As filed with the Securities and Exchange
Commission on March 30, 2011
Registration
No. 333-170862
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 1
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WESTERN LIBERTY
BANCORP
(Exact name of registrant as
specified in its charter)
|
|
|
|
|
Delaware
|
|
6022
|
|
26-0469120
|
(State or other jurisdiction
of incorporation)
|
|
(Primary Standard Industrial
Classification Code Number)
|
|
(I.R.S. Employer
Identification Number)
|
8363 W. Sunset Road,
Suite 350
Las Vegas, Nevada 89113
(702) 966-7400
(Address, including zip code,
and telephone number, including area code, of registrants
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
Eleven Times Square
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):
|
|
|
|
Large
accelerated
filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting
company þ
|
(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.
The
information in this prospectus is not complete and may be
changed. Neither we nor the selling security holders may not
sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
|
SUBJECT TO COMPLETION, DATED
MARCH 30, 2011
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 Bancorps
(WLBC, the Company,
we, us, or
our) common stock, par value $0.0001 per
share (Common Stock) by certain selling
security holders.
|
|
|
|
|
368,306 shares of Common Stock issued in a private
placement concurrent with our initial public offering (the
Private Shares).
|
|
|
|
503,708 shares of Common Stock issued upon exercise of
warrants of WLBC that were either (i) issued in a private
placement concurrent with our initial public offering or
(ii) exchanged for shares of Common Stock issued in a
private placement in accordance with Section 3(a)(9) of the
Securities Act of 1933, as amended (the Securities
Act), and pursuant to privately negotiated agreements
(the Private Warrants). The Private Warrants
were automatically exercised into one thirty-second of one share
of Common Stock on October 28, 2010, in connection with our
acquisition (the Acquisition) of
Service1st Bank
of Nevada, a Nevada-chartered non-member bank
(Service1st),
in accordance with the terms of that certain Second Amended and
Restated Warrant Agreement, dated September 27, 2010,
between WLBC and Continental Stock Transfer &
Trust Company, as warrant agent (the Amended
Warrant Agreement). No cash consideration was paid by
the holders of Private Warrants in connection with such exercise.
|
|
|
|
150,000 shares of Common Stock issued by us to certain
current and former members of our board of directors (the
Board) in connection with the Acquisition.
|
|
|
|
|
|
42,834 shares of Common Stock issuable upon exercise of
warrants of
Service1st
(the
Service1st
Warrants) that were converted into warrants of
similar tenor to purchase approximately 47.6 shares of
Common Stock per
Service1st Warrant
in connection with the Acquisition at a price of $21.01 per
share of Common Stock. 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.
|
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,
Service1st 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 March 30, 2011.
SUMMARY
This summary highlights selected information from this
prospectus. It may not contain all of the information that is
important to you. You are urged to carefully read the entire
prospectus and the other documents referred to in this
prospectus because the information in this section does not
provide all the information that might be important to you with
respect to purchasing our Common Stock. See the section entitled
Where You Can Find More Information on
page 142.
Western
Liberty Bancorp
WLBC is a new Nevada financial institution bank
holding company and conducts its operations through its
wholly-owned subsidiary,
Service1st
Bank of Nevada
(Service1st).
Service1st 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.
Service1st 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,
Service1st 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 (Warrant), on
November 20, 2007 and, in connection therewith, issued
31,948,850 (including the over allotment option) Warrants to our
public investors (the Public Warrants).
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.
On October 28, 2010, we consummated the Acquisition
pursuant to a Merger Agreement (the Merger
Agreement), dated as of November 6, 2009, as amended
by a First Amendment to the Merger Agreement, dated as of
June 21, 2010 (Amendment No. 1 and,
together with the Merger Agreement, the Amended Merger
Agreement), each among WL-S1 Interim Bank, a Nevada
corporation and our wholly-owned subsidiary (Acquisition
Sub),
Service1st and
Curtis W. Anderson, as representative of the former stockholders
of
Service1st.
Pursuant to the Amended Merger Agreement, Acquisition Sub merged
with and into
Service1st,
with
Service1st being
the surviving entity and becoming WLBCs wholly-owned
subsidiary.
The former stockholders of
Service1st
received 2,282,668 shares of Common Stock (subsequent to
the exercise of any dissenters rights) in exchange for all
of the outstanding shares of capital stock of
Service1st
(the Base Acquisition Consideration). In
addition, the holders of
Service1sts
outstanding options and warrants now hold options and warrants
of similar tenor (such warrants being the
Service1st Warrants)
to
1
purchase up to 289,781 shares of Common Stock. In addition
to the Base Acquisition Consideration, each of the former
stockholders of
Service1st may
be entitled to receive additional consideration (the
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
Service1st at
the close of business on August 31, 2010. The total number
of shares of Common Stock issuable to the former
Service1st 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 Second
Amended and Restated Warrant Agreement (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 holders 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 Securities Exchange Act of 1934,
as amended (the Exchange Act), during
WLBCs initial public offering, and such shares were freely
tradable immediately upon issuance.
Our Common Stock trades on Nasdaq under the symbol WLBC.
The mailing address of our principal executive office is
8363 W. Sunset Road, Suite 350, Las Vegas, Nevada
89113, and our telephone number is
(702) 966-7400.
The
Offering
This prospectus relates to the resale of up to
1,416,564 shares of Common Stock by certain selling
security holders.
|
|
|
|
|
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.
|
|
|
|
|
|
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.
|
In addition, this prospectus relates to the issuance by us of
200,000 shares of Common Stock underlying Restricted Stock
Units granted by us to certain of our current and former
directors, officers and consultants in connection with the
Acquisition. Such shares of Common Stock, when issued by us, are
also being registered for resale by the selling security holders
under this prospectus. For a more information about the selling
security holders, see the section entitled Selling
Security Holders. For a description of the Common
Stock and the transactions discussed above, see the sections
entitled Description of Securities Common
Stock and Certain Relationships and Related
Party Transactions Recent Sales of Unregistered
Securities.
2
RISK
FACTORS
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 propertys 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
3
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
borrowers 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 substantial 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
substantially all of our 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 banks 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
banks 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
4
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 banks credit risk may be
exacerbated if the collateral the bank 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 banks 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 FDICs Deposit Insurance Fund,
the FDIC could impose additional assessments on the banking
industry.
If there was a depletion of the Federal Deposit Insurance
Corporations (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.
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.
5
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
removal or reduction in stimulus activities sponsored by the
Federal Government and its agents may have a negative impact on
Service1sts
results and operations.
The Federal Government has intervened in an unprecedented manner
to stimulate economic growth. Some of these activities have
included the following:
|
|
|
|
|
Target fed funds rates which have remained close to zero percent;
|
|
|
|
|
|
Mortgage rates that have remained at historical lows in part due
to the Federal Reserve Bank of New Yorks $1.25 trillion
mortgage-backed securities purchase program;
|
|
|
|
|
|
Bank funding that has remained stable through an increase in
FDIC deposit insurance to a covered limit of $250,000 per
account from the previous coverage limit of $100,000; and
|
|
|
|
|
|
Housing demand that has been stimulated by homebuyer tax credits.
|
The expiration of rescission of any of those programs may have
an adverse impact on
Service1sts
operating results by increasing interest rates, increasing the
cost of funding and reducing the demand for loan products,
including mortgage loans.
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
6
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.
Material
breaches in security of
Service1sts
systems may have a significant effect on
Service1sts
business.
Service1st
collects, processes and stores sensitive consumer data by
utilizing computer systems and telecommunications networks
operated by both
Service1st and
third party service providers.
Service1st has
security, backup and recovery systems in place, as well as a
business continuity plan to ensure the system will not be
inoperable.
