 

Service1^st commenced operations as a commercial bank on January 16, 2007, with initial capital of $50.0 million. Since inception, Service1^st has not been profitable. To some extent, the lack of profitability is attributable to the start-up nature of its business; time is required to build assets sufficient to generate enough interest income to cover operating expenses. However, in addition to the customary challenges of building profitability for a start-up bank, Service1^st has experienced deterioration in the quality of its loan portfolio, largely as a result of the challenging economic conditions in the Nevada market during the last two years. As a result, Service1^st experienced losses of $4.2 million in 2007, $5.1 million in 2008, $17.4 million in 2009 and $5.4 million for the nine months ended September 30, 2010. Although Service1^st’s initial capital was sufficient to absorb these losses and Service1^st remains well capitalized under applicable regulatory criteria, as of September 30, 2010, Service1^st’s capital of $19.8 million was less than half the level of its original capital.

 

We have incurred certain transitional expenses that are relatively large in proportion to the scale of our operations. In addition, we have no earnings history and there is no guarantee that we will ever be profitable or be able to successfully implement an effective business model. In order for Service1^st to become profitable, we believe that we will need to attract a larger amount of deposits and a larger portfolio of loans than Service1^st currently has. We must avoid further deterioration in Service1^st’s loan portfolio and increase the amount of its performing loans so that the combination of Service1^st’s net interest income and non-interest income, after deduction of its provision for loan losses, exceeds Service1^st’s non-interest expense. The source of the majority of Service1^st’s loan losses can be traced primarily to real estate loans that were reliant on continuation of a growing and prosperous economic environment. Beginning in early to mid-2008, increased emphasis on underwriting standards and risk selection was introduced, which effectively discontinued the making of construction, land development, other land loans and any other loans in which the primary source of repayment was subject to greater risk than our current standards would require (such as repayment from proceeds from sales, rentals, leases or refinancing, including permanent take out financing) or based upon projections, unless such loans were accompanied by additional financial support from the borrowers or guarantors. Its future profitability may also be dependent on numerous other factors, including the success of the Nevada economy and favorable government regulation. The Nevada economy has experienced a significant decline in recent years due to the current economic climate. This economy, in which all of Service1^st’s loans have been made, continues to exhibit weakness, and there can be no assurance that further material losses will not be experienced in the portfolio. Continued deterioration of the national and/or local economies, adverse government regulation or our inability to grow our business could affect our ability to become profitable. If this happens, there continues to be a risk that we will not operate on a profitable basis in the near or long-term, and it may never become profitable.

 

Further deterioration in the quality of our loan portfolio may result in additional charge-offs which will adversely effect our operating results.

 

During the last two years, Service1^st suffered from a deterioration in the quality of its loan portfolio. Net charge-offs to average loans outstanding was 2.53% for the nine months ended September 30, 2010, as

compared to 1.31% for the same period in 2009, and 8.43% for the year ended December 31, 2009, compared to 1.44% for the year ended December 31, 2008 and 0.03% for the year ended December 31, 2007. The depressed economic conditions in Nevada which contributed significantly to this deterioration are expected to continue throughout 2010. As of September 30, 2010, performing loans that are classified as potential problem loans constituted approximately 11.6% of total loans. Additionally, impaired loans were 17.6% of total loans as of September 30, 2010. See the section entitled “Management’s Discussion & Analysis of Service1^st Bank of Nevada — Financial Condition.” As a result, while we have implemented various measures to address the current economic situation and took significant charge-offs in 2009, there may be further deterioration in Service1^st’s loan portfolio which will require additional charge-offs. Additional charge-offs will adversely affect our operating results and financial condition.

 

Most of Service1^st’s loans have been originated in the last three years and may have experienced performance which may not be representative of credit defaults in the future.

 

All of Service1^st’s loans were originated in the past three years. A portfolio of older loans will often behave more predictably than a newer portfolio. The average age of Service1^st’s loan portfolio, excluding loan renewals, is 3.2 years as of September 30, 2010, and the current level of delinquencies and defaults may not be representative of the level that will prevail in the event we make loans with longer maturity periods. As of September 30, 2010, there were $4.5 million of loans 30 to 89 days delinquent and accruing, and $0.4 million of loans 90 plus days delinquent and accruing, and non-accrual loans were $16.8 million. If delinquencies and defaults increase, we may be required to increase our provision for loan losses, which would adversely affect our results of operations and financial condition. Current appraisals (6 months or less) were available on all of Service1^st’s non-performing real estate loans. All appraisal valuations in file were assessed and updated based on current market conditions, cap rates and varying degrees of stress testing based on property type, location, lease maturities, vacancy factors and tenant strength.

 

A substantial portion of our loan portfolio consists of loans maturing within one year, and there is no guarantee that these loans will be replaced upon maturity or renewed on the same terms or at all.

 

As of September 30, 2010, approximately 28.5% of Service1^st’s loan portfolio consists of loans maturing within one year. As a result, we will either need to renew or replace these loans during the course of the year. There is no guarantee that these loans will be originated or renewed by borrowers on the same terms or at all, as demand for such loans may decrease. Furthermore, there is no guarantee that borrowers will qualify for new loans or that existing loans will be renewed by us on the same terms or at all, as collateral values may be insufficient or the borrowers’ cash flow maybe materially less than when the loan originated. This could result in a significant decline in the performance of our loan portfolio.

 

We rely upon independent appraisals to determine the value of the real estate which secures a significant portion of Service1^st’s loans, and the values indicated by such appraisals may not be realizable if we are forced to foreclose upon such loans.

 

A significant portion of Service1^st’s loan portfolio consists of loans secured by real estate. As of September 30, 2010, approximately 67.6% of Service1^st’s loans were secured by real estate. We rely upon independent appraisers to estimate the value of the real estate which secures Service1^st’s loans. Appraisals may reflect the estimated value of the collateral on an “as-is” basis, an “as-stabilized” basis or an “as-if-developed” basis, depending upon the loan type and collateral. Raw land generally is appraised at its “as-is” value. Income producing property may be appraised at its “as-stabilized” value, which takes into account the anticipated cash flow of the property based upon expected occupancy rates and other factors. The collateral securing construction loans may be appraised at its “as-if-developed” value, which approximates the post-construction value of the collateralized property assuming that such property is developed. “As-if-developed” values on construction loans often exceed the immediate sales value and may include anticipated zoning changes, and successful development by the purchaser.

 

Appraisals are only estimates of value and the independent appraisers may make mistakes of fact or judgment which adversely affect the reliability of their appraisal. In addition, events occurring after the initial

appraisal may cause the value of the real estate to decrease. With respect to appraisals conducted on an “as-if-developed” basis, if a loan goes into default prior to development of a project, the market value of the property may be substantially less than the “as-if-developed” appraised value. As a result of any of these factors, there may be less security than anticipated at the time the loan was originally made. If there is less security and a default occurs, we may not recover the outstanding balance of the loan.

 

As a de novo bank we are subject to restrictions that may inhibit growth and initiatives not within our existing business plan.

 

We are subject to customary conditions applicable to newly chartered (so called, “de novo”) banks for a probationary period of seven years. During such probationary period, we must maintain a Tier 1 capital leverage ratio of not less than 8.0%. (At September 30, 2010, Service1^st’s Tier 1 capital leverage ratio was 9.23%.) In addition, during the seven-year period, we are required to operate within the parameters of a business plan submitted to the FDIC (an amended version of which was most recently submitted during application processing for the acquisition of Service1^st), and to provide the FDIC 60 days’ advance notice of any proposed material change or material deviation from the business plan, before making any such change or deviation. See the section entitled “Information Related to Western Liberty Bancorp and Service1^st Bank of Nevada.” During the seven-year de novo period, we will remain on a 12-month risk management examination cycle and be subject to enhanced supervision for compliance examinations and Community Reinvestment Act evaluations. Consequently, we will be under a high degree of regulatory scrutiny, at least through the end of 2013, and proposed initiatives not included in the business plan submitted to the FDIC will require prior FDIC approval. As a result, we may not be able to implement new business initiatives, and our ability to grow may be inhibited.

 

Service1^st is subject to regulatory restrictions, including a Consent Order, that restricts its operations, affect its ability to obtain regulatory approval for future initiatives requiring such approval and to hire and retain qualified senior management.

 

In May of 2009, Service1^st entered into a Memorandum of Understanding (“MOU”) with the FDIC and the Nevada Financial Institutions Division. Pursuant to the MOU, Service1^st agreed, among other initiatives, to develop and submit a comprehensive strategic plan covering at least a three-year operating period; to reduce the level of adversely classified assets and review loan grading criteria and procedures to ensure accurate risk ratings; to develop a plan to strengthen credit administration of construction and land loans (including the reduction of concentration limits in land, construction and development loans and the improvement of stress testing of commercial real estate loan concentrations); to review its methodology for determining the adequacy of the allowance for loan and lease losses; and to correct apparent violations listed in its most recent report of examination.

 

In addition, since mid-2009, Service1^st has been required (i) to provide the FDIC with at least 30 days’ prior notice before appointing any new director or senior executive officer or changing the responsibilities of any senior executive officer; and (ii) to obtain FDIC approval before making (or agreeing to make) any severance payments (except pursuant to a qualified pension or retirement plan and certain other employee benefit plans). The FDIC is likely to use the prior notice requirement in practice as a means of objecting to the appointment of new directors or senior executives (or changes in the responsibilities of senior executives) it deems not qualified for the positions sought (or to changes in the responsibilities of senior executives it deems not qualified for the new responsibilities proposed). These requirements apply as well to WLBC. These regulatory requirements could make it more difficult for us to retain and hire qualified senior management. The MOU and these regulatory restrictions will remain in effect until modified or terminated by the regulators.

 

On September 1, 2010, Service1^st, without admitting or denying any possible charges relating to the conduct of its banking operations, agreed with the FDIC and the Nevada Financial Institutions Division to the issuance of a Consent Order. The Consent Order supersedes the MOU. Under the Consent Order, Service1^st has agreed, among other things, to: (i) assess the qualification of, and have retained qualified, senior management commensurate with the size and risk profile of Service1^st; (ii) maintain a Tier I leverage ratio at or above 8.5% (as of September 30, 2010, Service1^st’s Tier I leverage ratio was at 9.23%) and a total risk-

based capital ratio at or above 12% (as of September 30, 2010, Service1^st’s total risk-based capital ratio was at 16.90%); (iii) continue to maintain an adequate allowance for loan and lease losses; (iv) not pay any dividends without prior bank regulatory approval; (v) formulate and implement a plan to reduce Service1^st’s risk exposure to adversely classified assets; (vi) not extend any additional credit to any borrower whose loan has been classified as “substandard” or “doubtful” without prior approval from Service1^st’s board of directors or loan committee; (vii) formulate and implement a plan to reduce risk exposure to its concentration in commercial real estate loans in conformance with Appendix A of Part 365 of the FDIC’s Rules and Regulations; (ix) formulate and implement a plan to address profitability; and (x) not accept brokered deposits (which includes deposits paying interest rates significantly higher than prevailing rates in Service1^st’s market area) and reduce its reliance on existing brokered deposits, if any.

 

When the September 1, 2010 Consent Order was entered into, the FDIC and the Nevada Financial Institutions Division had not yet completed their analysis of whether an approximately $20 million deposit of a non-depository Nevada trust company should be considered a brokered deposit. The deposit is a NOW account held at the bank by a non-depository Nevada trust company as custodian of its customers’ self-directed IRA accounts. If not considered a brokered deposit, this approximately $20 million deposit could be retained by Service1^st and would not be subject to the Consent Order requirement for reduction of brokered deposits. However, the FDIC and the Nevada Financial Institutions Division have since completed their analysis of this particular deposit relationship and have recently advised Service1^st that the account relationship must be terminated by December 31, 2010. Service1^st expects that termination of the account relationship by December 31, 2010 will not have a material adverse effect on the bank. The bank has maintained sufficient liquidity to orderly reduce the deposit with short-term assets.

 

Our stock price could fluctuate and could cause you to lose a significant part of your investment.

 

The market price of our securities may be influenced by many factors, some of which are beyond our control, including those described above and the following:

 

 

If we are unable to effectively maintain a system of internal control over financial reporting, we may not be able to accurately or timely report financial results, which could materially adversely affect our business.

 

Section 404 of the Sarbanes-Oxley Act of 2002 requires that a public company evaluate the effectiveness of its internal control over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of its internal control over financial reporting in its annual report on Form 10-K for that fiscal year. Section 404 also requires that a public company’s independent registered public accounting firm attest to, and report on, the effectiveness of the company’s internal control over financial reporting.

 

Our ability to comply with the annual internal control report requirements of Section 404 depends on the effectiveness of our financial reporting and data systems and controls across our operations. We expect the implementation of these systems and controls to involve significant expenditures, and our systems and controls will become increasingly complex. To effectively implement these systems and manage this complexity, we will likely need to continue to improve our operational, financial and management controls and our reporting systems and procedures.

 

If we are not able to implement the required new or improved controls, or encounter difficulties in the implementation or operation of these controls, our independent registered public accounting firm may be required to issue an adverse opinion on the effectiveness of our internal control over financial reporting. This failure could cause us to be unable to report our financial information on a timely basis and thereby become subject to adverse regulatory consequences, including sanctions by the SEC or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements also could suffer if our management team or our independent registered public accounting firm were to report a material weakness in our internal control over financial reporting. If any of these events were to occur, our business could be adversely affected.

 

Our allowance for loan losses may not be adequate to cover actual loan losses, which may require us to take a charge to our earnings and adversely impact our financial condition and results of operations.

 

We maintain an allowance for estimated loan losses that we believe is adequate for absorbing the inherent losses in Service1^st’s loan portfolio. As of September 30, 2010, our allowance for loan and lease losses was $7.0 million on a total of approximately $120.9 million gross loans. Based on these amounts, the percentage of allowance to total loans was 5.81% and the allowance for loan losses as a percentage of non-performing loans was 41.02% as of September 30, 2010.

 

Pursuant to the acquisition method of accounting for business combinations, the allowance for loan losses from acquired entities does not transfer to the acquiring entity. In addition, the acquiring bank should establish loan loss allowances for the acquired held-for-investment loans in periods after the acquisition, but only for losses incurred on these loans due to credit deterioration after acquisition. Therefore, management will determine the provision for loan losses based upon an analysis of general market conditions, credit quality of the loan portfolios, and performance of customers relative to their financial obligations. The amount of future losses is susceptible to changes in economic, operating, and other conditions, including changes in interest rates that may be beyond our control and such losses may exceed the allowance for estimated loan losses. Although we expect that the allowance for estimated loan losses will be adequate to absorb any inherent losses on existing loans that may become uncollectible, there can be no assurance that the allowance will prove sufficient to cover actual loan losses in the future. Significant increases to the provision for loan losses may be necessary if material adverse changes in general economic conditions occur or the performance of the loan portfolio deteriorates. Additionally, banking regulators, as an integral part of their supervisory function, periodically review the allowance for estimated loan losses. If these regulatory agencies require us to increase the allowance for estimated loan losses, it could have a negative effect on our results of operations and financial condition.

If we are unable to recruit and retain experienced management personnel and recruit and retain additional qualified personnel, our business and prospects could be adversely affected.

 

Our success depends in significant part on our ability to retain senior executives and other key personnel in technical, marketing and staff positions. There can be no assurance that we will be able to successfully attract and retain highly qualified key personnel, either in existing markets and market segments or in new areas that we may enter. If we are unable to recruit and retain an experienced management team or recruit and retain additional qualified personnel, our business, and consequently our sales and results of operations, may be materially adversely affected.

 

We have approximately 41 full-time equivalent, non-union employees. We seek to employ adequate staffing commensurate with levels of banking activities and customer service requirements for a community bank.

 

Our success depends in part on our ability to retain key customers, and to hire and retain management and employees and successfully manage the broader organization. Competition for qualified individuals may be intense and key individuals may depart because of issues relating to the uncertainty and difficulty of integration or a general desire not to remain with us. Furthermore, we will face challenges inherent in efficiently managing an increased number of employees. Accordingly, no assurance can be given that we will be able to attract and retain key customers, management or employees, which could result in disruption to our business and negatively impact our operations and financial condition.

 

We are exposed to risk of environmental liabilities with respect to properties to which we take title.

 

In the course of our business we may foreclose and take title to real estate, potentially becoming subject to environmental liabilities associated with the properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs or we may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. Costs associated with investigation or remediation activities can be substantial. If we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely affect our business and prospects.

 

Compliance with governmental regulations and changes in laws and regulations and risks from investigations and legal proceedings could be costly and could adversely affect operating results.

 

Our operations could be impacted by changes in the legal and business environments in which we operate, as well as the outcome of ongoing government and internal investigations and legal proceedings. Also, as a result of new laws and regulations or other factors, we could be required to curtail or cease certain operations. Changes that could impact the legal environment include new legislation, new regulation, new policies, investigations and legal proceedings and new interpretations of the existing legal rules and regulations. Changes that impact the business environment include changes in accounting standards, changes in environmental laws, changes in tax laws or tax rates, the resolution of audits by various tax authorities, and the ability to fully utilize any tax loss carry forwards and tax credits. Compliance-related issues could limit our ability to do business in certain countries. These changes could have a significant financial impact on our future operations and the way we conduct, or if we conduct, business in the affected countries.

 

The value of the Federal Home Loan Bank stock that we own could be adversely affected by weakness in the FHLB system.

 

Service1^st is a member of the Federal Home Loan Bank (“FHLB”) of San Francisco, which is one of the twelve regional banks comprising the FHLB System. The FHLB provides credit for member financial institutions. The 12 FHLBs obtain their funding primarily through issuance of consolidated obligations of the FHLB System. The U.S. government does not guarantee these obligations, and each of the 12 FHLBs is jointly and severally liable for repayment of the debt of the other FHLBs. Therefore, our investment in the equity stock of the FHLB of San Francisco could be adversely affected by the operations of the other FHLBs. Certain

FHLBs, including the FHLB of San Francisco, have experienced lower earnings from time to time and have paid out lower dividends to their members. If an FHLB’s capital drops below 4% of its assets, restrictions on the redemption or repurchase of member banks’ FHLB stock are imposed by law. If FHLBs are restricted from redeeming or repurchasing member banks’ FHLB stock due to adverse financial conditions affecting either individual FHLBs or the FHLB system as a whole, member banks may be required to recognize an impairment charge on their FHLB equity stock investments. Future problems at the FHLBs could have an impact on the collateral necessary to secure borrowings and limit the borrowings extended to member banks, as well as require additional capital contributions by member banks. If this occurs, our short-term liquidity needs could be adversely affected. If we are restricted from using FHLB advances due to weakness in the FHLB System or weakness at the FHLB of San Francisco, we may be forced to find alternative funding sources. These alternative funding sources may include seeking lines of credit with third party banks or the Federal Reserve Bank, borrowing under repurchase agreement lines, increasing deposit rates to attract additional funds, accessing brokered deposits, or selling certain investment securities categorized as available-for-sale in order to maintain adequate levels of liquidity.

 

Our legal lending limit could be a competitive disadvantage.

 

Service1^st’s legal lending limit is approximately $6.7 million as of September 30, 2010. Accordingly, the size of the loans which we can offer to potential clients is less than the size of loans our competitors with larger lending limits can offer. Our legal lending limit affects our ability to seek relationships with the area’s larger and more established businesses. Through our previous experience and relationships with a number of the region’s other financial institutions, we are generally able to accommodate loan amounts greater than our legal lending limit by selling participations in those loans to other banks, although we tend to retain a significant portion of the loans we originate. However, we cannot assure you of any success in attracting or retaining clients seeking larger loans or (taking into account the economic downturn and its effects on other financial institutions) that we can engage in participation transactions for those loans on terms favorable to us.

 

Certain statements made in this prospectus, including in the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Service1^st Bank of Nevada”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Western Liberty Bancorp” and “The Business of Western Liberty Bancorp”, constitute forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “potential,” “intend” or similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, business strategy and means to implement the strategy, the amount and timing of capital expenditures, the likelihood of our success in building our business, financing plans, budgets, working capital needs and sources of liquidity. We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to predict accurately or over which we have no control.

 

Forward-looking statements, estimates and projections are based on management’s beliefs and assumptions, are not guarantees of performance and may prove to be inaccurate. Forward-looking statements also involve risks and uncertainties that could cause actual results to differ materially from those contained in any forward-looking statement and which may have a material adverse effect on our business, financial condition, results of operations and liquidity. A number of important factors could cause actual results or events to differ materially from those indicated by forward-looking statements. These risks and uncertainties include, but are not limited to, the following:

 

 

 

Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus. Additional information on these and other factors that may cause actual results and our performance to differ materially is included in the section entitled “Risk Factors” and elsewhere in this prospectus and in our periodic reports filed with the SEC.

 

All forward-looking statements included herein are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligations to update these forward-looking statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events.

 

Up to 1,458,948 shares of Common Stock will be registered for resale by the selling security holders under this prospectus, including (i) 368,306 Private Shares, (ii) 503,708 shares of Common Stock issued upon exercise of the Private Warrants on October 28, 2010 pursuant to the Amended Warrant Agreement, (iii) 150,000 shares of Common Stock issued to certain current and former members of the Board in connection with the Acquisition, (iv) 394,100 shares of Common Stock underlying the Restricted Stock Units and the shares of Restricted Stock granted by us to certain of our current and former directors, officers and consultants in connection with the Acquisition and (v) 42,834 shares of Common Stock issuable upon exercise of the Service1^st Warrants.

 

To the extent permitted by law, the selling security holders listed below may resell the aforementioned shares of Common Stock pursuant to this prospectus. We have registered the sale of such shares of Common Stock to permit the selling security holders and their respective permitted transferees or other successors-in-interest that receive any such shares of Common Stock from the selling security holders after the date of this prospectus to resell such shares of Common Stock.

 

The following table sets forth the unregistered Common Stock (including shares of Common Stock underlying the Restricted Stock Units, Restricted Stock and Service1^st Warrants) beneficially owned and being offered by the selling security holders as of          , 2010. The selling security holders are not making any representation that any shares of Common Stock covered by this prospectus will be offered for sale. The selling security holders reserve the right to accept or reject, in whole or in part, any proposed sale of Common Stock. The following table assumes that all shares of Common Stock being registered pursuant to this prospectus will be sold.

 

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to shares of Common Stock. Unless otherwise indicated below, to our knowledge, all persons named in the table have or will have sole voting and/or investment power with respect to Common Stock (including the Common Stock underlying the Restricted Stock Units) beneficially owned by them. The inclusion of any Common Stock underlying Restricted Stock Units in this table does not constitute an admission of beneficial ownership for the person named below.

 

 

 

 

 

We expect the net proceeds from the sale of Common Stock upon exercise of the Service1^st Warrants will be $899,943.34 (based on an exercise price of $21.01 per share of Common Stock). We intend to use the net proceeds from the exercise of Service1^st Warrants for general corporate purposes.

 

The selling security holders and any of their pledgees, donees, assignees, transferees and successors-in-interest may, from time to time, sell any or all of their shares of Common Stock Nasdaq or any other stock exchange, market or trading facility on which the shares of Common Stock are traded or in private transactions. These sales may be at fixed or negotiated prices. Subject to compliance with applicable law, the selling security holders may use any one or more of the following methods when selling shares of Common Stoc:

 

 

The selling security holders may also sell shares of Common Stock under Rule 144 under the Securities Act (“Rule 144”), if available, or in other transactions exempt from registration, rather than under this prospectus. The SEC has adopted amendments to Rule 144 which became effective on February 15, 2008, and apply to securities acquired both before and after that date. Under these amendments, a person who has beneficially owned restricted shares of Common Stock for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale.

 

Persons who have beneficially owned restricted shares of Common Stock for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of either of the following:

 

 

provided, in each case, that we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale. Such sales must also comply with the manner of sale and notice provisions of Rule 144.

Broker-dealers engaged by the selling security holders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling security holders (or, if any broker-dealer acts as agent for the purchaser of shares of Common Stock, from the purchaser) in amounts to be negotiated. The selling security holders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.

 

The selling security holders may pledge their shares of Common Stock to their broker-dealers under the margin provisions of customer agreements. If a selling security holder defaults on a margin loan, the broker-dealer may, from time to time, offer and sell the pledged shares of Common Stock. The selling security holders and any other persons participating in the sale or distribution of the shares of Common Stock will be subject to applicable provisions of the Securities Act, the Exchange Act, and the rules and regulations thereunder, including, without limitation, Regulation M. These provisions may restrict certain activities of, and limit the timing of purchases and sales of any of the shares of Common Stock by, the selling security holders or any other person, which limitations may affect the marketability of the shares of Common Stock.

 

Upon our being notified in writing by a selling security holder that any material arrangement has been entered into with a broker-dealer for the sale of Common Stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of the selling security holder and of the participating broker-dealer(s), (ii) the number of shares of Common Stock involved, (iii) the price at which such shares of Common Stock were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction.

 

The selling security holders also may transfer the shares of our Common Stock in other circumstances, in which case the transferees, pledgees or other successors-in-interest will be the selling beneficial owners for purposes of this prospectus.

 

The selling security holders and any broker-dealers or agents that are involved in selling the shares of Common Stock may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares of Common Stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. To our knowledge, no selling security holder has entered into any agreement or understanding, directly or indirectly, with any person to distribute the shares of our Common Stock.

 

We are required to pay all fees and expenses incident to the registration of shares of Common Stock. We have agreed to indemnify the selling security holders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

Common Stock Underlying Restricted Stock Units

 

We are offering the shares of Common Stock underlying the Restricted Stock Units. Each Restricted Stock Unit is immediately and fully vested and shall be settled for one share of Common Stock on the earlier to occur of (i) a change of control of WLBC and (ii) October 28, 2013, and no additional consideration shall be paid by the holders of such Restricted Stock Units in connection with such settlement.

 

General

 

The following is a summary of the material terms of our securities and is not intended to be a complete summary of the rights and preferences of such securities. We urge you to read our Second Amended and Restated Certificate of Incorporation, filed with the Securities and Exchange Commission on our Current Report on Form 8-K on October 9, 2009.

 

Authorized and Outstanding Stock

 

Our Second Amended and Restated Certificate of Incorporation authorizes the issuance of 100,000,000 shares of Common Stock and 1,000,000 shares of preferred stock, par value $0.0001 per share. In our initial public offering 31,948,850 shares of Common Stock were issued. As of          , 2010, there were 15,026,079 outstanding shares of Common Stock, consisting of (i) 10,590,863 shares of Common Stock issued in our initial public offering, (ii) 2,370,722 shares of Common Stock issued as Base Acquisition Consideration, (iii) 1,502,088 shares of Common Stock issued upon exercise of the Warrants in accordance with the Amended Warrant Agreement, (iv) 368,306 Private Shares and (v) 194,100 shares of Restricted Stock. The Common Stock outstanding is duly authorized, validly issued, fully paid and non-assessable. There are no shares of preferred stock outstanding.

 

Common Stock

 

We engaged in our initial public offering of units, consisting of one share of Common Stock and one Warrant, on November 20, 2007, and, in connection therewith, issued 31,948,850 (including the over allotment option) Public Warrants to our public investors. Additionally, we issued 8,500,000 Private Warrants and 8,625,000 Private Shares in private placements to certain of our affiliates concurrent with our initial public offering, of which 637,786 Private Shares were redeemed because the underwriters in the initial public offering did not fully exercise their over-allotment option, resulting in a total of 7,987,214 Private Shares outstanding after redemption. On July 20, 2009, we entered into a Private Shares Restructuring Agreement with Hayground Cove, pursuant to which 7,618,908, or over 95%, of the Private Shares, were cancelled and exchanged for Private Warrants, resulting in 368,306 Private Shares and 16,118,908 Private Warrants.

 

On October 7, 2009, we held a special meeting where our stockholders approved, among other things, certain amendments to our Amended and Restated Certificate of Incorporation removing certain provisions specific to special purpose acquisition companies and changing our name to “Western Liberty Bancorp” and authorizing the distribution and termination of our trust account maintained for the proceeds of our initial public offering. On October 7, 2009, we also liquidated our trust account. As a result, we distributed $211,764,441 from our trust account to stockholders who elected to convert their shares into a pro rata portion of the trust account and the remaining $105,014,080 to us, resulting in 10,959,169 outstanding shares of Common Stock (including 368,306 Private Shares).

 

In connection with the Acquisition, the former stockholders of Service1^st received 2,370,722 shares of Common Stock as Base Acquisition Consideration. In addition, the holders of Service1^st’s outstanding options and warrants now hold options and warrants of similar tenor (such warrants being the Service1^st Warrants) to purchase up to 289,786 shares of Common Stock. In addition to the Base Acquisition Consideration, each of the former stockholders of Service1^st may be entitled to receive Contingent Acquisition Consideration, payable in Common Stock, if at any time within the first two years after the consummation of the Acquisition, which occurred on October 28, 2010, the closing price per share of the Common Stock exceeds $12.75 for 30 consecutive days. The Contingent Acquisition Consideration would be equal to 20% of the tangible book value of Service1^st at the close of business on August 31, 2010. The total number of shares of Common Stock issuable to the former Service1^st stockholders would be determined by dividing the Contingent Acquisition Consideration by the average of the daily closing price of the Common Stock on the first 30 trading days on which the closing price of the Common Stock exceeded $12.75.

In connection with the Acquisition, on September 27, 2010, WLBC and Continental Stock Transfer & Trust Company, as warrant agent, entered into the Amended Warrant Agreement, pursuant to which all of our outstanding Warrants, including the Private Warrants, were exercised into one thirty-second (1/32) of one share of Common Stock concurrently with the consummation of the Acquisition. Any Warrants that would have entitled a holder of such Warrants to a fractional share of Common Stock after taking into account the exercise of the remainder of such holder’s Warrants into full shares of Common Stock were cancelled. As a result of the foregoing, WLBC issued 1,502,088 shares of Common Stock and paid each Warrant holder $0.06 per Warrant exercised. The Common Stock issuable upon exercise of the Public Warrants was previously registered under the Exchange Act during WLBC’s initial public offering, and such shares were freely tradable immediately upon issuance.

 

On October 28, 2010, in connection with the consummation of the Acquisition, we issued Restricted Stock to William E. Martin, who became a member of the Board and serves as our Chief Executive Officer and as Chief Executive Officer of Service1^st, and George A. Rosenbaum, Jr., our current Chief Financial Officer and the Executive Vice President of Service1^st. Mr. Martin received 155,279 shares of Restricted Stock, which was equal to $1.0 million divided by the $6.44 closing price of the Common Stock on the closing date of the Acquisition, in consideration for his future services in accordance with the terms of his employment agreement with WLBC. Mr. Rosenbaum received 38,819 shares of Restricted Stock, which was equal to $250,000 divided by the closing price of the Common Stock on the closing date of the Acquisition, in consideration for his future services in accordance with the terms of his employment agreement with WLBC. The shares of Restricted Stock granted to each of Messrs. Martin and Rosenbaum will vest 20% on each of the first, second, third, fourth and fifth anniversaries of the consummation of the Acquisition, which occurred on October 28, 2010, subject to Messrs. Martin’s and Rosenbaum’s respective and continuous employment through each vesting date. Fifty percent of the shares of Restricted Stock that vest in accordance with the prior sentence will remain Restricted Stock that will vest upon a termination of the holder’s employment for any other reason than (i) by WLBC for cause, or (ii) by the holder without good reason prior to October 28, 2015. Such Restricted Stock shall be subject to restrictions on transfer for a period of one year following each vesting date.

 

On October 28, 2010, in consideration of their substantial service to and support of WLBC during the period in which we sought the requisite regulatory approval to become a bank holding company in connection with the Acquisition, WLBC and each of Jason N. Ader, our former Chairman and Chief Executive Officer and a current member of the Board, Daniel B. Silvers, our former President, Andrew P. Nelson, our former Chief Financial Officer and a former member of the Board, Michael Tew, an outside consultant, and Laura Conover-Ferchak, an outside consultant, entered into the Letter Agreements, pursuant to which each of the foregoing individuals received a grant of Restricted Stock Units. Mr. Ader, a current director and the former Chairman and Chief Executive Officer of WLBC, received 50,000 Restricted Stock Units; Mr. Silvers, WLBC’s former President, received 100,000 Restricted Stock Units; Mr. Nelson, a former director of WLBC, received 25,000 Restricted Stock Units; Mr. Tew, an outside consultant to WLBC, received 20,000 Restricted Stock Units; and Mrs. Conover-Ferchak, an outside consultant to WLBC, received 5,000 Restricted Stock Units. Each Restricted Stock Unit is immediately and fully vested and shall be settled for one share of Common Stock, of WLBC on the earlier to occur of (i) a change of control and (ii) the Settlement Date.

 

Furthermore, on October 28, 2010, in consideration of their substantial service to and support of WLBC during the period in which we sought the requisite regulatory approval to become a bank holding company in connection with the Acquisition, WLBC made a one-time grant of 50,000 shares of Common Stock to each of Michael Frankel, the current Chairman of the Board, Richard A.C. Coles, a current member of the Board and Mark Schulhof, a former member of the Board.