Service1st
requires its third party service providers to maintain similar
controls. However,
Service1st
cannot be certain that the measure will be successful. A
security breach in the system and loss of confidential
information could result in losing the customers
confidence and thus the loss of their business as well as
additional significant costs for privacy monitoring activities.
Service1sts
necessary dependence upon automated systems to record and
process its transaction volume poses the risk that technical
system flaws or employee errors, tampering or manipulation of
those systems will result in losses and may be difficult to
detect.
Service1st
may also be subject to disruptions of its operating systems
arising from events that are beyond its control (for example,
computer viruses or electrical or telecommunications outages).
Service1st
is further exposed to the risk that its third party service
providers may be unable to fulfill their contractual obligations
(or will be subject to the same risk of fraud or operational
errors as
Service1st).
These disruptions may interfere with service to
Service1sts
customers and result in a financial loss or liability.
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
7
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. As a condition to
obtaining FDIC approval for WLBC to acquire
Service1st,
WLBC agreed during the first three years of operation that
Service1st
would not make any major deviation or material change to the
business plan submitted as part of WLBCs application to
acquire
Service1st.
Until such time as the FDIC terminates the September 1,
2010 Consent Order, we believe the FDIC will be reluctant to
permit the bank to make a major deviation or material change in
the FDIC-approved business plan unless the proposed change to
the FDIC-approved business plan would lower the risk profile of
the bank. The application approval condition prohibiting a
material change to the FDIC-approved business plan may limit the
banks ability to introduce new products or services until
the FDIC terminates the Consent Order.
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.
Service1st
has experienced significant losses since it began operations in
January of 2007. There is no assurance that it will become
profitable.
Service1st commenced
operations as a commercial bank on January 16, 2007, with
initial capital of $50.0 million. Since inception,
Service1st 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,
Service1st 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,
Service1st 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
Service1sts
initial capital was sufficient to absorb these losses, as of
September 30, 2010,
Service1sts
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
Service1st to
become profitable, we believe that we will need to attract a
larger amount of deposits and a larger portfolio of loans than
Service1st currently
has. We must avoid further deterioration in
Service1sts
loan portfolio and increase the amount of its performing loans
so that the combination of
Service1sts
net interest income and non-interest
8
income, after deduction of its provision for loan losses,
exceeds
Service1sts
non-interest expense. The source of the majority of
Service1sts
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.
Service1sts
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 substantially
all of
Service1sts
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
Service1st
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,
Service1st 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 2011. 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
Managements Discussion & Analysis of
Service1st
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
Service1sts
loan portfolio which will require additional charge-offs.
Additional charge-offs will adversely affect our operating
results and financial condition.
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
Service1sts
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
Service1sts
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
Service1sts
loan portfolio consists of loans secured by real estate. As of
September 30, 2010, approximately 67.6% of
Service1sts
loans were secured by real estate. We rely upon independent
appraisers to estimate the value of the real estate which
secures
Service1sts
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
9
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.
We
currently are not permitted to expand by
acquisition
During the application process for the acquisition of
Service1st by
WLBC, we made a number of commitments to the FDIC. We assured
the FDIC in writing during the application process that we will
not seek to expand by acquisition until
Service1st is
restored to a satisfactory condition, which at a minimum means
that the September 1, 2010 Consent Order between the FDIC
and the bank must first be terminated. Until that occurs, any
growth on
Service1sts
part must be the result of organic growth in the banks
existing business. Prior to the acquisition of
Service1st,
Western Liberty had announced an intended business strategy of
using
Service1st as
the platform to grow through acquisition of failed banks. By
committing to the FDIC that Western Liberty would only acquire
Service1st with
the immediate and near-term plans to restore
Service1st to
a safe and sound, and profitable, institution, growth through
acquisition of failed banks was excluded from the application
terms that the FDIC approved. Although these growth restrictions
limit our opportunities currently, such restrictions typically
would not survive a future acquisition, assuming the acquirer is
a well-established banking organization considered by Federal
and state bank regulatory agencies to be well capitalized and
well managed.
Bank
regulatory restrictions with the FDIC and the Nevada Financial
Institutions Division are likely to limit growth and new product
development that were not in the business plan approved by bank
regulators at the time Western Liberty Bancorp was approved to
acquire
Service1st
Bank of Nevada.
As a condition to securing bank regulatory approval from the
FDIC and the Nevada Financial Institutions Division to acquire
Service1st Bank,
we also agreed to seek advance approval both from the FDIC and
the Nevada Financial Institutions Division for any major
deviation from the
Service1st Bank
three year business plan that we submitted during the
acquisition application process.
The
Service1st Bank
three year business plan approved by the FDIC and the Nevada
Financial Institutions Division provides for modest loan growth
funded by core deposits and Federal Home Loan Bank borrowing.
Any growth in
Service1st that
occurs is expected to be the result of organic growth within the
banks existing market and its existing business profile,
without reliance on strategies such as acquisitions, branch
additions, brokered deposits, above-market-rate deposit pricing,
or significant expansion of the banks market or the
banks product and service offerings.
Service1st is
and will remain primarily a business bank, with a target market
of professionals and small and medium-sized businesses in
southern Nevada principally and potentially elsewhere as well.
Service1st has
and will continue to have a significant concentration in
commercial real estate lending, with significant construction
and land development lending and commercial and industrial
lending as well and, to a much lesser degree, consumer lending.
To manage the risks of commercial real estate lending, we
anticipate that an increasing percentage of
Service1st commercial
real estate lending concentration will come to be represented by
owner-occupied properties and less so by non-owner-occupied
commercial real estate investment properties. Until the
FDICs September 1, 2010 Consent Order is terminated,
we believe the FDIC and the Nevada Financial Institutions
Division are unlikely to agree to a major deviation or material
change in our approved business plan unless the major deviation
would reduce the risk profile of the bank. As a result, we may
not be able to implement new business initiatives, and our
ability to grow may be inhibited.
10
In addition to the application approval condition that we would
not make any material change in the approved three year business
plan,
Service1st Bank
is subject to special supervisory conditions applicable to newly
chartered (so called, de novo) banks for a
probationary period of seven years. During such probationary
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
Service1st),
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. During the
seven-year de novo period, we will remain on a
12-month
risk management examination cycle. Consequently, we will be
under a high degree of regulatory scrutiny, at least through
January, 2014, and proposed new business initiatives not
included in the business plan submitted to the FDIC will require
prior FDIC approval.
As a commitment made to the FDIC during acquisition application
processing, we also agreed to maintain the Tier 1 leverage
capital ratio of
Service1st at
10% or greater until October 28, 2013 or, if later, when
the September 1, 2010 Consent Order agreed to by
Service1st with
the FDIC and the Nevada Financial Institutions Division
terminates. We also agreed that for that same time period we
will make no change in the directors or executive management of
Service1st unless
we first receive the FDICs non-objection to the proposed
change.
Service1st
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,
Service1st entered
into a Memorandum of Understanding (MOU) with
the FDIC and the Nevada Financial Institutions Division.
Pursuant to the MOU,
Service1st 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,
Service1st 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. These
regulatory restrictions will remain in effect until modified or
terminated by the regulators.
On September 1, 2010,
Service1st,
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,
Service1st
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
Service1st;
(ii) maintain a Tier I leverage ratio at or above 8.5%
(as of September 30, 2010,
Service1sts
Tier I leverage ratio was at 9.23%) and a total risk-based
capital ratio at or above 12% (as of September 30, 2010,
Service1sts
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
Service1sts
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
Service1sts
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 FDICs Rules and
11
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
Service1sts
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. When the FDIC
and the Nevada FID later determined that this deposit, a NOW
account held at
Service1st
by a non-depository Nevada trust company as custodian of its
customers self-directed IRA accounts, is a brokered
deposit, the FDIC and the Nevada FID gave
Service1st
until December 31, 2010 to terminate the deposit
relationship.