 

Holders of our Common Stock are entitled to one vote for each share held of record on all matters to be voted on by stockholders generally. Holders of Common Stock have exclusive voting rights for the election of our directors and all other matters requiring stockholder action, except as may be provided in any certificate of designation in respect of our preferred stock or as otherwise provided by law, including with respect to certain amendments to our Second Amended and Restated Certificate of Incorporation that would require approval by

the holders of our preferred stock, or one or more series thereof, that may become outstanding, voting separately as a class or series.

 

Holders of our Common Stock are entitled to receive such dividends, if any, as may be declared from time to time by our board of directors in its discretion out of funds legally available therefor. We have not paid any dividends on our Common Stock to date. The payment of dividends in the future will depend on our revenues and earnings, if any, capital requirements and general financial condition It is the intention of our present board of directors to retain any earnings for use in our business operations and, accordingly, we do not anticipate the board declaring any dividends in the foreseeable future. In addition, our board of directors is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future, except if we may increase the size of the offering pursuant to Rule 462(b) under the Securities Act. Further, our ability to declare dividends may be limited to restrictive covenants if we incur any indebtedness.

 

In the event of any voluntary or involuntary liquidation, dissolution or winding up and after payment or provision for payment of our debts and other liabilities, and subject to the rights of holders of shares of our preferred stock that may become outstanding, the holders of all outstanding shares of our Common Stock will be entitled to receive our remaining assets available for distribution ratably in proportion to the number of shares of Common Stock held by each stockholder.

 

Holders of our Common Stock have no preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the Common Stock.

 

Preferred Stock

 

Our Second Amended and Restated Certificate of Incorporation authorizes the issuance of 1,000,000 shares of “blank check” preferred stock with such designations, rights, powers (including voting powers, full or limited) and preferences as may be determined from time to time by our board of directors. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with voting powers and with dividend, liquidation, conversion or other rights which could dilute the voting power of the Common Stock or could result in a subordination of the rights of the holders of the Common Stock to the prior rights and preferences of the preferred stock, including with respect to dividends or upon a liquidation, dissolution or winding up. In addition, preferred stock could be utilized as a method of discouraging, delaying or preventing a change in control of WLBC. There are no shares of preferred stock outstanding and we do not currently intend to issue any shares of preferred stock. Although we do not currently intend to issue any shares of preferred stock, we cannot assure you that we will not do so in the future.

 

Service1^st Options and Warrants

 

In connection with the Acquisition, the holders of Service1^st’s outstanding warrants now hold warrants of similar tenor (such warrants being the Service1^st Warrants) to purchase shares of Common Stock. The Service1^st Warrants entitle each of the holders thereof to purchase shares of Common Stock at a purchase price of $21.01 per share. As a result of the foregoing, we may issue up to 42,834 shares of Common Stock upon the exercise of all outstanding Service1^st Warrants. The Service1^st Warrants are fully vested and shall expire on January 17, 2012.

 

In connection with the acquisition, the holders of outstanding options to purchase Service1^st’s common stock now hold options of similar tenor to purchase shares of Common Stock at a purchase price of $21.01 per share. As a result of the foregoing, we may issue up to 246,952 shares of Common Stock upon the exercise of all outstanding options. The options were granted by Service1^st under the Stock Option Plan of Service1^st Bank of Nevada. Generally, any unvested options will become vested and exercisable if the holder continuously provides service to Service1^st or an affiliate through the applicable vesting date.

 

Our Transfer Agent

 

The transfer agent for our securities is Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York 10004.

 

Board of Directors

 

 

Information about the Directors

 

Michael B. Frankel has been a member of the Board since December 2008 and Chairman of the Board since October 2010. Mr. Frankel has been a private investor and advisor since June 2008. Prior to that time, from 1982 to June 2008, Mr. Frankel was employed at Bear, Stearns & Co. Inc. where he was a Senior Managing Director since July 1990. While at Bear Stearns, Mr. Frankel was responsible for establishing and managing the Global Equity Capital Markets Group, was a member of the Commitment Committee, and managed the investment banking-research department relationship. Prior to joining Bear Stearns, from 1958 to 1982, Mr. Frankel was employed at L.F. Rothschild & Co., where he was a General Partner since 1973. At L.F. Rothschild & Co, Mr. Frankel managed the Institutional Equities Department. Mr. Frankel holds a Bachelor of Science in Economics from Lafayette College.

 

Terrence L. Wright has been a member of the Board since October 2010. Mr. Wright has been a director and shareholder and the secretary of Service1^st since January 2007. During this time, Mr. Wright also served as Chairman of Service1^st’s Nominating and Corporate Governance Committee. Mr. Wright is owner and Chairman of the Board of Nevada Title Company which provides title services through a number of locations in southern Nevada with more than 250 employees. Mr. Wright also is the owner and Chief Executive Officer of Nevada Construction Services, as well as the majority owner, Chairman of the Board, and Chief Executive Officer of Westcor Land Title Insurance Company, the first domestic title insurance company in Nevada, and now has operations in Alabama, Arizona, California, Colorado, Florida, New York, Texas, Utah and Wyoming. Mr. Wright received his undergraduate degree in Business Administration and his Juris Doctorate from DePaul University in Chicago. Mr. Wright joined the Chicago Title Insurance Company while still in law school and remained on staff after graduation as State Manager and Agency Administrator. Nevada Construction Services was established in 1985 providing voucher control and inspection services to financial institutions. Nevada Construction Services also provides lenders with reports detailing disbursements and project updates as well as protection against mechanics liens and wrongful claims. He is a member of the California and Illinois bar associations and has served on the Board of Directors for the Nevada Land Title Association, the Las Vegas Monorail, and the Tournament Players Club in Las Vegas. He was also the past chairman of the Nevada Development Authority, the Nevada Chapter of the Young President’s Organization, and the UNLV Foundation. Mr. Wright currently serves on the board of the Nevada Cancer Institute, the Council for a Better Nevada, and Southwest Gas Corporation where he is a member of the audit and compensation committees of that company’s board.

 

Jason N. Ader has been a member of the Board since our formation in 2007. Mr. Ader previously served as our Chief Executive Officer and the Chairman of the Board from December 2008 through October 2010. Mr. Ader founded and serves as Chief Executive Officer of Hayground Cove, a New York-based investment management firm. Mr. Ader is also a co-founder of Hayground Cove Capital Partners LLC, a merchant bank focused on the real estate and consumer sectors formed in March 2009. Mr. Ader is also the Executive Chairman of Reunion Hospitality Trust, Inc., a hospitality company formed to invest in and acquire hospitality and related investments. Mr. Ader is also Chairman of the board of directors of India Hospitality Corp., which

owns flight catering, hotel and restaurant businesses in India, and was, from inception until December 2008, its Chief Executive Officer. Mr. Ader also currently sits on the board of directors of the Las Vegas Sands Corp. Prior to founding Hayground Cove, Mr. Ader was a Senior Managing Director at Bear, Stearns & Co. Inc., from 1995 to 2003, where he performed equity and high yield research for more than 50 companies in the gaming, lodging and leisure industries. From 1993 to 1995, Mr. Ader served as a Senior Analyst at Smith Barney. From 1990 to 1993, Mr. Ader served as a buy-side analyst at Baron Capital. Mr. Ader was rated as one of the top ranked analysts by Institutional Investor Magazine for nine consecutive years from 1994 to 2002. Mr. Ader has a Bachelor of Arts in Economics from New York University and an M.B.A. in Finance from New York University, Stern School of Business.

 

Richard A.C. Coles has been a member of the Board since December 2008. Mr. Coles is a Managing Principal of the Emmes Group of Companies and is a Member of their Investment Committee. Mr. Coles joined Emmes in 1997, became a Managing Director in 2004, and a Partner in 2005. Mr. Coles is the primary Principal responsible for the day-to-day oversight of Emmes Asset Management Company LLC and Emmes Realty Services LLC and plays a key role in the execution of the property level value enhancing strategies undertaken by the firm in respect of the assets owned and/or managed by the firm, as well as sourcing new acquisition opportunities for the firm and its partners and clients. Prior to joining Emmes, Mr. Coles worked as an asset manager and a development director of the Enterprise Development Company, overseeing numerous development and leasing projects for retail, urban specialty and office assets. Mr. Coles is the co-chair of The Enterprise Foundation, a leading non-profit provider of affordable housing, New York City advisory board. In addition, he is an active member of the Real Estate Board of New York as well as the Pension Real Estate Association. Mr. Coles holds a Bachelor of Arts from Boston College and a M.B.A. in Finance and Accounting from New York University, Stern School of Business.

 

Robert G. Goldstein has been a member of the Board since October 2010. Mr. Goldstein has been Executive Vice President of Las Vegas Sands Corp. since July 2009, Vice President of The Venetian Resort-Hotel-Casino since January 1999 and President and Chief Operating Officer of The Palazzo Casino Resort since December 2008. He previously served as Senior Vice President of Las Vegas Sands Corp. from August 2004 through July 2009 and Senior Vice President of Las Vegas Sands, LLC (or its predecessor, Las Vegas Sands, Inc.) from 1997 through July 2009, and served as Vice President of Las Vegas Sands, Inc. from 1995 through 1997. Mr. Goldstein is responsible for the oversight of daily operations of the hotel, food and beverage, casino, and retail operations. From 1992 until joining Las Vegas Sands Corp. in December 1995, Mr. Goldstein was the Executive Vice President of Marketing at the Sands Hotel in Atlantic City as well as an Executive Vice President of the parent Pratt Hotel Corporation. Mr. Goldstein holds a Bachelor of Arts in History and Political Science from the University of Pittsburgh and a J.D. from Temple University School of Law.

 

Blake L. Sartini has been a member of our Board since October 2010. Mr. Sartini was a founder and has been a Director of Service1^st Bank of Nevada since it opened in January 2007. In addition, Mr. Sartini is the founder, Chairman and Chief Executive Officer of Golden Gaming, Inc. Mr. Sartini formed the company in October 2001, following his purchase of Southwest Gaming Services, Inc. Prior to establishing Golden Gaming, Inc., Mr. Sartini served as Executive Vice President, Chief Operating Officer and Director of Station Casinos, Inc. During his fifteen year tenure with Station Casinos, Mr. Sartini held various management positions and served in numerous senior executive roles. Mr. Sartini was instrumental in overseeing Station’s explosive growth from one local casino with approximately 2,000 team members, to eight regional casinos with approximately 12,000 team members. Today, Mr. Sartini remains a significant shareholder in Station Casinos. Mr. Sartini co-founded Southwest Gaming Services, Inc. in 1985. The company evolved into a slot route operation in the early 1990s where Mr. Sartini served as President. In addition to his gaming interests, Mr. Sartini is a founder, Chairman, and Chief Executive Officer of Sartini Enterprises, Inc., a family investment company established in 2006. Mr. Sartini earned his Bachelor of Arts degree in Business Administration from the University of Nevada, Las Vegas.

 

Curtis W. Anderson, CPA has been a member of our Board since October 2010. Mr. Anderson has been a Director of Service1^st Bank of Nevada since the bank opened in January 2007. Mr. Anderson is the founder, partner and Chief Executive Officer of Fair, Anderson and Langerman CPAs, which provides accounting and

business advisory services to businesses and individual clients. He has held that position since 1988. He is a 1971 graduate of the University of Notre Dame. He earned his CPA license in 1974 and is a member of the American Institute of CPAs and the Nevada Society of CPAs. Formerly a partner with McGladrey & Pullen, LLP, Mr. Anderson is also an active real estate investor and developer. Mr. Anderson is also a Broker and Officer of MDL Group, a real estate brokerage and management firm that he started at in 1989, and since 2007 has been serving as a Manager of Triple Crown Painting and Drywall LLC, a commercial painting subcontractor. His current community involvement includes Opportunity Village Foundation Board Chairman and Police Athletic League (PAL) Treasurer.

 

William E. Martin has been a member of the Board and our Chief Executive Officer since October 2010. Mr. Martin has been the Chief Executive Officer and Vice Chairman of the Board of Service1^st Bank of Nevada since December 2007. Mr. Martin is sixty-eight years of age. Mr. Martin graduated from the University of North Texas and joined the Office of the Comptroller of the Currency, where he spent fifteen years as a national bank examiner in California and Nevada. In 1978 he was placed in charge of that agency’s national problem bank group, was a Deputy Comptroller in charge of the OCC’s UBPR, later adopted by the FFIEC for all banking regulatory agencies, and finally, was Deputy Comptroller for Multinational Banking with responsibility for primary oversight of the eleven largest national banks. He was one of three U.S. representatives appointed to the Basel Committee. In 1983, he left the OCC and became President and Chief Executive Officer of Nevada National Bank, a $700 million asset statewide bank, and its parent company, Nevada National Bancorporation, which was acquired by Security Pacific National bank in 1989. Later that year, he joined Pioneer Citizens Bank of Nevada as President and Chief Executive Officer. The bank grew from $110 million in assets to over $1.1 billion by 1999 at which time it was acquired by Zions Bancorporation and merged into Nevada State Bank. For the following seven years he was Chairman, President and Chief Executive Officer of Nevada State Bank, a $4 billion institution with seventy statewide branch offices. He left Nevada State Bank in late 2007 and joined Service1^st Bank of Nevada where he serves as Vice Chairman and Chief Executive Officer. Mr. Martin has been involved at a board or active participation level in over thirty civic efforts in his twenty-seven years in Nevada that included chairmanships of the Nevada State College Foundation, Las Vegas Chamber of Commerce, Opportunity Village for Intellectually Handicapped Citizens, Nevada Development Capital Corporation and Water Conservation Coalition.

 

Our business and affairs are overseen by the Board pursuant to the Delaware General Corporation Law (the “DGCL”), our Second Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws. The members of the Board are kept informed of our business through discussions with our Chairman of the Board and Chief Executive Officer, and with key officers, by reviewing materials provided to them and by participating in board meetings.

 

Independence of Directors

 

As a result of our securities being listed on the Nasdaq, we adhere to the rules of that exchange in determining whether a director is independent. The Nasdaq requires that a majority of the board must be composed of “independent directors,” which is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Consistent with these considerations, our board of directors has affirmatively determined that Messrs. Frankel, Wright, Ader, Coles, Goldstein, Sartini and Anderson are the independent members of the Board.

 

Attendance at Meetings

 

Messrs. Frankel, Wright, Ader, Coles, Goldstein, Sartini, Martin and Anderson comprise the membership of the Board. The Board has held one meeting since the close of the Acquisition and the consummation of our operations as a bank holding company, at which time Messrs. Wright, Goldstein, Sartini, Martin and Anderson joined Messrs. Frankel, Ader and Coles as members of the Board. All of the members of the Board except Mr. Sartini attended this meeting either in person or by telephone. We expect our directors to attend all board

and committee meetings and to spend the time needed and meet as frequently as necessary to properly discharge their duties.

 

Audit Committee Information

 

The Audit Committee is comprised entirely of directors who may be classified as “independent” within the meaning of Nasdaq Rule 5605(a)(2) and Rule 10A-3 of the Exchange Act. Our Audit Committee consists of Curtis W. Anderson, Richard A.C. Coles, Jason N. Ader, and Terrence L. Wright. Mr. Anderson serves as the chairman of our Audit Committee.

 

The Audit Committee acts pursuant to a separate written charter which has been adopted and approved by the Board. The Audit Committee’s duties, which are specified in our Audit Committee Charter, include, but are not limited to:

 

 

Financial Experts on Audit Committee

 

The Audit Committee currently is and will at all times be composed exclusively of “independent directors” who are “financially literate,” meaning they are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement. In addition, the Audit Committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the individual’s financial sophistication. The Board has determined that Messrs. Anderson and Coles satisfy the definition of financial sophistication and also qualify as “audit committee financial experts,” as defined under the SEC’s rules and regulations.

 

Code of Ethics

 

We have adopted a code of conduct and ethics applicable to our directors, officers and employees in accordance with applicable federal securities laws and the rules of Nasdaq.

Compensation Committee Information

 

The Compensation Committee consists of Jason N. Ader, Blake L. Sartini, Robert G. Goldstein and Curtis W. Anderson. Each is an independent director under Nasdaq listing standards. Mr. Ader serves as the chairman of the Compensation Committee. The purpose of the Compensation Committee is assist our Board in fulfilling its fiduciary obligations with respect to the oversight of our compensation plans, policies and programs, especially with regard to executive compensation and employee benefits, and producing an annual report on executive compensation for inclusion in our proxy statement. The Compensation Committee acts pursuant to a separate written charter which has been adopted and approved by our Board. The Compensation Committee’s duties, which are specified in our Compensation Committee Charter, include, but are not limited to:

 

 

Under its charter, the Compensation Committee is entitled to delegate its responsibilities with respect to the administration of incentive compensation, equity compensation and other compensation programs as appropriate and consistent with applicable law. The Compensation Committee has the resources and authority to delegate its duties and responsibilities.

 

Compensation Committee Interlocks and Insider Participation

 

None of the persons designated as our directors currently serves on the compensation committee of any other company on which any other director designee of WLBC or any officer or director of WLBC or Service1^st is currently a member. Jason N. Ader sits on the board of directors of Las Vegas Sands Corp, and currently serves on its compensation committee. Robert Goldstein is the Executive Vice President of Las Vegas Sands Corp.

 

Governance and Nominating Committee

 

Our Governance and Nominating Committee consists of Michael B. Frankel, Jason N. Ader and Terrence L. Wright. Each is an independent director under Nasdaq listing standards. Mr. Frankel serves as the chairman of the Governance and Nominating Committee. The Governance and Nominating Committee acts pursuant to a separate written charter which has been adopted and approved by our Board. The Governance and

Nominating Committee’s duties, which are specified in our Governance and Nominating Charter, include, but are not limited to:

 

 

The Governance and Nominating Committee makes recommendations to our Board of candidates for election to our Board, and our Board makes recommendations to our stockholders. The Governance and Nominating Committee will consider stockholder recommendations for candidates for the Board that are submitted as provided in “Communications with the Board” below. In addition to considering candidates suggested by stockholders, the Governance and Nominating Committee considers potential candidates recommended by current directors, company officers, employees and others.

 

Guidelines for Selecting Director Nominees

 

The Governance and Nominating Committee believes that all director nominees should meet certain qualifications and possess certain qualities and skills that, when considered in light of the qualities and skills of the other director nominees, assist our board in overseeing our business and operations and developing and pursuing our strategic objectives. The Governance and Nominating Committee believes that persons to be nominated, at a minimum, should be actively engaged in business endeavors, have an understanding of financial statements, corporate budgeting and capital structure, be familiar with the requirements of a publicly traded company, be familiar with industries relevant to our business endeavors, be willing to devote significant time to the oversight duties of the board of directors of a public company, and be able to promote a diversity of views based on the person’s professional experience, education, skill and other individual qualities and attributes. Thus, our Governance and Nominating Committee will evaluate candidates from a variety of educational and professional backgrounds to foster diversity on the Board. The Governance and Nominating Committee will evaluate each individual in the context of the Board as a whole, with the objective of recommending a group of persons that can best implement our business plan, perpetuate our business and represent stockholder interests. The Governance and Nominating Committee may require certain skills or attributes, such as financial or accounting experience, to meet specific board needs that arise from time to time. The Governance and Nominating Committee will not distinguish among nominees recommended by stockholders and other persons.

 

Changes in Our Independent Registered Public Accountants

 

The personnel of Hays & Company LLP, our independent registered public accounting firm, joined with Crowe Horwath LLP, resulting in the resignation of Hays & Company LLP as our independent registered public accounting firm. Crowe Horwath LLP was appointed as our independent registered public accounting

firm going forward on June 5, 2009. The decision to engage Crowe Horwath LLP was approved by both the Board and our Audit Committee.

 

The audit reports of Hays & Company LLP regarding our financial statements as of and for the fiscal years ended December 31, 2008 and 2007 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.

 

During our three most recent fiscal years ended December 31, 2009, 2008 and 2007 and through November 19, 2010, we did not consult with Crowe Horwath LLP regarding either (i) the application of accounting principles to a specific transaction, either completed or proposed or (ii) the type of audit opinion that may be rendered by Crowe Horwath LLP on our financial statements. Neither a written report nor oral advice was provided by Crowe Horwath LLP to us that was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue. Prior to their appointment, we did not consult with Crowe Horwath LLP regarding any matter that was either the subject of a disagreement (as such term is defined in Item 304(a)(1)(iv) and the related instructions to such item) or a “reportable event” (as such term is defined in Item 304(a)(1)(v) of Regulation S-K).

 

In connection with the audits of our financial statements for each of the fiscal years ended December 31, 2009, 2008 and 2007, the review of the interim financial statements for the periods ended March 31, 2010, June 30, 2010, September 30, 2010, and through November 19, 2010, there were no disagreements between us and Crowe Horwath LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Crowe Horwath LLP, would have caused Crowe Horwath LLP to make reference to the subject matter of the disagreements in connection with their reports on our financial statements for such years.

 

During the fiscal years ended December 31, 2007, December 31, 2008, December 31, 2009, and the interim period ended September 30, 2010 and through November 19, 2010, there were no “reportable events” (as such term is defined in Item 304(a)(1)(v) of Regulation S-K).

 

Independent Auditors’ Fees

 

Hays & Company LLP audited our financial statements for the period from June 27, 2007 (inception) to December 31, 2007 and for the year ended December 31, 2008. Hays & Company LLP reported directly to our Audit Committee. The personnel of Hays & Company LLP joined with Crowe Horwath LLP, resulting in the resignation of Hays & Company LLP as our independent registered public accounting firm. Crowe Horwath LLP was appointed as our independent registered public accounting firm going forward June 5, 2009. Crowe Horwath LLP audited our financial statements for the year ended December 31, 2009. The following is a summary of fees paid or to be paid to Hays & Company LLP and Crowe Horwath LLP, as applicable for services rendered:

 

Audit Fees

 

The aggregate fees billed for professional services rendered by Hays & Company LLP for the period ended December 31, 2008 for the audit of our financial statements dated December 31, 2008, review of our financial statements dated March 31, June 30 and September 30, 2008, our current reports on Form 8-K and reviews of SEC filings amounted to approximately $100,167.

 

The aggregate fees billed for professional services rendered by Hays & Company LLP and Crowe Horwath LLP for the period ended December 31, 2009 for the audit of our financial statements dated December 31, 2009, review of our financials statements dated March 31, June 30 and September 30, 2009, our current reports on Form 8-K and reviews of SEC filings amounted to approximately $83,200.

 

Audit Related Fees

 

On June 5, 2009, we engaged Crowe Horwath LLP to perform financial due diligence in connection with an acquisition. The aggregate fees billed for financial due diligence rendered by Crowe Horwath LLP amounted to approximately $631,900.

Tax Fees

 

The aggregate fees billed for professional services rendered by Hays & Company LLP for the fiscal year 2008 for tax compliance amounted to approximately $11,800.

 

The aggregate fees billed or expected to be billed for professional services rendered by Hays & Company LLP and Crowe Horwath LLP for the fiscal year 2009 for tax compliance amounted to approximately $23,500.

 

All Other Fees

 

We did not receive products and services provided by Hays & Company LLP or Crowe Horwath LLP, other than those discussed above, for either fiscal year 2008 or 2009.

 

Audit Committee Pre-Approval Policies and Procedures

 

Since our Audit Committee was not formed until the consummation of our initial public offering, the Audit Committee did not pre-approve all of the foregoing services, although any services rendered prior to the formation of our Audit Committee were approved the Board. Since the formation of our Audit Committee, and on a going-forward basis, the Audit Committee approved all auditing services performed for us by Hays & Company LLP, and will pre-approve all auditing services and permitted non-audit services to be performed for us by Crowe Horwath LLP, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the Audit Committee prior to the completion of the audit). The Audit Committee may form and delegate authority to subcommittees of the Audit Committee consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Audit Committee at its next scheduled meeting.

 

Communication with the Board

 

Stockholders and other interested parties may send written communications directly to the Board or to specified individual directors, including the Chairman or any non-management directors, by sending such communications to George A. Rosenbaum, Jr., our Chief Financial Officer, at our principal executive offices: Western Liberty Bancorp, 8363 W. Sunset Road, Suite 350, Las Vegas, Nevada 89113. Such communications will be reviewed and, depending on the content, will be:

 

 

 

For biographical information about Messrs. Frankel, Wright, Ader, Coles, Goldstein, Sartini, Anderson and Martin see the section entitled “Corporate Governance — Board of Directors.”

 

George A. Rosenbaum, Jr. currently serves as our Chief Financial Officer and as Executive Vice President of Service1^st. From May 2007 to December 2009, Mr. Rosenbaum has served as Consultant for various financial entities, including two groups starting de novo banks. From August 2003 to February 2007, Mr. Rosenbaum, served as Executive Vice President, Chief Financial Officer and Secretary of the board of directors of First Federal Banc of the Southwest, Inc. From May 2002 to August 2003, Mr. Rosenbaum served as Chief Financial Officer of Illini Corporation, a publicly traded $280 million bank holding company. From July 2000 to May 2002, Mr. Rosenbaum worked as Senior Audit Manager at McGladrey & Pullen LLP, working primarily on accounting and audit matters relating to financial institutions. Mr. Rosenbaum holds a Bachelor of Science in Accounting from the National College of Business.

 

Patricia A. Ochal currently serves as our Vice President and as Chief Financial Officer of Service1^st . Ms. Ochal manages Service1^st’s facilities, leases, insurance and bank-wide risk assessment. At Service1^sts inception, Ms. Ochal was in charge of Human Resources, Bank Operations and Marketing. Bank Operations involved Compliance (BSA/AML/OFAC), on-line banking, remote capture, ACH, wires, ATMs, establishing new branch locations and tenant improvements. Ms. Ochal also coordinated Service1^st’s marketing effort and website development/management. Ms. Ochal began organizing Service1^st in May 2006. Prior to organizing Service1^st, Ms. Ochal was Senior Vice President, Chief Financial Officer of Nevada First Bank from 2004 through 2006. Ms. Ochal received her Bachelor of Science in Accounting from the University of Nevada, Las Vegas and is Certified Public Accountant in the state of Nevada. Ms. Ochal is an alumnus of KPMG Peat Marwick and currently holds affiliations with the American Institute of Certified Public Accountants (AICPA) and the Nevada Society of Certified Public Accountants.

Executive Officers and Directors of Service1^st

 

The board of directors and executive officers of our wholly-owned subsidiary Service1^st are as follows:

 

 

For biographical information about Messrs. Ader, Sartini, Wright, Goldstein, Anderson and Martin see the section entitled “Corporate Governance — Board of Directors.” For biographical information about Mr. Rosenbaum and Ms. Ochal, see the section above.

 

Monte L. Miller is a founder and Director of Service1^st Bank of Nevada. He has held the position of Director since the bank opened in January 2007. In addition to serving as Director, he is the Chairman of the Loan & Investment Committee and a Member of both the Audit and Nominating and Corporate Governance Committees of Service1^st. Mr. Miller started his banking career in 1971 with First National Bank of Nevada and has 38 years of banking and investment experience. From 1975 to 1989, Mr. Miller first served as an officer to Valley Bank of Nevada (now Bank of America), then as the Vice President and Manager of the Investment Department of the Trust Division and then as the Senior Vice President and Trust Division Manager. Following his banking career, in 1991 Mr. Miller founded KeyState Corporate Management, which provides corporate management services to Nevada and Delaware investment subsidiaries, including a number of investment subsidiaries of community banks. As part of these corporate management services, Mr. Miller serves as an officer and/or director of these Nevada or Delaware subsidiaries (KeyState’s clients), which include special purpose entities and other subsidiaries of public companies created to hold and manage a company’s intangible assets. He holds a Bachelor of Science in Business Administration from the University of Nevada Reno and his M.A. in Economics from the University of Nevada, Las Vegas. He currently serves as a Commissioner for the Nevada Commission on Economic Development, as a Trustee of the University of Nevada Reno Foundation, as Chairman of Nevada Energy Assistance Corporation, on the Executive Committee of the Board of Trustees of the Nevada Development Authority, and on the Governor’s P-16 Education Council. From January 2004 through December 2007, Mr. Miller served on the board of the Federal Home Loan Bank of San Francisco and served on the Audit Committee, Finance Committee, and Personnel/Compensation Committee. He also previously served on the Board of Directors of the Community College of Southern Nevada Foundation and the Nevada Community Foundation.

 

Mark E. Brown was a founder of Service1^st Bank of Nevada and has been a Director since it opened in January 2007. He is a member of the Corporate Governance Committee and the Chair of the Compensation Committee. In addition, since 2007 Mr. Brown has been the Chief Executive Officer of Zen Gaming, an interactive advertising agency, located in Las Vegas, Nevada and is also the President of MBC

Communications, a political and public relations consulting company. Previously, he served as President of YourBuyer, Inc. a global purchasing company serving the hospitality, construction, and food packaging industries and from 2000 to 2007 was the President and a principal of R&R Partners, Nevada’s largest advertising and public relations firm with offices in Las Vegas, Reno, Phoenix, Salt Lake City, and Washington, DC. Mr. Brown was the founder and owner of Brown & Partners in 2000, which merged with R&R Partners in 2004. Mr. Brown’s experience includes five years of service as a senior banking legislative assistant to former U.S. Senator Chip Hecht. For six years he served as executive vice president of corporate and government relations and marketing for The Howard Hughes Corporation. In 1999 he became the executive vice president of government relations and corporate communications for Station Casinos, a gaming and entertainment company.

 

John F. Dedolph has been an Outside Director of Service1^st Bank of Nevada since December 2007 and was previously Vice Chairman. Mr. Dedolph previously was the Chairman and Chief Executive Officer of Service1^st from January 2007 to October 2007, and the Vice Chairman and Chief Executive Officer of Service1^st from October 2007 to December 2007. Mr. Dedolph has thirty years of top level executive experience in four Nevada community banks and forty years of total banking experience. Included in the community bank experience are three start-up commercial banks, creation of three bank holding companies, three secondary stock issues, sale of one bank/holding company, and one turn-around situation. He was the founder of First Independent Bank of Nevada, a Reno bank organized in 1999, where he served as its Vice Chairman. Previously, Mr. Dedolph was President and Chief Executive Officer of Sun State Bank of Nevada from 1984 until its sale to Zions Bancorporation in October 1997. Prior to that he was the President and Chief Executive Officer of two subsidiaries of American Bancorp of Nevada in Las Vegas. Additionally he was the founder of American Bancorp’s banking subsidiary, American Bank of Commerce, in 1997 as its Chief Credit Officer. He also worked for the National Bank and First National Bank of Nevada, where he began his banking career in 1968. He is the former director of Nevada Bankers’ Association, and is a 1965 graduate of the University of Nevada, Reno.

 

Steven D. Hill has been a Director and the Vice Chairman of the Corporate Governance Committee of Service1^st since the bank opened in January 2007. In August 2010, Mr. Hill was named Chairman of the Board for Service1^st Bank. In addition, Mr. Hill is the Senior Vice President, Division Manager of the California Portland Cement Company. Prior to that, he was the founder and President of Silver State Materials Corp, located in Las Vegas, Nevada from 1987 to 2008. From 1981 to 1987, he held the position of Operations Manager and General Manager at Moraine Materials Company in Dayton Ohio. He holds a B.S.M.E. from Rose-Hulman Institute of Technology. Mr. Hill has a number of community involvements including participation as a member in the Clark County Growth Management Task Force, Las Vegas Water District Water Rate Committee, RTC Regional Fixed Guideway Citizens Advisory Committee, Trauma Systems Development Task Force, Clark County Air Quality Technical Advisory Committee, Clark County Clean Water Coalition Citizens Advisory Committee, the SB432 Interim Advisory Committee on Air Quality and the Las Vegas Chamber of Commerce. Mr. Hill has served as Chairman of the Young Presidents Organization, the Associated Builders and Contractors, the Government Affairs Division of the Associated General Contractors, the Government Affairs Division of the Associated Builders and Contractors, the Governor’s Construction Liability Insurance Task Force, The Boys and Girls Club of Las Vegas, the Las Vegas Chamber of Commerce, and the Las Vegas Chamber of Commerce Government Affairs Division. Mr. Hill is currently the Chairman of the Coalition for Fairness in Construction, the Commissioner of the Savings and Government Efficiency Commission, a member of the Clark County Growth Management Task Force and a member of the Las Vegas Chamber of Commerce.

 

Carl P Krepper was a founder and has been a Director of Service1^st Bank of Nevada since its inception in 2007. He is also a member of the Loan and Investment Committee. From 1980 to 2009 Mr. Krepper was the Vice President of Sales for TAMCO, a steel mini-mill in California that recycles ferrous scrap metal into concrete reinforcing bars, which serves markets primarily in California, Arizona and Nevada.