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:
|
|
|
|
|
changes in our perceived ability to increase our assets and
deposits;
|
|
|
|
changes in financial estimates by analysts;
|
|
|
|
announcements by us or our competitors of significant contracts,
productions, acquisitions or capital commitments;
|
|
|
|
fluctuations in our quarterly financial results or the quarterly
financial results of companies perceived to be similar to us;
|
|
|
|
general economic conditions;
|
|
|
|
changes in market valuations of similar companies;
|
|
|
|
terrorist acts;
|
|
|
|
changes in our capital structure, such as future issuances of
securities or the incurrence of additional debt;
|
|
|
|
future sales of our Common Stock;
|
|
|
|
regulatory developments in the United States, foreign countries
or both;
|
|
|
|
litigation involving us, our subsidiaries or our general
industry; and
|
|
|
|
additions or departures of key personnel.
|
The
trading volume of the Common Stock is limited.
The Common Stock trades on Nasdaq under the symbol
WLBC and trading volume is modest. The limited
trading market for the Common Stock may lead to exaggerated
fluctuations in market prices and possible market
inefficiencies, as compared to a more actively traded stock. It
may also make it more difficult to dispose of the Common Stock
at expected prices, especially for holders seeking to dispose of
a large number of such stock.
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 companys independent registered public accounting
firm attest to, and report on, the effectiveness of the
companys internal control over financial reporting.
12
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
Service1sts
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.
13
We have approximately 40 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.
Service1st
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 FHLBs 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
14
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 of San
Francisco, 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.
Service1sts
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 areas larger and more established businesses.
Through our previous experience and relationships with a number
of the regions 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.
15
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made in this prospectus, including in the
sections entitled Managements Discussion and
Analysis of Financial Condition and Results of
Operations
Service1st
Bank of Nevada, Managements
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 managements 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:
|
|
|
|
|
revenues may be lower than expected;
|
|
|
|
deposit attrition, operating costs and customer loss may be
greater than expected;
|
|
|
|
local, regional, national and international economic conditions
and the impact they may have on us and our customers and our
assessment of that impact;
|
|
|
|
changes in interest rates, spreads on earning assets and
interest-bearing liabilities, and interest rate sensitivity;
|
|
|
|
prepayment speeds, loan originations and credit losses;
|
|
|
|
sources of liquidity;
|
|
|
|
our common shares outstanding and Common Stock price volatility;
|
|
|
|
fair value of and number of stock-based compensation awards to
be issued in future periods;
|
|
|
|
legislation affecting the financial services industry as a whole;
|
|
|
|
regulatory supervision and oversight, including required capital
levels;
|
|
|
|
increasing price and product/service competition by competitors,
including new entrants;
|
|
|
|
rapid technological developments and changes;
|
|
|
|
ability to continue to introduce competitive new products and
services on a timely, cost-effective basis;
|
|
|
|
ability to contain costs and expenses;
|
|
|
|
governmental and public policy changes;
|
|
|
|
protection and validity of intellectual property rights;
|
|
|
|
reliance on large customers;
|
|
|
|
technological, implementation and cost/financial risks in large,
multi-year contracts;
|
16
|
|
|
|
|
the outcome of any pending and future litigation and
governmental proceedings;
|
|
|
|
continued availability of financing; and
|
|
|
|
financial resources in the amounts, at the times and on the
terms required to support our future businesses.
|
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.
17
SELLING
SECURITY HOLDERS
Up to 1,264,848 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) 200,000 shares of Common Stock
underlying the Restricted Stock Units and
(v) 42,834 shares of Common Stock issuable upon
exercise of the
Service1st 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 and
Service1st Warrants)
beneficially owned and being offered by the selling security
holders as of March 30, 2011. 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.
Any selling security holder that has informed us that he, she or
it is an affiliate of a broker-dealer acquired his, her or its
shares being registered herein for resale in the ordinary course
of business and at the time of such acquisition, such security
holder had no agreements or understandings, directly or
indirectly, with any person to distribute such securities.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Common Shares
|
|
|
|
|
|
Common Shares
|
|
|
|
|
|
|
Beneficially
|
|
|
|
|
|
Beneficially
|
|
|
|
|
|
|
Owned
|
|
|
Number of
|
|
|
Owned
|
|
|
% Beneficially
|
|
Name of Selling
|
|
Prior to
|
|
|
Common Shares
|
|
|
After Offering
|
|
|
Owned
|
|
Securityholder
|
|
Offering(1)
|
|
|
Offered(2)
|
|
|
(1)(3)
|
|
|
After Offering
|
|
|
Jennifer Albrecht
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
Banyan Tree Capital Limited
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
Mira Cho
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
Laura Conover-Ferchak(4)
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
Robert Foresman(5)
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
Gabelli Group Capital Partners, Inc.
|
|
|
7,173
|
|
|
|
7,173
|
|
|
|
|
|
|
|
|
|
Cari and David Grodner
|
|
|
7,886
|
|
|
|
7,886
|
|
|
|
|
|
|
|
|
|
Cari Grodner
|
|
|
47
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
Cari Lehman
|
|
|
7,446
|
|
|
|
7,446
|
|
|
|
|
|
|
|
|
|
Carl H. Hahn(5)
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
Jonathan Hamel
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
Samir Jain
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
Ingrid Kvam
|
|
|
4,000
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
Scott LaPorta(6)
|
|
|
61,327
|
|
|
|
61,327
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Common Shares
|
|
|
|
|
|
Common Shares
|
|
|
|
|
|
|
Beneficially
|
|
|
|
|
|
Beneficially
|
|
|
|
|
|
|
Owned
|
|
|
Number of
|
|
|
Owned
|
|
|
% Beneficially
|
|
Name of Selling
|
|
Prior to
|
|
|
Common Shares
|
|
|
After Offering
|
|
|
Owned
|
|
Securityholder
|
|
Offering(1)
|
|
|
Offered(2)
|
|
|
(1)(3)
|
|
|
After Offering
|
|
|
Philip Marineau(5)
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
Andrew Nelson(7)
|
|
|
50,165
|
|
|
|
50,165
|
|
|
|
|
|
|
|
|
|
Christa Short
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
Marc Soloway(5)
|
|
|
50,023
|
|
|
|
50,023
|
|
|
|
|
|
|
|
|
|
Evan Wax
|
|
|
20,289
|
|
|
|
20,289
|
|
|
|
|
|
|
|
|
|
Steven Westly(5)
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
David Witkin
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
Jason N. Ader(8)
|
|
|
450,372
|
|
|
|
450,372
|
|
|
|
|
|
|
|
|
|
Atlas Master Fund, Ltd.