 

Frances (Fafie) Moore has been a Director of Service1^st, as well as a Member of the Audit and Loan Investment Committees since April 2008. In addition, Ms. Moore is the President of FJM Corporation doing business as Realty Executives of Nevada, a real estate brokerage firm which has been named by the National Association of Realtors as one of the top 100 companies in the nation. She has been involved as President of

the Corporation since it was founded in 1989. Ms. Moore is a Nevada licensed real estate broker and has been named to the Realtor Association Hall of Fame. Ms. Moore served four years as President of the Nevada Forum of the International Women’s Forum. She served 10 years on the Western Regional Advisory Committee of the U.S. Civil Rights Commission. She was the 2008 Chairman of the Las Vegas Chamber of Commerce. She is a founding board member of FIT for Tomorrow, an organization dedicated to breaking the cycle of dependency. Ms. Moore is currently a member of the Regional Transportation Commission Stakeholders Advisory Committee. She is a current member of the Board of Directors of both the Greater Las Vegas Association of Realtors and the Nevada Association of Realtors.

 

Jenna M. Morton has been a Director of Service1^st Bank of Nevada since April 2008, as well as a Member of the Audit Committee and the Compensation Committee. Jenna Morton has been a co-owner of the N9NE Group since January 2003 and serves as its Director of Community and Government Relations, overseeing corporate initiatives for over 900 employees in Las Vegas alone. The N9NE Group owns and operates multiple restaurants and nightlife entertainment venues in Chicago, Las Vegas and Dallas. The N9NE Group brands include N9NE Steakhouse, Nove Italiano, Ghostbar, Moon Nightclub, Rain Nightclub, and the world’s only Playboy Club. She is the President of the Las Vegas Springs Preserve Foundation Board of Directors and the Vice President of the Las Vegas Springs Preserve Board of Directors. She also serves as the finance chair for the After School All Stars Board of Directors. She is a founding member of Nevada Women’s Philanthropy and has served on the boards of Summerlin Children’s Forum and Citizen Alert. She is heavily involved with other organizations, including Proeval Raxmu in Guatemala, Nevada Conservation League, Nevada Wilderness Project, AFAN, Planned Parenthood and Vegas PBS. She graduated magnum cum laude from Northwestern University, with a Bachelors of Arts in political science.

 

George A. Randall is a founder and has been a Director of Service1^st Bank of Nevada since its inception in 2007. Mr. Randall is a Managing Partner of Mesquite Partners, a real estate partnership. He has been retired since 1996.

 

John S. Gaynor has been a Director of Service1^st Bank of Nevada since July 2008, and served as its President and Chief Operating Officer from July 2008 to July 2010. Prior to holding his position at Service1^st, he was the President, Chief Executive Officer, Vice Chairman and a Director of the Bank of Nevada from October 2000 until June 2007 when he retired. He was retired until accepting his position with Service1^st in July 2008. His thirty-nine years of banking experience also includes organizing Commercial Bank of Nevada, a state bank that was chartered in 1994 and acquired by the Colonial Banc Group of Montgomery, Alabama in 1998. Mr. Gaynor was President and Chief Executive Officer of Commercial Bank of Nevada and its successor after the merger, Colonial Bank, until he resigned in 1999. Prior to this, Mr. Gaynor spent nine years with Continental National Bank in Las Vegas, six of which he served as Executive Vice President and Chief Banking Officer. He has also held executive positions with First Interstate Bank of Nevada, both in Reno and Las Vegas. He is a distinguished military graduate of University of Nevada — Reno and also holds a Master’s degree from that institution. He is a graduate of the University of Washington Pacific Coast Banking School and a retired Colonel from the Nevada Army National Guard. In addition, he currently serves on the Board of Directors of Spanish Trail Homeowners Association, Pacific Coast Bankers Bank, and Western Independent Bankers. He is past president of the Nevada Bankers Association and served on both the American Bankers Association’s Community Bankers’ Council and Government Relations Council. He is also an adjunct professor at the College of Southern Nevada and a volunteer pilot for Angel Planes.

 

Richard Deglman has been an Executive Vice President and Chief Credit Officer of Service1^st Bank of Nevada since June 2008. Prior to his employment with Service1^st, Mr. Deglman served as Executive Vice President and Statewide Commercial Real Estate Manager of Nevada State Bank for ten years. Prior to that, he was the Teamleader — Emerging Technology Group for Silicon Valley Bank from 1994 to 1998. Before joining Silicon Valley Bank, Richard was with Security Pacific Bank for over 20 years in various roles, ending as FVP/Regional Manager of CRE before the bank was acquired by Bank of America in 1992. After the acquisition, he served as Credit Administrator until 1994. Richard earned his Bachelors in Business Administration from San Francisco State University and his MBA from St. Mary’s College. His outside roles and association memberships have included the Nevada Builders Association, Associated General Contractors, State of Nevada Block Grant Commissioner, Board of Directors — Jump Start, and Prospectors — Reno.

Compensation of Executive Officers and Directors of WLBC

 

Due to the recent closing of the Acquisition, we have yet to establish a formal policy for the compensation of our directors and executive officers. We intend to provide total compensation packages that are competitive in terms of potential value to our executives, and which are tailored to our unique characteristics and needs within the financial services industry in order to create an executive compensation program that will adequately reward our executives for their roles in creating value for us stockholders. We intend to be competitive with other similarly situated companies in the banking industry. The compensation decisions regarding our executives will be based on our need to attract individuals with the skills necessary for us to achieve our business plan, to reward those individuals fairly over time, and to retain those individuals who continue to perform at or above our expectations.

 

Our executives’ compensation will have three primary components — salary, cash incentive bonuses and stock-based awards. We will view the three components of executive compensation as related but distinct. Although our Compensation Committee will review total compensation, we do not believe that significant compensation derived from one component of compensation should negate or reduce compensation from other components. We anticipate determining the appropriate level for each compensation component based in part, but not exclusively, on our view of internal equity and consistency, individual performance and other information deemed relevant and timely. Since our Compensation Committee was only recently formed upon the consummation of the Acquisition, we have not adopted any formal or informal policies or guidelines for allocating compensation between long-term and currently paid out compensation, between cash and non-cash compensation, or among different forms of compensation

 

In addition to the guidance provided by our Compensation Committee, we may utilize the services of third parties from time to time in connection with the hiring and compensation awarded to executive employees. This could include subscriptions to executive compensation surveys and other databases.

 

Our Compensation Committee is charged with performing an annual review of our executive officers’ cash compensation and equity holdings to determine whether they provide adequate incentives and motivation to executive officers and whether they adequately compensate the executive officers relative to comparable officers in other companies.

 

Benchmarking of Cash and Equity Compensation

 

We believe it is important when making compensation-related decisions to be informed as to current practices of similarly situated publicly held companies in the banking industry. We expect that the Compensation Committee will stay apprised of the cash and equity compensation practices of publicly held companies in the banking industry through the review of such companies’ public reports and through other resources. It is expected that any companies chosen for inclusion in any benchmarking group would have business characteristics comparable to us, including revenues, financial growth metrics, stage of development, employee headcount and market capitalization. While benchmarking may not always be appropriate as a stand-alone tool for setting compensation due to the aspects of our post-acquisition business and objectives that may be unique to us, we generally believe that gathering this information will be an important part of our compensation-related decision-making process.

 

Compensation Components

 

Base Salary.  Generally, we anticipate setting executive base salaries at levels comparable with those of executives in similar positions and with similar responsibilities at comparable companies. We will seek to maintain base salary amounts at or near the industry norms while avoiding paying amounts in excess of what we believes is necessary to motivate executives to meet corporate goals. It is anticipated base salaries will generally be reviewed annually, subject to terms of employment agreements, and that the Compensation Committee and board will seek to adjust base salary amounts to realign such salaries with industry norms after taking into account individual responsibilities, performance and experience.

Annual Bonuses.  We intend to design and utilize cash incentive bonuses for executives to focus them on achieving key operational and financial objectives within a yearly time horizon. Near the beginning of each year, the Board, upon the recommendation of the Compensation Committee and subject to any applicable employment agreements, will determine performance parameters for appropriate executives. At the end of each year, the Board and Compensation Committee will determine the level of achievement for each corporate goal.

 

We will structure cash incentive bonus compensation so that it is taxable to our employees at the time it becomes available to them. At this time, it is not anticipated that any executive officer’s annual cash compensation will exceed $1.0 million, and we have accordingly not made any plans to qualify for any compensation deductions under Section 162(m) of the Internal Revenue Code.

 

Equity Awards.  We also may use stock options and other stock-based awards to reward long-term performance. We believe that providing a meaningful portion of our executives’ total compensation package in stock options and other stock-based awards serves to align the incentives of our executives with the interests of our stockholders and with our long-term success. The Compensation Committee and the Board will develop their equity award determinations based on their judgments as to whether the complete compensation packages provided to our executives, including prior equity awards, are sufficient to retain, motivate and adequately award the executives.

 

Other Compensation.  We will establish and maintain various employee benefit plans, including medical, dental, life insurance and 401(k) plans. These plans will be available to all salaried employees and we will not discriminate in favor of executive officers. We may extend other perquisites to our executives that are not available to our employees generally. All of our executive officers will be eligible to participate in non-contributory 401(k) plans, premium-paid health, hospitalization, short and long term disability, dental, life and other insurance plans as we may have in effect from time to time. They also will be entitled to reimbursement for all reasonable business travel and other out-of-pocket expenses incurred in the performance of their services.

 

Director Compensation

 

Our Compensation Committee will evaluate and recommend and our Governance and Nominating Committee will approve a compensation program for our directors that is appropriate and competitive with those offered by similarly situated public companies.

 

In addition, we issued equity grants to certain of our current and former directors, executive officers and consultants in connection with the Acquisition, as further discussed below.

 

Transaction Related Equity Awards

 

On October 28, 2010, in connection with the consummation of the Acquisition, we issued Restricted Stock to William E. Martin, who became a member of the Board and serves as our Chief Executive Officer and as Chief Executive Officer of Service1^st, and George A. Rosenbaum, Jr., our current Chief Financial Officer and the Executive Vice President of Service1 st. Mr. Martin received 155,279 shares of Restricted Stock, which was equal to $1.0 million divided by the $6.44 closing price of the Common Stock on the closing date of the Acquisition, in consideration for his future services in accordance with the terms of his employment agreement with WLBC. Mr. Rosenbaum received 38,819 shares of Restricted Stock, which was equal to $250,000 divided by the closing price of the Common Stock on the closing date of the Acquisition, in consideration for his future services in accordance with the terms of his employment agreement with WLBC. The shares of Restricted Stock granted to each of Messrs. Martin and Rosenbaum will vest 20% on each of the first, second, third, fourth and fifth anniversaries of the consummation of the Acquisition, which occurred on October 28, 2010, subject to Messrs. Martin’s and Rosenbaum’s respective and continuous employment through each vesting date. Fifty percent of the shares of Restricted Stock that vest in accordance with the prior sentence will remain Restricted Stock that will vest upon a termination of the holder’s employment for any other reason than (i) by WLBC for cause, or (ii) by the holder without good reason prior to October 28, 2015. Such Restricted Stock shall be subject to restrictions on transfer for a period of one year following each vesting date.

On October 28, 2010, in consideration of their substantial service to and support of WLBC during the period in which we sought the requisite regulatory approval to become a bank holding company in connection with the Acquisition, WLBC and each of Jason N. Ader, our former Chairman and Chief Executive Officer and a current member of the Board, Daniel B. Silvers, our former President, Andrew P. Nelson, our former Chief Financial Officer and a former member of the Board, Michael Tew, an outside consultant, and Laura Conover-Ferchak, an outside consultant, entered into the Letter Agreements, pursuant to which each of the foregoing individuals received a grant of Restricted Stock Units. Mr. Ader, a current director and the former Chairman and Chief Executive Officer of WLBC, received 50,000 Restricted Stock Units; Mr. Silvers, WLBC’s former President, received 100,000 Restricted Stock Units; Mr. Nelson, a former director of WLBC, received 25,000 Restricted Stock Units; Mr. Tew, an outside consultant to WLBC, received 20,000 Restricted Stock Units; and Mrs. Conover-Ferchak, an outside consultant to WLBC, received 5,000 Restricted Stock Units. Each Restricted Stock Unit is immediately and fully vested and shall be settled for one share of Common Stock, of WLBC on the earlier to occur of (i) a change of control and (ii) the Settlement Date. Any cash dividends paid with respect to the shares of Common Stock covered by the Restricted Stock Units prior to the Settlement Date shall be credited to a dividend book entry account as if the shares of Common Stock had been issued, provided that such cash dividends shall not be deemed to be reinvested in shares of Common Stock and will be held uninvested and without interest and shall be paid in cash on the Settlement Date.

 

Furthermore, on October 28, 2010, in consideration of their substantial service to and support of WLBC during the period in which we sought the requisite regulatory approval to become a bank holding company in connection with the Acquisition, WLBC made a one-time grant of 50,000 shares of Common Stock to each of Michael Frankel, the current Chairman of the Board, Richard A.C. Coles, a current member of the Board and Mark Schulhof, a former member of the Board.

 

Employment Agreements

 

The following is a summary of the material terms of the at-will employment agreements that we have entered into.

 

William E. Martin, Chief Executive Officer of WLBC and Chief Executive Officer of Service1^st. On February 8, 2010, in connection with the Acquisition, we entered into an amended and restated employment agreement with William E. Martin. Mr. Martin currently serves as our Chief Executive Officer and as a member of the Board, and as Chief Executive Officer and a member of the board of directors of Service1^st.

 

Pursuant to the terms of his employment agreement, Mr. Martin’s employment commenced as of October 28, 2010, the closing date of the Acquisition, and shall continue for an initial term of three years with one or more additional automatic one year renewal periods thereafter. Mr. Martin is entitled to a base salary of $325,000. In addition to the Restricted Stock discussed above, Mr. Martin is also eligible to receive additional equity and long-term incentive awards under any equity-based incentive compensation plans adopted by us for which our senior executives are generally eligible, and an annual discretionary incentive payment upon the attainment of one or more pre-established performance goals established by the Compensation Committee of the Board. Mr. Martin is entitled to employee benefits in accordance with our employee benefits programs. In addition, Mr. Martin is entitled to receive a one-time payment equal to his prior year’s salary in the event there is a change in control at Service1^st and Mr. Martin remains the Chief Executive Officer of such through the closing of the change in control. Mr. Martin’s employment agreement contains customary representations, covenants and termination provisions.

 

George A. Rosenbaum Jr., Chief Financial Officer of WLBC and Executive Vice President of Service1^st.  On December 18, 2009, we entered into a second amended and restated employment agreement with George A. Rosenbaum Jr. Mr. Rosenbaum’s currently serves as our Chief Financial Officer and as Executive Vice President of Service1^st .

 

Pursuant to the terms of his employment agreement, Mr. Rosenbaum’s employment commenced as of January 1, 2010 and will continue for an initial term of three years with one or more additional automatic one-year renewal periods. Mr. Rosenbaum is entitled to a base salary of $200,000. In addition to the Restricted Stock discussed above, Mr. Rosenbaum was also entitled to a transaction bonus equal to a pro rata amount of

his base salary for the period from the signing of his original employment agreement on July 28, 2009. Mr. Rosenbaum received $85,484, which represents payment in full of his transaction bonus. Mr. Rosenbaum is also eligible to receive an annual discretionary incentive payment, upon the attainment of one or more pre-established performance goals established by the Compensation Committee. Mr. Rosenbaum is entitled to employee benefits in accordance with any employee benefits programs and policies adopted by us. In addition, the employment agreement contains customary representations, covenants and termination provisions.

 

Richard Deglman, Chief Credit Officer of Service1^st. On November 6, 2009, in connection with the Acquisition, we entered into an employment agreement with Richard Deglman. Mr. Deglman currently serves as the Chief Credit Officer of Service1^st.

 

Pursuant to the terms of his employment agreement, Mr. Deglman’s employment commenced as of as of October 28, 2010, the closing date of the Acquisition, and shall continue for an initial term of three years with one or more additional automatic one-year renewal periods thereafter. Mr. Deglman is entitled to a base salary of not less than $250,000. Mr. Deglman is eligible to receive equity and long-term incentive awards under any equity-based incentive compensation plans adopted by us for which our senior executives are generally eligible, and an annual discretionary incentive payment upon the attainment of one or more pre-established performance goals established by the Compensation Committee of the Board. Mr. Deglman is entitled to employee benefits in accordance with our employee benefits programs. In addition, Mr. Deglman shall be entitled to receive a one-time payment equal to his prior year’s salary in the event there is a change in control at Service1^st and Mr. Deglman remains the Chief Credit Officer of such through the closing of the change in control. Mr. Deglman’s employment agreement contains customary representations, covenants and termination provisions.