|
|
|
20,012
|
|
|
|
20,012
|
|
|
|
|
|
|
|
|
|
Tim Collins
|
|
|
312
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
Doha Partners I, LP(8)
|
|
|
306,960
|
|
|
|
306,960
|
|
|
|
|
|
|
|
|
|
FM Multi-Strategy Investment Fund LP
|
|
|
942
|
|
|
|
942
|
|
|
|
|
|
|
|
|
|
HC Institutional Partners LP(8)
|
|
|
652
|
|
|
|
652
|
|
|
|
|
|
|
|
|
|
HC Overseas Partners Ltd.(8)
|
|
|
18,215
|
|
|
|
18,215
|
|
|
|
|
|
|
|
|
|
HC Turbo Fund Ltd.(8)
|
|
|
4,596
|
|
|
|
4,596
|
|
|
|
|
|
|
|
|
|
MZ Capital LLC
|
|
|
950
|
|
|
|
950
|
|
|
|
|
|
|
|
|
|
PI Multi-Strategy Fund II LDC
|
|
|
10,117
|
|
|
|
10,117
|
|
|
|
|
|
|
|
|
|
Pictet & Cie
|
|
|
326
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
UBS Luxembourg SA Ref Notz Stucki Group
|
|
|
500
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
Michael Frankel(9)
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
Richard Coles(9)
|
|
|
50,195
|
|
|
|
50,195
|
|
|
|
|
|
|
|
|
|
Mark Schulhof(9)
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
Daniel B. Silvers(10)
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
Michael Tew(11)
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
Curtis Anderson(12)
|
|
|
33,032
|
|
|
|
3,046
|
|
|
|
29,986
|
|
|
|
**
|
|
Joseph Brown
|
|
|
14,945
|
|
|
|
3,046
|
|
|
|
11,899
|
|
|
|
**
|
|
Mark Brown(13)
|
|
|
12,565
|
|
|
|
3,046
|
|
|
|
9,519
|
|
|
|
**
|
|
John Dedolph(13)
|
|
|
22,085
|
|
|
|
3,046
|
|
|
|
19,039
|
|
|
|
**
|
|
Madison Graves
|
|
|
50,643
|
|
|
|
3,046
|
|
|
|
47,597
|
|
|
|
**
|
|
Steven Hill(14)
|
|
|
38,744
|
|
|
|
3,046
|
|
|
|
35,698
|
|
|
|
**
|
|
Carl Krepper(13)
|
|
|
17,325
|
|
|
|
3,046
|
|
|
|
14,279
|
|
|
|
**
|
|
Monte Miller(13)
|
|
|
143,077
|
|
|
|
3,046
|
|
|
|
140,031
|
|
|
|
**
|
|
Heather Murren
|
|
|
50,643
|
|
|
|
3,046
|
|
|
|
47,597
|
|
|
|
**
|
|
Patricia Ochal(15)
|
|
|
13,802
|
|
|
|
3,141
|
|
|
|
10,661
|
|
|
|
**
|
|
Stuart Olson
|
|
|
8,329
|
|
|
|
3,141
|
|
|
|
5,188
|
|
|
|
**
|
|
George Randall(13)
|
|
|
14,945
|
|
|
|
3,046
|
|
|
|
11,899
|
|
|
|
**
|
|
Blake Sartini(16)
|
|
|
230,276
|
|
|
|
3,046
|
|
|
|
227,230
|
|
|
|
1.51
|
%
|
Terrence Wright(17)
|
|
|
60,163
|
|
|
|
3,046
|
|
|
|
57,117
|
|
|
|
**
|
|
Sophia Adeline Ader 2005 Trust(8)
|
|
|
50
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
JMM Investment Partners, LP
|
|
|
263
|
|
|
|
263
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Common Shares
|
|
|
|
|
|
Common Shares
|
|
|
|
|
|
|
Beneficially
|
|
|
|
|
|
Beneficially
|
|
|
|
|
|
|
Owned
|
|
|
Number of
|
|
|
Owned
|
|
|
% Beneficially
|
|
Name of Selling
|
|
Prior to
|
|
|
Common Shares
|
|
|
After Offering
|
|
|
Owned
|
|
Securityholder
|
|
Offering(1)
|
|
|
Offered(2)
|
|
|
(1)(3)
|
|
|
After Offering
|
|
|
HF Investments, LP
|
|
|
200
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
Ezra Sultan
|
|
|
261
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
Jack Richard Ader Trust(8)
|
|
|
36
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
Daniel M. Groff & Lesley K. Groff
|
|
|
33
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
Pamela Ader
|
|
|
2,141
|
|
|
|
2,141
|
|
|
|
|
|
|
|
|
|
Sasson 2006 GRAT
|
|
|
964
|
|
|
|
964
|
|
|
|
|
|
|
|
|
|
Steven Starker
|
|
|
217
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
Julie Ader(8)
|
|
|
94
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
Sylvia and Robert Kirschner
|
|
|
42
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
MNF Partners, L.P.
|
|
|
447
|
|
|
|
447
|
|
|
|
|
|
|
|
|
|
Harold Reiff
|
|
|
61
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
Amber Williams as Trustee under Indenture of Michael Coles dated
September 26, 1997
|
|
|
160
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
Laura Conover-Ferchak & William Ferchak
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
Marc Soloway & Rene Soloway
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
Chelsea Capital Corporation
|
|
|
280
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
Herb S. & Rachelle Soloway Family Trust dated April 9,
1996
|
|
|
36
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
Robert & Andrea Fortunoff
|
|
|
229
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
Jeffrey DeGreick
|
|
|
299
|
|
|
|
299
|
|
|
|
|
|
|
|
|
|
BABS REIFF Retirement Plan
|
|
|
84
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
Craig Colby
|
|
|
336
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
HSBC Private Bank (Suisse) SA
|
|
|
326
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
HSBCSSL A/C HSBC France A/C LMH
|
|
|
2,908
|
|
|
|
2,908
|
|
|
|
|
|
|
|
|
|
SSCSIL A/C HSBC Global Strategy Hedge Investments Limited
|
|
|
412
|
|
|
|
412
|
|
|
|
|
|
|
|
|
|
SSCSIL A/C HSBC Wealth Accumulation Investments Limited
|
|
|
163
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
SSCSIL A/C HSBC Republic US Advantedge Investments Limited
|
|
|
790
|
|
|
|
790
|
|
|
|
|
|
|
|
|
|
PFPC Trust Company F/B/O Blackrock Equity
Long/Short LP
|
|
|
460
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
PFPC Trust Company F/B/O Blackrock Equity
Long/Short Ltd
|
|
|
1,326
|
|
|
|
1,326
|
|
|
|
|
|
|
|
|
|
PFPC Trust Company F/B/O Blackrock Dynamic
Opportunities Fund Ltd.
|
|
|
1,904
|
|
|
|
1,904
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents shares of Common Stock currently held by such selling
security holder, including shares of Restricted Stock (as
defined herein) or shares of Common Stock underlying Restricted
Stock Units currently held by such selling security holder.
Includes Private Shares and shares of Common Stock issued upon
exercise of the Private Warrants in accordance with the Amended
Warrant Agreement. For more information concerning such
securities, see Description of Securities. |
|
|
|
(2) |
|
Unless otherwise noted, represents Private Shares or shares
issued upon exercise of Private Warrants. |
20
|
|
|
(3) |
|
This table assumes that each selling stockholder will sell all
of the shares of Common Stock being offered for sale by such
selling stockholder in this prospectus. Selling stockholders are
not required to sell their shares, and none of the selling
stockholders have indicated if and when they intend to sell
their shares. |
|
|
|
(4) |
|
Represents 10,000 Private Shares and shares of Common Stock
underlying 5,000 Restricted Stock Units granted to
Ms. Conover-Ferchak on October 28, 2010, in
consideration of her 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. 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) October 28, 2013 (the Settlement
Date), and no additional consideration shall be paid by
the holders of such Restricted Stock Units in connection with
such settlement. |
|
|
|
(5) |
|
Messrs. Hahn, Marineau, Westly, Foresman and Soloway are
each former members of the Board. |
|
|
|
(6) |
|
Mr. LaPorta is our former Chief Executive Officer and
President and a former member of the Board. |
|
|
|
(7) |
|
Mr. Nelson is our former Chief Financial Officer and
Assistant Secretary, and a former member of the Board.
Represents 25,165 Private Shares, and shares of Common Stock
underlying 25,000 Restricted Stock Units granted to
Mr. Nelson on October 28, 2010, in consideration of
his 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. 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, and no additional consideration shall be paid
by the holders of such Restricted Stock Units in connection with
such settlement. |
|
|
|
(8) |
|
Mr. Ader is our former Chairman and Chief Executive
Officer, and a current member of the Board and of the Board of
Directors of
Service1st.
On July 16, 2007, Hayground Cove, of which Mr. Ader is
the sole member, and the funds and accounts it manages,
purchased 8,348,500 Private Shares. On July 29, 2009, we
entered into a Private Shares Restructuring Agreement with
Hayground Cove, pursuant to which 7,618,908 of the Private
Shares were cancelled and exchanged for Private Warrants,
resulting in 368,306 Private Shares and 16,118,908 Private
Warrants. |
|
|
|
|
|
On November 27, 2007, Hayground Cove purchased 7,500,000
Private Warrants from us. As part of an Amended Warrant
Agreement entered into on September 27, 2010, all
outstanding Warrants, including Private Warrants, were exercised
into one thirty-second
(1/32)
of one share of Common Stock concurrently with the consummation
of the Acquisition. Represents 69,764 shares held in Mr.
Aders individual capacity, 330,428 shares of Common
Stock held by Hayground Cove, through Doha Partners I, LP,
HC Institutional Partners LP, HC Overseas Partners Ltd. and HC
Turbo Fund Ltd. and 180 shares held for the account of
his immediate family, each as set forth in this table. Hayground
Cove is controlled by Jason N. Ader and he and his
father are investors in Hayground Cove. |
|
|
|
|
|
Also represents shares of Common Stock underlying 50,000
Restricted Stock Units granted to Mr. Ader on October 28,
2010, in consideration of his 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. 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, and no
additional consideration shall be paid by the holders of such
Restricted Stock Units in connection with such settlement. |
|
|
|
(9) |
|
Mr. Frankel is the current Chairman of the Board.
Mr. Coles is a current member of the Board.
Mr. Schulhof is a former member of the Board. 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
Mr. Frankel, Mr. Coles and Mr. Schulhof. |
|
|
|
(10) |
|
Mr. Silvers is our former President. Represents shares of
Common Stock underlying 100,000 Restricted Stock Units granted
to Mr. Silvers on October 28, 2010, in consideration
of his 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. Each Restricted Stock Unit is immediately |
21
|
|
|
|
|
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, and no additional
consideration shall be paid by the holders of such Restricted
Stock Units in connection with such settlement. |
|
|
|
(11) |
|
Represents shares of Common Stock underlying 20,000 Restricted
Stock Units granted to Mr. Tew on October 28, 2010, in
consideration of his 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. 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, and no additional consideration
shall be paid by the holders of such Restricted Stock Units in
connection with such settlement. |
|
|
|
(12) |
|
Mr. Anderson is a member of the Board. Mr. Anderson
holds 64
Service1st
Warrants exercisable into 3,046 shares of Common Stock at
an exercise price of $21.01 per share of Common Stock, which he
is offering in this prospectus. |
|
|
|
(13) |
|
Mssrs. Brown, Dedolph, Krepper, and Randall are former directors
of
Service1st.
Mr. Miller is a current director of
Service1st.
They each hold 64
Service1st
Warrants immediately exercisable into 3,046 shares of
Common Stock at an exercise price of $21.01 per share of Common
Stock, which they are offering in this prospectus. |
|
|
|
(14) |
|
Mr. Hill is a member of the Board and Chairman of the Board
of
Service1st.
Mr. Hill holds 64
Service1st
Warrants immediately exercisable into 3,046 shares of
Common Stock at an exercise price of $21.01 per share of Common
Stock, which he is offering in this prospectus. |
|
|
|
(15) |
|
Ms. Ochal is Vice President and Chief Financial Officer of
Service1st.
Ms. Ochal holds 66
Service1st
Warrants immediately exercisable into 3,141 shares of
Common Stock at an exercise price of $21.01 per share of Common
Stock, which she is offering in this prospectus. |
|
|
|
(16) |
|
Mr. Sartini is a former member of the Board and a former
director of
Service1st.
Mr. Sartini holds 64
Service1st
Warrants immediately exercisable into 3,046 shares of
Common Stock at an exercise price of $21.01 per share of Common
Stock, which he is offering in this prospectus. |
|
|
|
(17) |
|
Mr. Wright is a member of the Board and a director of
Service1st.
Mr. Wright holds 64
Service1st
Warrants immediately exercisable into 3,046 shares of
Common Stock at an exercise price of $21.01 per share of Common
Stock, which he is offering in this prospectus. |
22
USE OF
PROCEEDS
We expect the net proceeds from the sale of Common Stock upon
exercise of the
Service1st 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
Service1st Warrants
for general corporate purposes.
PLAN OF
DISTRIBUTION
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 Stock:
|
|
|
|
|
ordinary brokerage transactions and transactions in which the
broker-dealer solicits the purchaser;
|
|
|
|
block trades in which the broker-dealer will attempt to sell the
shares of Common Stock as agent but may position and resell a
portion of the block as principal to facilitate the transaction;
|
|
|
|
purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
|
|
|
|
an exchange distribution in accordance with the rules of the
applicable exchange;
|
|
|
|
privately negotiated transactions;
|
|
|
|
settlement of short sales entered into after the date of this
prospectus;
|
|
|
|
agreements with broker-dealers to sell a specified number of
such shares of Common Stock at a stipulated price per share;
|
|
|
|
through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
|
|
|
|
a combination of any such methods of sale; or
|
|
|
|
any other method permitted pursuant to applicable law.
|
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:
|
|
|
|
|
1% of the total number of securities of the same class then
outstanding; or
|
|
|
|
the average weekly trading volume of such securities during the
four calendar weeks preceding the filing of a notice on
Form 144 with respect to the sale;
|
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.
23
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.
24
DESCRIPTION
OF SECURITIES
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
March 30, 2011, there were 15,088,023 outstanding shares of
Common Stock, consisting of (i) 10,590,863 shares of
Common Stock issued in our initial public offering,
(ii) 2,282,668 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 (v) 150,000 shares of Common Stock granted to
Mr. Frankel, Mr. Coles and Mr. Schulhof in
consideration for 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 and
(vi) 194,098 shares of restricted Common Stock
(Restricted Stock) granted in the aggregate
by WLBC to its current Chief Executive Officer, William E.
Martin, and Chief Financial Officer, George A. Rosenbaum, Jr.,
in connection with the Acquisition. 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
Service1st
received 2,282,668 shares of Common Stock as Base
Acquisition Consideration. In addition, the holders of
Service1sts
outstanding options and warrants now hold options and warrants
of similar tenor (such warrants being the
Service1st Warrants)
to purchase up to 289,781 shares of Common Stock. In
addition to the Base Acquisition Consideration, each of the
former stockholders of
Service1st 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
Service1st at
the close of business on August 31, 2010. The total number
of shares of Common Stock issuable to the former
Service1st stockholders
would be determined by dividing the Contingent Acquisition
25
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 holders 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 WLBCs
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
Service1st,
and George A. Rosenbaum, Jr., our current Chief Financial
Officer and the Executive Vice President of
Service1st.
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. Martins and Rosenbaums 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 holders 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,
WLBCs 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
26
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.
Options
and Warrants
In connection with the Acquisition, the holders of
Service1sts
outstanding warrants now hold warrants of similar tenor (such
warrants being the
Service1st Warrants)
to purchase shares of Common Stock. The
Service1st 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
Service1st Warrants.
The
Service1st Warrants
are fully vested and shall expire on January 17, 2012.