 

We may enter into additional employment agreements with certain of our current and future executive officers. The terms of those agreements will be determined by the Compensation Committee and will be commensurate with the compensation packages of comparable level executives at similarly situated companies.

 

Overview

 

WLBC is a “new” Nevada financial institution bank holding company and conducts its operations through its wholly-owned subsidiary, Service1^st. Service1^st operates as a traditional community bank and provides a full range of banking and related services to locally owned businesses, professional firms, real estate developers and investors, local non-profit organizations, high net worth individuals and other customers from its headquarters and two retail banking locations in the greater Las Vegas area. Services provided include basic commercial and consumer depository services, commercial working capital and equipment loans, commercial real estate (both owner and non-owner occupied) loans, construction loans, and unsecured personal and business loans. Service1^st relies primarily on locally generated deposits to provide us with funds for making loans. Substantially all of our business is generated in the Nevada market. As of September 30, 2010, Service1^st had total assets of approximately $193.2 million, total gross loans of $120.9 million and total deposits of $171.9 million.

 

We were formerly known as “Global Consumer Acquisition Corp.” and were a special purpose acquisition company, formed under the laws of Delaware on June 28, 2007, to consummate an acquisition, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We engaged in our initial public offering of units, consisting of one share of Common Stock and one Warrant on November 20, 2007 and, in connection therewith, issued 31,948,850 (including the over allotment option) Public Warrants to our public investors. Additionally, we issued 8,500,000 Private Warrants and 8,625,000 Private Shares in private placements concurrent with our initial public offering, of which 637,786 Private Shares were redeemed because the underwriters in the initial public offering did not fully exercise their over-allotment option, resulting in a total of 7,987,214 Private Shares outstanding after redemption. On July 20, 2009, we entered into a Private Shares Restructuring Agreement with our former sponsor, Hayground Cove Asset Management LLC (“Hayground Cove”), pursuant to which 7,618,908, or over 95%, of the Private Shares, were cancelled and exchanged for Private Warrants, resulting in 368,306 Private Shares and 16,118,908 Private Warrants.

 

On October 7, 2009, we held a special meeting where our stockholders approved, among other things, certain amendments to our Amended and Restated Certificate of Incorporation removing certain provisions specific to special purpose acquisition companies and changing our name to “Western Liberty Bancorp” and authorizing the distribution and termination of our trust account maintained for the proceeds of our initial public offering. On October 7, 2009, we also liquidated our trust account. As a result, we distributed $211,764,441 from our trust account to stockholders who elected to convert their shares into a pro rata portion of the trust account and the remaining $105,014,080 to us, resulting in 10,959,169 outstanding shares of Common Stock (including 368,306 Private Shares).

 

In connection with the Acquisition, the former stockholders of Service1^st received 2,370,722 shares of Common Stock as Base Acquisition Consideration. In addition, the holders of Service1^st’s outstanding options and warrants now hold options and warrants of similar tenor (such warrants being the Service1^st Warrants) to purchase up to 289,786 shares of Common Stock. In addition to the Base Acquisition Consideration, each of the former stockholders of Service1^st may be entitled to receive Contingent Acquisition Consideration, payable in Common Stock, if at any time within the first two years after the consummation of the Acquisition, which occurred on October 28, 2010, the closing price per share of the Common Stock exceeds $12.75 for 30 consecutive days. The Contingent Acquisition Consideration would be equal to 20% of the tangible book value of Service1^st at the close of business on August 31, 2010. The total number of shares of Common Stock issuable to the former Service1^st stockholders would be determined by dividing the Contingent Acquisition Consideration by the average of the daily closing price of the Common Stock on the first 30 trading days on which the closing price of the Common Stock exceeded $12.75.

 

In connection with the Acquisition, on September 27, 2010, WLBC and Continental Stock Transfer & Trust Company, as warrant agent, entered into the Amended Warrant Agreement, pursuant to which all of our

outstanding Warrants, including the Private Warrants, were exercised into one thirty-second (1/32) of one share of Common Stock concurrently with the consummation of the Acquisition. Any Warrants that would have entitled a holder of such Warrants to a fractional share of Common Stock after taking into account the exercise of the remainder of such holder’s Warrants into full shares of Common Stock were cancelled. As a result of the foregoing, WLBC issued 1,502,088 shares of Common Stock and paid each Warrant holder $0.06 per Warrant exercised. The Common Stock issuable upon exercise of the Public Warrants was previously registered under the Exchange Act during WLBC’s initial public offering, and such shares were freely tradable immediately upon issuance.

 

At the close of business on October 28, 2010, WLBC was a new Nevada financial institution bank holding company by consummating the acquisition of Service1^st and conducting operations through Service1^st. In conjunction with the transaction, WLBC infused $25 million of capital onto the balance sheet of Service1^st.

 

Regulation

 

Service1^st is under the supervision of and subject to regulation and examination by the Nevada Financial Institutions Division and the FDIC. For more information, see the section entitled “Supervision and Regulation.”

 

In connection with the FDIC’s approval of deposit insurance, the FDIC subjected Service1^st to customary conditions applicable to de novo banks for a period of three years, including the requirement that during such three-year period Service1^st maintain a Tier 1 capital leverage ratio of not less than 8.0%. In addition, during the three-year period, Service1^st was required to operate within the parameters of the business plan submitted as part of Service1^st’s application for deposit insurance, and to provide the FDIC 60 days’ advance notice of any proposed material change or material deviation from the business plan, before making any such change or deviation.

 

In September of 2009, the FDIC extended the special supervision period for all de novo banks from three years to seven years, thus extending the period during which the foregoing restrictions apply to Service1^st from January 2010 to January 2014. In connection with the extension, at the FDIC’s request, Service1^st submitted a revised business plan to the FDIC in the fourth quarter of 2009. The FDIC also advised all de novo banks that during the remainder of the seven-year de novo period, banks will remain on a 12-month risk management examination cycle and be subject to enhanced supervision for compliance examinations and Community Reinvestment Act evaluations.

 

In May of 2009, Service1^st entered into the MOU with the FDIC and the Nevada Financial Institutions Division. Pursuant to the MOU, Service1^st agreed, among other initiatives, to develop and submit a comprehensive strategic plan covering at least a three-year operating period; to reduce the level of adversely classified assets and review loan grading criteria and procedures to ensure accurate risk ratings; to develop a plan to strengthen credit administration of construction and land loans (including the reduction of concentration limits in land, construction and development loans and the improvement of stress-testing of commercial real estate loan concentrations); to review its methodology for determining the adequacy of the allowance for loan and lease losses; and to correct apparent violations listed in its most recent report of examination.

 

Since mid-2009, Service1^st has been required (i) to provide the FDIC with at least 30 days’ prior notice before appointing any new director or senior executive officer or changing the responsibilities of any senior executive officer; and (ii) to obtain FDIC approval before making (or agreeing to make) any severance payments (except pursuant to a qualified pension or retirement plan and certain other employee benefit plans).

 

On September 1, 2010, Service1^st, without admitting or denying any possible charges relating to the conduct of its banking operations, agreed with the FDIC and the Nevada Financial Institutions Division to the issuance of a Consent Order. The Consent Order supersedes a Memorandum of Understanding entered into by Service1^st with the FDIC and Nevada Financial Institutions Division in May of 2009. Under the Consent Order, Service1^st has agreed, among other things, to: (i) assess the qualification of, and have retained qualified, senior management commensurate with the size and risk profile of Service1^st; (ii) maintain a Tier I leverage ratio at or above 8.5% (as of September 30, 2010, Service1^st’s Tier I leverage ratio was at 9.23%) and a total

risk-based capital ratio at or above 12% (as of September 30, 2010, Service1^st’s total risk-based capital ratio was at 16.90%); (iii) continue to maintain an adequate allowance for loan and lease losses; (iv) not pay any dividends without prior bank regulatory approval; (v) formulate and implement a plan to reduce Service1^st’s risk exposure to adversely classified assets; (vi) not extend any additional credit to any borrower whose loan has been classified as “substandard” or “doubtful” without prior approval from Service1^st’s board of directors or loan committee; (vii) formulate and implement a plan to reduce risk exposure to reduce risk exposure to its concentration in commercial real estate loans in conformance with Appendix A of Part 365 of the FDIC’s Rules and Regulations; (ix) formulate and implement a plan to address profitability; and (x) not accept brokered deposits (which includes deposits paying interest rates significantly higher than prevailing rates in Service1^st’s market area) and reduce its reliance on existing brokered deposits, if any.

 

Market Area

 

Local Economic Conditions.  According to the National Bureau of Economic Research, the United States economy entered into the longest and most severe recession in the post-war period beginning in December of 2007. The recession has been deeply felt in the greater Las Vegas area. Beginning in 2008 and continuing through the first nine months of 2010, job losses, declining real property values, low consumer and business confidence levels and increasing vacancy and foreclosure rates for commercial and residential property dramatically affected the Las Vegas economy. According to a monthly report produced by The Center for Business & Economic Research at the University of Nevada Las Vegas (the “CBER Report”), the local unemployment rate in Las Vegas rose from 5.6% as of December 31, 2007, to 9.1% as of December 31, 2008, to 13.1% at December 31, 2009 and to 15.0% at September 30, 2010. In addition, new home sales decreased 53.4% from December 2007 to December 2008, falling a further 25.7% from December 2008 to December 2009. During the same period, median new home prices decreased 21.7% from December 2007 to December 2008, and decreased 11.2% from December 2008 to December 2009. New home sales declined by 7.3% for the quarter ended September 30, 2010 compared to the same period in 2009, and median new home prices decreased by 2.9% for the quarter ended September 30, 2010 compared to the same period in 2009. The national recession also adversely affected tourism and Las Vegas’s critical gaming industry. According to the CBER Report, gaming revenues decreased 18.4% from December 2007 to December 2008, decreased 2.4% from December 2008 to December 2009, and increased 1.5% for the quarter ended September 30, 2010 compared to the same period for 2009. Data derived from The Applied Analysis, Las Vegas Market Reports (2nd quarter 2010) shows that Las Vegas vacancy rates for office, industrial and retail space rose from December 31, 2007 to December 31, 2008 to December 31, 2009 to September 30, 2010: office — from 13.6%, to 17.3%, to 23.0%, to 24.0%; industrial — from 6.6%, to 8.9%, to 13.7%, to 16.6%; and retail — from 4.0%, to 7.4%, to 10.0%, to 10.7%.

 

Service1^st’s target market primarily consists of small business banking opportunities, private banking clientele, commercial lending, and commercial real estate opportunities in the Nevada region. In particular, Service1^st believes that there is a significant market segment of small to mid-sized businesses that are looking for a locally-based commercial bank capable of providing a high degree of flexibility and responsiveness, in addition to offering a broad range of financial products and services. With its experienced management and strong capital base, Service1^st believes it is well-positioned to pursue opportunities available in the market and to provide lending support in the Nevada economy.

 

Lending Activities

 

Service1^st provides a variety of financial services to its customers, including commercial real estate loans, commercial and industrial loans, construction and land development loans and, to a lesser extent, consumer loans.

 

Concentration.  Service1^st’s loan portfolio has a concentration of loans secured by real estate. As of September 30, 2010, loans secured by real estate comprised 67.6% of total gross loans. Substantially all of these loans are secured by first liens. Approximately 30.0% of these real estate secured loans were owner occupied as of September 30, 2010. A loan is considered owner occupied if the borrower occupies at least fifty percent of the collateral securing such loan. Service1^st’s policy is to obtain collateral whenever it is

available or desirable, depending upon the degree of risk Service1^st is willing to accept. Repayment of loans is expected from the borrower’s cash flows or the sale proceeds of the collateral. Deterioration in the performance of the economy or real estate values in Service1^st’s primary market areas, in particular, could have an adverse impact on collectibility, and consequently have an adverse effect on profitability.

 

Commercial real estate loans.  The majority of Service1^st’s lending activity consists of loans to finance the purchase of commercial real estate and loans to finance inventory and working capital that are additionally secured by commercial real estate. Service1^st has a commercial real estate portfolio comprised of loans on professional offices, industrial facilities, retail centers and other commercial properties. As of September 30, 2010, Service1^st had $62.4 million in commercial real estate loans, which represented 51% of its loan portfolio.

 

Commercial and industrial loans.  Service1^st focuses its commercial lending on small to medium size businesses located in or serving the Las Vegas community. Service1^st considers “small businesses” to include commercial, professional and retail businesses. Service1^st’s commercial and industrial loan products include:

 

 

As of September 30, 2010, Service1^st had $39.1 million in commercial and industrial loans, which represented 32.3% of its loan portfolio.

 

Construction, land development and other land loans.  The principal types of construction loans include loans for the construction of owner occupied buildings and investment properties (including residential development construction), residences, commercial development and other properties. An analysis of each construction project is performed as part of the underwriting process to determine whether the type of property, location, construction costs and contingency funds are appropriate and adequate. As of September 30, 2010, Service1^st had $8.9 million in construction, land development and other land loans, which represented 7.4% of its loan portfolio.

 

Residential real estate loans:  While residential mortgage lending is not a significant part of Service1^st’s lending business, it has made some loans secured by 1-4 single-family residential properties. As of September 30, 2010, Service1^st had $10.3 million in residential loans, which represented 8.5% of its loan portfolio.

 

Consumer loans.  To a lesser extent, Service1^st originates from time to time consumer loans, such as home equity loans and lines of credit, to meet customer demand and to respond to community needs. Consumer loans are not a significant part of Service1^st’s loan portfolio. As of September 30, 2010, Service1^st had $131,000 in consumer loans, which represented 0.1% of its loan portfolio.

 

Depository Services

 

Service1^st offers a variety of traditional demand, savings and time deposit accounts to individuals, professionals and businesses within the Nevada region, including the following products:

 

 

 

 

 

 

 

 

 

 

Service1^st’s deposit base is generated from the Nevada area. The competition for these deposits in Service1^st’s market is strong. Service1^st seeks to structure its deposit products to be competitive with the rates, fees and features offered by other local institutions, but with an emphasis on customer service and relationship-based pricing. As of September 30, 2010, total deposits were $171.9 million compared with $185.3 million at December 31, 2009, representing a decrease of $13.4 million or 7.2%. The weighted average cost of Service1^st’s interest-bearing deposits was 1.16% for the nine months ended September 30, 2010. For additional information concerning Service1^st’s deposits see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Service1^st Bank of Nevada — Financial Condition — Deposits.”

 

Other Services

 

In addition to traditional commercial banking activities, Service1^st provides other financial and related services to its customers, including:

 

 

Credit Policies and Administration

 

General

 

Service1^st adheres to a specific set of credit standards designed to ensure the proper management of credit risk. Lending is subject to loan and credit administration policies adopted by the Service1^st’s board of directors that establish underwriting criteria, concentration limits and loan authorization limits, as well as the procedures to administer loans, monitor credit risk and subject loans to appropriate grading and evaluation for impairment.

 

Loan originations are subject to a process that includes the credit evaluation of borrowers, established lending limits, analysis of collateral and procedures for continual monitoring and identification of credit deterioration. Loan officers are required to monitor their individual credit relationships in order to report suspected risks and potential downgrades as early as possible.

Loan Approval Procedures and Authority

 

Service1^st’s loan approval procedures are executed through a tiered loan limit authorization process as described below. Each loan officer’s individual lending limit and those of the Senior Loan Committee are set by Service1^st’s board of directors. All debt due from the borrower (including unfunded commitments and guaranties) and its related entities is aggregated when determining if a proposed new loan is within an individual’s (or a committee’s) authority.

 

 

 

 

Individual Lending Limits

 

 

Combined Lending Limits

 

 

 

The board of directors recognizes that, from time to time, it may be in Service1^st’s best interest to grant credit when exceptions to policy exist. All policy exceptions are required to be justified and duly noted in the

loan presentation or file memo, as appropriate, and approved or ratified by the necessary approval authority level. Exceptions to loan policies are disclosed to the Director Loan & Investment Committee.

 

Credit Administration.

 

The day-to-day administration of Service1^st’s lending activities is supervised by Service1^st’s Chief Credit Officer, who has overall responsibility for the administration of this policy.

 

Loans to One Borrower.  Under section 662.145 of the Nevada Revised Statutes, a Nevada-chartered bank’s outstanding loans to one person generally may not exceed 25% of the bank’s capital. Loans by a bank to parties that have certain relationships with a particular borrower and certain investments by a bank in the securities of a particular borrower may be aggregated with the bank’s loans to that borrower for purposes of applying this 25% limit.