In connection with the Acquisition, we assumed the Stock Option
Plan of
Service1st,
which we expect will be amended to provide that stock options
granted thereunder may be exercised to purchase shares of our
Common Stock (the Stock Option Plan). The
holders of outstanding options to purchase
Service1sts
common stock that were granted under the Stock Option Plan prior
to the Acquisition 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
246,947 shares of Common Stock upon the exercise of all
outstanding options and an additional 229,023 shares of
Common Stock are available for option grants under the Stock
Option Plan. Generally, any outstanding unvested options will
become vested and exercisable if the holder continuously
provides service to
Service1st
or an affiliate, including WLBC following the Acquisition,
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.
27
CORPORATE
GOVERNANCE
Board of
Directors
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Michael B. Frankel
|
|
|
74
|
|
|
Chairman of the Board
|
Terrence L. Wright
|
|
|
61
|
|
|
Vice Chairman of the Board
|
Jason N. Ader
|
|
|
43
|
|
|
Director
|
Richard A. C. Coles
|
|
|
43
|
|
|
Director
|
Robert G. Goldstein
|
|
|
55
|
|
|
Director
|
Curtis W. Anderson, CPA
|
|
|
61
|
|
|
Director
|
Steven D. Hill
|
|
|
51
|
|
|
Director
|
William E. Martin
|
|
|
69
|
|
|
Chief Executive Officer, Director
|
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
Service1st since
January 2007. During this time, Mr. Wright also served as
Chairman of
Service1sts
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 licensed in 40 states
Mr. Wright received his undergraduate degree in Business
Administration and his Juris Doctorate from DePaul University in
Chicago. He is a member of the California and Illinois bar
associations. Mr. Wright has served on the Board of
Directors for the Nevada Land Title Association, as well as
the Board of Directors of Pioneer Citizens Bank and First
Interstate Bank. He is also past chairman of the Nevada
Development Authority, the Nevada Chapter of the Young
Presidents Organization and the UNVL Foundation.
Additionally, Mr. Wright serves on the board of the Council
for a Better Nevada, and Southwest Gas Corporation where he is a
member of the audit and compensation committees.
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
28
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.
Curtis W. Anderson, CPA has been a member of our Board
since October 2010. Mr. Anderson has been a Director of
Service1st 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.
Steven D. Hill has been a member of the Board since March
2011. Mr. Hill has been a Director and the Vice Chairman of
the Corporate Governance Committee of
Service1st since
the bank opened in January 2007. In August 2010, Mr. Hill was
named Chairman of the Board for
Service1st
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
29
Affairs Division of the Associated General Contractors, the
Government Affairs Division of the Associated Builders and
Contractors, the Governors 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.
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
Service1st Bank
of Nevada since December 2007. 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 agencys national problem bank
group, was a Deputy Comptroller in charge of the OCCs
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
Service1st 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
companys board of directors, would interfere with the
directors 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, and Anderson are the independent members of the Board.
Attendance
at Meetings
Messrs. Frankel, Wright, Ader, Coles, Goldstein, Hill,
Martin and Anderson comprise the membership of the Board. The
Board has held 5 meetings since the close of the
Acquisition and the consummation of our operations as a bank
holding company. 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.
30
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
Committees duties, which are specified in our Audit
Committee Charter, include, but are not limited to:
|
|
|
|
|
serving as an independent and objective party to monitor our
financial reporting process, audits of our financial statements
and internal control system;
|
|
|
|
reviewing and appraising the audit efforts and independence of
our independent registered public accounting firm and internal
finance department;
|
|
|
|
reviewing and discussing with our internal auditors and the
independent registered public accounting firm their audit scope
and plan;
|
|
|
|
discussing with management, our internal auditors and the
independent registered public accounting firm the adequacy and
effectiveness of our internal controls over financial reporting,
disclosure controls and procedures, the integrity of our
financial reporting processes, and the adequacy of our financial
risk management programs and policies, including recommendations
for improvement;
|
|
|
|
obtaining and reviewing written reports from the independent
registered public accounting firm regarding the firms
internal quality control procedures;
|
|
|
|
establishing procedures for the receipt, retention and treatment
of complaints on accounting, internal accounting controls or
auditing matters;
|
|
|
|
establishing policies for hiring employees or former employees
of our independent registered public accounting firm;
|
|
|
|
reviewing and approving all related party transactions as
required by Nasdaq;
|
|
|
|
reviewing with our independent registered public accounting firm
our accounting practices and policies; and
|
|
|
|
providing an open avenue of communications among our independent
registered public accounting firm, financial and senior
management, our internal finance department, and the Board.
|
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 companys 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 individuals 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
SECs 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.
31
Compensation
Committee Information
The Compensation Committee consists of Jason N. Ader, 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
Committees duties, which are specified in our Compensation
Committee Charter, include, but are not limited to:
|
|
|
|
|
overseeing succession planning for senior management;
|
|
|
|
reviewing the performance and advancement potential of current
and future senior management and succession plans for each as
well as reviewing the retention of high-level, high-potential
succession candidates;
|
|
|
|
assessing the compensation structure of WLBC and adopting a
written statement of compensation philosophy and strategy,
selecting a peer group and reviewing executive compensation in
relation to the peer group;
|
|
|
|
reviewing the goals and objectives relating to compensation of
our Chief Executive Officer and evaluating the Chief
Executives Officers performance in light of those
goals and objectives, and making recommendations for improving
performance;
|
|
|
|
reviewing and approving compensation for all other officers and
evaluating the responsibilities and performance of those
officers and making recommendations for improving performance
|
|
|
|
administering officer compensation programs and equity-based
plans, and making recommendations to our Board with respect to
incentive compensation plans and equity-based plans;
|
|
|
|
evaluating and making recommendations for compensation of
members of the Board in their capacities as such;
|
|
|
|
approving, monitoring, amending and terminating ERISA-governed
employee benefit plans; and
|
|
|
|
reviewing our Compensation Discussion and Analysis to be
included in our annual proxy statement and preparing and
approving the Report of the Compensation Committee to be
included in the annual proxy statement.
|
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
Service1st 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
32
Nominating Committees duties, which are specified in our
Governance and Nominating Charter, include, but are not limited
to:
|
|
|
|
|
monitoring the independence (under Nasdaq requirements) of the
Board and the overall Board composition;
|
|
|
|
reviewing the performance of the Board as a whole
|
|
|
|
identifying and recommending to our Board qualified candidates
for Board membership;
|
|
|
|
considering and recommending to the Board nominees to stand for
election at the annual meeting, including recommendations from
our stockholders;
|
|
|
|
recommending to the Board nominees to fill Board vacancies as
they arise;
|
|
|
|
selecting, evaluating and recommending to our Board membership
on Board committees;
|
|
|
|
determining Board committee membership standards and overseeing
the annual committee self-evaluations;
|
|
|
|
developing and overseeing governance principles of the Board and
a code of conduct applicable to members of the Board; and
|
|
|
|
evaluating and approving recommendations of the Compensation
Committee for compensation of members of the Board in their
capacities as such.
|
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 persons 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
33
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.
34
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:
|
|
|
|
|
forwarded to the addressees or distributed at the next scheduled
Board meeting;
|
|
|
|
if they relate to financial or accounting matters, forwarded to
the Audit Committee or distributed at the next scheduled Audit
Committee meeting;
|
|
|
|
if they relate to executive officer compensation matters,
forwarded to the Compensation Committee or discussed at the next
scheduled Compensation Committee meeting;
|
|
|
|
if they relate to the recommendation of the nomination of an
individual, forwarded to the Governance and Nominating Committee
or discussed at the next scheduled Governance and Nominating
Committee meeting; or
|
|
|
|
if they relate to the operations of the company, forwarded to
the appropriate officers of the company, and the response or
other handling of such communications reported to the Board at
the next scheduled Board meeting.
|
35
EXECUTIVE
OFFICER AND DIRECTOR COMPENSATION
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Michael B. Frankel
|
|
|
74
|
|
|
Chairman of the Board
|
Terrence L. Wright
|
|
|
61
|
|
|
Vice Chairman of the Board
|
Jason N. Ader
|
|
|
43
|
|
|
Director
|
Richard A. C. Coles
|
|
|
43
|
|
|
Director
|
Robert G. Goldstein
|
|
|
55
|
|
|
Director
|
Curtis W. Anderson, CPA
|
|
|
61
|
|
|
Director
|
Steven D. Hill
|
|
|
51
|
|
|
Director
|
William E. Martin
|
|
|
69
|
|
|
Director and Chief Executive Officer
|
George A. Rosenbaum Jr.
|
|
|
54
|
|
|
Chief Financial Officer
|
Patricia A. Ochal
|
|
|
46
|
|
|
Vice President
|
For biographical information about Messrs. Frankel, Wright,
Ader, Coles, Goldstein, Anderson, Hill and Martin, see the
section entitled Corporate Governance
Information About the Directors.
George A. Rosenbaum, Jr. currently serves as our
Chief Financial Officer and as Executive Vice President of
Service1st.
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
Service1st .
Ms. Ochal manages
Service1sts
facilities, leases, insurance and bank-wide risk assessment. At
Service1sts
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
Service1sts
marketing effort and website development/management.
Ms. Ochal began organizing
Service1st in
May 2006. Prior to organizing
Service1st,
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.
36
Executive
Officers and Directors of
Service1st
The board of directors and executive officers of our
wholly-owned subsidiary
Service1st are
as follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Jason N. Ader
|
|
|
43
|
|
|
Director
|
Terrence L. Wright
|
|
|
61
|
|
|
Director
|
Monte L. Miller
|
|
|
64
|
|
|
Director
|
Curtis W. Anderson, CPA
|
|
|
61
|
|
|
Director
|
Steven D. Hill
|
|
|
51
|
|
|
Chairman of the Board
|
Frances E. Moore
|
|
|
63
|
|
|
Director
|
Jenna M. Morton
|
|
|
44
|
|
|
Director
|
William E. Martin
|
|
|
69
|
|
|
Vice Chairman and Chief Executive Officer
|
George A. Rosenbaum, Jr.
|
|
|
54
|
|
|
Chief Operating Officer
|
Richard Deglman
|
|
|
67
|
|
|
Chief Credit Officer
|
Patricia A. Ochal
|
|
|
46
|
|
|
Chief Financial Officer
|
For biographical information about Messrs. Ader, Wright,
Goldstein, Anderson, Hill and Martin, see the section entitled
Corporate Governance Information about the
Directors. For biographical information about
Mr. Rosenbaum and Ms. Ochal, see the section above.
Monte L. Miller is a founder and Director of
Service1st 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
Service1st.
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
(KeyStates clients), which include special purpose
entities and other subsidiaries of public companies created to
hold and manage a companys 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 Governors
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.
Frances (Fafie) Moore has been a Director of
Service1st,
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 Womens 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
37
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
Service1st 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 worlds
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 Womens
Philanthropy and has served on the boards of Summerlin
Childrens 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.
Richard Deglman has been an Executive Vice President and
Chief Credit Officer of
Service1st Bank
of Nevada since June 2008. Prior to his employment with
Service1st,
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. Marys 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
Due to the recent closing of the Acquisition, we have yet to
establish a formal policy for the compensation of our 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.
38
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
officers annual 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,
including stock options granted under the Stock Option Plan. 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.
39
Director
Compensation
In accordance with the policies of the Board, our Compensation
Committee recently recommended, and our Nominating and
Governance Committee recently approved, the future grant of
equity compensation to our directors in the form of stock
options to purchase shares of Common Stock to be granted under
the Stock Option Plan. Furthermore, our Compensation Committee
recently recommended, and our Nominating and Governance
Committee recently approved, annual cash compensation to our
non-executive directors and Board committee members in the
following amounts: $50,000 for the Chairman of the Board;
$20,000 for all other non-executive members of the Board; an
additional $15,000 for the Chairman of our Audit Committee; an
additional $5,000 for all other members of our Audit Committee;
and an additional $10,000 for the Chairman of our Compensation
Committee.
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
Service1st,
and George A. Rosenbaum, Jr., our current Chief Financial
Officer and the Executive Vice President of
Service1st.
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. Martins and Rosenbaums 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 holders 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,
WLBCs 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
40
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.
Payment
for Due Diligence Services
In October 2009, WLBC made a one-time payment of $2,600,000 to
Hayground Cove Asset Management LLC for due diligence and other
services related to various acquisition opportunities and other
activities since WLBCs inception. Proceeds from the
payment were disbursed by Hayground Cove Asset Management LLC to
certain of its employees, affiliates and consultants (some of
whom also served at the time as WLBCs officers
and/or
directors) that provided support to WLBC in connection with its
efforts in finding and pursuing potential transactions.
Employment
Agreements
The following is a summary of the material terms of the
employment agreements that we have entered into with executive
officers.
William E. Martin, Chief Executive Officer of WLBC and
Chief Executive Officer of
Service1st.
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
Service1st.
Pursuant to the terms of his employment agreement,
Mr. Martins 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
unless either party elects not to renew the term.
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 years salary in the event there is a change
in control at
Service1st and
Mr. Martin remains the Chief Executive Officer through the
closing of the change in control. Mr. Martins
employment agreement contains customary representations,
covenants and termination provisions.
George A. Rosenbaum Jr., Chief Financial Officer of WLBC and
Executive Vice President of
Service1st. On
December 18, 2009, we entered into a second amended and
restated employment agreement with George A. Rosenbaum Jr.
Mr. Rosenbaums currently serves as our Chief
Financial Officer and as Executive Vice President of
Service1st.
Pursuant to the terms of his employment agreement,
Mr. Rosenbaums 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 unless either party elects not to renew the
term. 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
Service1st.
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
Service1st.
41
Pursuant to the terms of his employment agreement,
Mr. Deglmans 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
unless either party elects not to renew the term.
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 years salary in the event there is a
change in control at
Service1st and
Mr. Deglman remains the Chief Credit Officer through the
closing of the change in control. Mr. Deglmans
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.
Summary
Compensation Table
The following table sets forth all compensation received during
the last fiscal year by (i) our former Chief Executive
Officer, (ii) our Chief Executive Officer, (iii) our
Chief Financial Officer, (iv) the Chief Credit Officer of
Service1st,
(v) our former President and (vi) our former Chief
Financial Officer, each of whom served as executive officers for
purposes of reporting compensation for our last fiscal year.
These executive officers are referred to as our named
executive officers or NEOs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
Name and
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
Incentive
|
|
|
Deferred
|
|
|
All
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
|
Awards
|
|
|
Plan
|
|
|
Compensation
|
|
|
Other
|
|
|
|
|
Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
(1)
|
|
|
(1)
|
|
|
Compensation
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Total
|
|
|
Jason N. Ader;
|
|
|
2010
|
|
|
|
|
|
|
$
|
200,000(2
|
)
|
|
$
|
322,000(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
522,000
|
|
Former Chief
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William E. Martin;
|
|
|
2010
|
|
|
$
|
237,500(4
|
)
|
|
|
|
|
|
$
|
1,000,000(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,237,500
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George A. Rosenbaum Jr.;
|
|
|
2010
|
|
|
$
|
200,000
|
|
|
|
|
|
|
$
|
250,000(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
450,000
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard Deglman;
|
|
|
2010
|
|
|
$
|
219,792(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
219,792
|
|
Chief Credit Officer
of
Service1st
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel B. Silvers;
|
|
|
2010
|
|
|
|
|
|
|
$
|
450,000(8
|
)
|
|
$
|
644,000(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,094,000
|
|
Former
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew Nelson;
|
|
|
2010
|
|
|
|
|
|
|
$
|
50,000(10
|
)
|
|
$
|
161,000(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
211,000
|
|
Former Chief
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts shown reflect the aggregate grant date fair value of
stock awards and stock options computed in accordance with FASB
ASC Topic 718, and are not necessarily indicative of the
compensation actually received by the named executive officers.