 

Concentrations of Credit Risk.  Service1^st’s board of directors has established policies with regard to concentration of credit risk based on industry, collateral and other factors. Management provides monthly updates to Service1^st’s board of directors on all concentration levels and limits.

 

Appraisal Policies.  Current loan-to-value ratios are generally based on the most recent appraisals and include allowances for loan losses. Appraisals are ordered from outside appraisers at a loan’s inception or renewal, or for commercial real estate loans, upon the occurrence of any event causing a “criticized” or “classified” grade to be assigned to the credit. The frequency for obtaining updated appraisals for these adversely graded credits is increased when declining market conditions exist. Appraisals may reflect the collateral’s “as-is”, “as-stabilized” or “as-developed” values, depending upon the loan type and collateral. Raw land generally is appraised at its “as-is” value. Income producing property may be appraised at its “as-stabilized” value, which takes into account the anticipated cash flow of the property based upon expected occupancy rates and other factors. The collateral securing construction loans may be appraised at its “as-if developed” value, which approximates the post-construction value of the collateralized property assuming that such property is developed. “As-developed” values on construction loans often exceed the immediate sales value and may include anticipated zoning changes, and successful development by the purchaser. If a loan goes into default prior to development of a project, the market value of the property may be substantially less than the “as-developed” appraised value. As a result, there may be less security than anticipated at the time the loan was originally made. If there is less security and a default occurs, Service1^st may not recover the outstanding balance of the loan.

 

Loans to Insiders.  Service1^st’s authority to extend credit to insiders — meaning executive officers, directors and greater than 10% stockholders — or to entities those persons control, is subject to federal banking regulation. Among other things, these federal laws require insider loans to be made on terms substantially similar to those offered to unaffiliated individuals, place limits on the amount of loans a bank may make to insiders based in part on the bank’s capital position, and require that specified approval procedures be adhered to by Service1^st. Loans to an individual insider may generally not exceed 15% of capital but can be higher in some circumstances. The aggregate of all loans to all insiders may not exceed the bank’s unimpaired capital and surplus. All insider loans must be approved in advance by a majority of the board without the vote of the interested director. It is the policy of Service1^st that directors not be present when their loan is presented at a board meeting for discussion and approval. Service1^st believes that all of its insider loans were made on terms substantially similar to those offered to unaffiliated individuals. As of September 30, 2010, the aggregate amount of all loans outstanding to Service1^st’s executive officers, directors and greater than 10% stockholders and their respective affiliates, was approximately $9.0 million, which represented 7.4% of its total gross loans.

 

Asset Quality

 

General

 

To measure asset quality, Service1^st has instituted a loan grading system consisting of ten different categories. The first six are considered “satisfactory.” The other four grades range from a “special mention”

category to a “loss” category and are consistent with the grading systems used by Federal banking regulators. All loans will be assigned a credit risk grade at the time they are made, and each originating loan officer will review the credit with his or her immediate supervisor on a quarterly basis to determine whether a change in the credit risk grade is warranted. The management loan committee also has the responsibility to assign grades. In addition, the grading of Service1^st’s loan portfolio will be reviewed, at minimum, annually by an external, independent loan review firm.

 

Collection Procedure

 

If a borrower fails to make a scheduled payment on a loan, Service1^st will attempt to remedy the deficiency by contacting the borrower and seeking payment. Service1^st’ s Problem Loan Committee, consisting of its Chief Executive Officer, Chief Operating Officer and Chief Credit Officer, is responsible for monitoring activity that may indicate increased risk rating, such as past-dues, overdrafts and loan agreement covenant defaults.

 

Charge-offs

 

Service1^st’s Chief Executive Officer, Chief Operating Officer and Chief Credit Officer must approve all charge-offs. Loans deemed uncollectible are proposed for charge-off or write-down to collectible levels generally on a monthly basis and within their quarter of discovery.

 

Non-performing Assets

 

As a result of the continuing weakness in the Las Vegas economy and real estate markets, Service1^st has experienced deterioration in the quality of its loan portfolio in 2008, 2009 and the first nine months 2010, as non-performing assets increased from 2.50% of total loans at year-end 2008 to 5.69% at year-end 2009 and to 14.2% for the nine months ended September 30, 2010. This deterioration also manifested itself in net charge-offs as a percentage of average loans, which increased from 1.44% for the year ended December 31, 2008 to 8.43% for the year ended December 31, 2009 and increased from 1.27% for the nine months ended September 30, 2009 to 2.53% for the nine months ended September 30, 2010. For additional information concerning Service1^st’s loans, including its non-performing assets, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Service1^st Bank of Nevada — Financial Condition — Loans.”

 

Service1^st’s Chief Credit Officer continuously monitors the status of the loan portfolio and prepares and presents to Service1^st’s board of directors a monthly report listing all past due credits. Service1^st prepares detailed status reports for all relationships rated “watch” or lower on a quarterly basis. These reports are provided to Service1^st’s management and its board of directors.

 

Service1^st generally stops accruing income on loans when interest or principal payments are in arrears for 90 days, or earlier if management deems appropriate. Service1^st designates loans on which it stops accruing income as nonaccrual loans and reverses previously accrued interest income on such loans. Nonaccrual loans are returned to accrual status when factors indicating doubtful collection no longer exist and the loan has been brought current.

 

“Watch” and Potential Problem Loans

 

Banking regulations require that each insured bank classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, examiners will have authority to identify problem assets, and, if appropriate, classify them. Service1^st classifies its loans using a ten category grading system and uses grade six to identify loans in the “Watch” category that display negative trends or other causes for concern and grades seven through ten to identify potential problem assets.

The following describes grades six through ten of Service1^st’s loan grading system:

 

Grade 6: Pass (Watch)

 

This rating category is reserved for credits that display negative trends or other causes for concern. It is not to be used for new loans. The Watch grade should be regarded as a transition category. This rating indicates that according to current information, the borrower has the capacity to perform according to terms; however, elements of uncertainty (an uncharacteristic negative financial or other risk factor event) exist. Margins of debt service coverage are narrow, and historical patterns of financial performance may be erratic although the overall trends are positive. If secured, collateral value and adequate sources of repayment currently protect the loan. Material adverse trends have not developed at this time. Borrower exhibits signs of weakness in some, but not necessarily all, of the following: financial condition, earnings performance, cash flow, financial trends or management. Borrower is the subject of a negative incident or circumstance that could have a major impact on performance or condition if not reversed. Watch credits may require additional security and/or restrictive covenants due to observed weakness. Provided the credit has been timely recognized as a Watch rating, meaningful improvement in performance or circumstances should be evident within six months which may warrant an upgrade or the credit should be considered for a downgrade.

 

Grade 7: Special Mention

 

Loans in this classification exhibit trends or have weaknesses or potential weaknesses that deserve more than normal management attention. If left uncorrected, these weaknesses may result in the deterioration of the repayment prospects for the asset or in Service1^st’s credit position at some future date. Special Mention assets pose an elevated level of concern, but their weakness does not yet justify a Substandard classification. Loans in this category are usually performing as agreed, although there may be minor non-compliance with financial or technical covenants.

 

Grade 8: Substandard

 

Credits in this category generally have well-defined weaknesses that jeopardize the orderly liquidation of the debt and/or other serious problems or adverse trends which, unless improved, will likely result in repayment over an extended period of time. These well-defined weaknesses may be evident in indicators such as financial statements, underwriting ratios that deal with repayment ability, credit reports, information provided by the borrower, bankruptcy or other legal actions, and poor performance on this credit or other credits the borrower may have with Service1^st or other institutions. When it is recognized that chances for repayment on such a credit have become severely impaired, and Service1^st lacks sufficient collateral coverage to protect it from loss, that credit (or a portion thereof) should with be assigned a Doubtful rating or charged-off.

 

Grade 9: Doubtful

 

Loans that have a clear and defined weakness making the repayment of the loan in full highly improbable, are classified Doubtful. Because of certain known factors that may work to the advantage and strengthening of the asset (for example, capital injection, perfecting liens on additional collateral and refinancing plans), classification as an estimated loss may be deferred until a more precise status is determined.

 

Grade 10: Loss

 

Loans in this category are of such little value that their continuance as bank assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practicable or desirable to defer writing off the asset, even though partial recovery may be achieved in the future.

Allowance for Loan Losses

 

The allowance for loan losses reflects Service1^st’s evaluation of the probable losses in its loan portfolio. The allowance for loan losses is maintained at a level that represents Service1^st management’s best estimate of losses in the loan portfolio at the balance sheet date that are both probable and reasonably estimable. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. The allowance for loan losses is reviewed by Service1^st’s management and adjusted on a monthly basis.

 

Service1^st maintains the allowance through provisions for loan losses that it charges to income. Service1^st charges losses on loans against the allowance for loan losses when it believes the collection of loan principal is unlikely. Recoveries on loans charged-off are restored to the allowance for loan losses. Allocation of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, is deemed to be uncollectible.

 

In assessing the adequacy of the allowance, Service1^st considers the results of its loan review process. Service1^st undertakes this process both to ascertain whether there are loans in the portfolio whose credit quality has weakened over time and to assist in its overall evaluation of the risk characteristics of the entire loan portfolio. Service1^st’s loan review process takes into account the judgment of management and reviews that may have been conducted by bank regulatory agencies as part of their usual examination process. Service1^st incorporates loan review results in the determination of whether or not it is probable that it will be able to collect all amounts due according to the contractual terms of a loan.

 

The criteria that Service1^st considers in connection with determining the overall allowance for loan losses is subject to a written and board approved methodology that includes:

 

 

In addition to the foregoing factors, the loan grading system used by Service1^st also plays a role in setting the level of the allowance since each grade tier has a fixed percentage allocation assigned to it. Service1^st’s loan loss methodology also provides that management will take into account updated appraisals of the collateral especially for loans which can be more volatile such as construction and land loans.

 

Additions to the allowance for loan losses may be made when Service1^st’s management has identified significant adverse conditions or circumstances related to a specific loan. Service1^st’s management will continuously review the entire loan portfolio to determine the extent to which additional loan loss provisions might be deemed necessary. However, there can be no assurance that the allowance for loan losses will be adequate to cover all losses that may in fact be realized in the future or that additional provisions for loan losses will not be required.

The assessment will also include an unallocated component. Service1^st believes that the unallocated amount is warranted for inherent factors that cannot be practically assigned to individual loan categories, such as the current volatility of the national and global economy.

 

Service1^st reviews the resulting allowance by comparing the balance in the allowance to peer information. Service1^st’s management then evaluates the procedures performed, including the result of the testing, and concludes on the appropriateness of the balance of the allowance in its entirety. Service1^st’s board of directors reviews and approves the assessment prior to the filing of quarterly or annual financial information.

 

Various regulatory agencies, as well as Service1^st’s outsourced loan review function, as an integral part of their review process, periodically review Service1^st’s loan portfolios and the related allowance for loan losses. In determining adequacy, regulatory agencies may from time to time require Service1^st to increase the allowance for loan losses based on their review of information available to them at the time of their examination.

 

As of September 30, 2010, Service1^st’s allowance for loan losses was $7.0 million, representing 5.8% of total loans.

 

Investment Activities

 

Service1^st’s investment policy was established and approved by Service1^st’s board of directors. This policy dictates that investment decisions be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets, and consistency with Service1^st’s interest rate risk management policies. Service1^st’s Chief Financial Officer is responsible for making security portfolio decisions in accordance with established policies. The Chief Financial Officer has the authority to purchase and sell securities within specified guidelines established by the investment policy.

 

Service1^st’s investment policy allows for investment of the following types of instruments: cash and cash equivalents, which consists of cash and amounts due from banks, federal funds sold and certificates of deposits with original maturities of three months or less; longer term investment securities issued by companies rated “A” or better; securities backed by the full faith and credit of the U.S. government, including U.S. government agency securities; direct obligations of Ginnie Mae; mortgage-backed securities or collateralized mortgage obligations issued by a government-sponsored enterprise such as Fannie Mae, Freddie Mac, or Ginnie Mae and mandatory purchases of equity securities from the Federal Home Loan Bank. Service1^st does not plan to purchase collateralized debt obligations, adjustable rate preferred securities, or private label collateralized mortgage obligations.

 

Service1^st’s policies also govern the use of derivatives, and provide that Service1^st may prudently use derivatives as a risk management tool to reduce its overall exposure to interest rate risk, and not for speculative purposes.

 

Service1^st’s investment securities are classified as “available-for-sale” or “held-to-maturity”. Available-for-sale securities are reported at fair value in accordance with generally accepted accounting principles, with unrealized gains and losses excluded from earnings and instead reported as a separate component of stockholders’ equity. Held-to-maturity securities are those securities that Service1^st has both the intent and the ability to hold to maturity. These securities are carried at cost adjusted for amortization of premiums and accretion of discounts.

 

Competition

 

The banking and financial services industries in the Nevada market area in which Service1^st operates remain highly competitive despite the recent economic downturn. This increasingly competitive environment is primarily a result of changes in regulation that made mergers and geographic expansion easier; changes in technology and product delivery systems, such as ATM networks and web-based tools; the accelerating pace of consolidation among financial services providers; and the flight of deposit customers to perceived increased safety. The competitive environment is also significantly impacted by federal and state legislation that makes it easier for non-bank financial institutions to compete with Service1^st. Service1^st competes for loans, deposits

and customers with other commercial banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, and other non-bank financial services providers. Competition for deposit and loan products remains strong from both banking and non-banking firms, and this competition directly affects the rates of those products and the terms on which they are offered to consumers.

 

Consumers in Nevada continue to have numerous choices when it comes to serving their financial needs. Since March of 2000, eight new bank charters have been issued for de novo banks in the Las Vegas valley. Listed by name, date of opening, deposit and asset size as of September 30, 2010, they are as follows:

 

 

Other competitors include regional banks, such Zions’ Nevada State Bank, Western Alliance Bancorporation’s Bank of Nevada and Mutual of Omaha Bank. Finally, several larger nationwide banks also operate in the marketplace, namely US Bank, Wells Fargo, Bank of America, Citibank and Chase. Many of Service1^st’s competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader range of financial services than Service1^st can offer.

 

Periodic Reporting and Audited Financial Statements

 

We have registered our securities under the Exchange Act and have reporting obligations, including the requirement to file annual and quarterly reports with the SEC. In accordance with the requirements of the Exchange Act, our annual reports contain financial statements audited and reported on by our independent accountants. We have filed with the SEC our Annual Reports on Form 10-K covering the fiscal years ended December 31, 2009, 2008 and 2007 and our Quarterly Reports on Form 10-Q covering the quarters ended September 30, 2007, March 31, 2008, June 30, 2008, September 30, 2008, March 31, 2009, June 30, 2009, September 30, 2009, March 31, 2010, June 30, 2010 and September 30, 2010.

 

Legal Proceedings

 

There are no legal proceedings pending against us.

 

Business Overview

 

WLBC is a “new” Nevada financial institution bank holding company and conducts its operations through its wholly-owned subsidiary, Service1^st. Service1^st operates as a traditional community bank and provides a full range of banking and related services to locally owned businesses, professional firms, real estate developers and investors, local non-profit organizations, high net worth individuals and other customers from its headquarters and two retail banking locations in the greater Las Vegas area. Services provided include basic commercial and consumer depository services, commercial working capital and equipment loans, commercial real estate (both owner and non-owner occupied) loans, construction loans, and unsecured personal and business loans. Service1^st relies primarily on locally generated deposits to provide us with funds for making loans. Substantially all of our business is generated in the Nevada market.

 

We were formerly known as “Global Consumer Acquisition Corp.” and were a special purpose acquisition company, formed under the laws of Delaware on June 28, 2007, to consummate an acquisition, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We engaged in our initial public offering of units, consisting of one share of Common Stock and one Warrant on November 20, 2007 and, in connection therewith, issued 31,948,850 (including the over allotment option) Public Warrants to our public investors. Additionally, we issued 8,500,000 Private Warrants and 8,625,000 Private Shares in private placements concurrent with our initial public offering, of which 637,786 Private Shares were redeemed because the underwriters in the initial public offering did not fully exercise their over-allotment option, resulting in a total of 7,987,214 Private Shares outstanding after redemption. On July 20, 2009, we entered into a Private Shares Restructuring Agreement with our former sponsor, Hayground Cove Asset Management LLC (“Hayground Cove”), pursuant to which 7,618,908, or over 95%, of the Private Shares, were cancelled and exchanged for Private Warrants, resulting in 368,306 Private Shares and 16,118,908 Private Warrants.

 

On October 7, 2009, we held a special meeting where our stockholders approved, among other things, certain amendments to our Amended and Restated Certificate of Incorporation removing certain provisions specific to special purpose acquisition companies and changing our name to “Western Liberty Bancorp” and authorizing the distribution and termination of our trust account maintained for the proceeds of our initial public offering. On October 7, 2009, we also liquidated our trust account. As a result, we distributed $211,764,441 from our trust account to stockholders who elected to convert their shares into a pro rata portion of the trust account and the remaining $105,014,080 to us, resulting in 10,959,169 outstanding shares of Common Stock (including 368,306 Private Shares).

 

In connection with the Acquisition, the former stockholders of Service1^st received 2,370,722 shares of Common Stock as Base Acquisition Consideration. In addition, the holders of Service1^st’s outstanding options and warrants now hold options and warrants of similar tenor (such warrants being the Service1^st Warrants) to purchase up to 289,786 shares of Common Stock. In addition to the Base Acquisition Consideration, each of the former stockholders of Service1^st may be entitled to receive Contingent Acquisition Consideration, payable in Common Stock, if at any time within the first two years after the consummation of the Acquisition, which occurred on October 28, 2010, the closing price per share of the Common Stock exceeds $12.75 for 30 consecutive days. The Contingent Acquisition Consideration would be equal to 20% of the tangible book value of Service1^st at the close of business on August 31, 2010. The total number of shares of Common Stock issuable to the former Service1^st stockholders would be determined by dividing the Contingent Acquisition Consideration by the average of the daily closing price of the Common Stock on the first 30 trading days on which the closing price of the Common Stock exceeded $12.75.

 

In connection with the Acquisition, on September 27, 2010, WLBC and Continental Stock Transfer & Trust Company, as warrant agent, entered into the Amended Warrant Agreement, pursuant to which all of our outstanding Warrants, including the Private Warrants, were exercised into one thirty-second (1/32) of one share of Common Stock concurrently with the consummation of the Acquisition. Any Warrants that would have entitled a holder of such Warrants to a fractional share of Common Stock after taking into account the exercise

of the remainder of such holder’s Warrants into full shares of Common Stock were cancelled. As a result of the foregoing, WLBC issued 1,502,088 shares of Common Stock and paid each Warrant holder $0.06 per Warrant exercised. The Common Stock issuable upon exercise of the Public Warrants was previously registered under the Exchange Act during WLBC’s initial public offering, and such shares were freely tradable immediately upon issuance.

 

At the close of business on October 28, 2010, WLBC was a new Nevada financial institution bank holding company by consummating the acquisition of Service1^st and conducting operations through Service1^st. In conjunction with the transaction, WLBC infused $25 million of capital onto the balance sheet of Service1^st.

 

Recent Economic Developments

 

The global and U.S. economies, and the economies of the local communities in which we operate, experienced a rapid decline between 2007 and today. The financial markets and the financial services industry in particular suffered unprecedented disruption, causing many major institutions to fail or require government intervention to avoid failure. These conditions were brought about largely by the erosion of U.S. and global credit markets, including a significant and rapid deterioration of the mortgage lending and related real estate markets. We believe that we are well-positioned to exploit the current conditions in the financial markets as a result of, what we expect to be, our well-capitalized balance sheet.

 

The United States, state and foreign governments have taken or are taking extraordinary actions in an attempt to deal with the worldwide financial crisis and the severe decline in the economy. In the United States, the federal government has adopted the Emergency Economic Stabilization Act of 2008 (enacted on October 3, 2008) and the American Recovery and Reinvestment Act of 2009 (enacted on February 17, 2009). Among other matters, these laws:

 

 

We expect to evaluate FDIC-assisted bank opportunities in the future, subject to prior approval of the regulatory agencies while, at the same time, pursuing financially sound borrowers whose financing sources are unable to service their current needs as a result of liquidity or other concerns. We believe that such borrowers are not only an excellent source of lending business, but also present opportunities to efficiently gather deposits. Although there can be no assurance that we will be successful, we will seek to take advantage of the current disruption in our markets to grow market share, quality assets and deposits in a prudent fashion, subject to applicable regulatory limitations and consistent with our business plan.

 

We are interested in participating with the U.S. Government and the State of Nevada to the extent that additional depository institutions in Nevada, or the Southwest United States, fail or become further distressed. Any such participation will be subject to all required regulatory approvals. We can make no assurance that we will obtain the necessary approvals.

 

Prospective Strategy and Operating Strengths

 

We expect to implement our business plan from the existing locations based on the following business strategy:

 

Generate Additional Transactional Deposits to Grow Existing Base of Deposits

 

With our local management team and Service1^st as a platform, we expect to be well-positioned to grow organically our existing base of deposits. The staff of Service1^st was able to grow non-interest-bearing demand deposits from $21.6 million at December 31, 2008 to $56.5 million at December 31, 2009. These efforts were the result of an active calling program and depository services geared to the small business customer. As other

institutions failed or merged commercial customers continue to seek services from community banks that will meet their needs.

 

Pursue Conservative Lending Opportunities in Markets Which Are Underserved by Other Lenders

 

The market in which Service1^st operates has been drastically affected by the recent turmoil in the financial industry. We believe that this has created an opportunity for us to pursue business on more attractive terms than lenders have been able to do in the recent past. Certain types of real estate have started to exhibit signs of price stabilization which will provide collateral values consistent with today’s market values. We expect that such conditions will permit us to obtain more conservative advance rates and attractive pricing, while still growing our market share.

 

Nevada Market

 

The Nevada market has an overall favorable business climate given its favorable tax environment. Nevada’s proximity to other states with less favorable tax and business environment makes Nevada an attractive destination for businesses looking to relocate. Between 2000 and 2008, Nevada’s population grew by more than 30% to more than 2.6 million people. At the same time, Clark County’s population grew by more than 35% to approximately 1.9 million people. During 2009, the state’s population declined for the first time in nearly four decades. Although no one is expecting dramatic population growth in the near term, the closing and merging of a number of local financial institutions have caused customers to seek other strong community banks. We believe this will be a distinct advantage to Service1^st as many of the other local institutions face capital shortages and the threat of failure.

 

Strong Capital and Liquidity Position

 

The balance sheet of Service1^st is in significantly better shape than many of our competitors. We focus on conservative business and commercial real estate lending, consumer lending and depository products. Through our management oversight, which will be instrumental in overseeing the credit processes of Service1^st, we believe we will be ideally positioned to capitalize on recent financial market turmoil, troubled assets and increased regional and commercial banking closures over the past twelve months. The recapitalization plan is anticipated to create what we believe will be a substantially “over-capitalized” financial institution to benefit from illiquid lending markets and harsh economic conditions that threaten the survival of many of the local financial institutions.

 

Experienced Local Management with Strong Relationships

 

The individuals selected to serve as management of Service1^st have significant experience in growing core deposits and deep relationships in the local community.

 

We expect to retain and expand our core deposit base through traditional business and private banking and to capitalize on management’s well-established community relationships to source loans while leveraging the credit background of the management team to increase the efficiency and effectiveness of the underwriting process.

 

Competition

 

The banking and financial services industries in our market areas remain highly competitive despite the recent economic downturn. Many of our competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader range of financial services than we can offer.

 

This increasingly competitive environment is primarily a result of changes in regulation that made mergers and geographic expansion easier; changes in technology and product delivery systems, such as ATM networks and web-based tools; the accelerating pace of consolidation among financial services providers; and the flight of deposit customers to perceived increased safety. The competitive environment is also significantly impacted by federal and state legislation that makes it easier for non-bank financial institutions to compete

with us. We compete for loans, deposits and customers with other commercial banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, and other non-bank financial services providers.

 

Competition for deposit and loan products remains strong from both banking and non-banking firms, and this competition directly affects the rates of those products and the terms on which they are offered to consumers. Consumers in our market areas continue to have numerous choices to serve their financial needs. Competition for deposits has increased markedly, with many bank customers turning to deposit accounts at the largest, most-well capitalized financial institutions or the purchase of U.S. treasury securities. These large institutions have greater access to capital markets and offer a broader range of financial services than we will be able to offer.

 

Technological innovation continues to contribute to greater competition in domestic and international financial services markets. Many customers now expect a choice of several delivery systems and channels, including telephone, mail, home computer and ATMs.

 

Mergers between financial institutions have placed additional pressure on banks to consolidate their operations, reduce expenses and increase revenues to remain competitive. In addition, competition has intensified due to federal and state interstate banking laws, which permit banking organizations to expand geographically with fewer restrictions than in the past. These laws allow banks to merge with other banks across state lines, thereby enabling banks to establish or expand banking operations in our market. The competitive environment is also significantly impacted by federal and state legislation that makes it easier for non-bank financial institutions to compete with us.

 

Properties

 

We currently conduct our operations from three leased locations. We maintain our principal executive offices at our headquarters located at 8363 West Sunset Road, Suite 350, in Las Vegas, Nevada 89113. We also have two branch locations located at 8349 W. Sunset Road Suite B, Las Vegas, Nevada 89113, and 8965 South Eastern Avenue Suite 190, Las Vegas Nevada 89123.

 

Employees

 

We have approximately 41 full-time equivalent, non-union employees. We believe our success derives, in part, from our ability to attract and retain experienced relationship bankers that have strong relationships in their communities. These professionals bring with them valuable customer relationships, and have been an integral part of our ability to expand rapidly in our market.

 

The following unaudited pro forma condensed combined balance sheet and the unaudited pro forma condensed combined statement of operations for the period ended September 30, 2010 and for the year ended December 31, 2009 are based on the historical financial statements of WLBC and Service1^st after giving effect to the Acquisition. The Acquisition will be accounted for using the acquisition method of accounting.

 

The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2010, and for the year ended December 31, 2009 give effect to the Acquisition as of January 1, 2009. The unaudited pro forma condensed combined balance sheet as of September 30, 2010 assumes that the Acquisition took place on September 30, 2010.

 

The unaudited pro forma condensed combined financial statements reflect management’s best estimate of the fair value of the tangible and intangible assets acquired and liabilities assumed. As final valuations are performed, increases or decreases in the fair value of assets acquired and liabilities assumed will result in adjustments, which may be material, to the balance sheet and/or statement of operations.

 

As required, the unaudited pro forma condensed combined financial statements includes adjustments which give effect to the events that are directly attributable to the Acquisition, expected to have a continuing impact and are factually supportable. Hence any planned adjustments affecting the balance sheet, statement of operations or changes in common stock outstanding, subsequent to the assumed closing date, are not included.

 

The unaudited pro forma condensed combined financial statements are provided for informational purposes only and are subject to a number of uncertainties and assumptions and do not purport to represent what the companies’ actual performance or financial position would have been had the Acquisition occurred on the dates indicated and does not purport to indicate the financial position or results of operations as of any date or for any future period. Please refer to the following information in conjunction with the accompanying notes to these pro forma financial statements and the historical financial statements and the accompanying notes thereto and the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Western Liberty Bancorp”, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Service1^st Bank of Nevada” in this prospectus.

WESTERN LIBERTY BANCORP

 

Unaudited Pro Forma Condensed Combined Balance Sheet

As of September 30, 2010

 

 

See accompanying notes to the unaudited pro forma condensed combined financial statements.

WESTERN LIBERTY BANCORP

 

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Nine Months Ended September 30, 2010

 

 

 

 

See accompanying notes to the unaudited pro forma condensed combined financial statements.

WESTERN LIBERTY BANCORP

 

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2009

 

 

 

 

See accompanying notes to the unaudited pro forma condensed combined financial statements.

WESTERN LIBERTY BANCORP

 

Notes to Unaudited Condensed Combined Pro Forma Financial Statements

 

Basis of Presentation

 

The unaudited pro forma condensed combined financial statements have been prepared based on WLBC and Service1^st Bank’s historical financial information. Certain disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted as permitted by SEC rules and regulations.

 

These unaudited pro forma condensed combined financial statements are not necessarily indicative of the results of operations that would have been achieved had the acquisition actually taken place at the dates indicated and do not purport to be indicative of future financial condition or operating results.

 

Acquisition Method

 

The unaudited pro forma condensed combined financial statements reflect the accounting for the transaction under the acquisition method, the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values, with any excess of the purchase price acquired over the estimated fair value of the identifiable net assets recorded as goodwill.

 

WLBC is in the process of obtaining third party valuation for the assets acquired and liabilities assumed, and will refine fair value estimates when the valuation is completed as of the closing date (October 28, 2010).

 

WLBC did not recognize a separate valuation allowance as of the acquisition date for the assets acquired. The loans are measured at their estimated acquisition date fair values and the effects of uncertainty about future cash flows are included in the fair value measure.

 

The purchase price allocation for Service1^st Bank is summarized as follows (in thousands):

 

 

Pro Forma Adjustments and Assumptions

 

A) WLBC issued 2,370,722 shares of common stock based on a price of $8.00 per share to exchange for all of the shares of Service1^st Bank. Under the terms of the Merger Agreement, WLBC stock has a floor of $8.00 and a ceiling of $9.78 for computing the daily volume weighted average price. For purposes of this pro forma presentation, the fair value of merger consideration shares is approximately $15,268,000 or $6.44 per share based on the closing price of WLBC on October 28, 2010. All other share value components will be calculated using the closing price of $6.44 per share. The total amount of Base Acquisition Consideration for calculation of the number of shares to be issued as of September 30, 2010 is $18,967,000. The Base

WESTERN LIBERTY BANCORP

 

Notes to Unaudited Condensed Combined Pro Forma Financial Statements — (Continued)

 

Acquisition Consideration is based upon a formula detailed in the Merger Agreement, section 3.2. In addition, this section describes the computation of Contingent Acquisition Consideration. In general, the Contingent Acquisition Consideration is calculated as 20% of the tangible book value of Service1^st as of the Valuation Date (as defined herein). Using the September 30, 2010 tangible book value of Service1^st, the Contingent Acquisition Consideration would be approximately $4,358,000. The Contingent Acquisition Consideration is payable if at any time during the first two years after the Effective Time and WLBC’s common stock closes at a price in excess of $12.75 per share for thirty (30) consecutive trading days. For purposes of this disclosure, the Contingent Acquisition Consideration will be calculated at $12.75 per share to assume maximum dilution of the Contingent Acquisition Consideration. The fair value of the Contingent Acquisition Consideration will be recorded as a liability until the trigger event is met and the shares are issued. The Contingent Acquisition Consideration shall be remeasured to fair value at each reporting date until the contingency is resolved with the changes in fair value recognized in earnings.

 

B) Reflects the elimination of Service1^st Bank’s historical net equity of approximately $19.8 million as a result of the Acquisition.

 

C) Reflects the pro forma impact of the core deposit intangible assets of Service1^st Bank. The preliminary fair value adjustment and related amortization is as follows (in thousands):

 

 

The core deposit intangible asset will be amortized using the sum-of-the-years digits method.

 

D) Reflects the pro forma impact of the Purchase Accounting Adjustments (“PAA”) on the assets and liabilities of Service1^st Bank.

 

For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk including consideration of widening credit spreads. An estimated $974,000 fair value adjustment was due to fixed rate loans related to the acquisition. The fair value was based on discounted cash flows using current market rates applied to the estimated life and credit risk including consideration of widening credit spreads for performing loans. This fair value adjustment will be accreted to income over a weighted average life of 3.0 years. The preliminary fair value adjustment and related amortization is as follows:

 

WESTERN LIBERTY BANCORP

 

Notes to Unaudited Condensed Combined Pro Forma Financial Statements — (Continued)

 

In addition to the interest rate differential adjustment on performing credits of $974,000, an additional discount of approximately $11,111,000 is applied to the gross loan balance. This additional discount is related to the removal of the original valuation allowance for loans and approximates the present value of expected cash flows on certain loans which have shown evidence of credit deterioration since origination. Purchased loans are recorded at the allocated fair value, such that there is no carryover of the seller’s allowance for loan losses of approximately $7,021,000. If the present value of expected cash flows is less than the carrying amount, a loss is recorded. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

 

E) A fair market adjustment in the amount of $300,000 is recorded to adjust the carrying value of two pieces of other real estate owned for disposition costs, adverse market conditions and expedited disposition.

 

F) Pro forma earnings per share (EPS), basic and diluted, are based on the following calculations of the number of shares of Common Stock. Loss per share is computed by dividing net loss by the weighted-average number of shares of Common Stock outstanding during the period. The effect of the 48 million shares underlying the outstanding warrants have not been considered in diluted loss per share since the effect of the warrants would be anti-dilutive. The Contingent Acquisition Consideration shares will be issued at the 30 day average above $12.75 per share and are reflected as issued and outstanding using a price of $12.75 per share in the below table.