The fair value of each option grant is estimated based on the
fair market value on the date of grant. |
|
|
|
(2) |
|
Reflects a one time bonus paid to Mr. Ader on
October 28, 2010 in consideration of his 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. |
|
|
|
(3) |
|
Reflects a one-time grant of 50,000 Restricted Stock Units to
Mr. Ader on October 28, 2010 in consideration of his
substantial service to and support of WLBC during the period in
which we sought the |
42
|
|
|
|
|
requisite regulatory approval to become a bank holding company
in connection with the Acquisition. Each Restricted Stock Unit
was 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,
and no additional consideration shall be paid by Mr. Ader
in connection with such settlement. |
|
|
|
(4) |
|
Reflects base salary of $183,333 paid to Mr. Martin by
Service
1st from
January 1, 2010 to October 31, 2010 for duties
performed for Service
1st
before the Acquisition, and base salary of $54,166 paid to
Mr. Martin by WLBC from November 1, 2010 to
December 31, 2010, for duties performed for WLBC after the
Acquisition. |
|
|
|
(5) |
|
Reflects a one time grant of 155,279 shares of Restricted
Stock to Mr. Martin in accordance with his Employment
Agreement. The shares of Restricted Stock 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 Mr. Martins
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 holders 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 will also vest upon a third party acquiring of
50% of more of the then outstanding voting securities of WLBC or
the power to cause the election of a majority of the members of
the Board. Such Restricted Stock shall be subject to
restrictions on transfer for a period of one year following each
vesting date. |
|
|
|
(6) |
|
Reflects a one time grant of 38,819 shares of Restricted
Stock to Mr. Rosenbaum in accordance with his Employment
Agreement. The shares of Restricted Stock are subject to the
same terms and conditions with regard to vesting and forfeiture
set forth in footnote 5 above with respect to Mr. Martin. |
|
|
|
(7) |
|
Reflects base salary of $178,125 paid to Mr. Deglman by
Service1st
from January 1, 2010 to October 31, 2010 for duties
performed for
Service1st
before the Acquisition, and base salary of $41,667 paid to
Mr. Deglman by WLBC from November 1, 2010 to
December 31, 2010, for duties performed for WLBC after the
Acquisition. |
|
|
|
(8) |
|
Reflects a one time bonus paid to Mr. Silvers on
October 28, 2010 in consideration of his 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. |
|
|
|
(9) |
|
Reflects a one-time grant of 100,000 Restricted Stock Units to
Mr. Silvers on October 28, 2010 in consideration of
his 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. Each
Restricted Stock Unit was 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, and no additional consideration shall be paid
by Mr. Silvers in connection with such settlement. |
|
|
|
(10) |
|
Reflects a one time bonus paid to Mr. Nelson on
October 28, 2010 in consideration of his 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. |
|
|
|
(11) |
|
Reflects a one-time grant of 25,000 Restricted Stock Units to
Mr. Nelson on October 28, 2010 in consideration of his
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. Each
Restricted Stock Unit was 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, and no additional consideration shall be paid
by Mr. Nelson in connection with such settlement. |
43
Outstanding
Equity Awards at Fiscal Year End
The following table summarizes unexercised stock options and
shares of restricted stock that have not vested and related
information for each of our named executive officers as of
December 31, 2010. The market value of restricted stock
awards is based on the closing price of WLBs Common Stock
on December 31, 2010 of $5.35.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Incentive
|
|
|
|
|
|
|
Equity
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Plan
|
|
|
|
|
|
|
Incentive
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
Awards:
|
|
|
|
|
|
|
Plan
|
|
|
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Market or
|
|
|
|
Number of
|
|
|
Awards:
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
Number
|
|
|
Market
|
|
|
Number of
|
|
|
Payout Value
|
|
|
|
Securities
|
|
|
Number
|
|
|
Number
|
|
|
|
|
|
|
|
|
of
|
|
|
Value of
|
|
|
Unearned
|
|
|
of Unearned
|
|
|
|
Underlying
|
|
|
of
|
|
|
of
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Shares or
|
|
|
Shares, Units
|
|
|
Shares, Units
|
|
|
|
Unexercised
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
or Other
|
|
|
or Other
|
|
|
|
Options
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Option
|
|
|
|
|
|
Stock That
|
|
|
Stock That
|
|
|
Rights That
|
|
|
Rights That
|
|
|
|
(#)
|
|
|
Unexercised
|
|
|
Unearned
|
|
|
Exercise
|
|
|
Option
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
|
Exercisable
|
|
|
Options
|
|
|
Options
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
Name
|
|
(1)
|
|
|
(#)(1)
|
|
|
(#)
|
|
|
($)
|
|
|
Date
|
|
|
(#)(2)
|
|
|
($)
|
|
|
(#)
|
|
|
($)
|
|
|
Jason Ader; Former
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William E. Martin;
|
|
|
|
|
|
|
23,798
|
(3)
|
|
|
|
|
|
|
21.01
|
|
|
|
12/20/17
|
|
|
|
155,279
|
|
|
|
830,743
|
|
|
|
|
|
|
|
|
|
Chief Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George A. Rosenbaum Jr.;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,819
|
|
|
|
207,682
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard Deglman;
|
|
|
14,281
|
|
|
|
21,417(5
|
)
|
|
|
|
|
|
|
21.01
|
|
|
|
8/11/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Credit Officer of
Service1st
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel B. Silvers;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew Nelson;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects options granted to Mssrs. Martin and Deglman by Service
1st that were converted to into options to purchase WLB Common
Stock. The number of shares of WLB Common Stock subject to a
converted option was determined by multiplying the number of
shares of Service 1st Bank common stock subject to the option
(500 shares in the case of Mr. Martin and
750 shares in the case of Mr. Deglman) by 47.5975. |
|
|
|
(2) |
|
Each share of restricted stock granted to Messrs. Martin
and Rosenbaum represents one share of WLBs Common Stock
that is subject to forfeiture if the applicable vesting
requirements are not met. The shares of Restricted Stock 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
Mr. Martins 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
holders 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 will also
vest upon a third party acquiring of 50% of more of the then
outstanding voting securities of WLBC or the power to cause the
election of a majority of the members of the Board. Such
Restricted Stock shall be subject to restrictions on transfer
for a period of one year following each vesting date. |
|
|
|
(3) |
|
Mr. Martins options will vest and become exercisable
on December 31, 2012 if Service1sts total deposits
are equal to or greater than $750 million as of that date.
If the foregoing target is not achieved, then all of
Mr. Martins options will be forfeited as of that date. |
44
|
|
|
(4) |
|
Reflects the expiration date if Mr. Martins options
vest as set forth in footnote 3. |
|
|
|
(5) |
|
Mr. Deglmans unvested options will vest in equal
installments on August 11 of 2011, 2012 and 2013. |
Director
Compensation Table
The following table sets forth all compensation received during
the last fiscal year by WLBCs non-employee directors for
services in all capacities to the Company in 2010. Information
with respect to the compensation of Jason N. Ader, a director
and WLBCs former Chief Executive Officer, William E.
Martin, a director and WLBCs Chief Executive Officer, and
Andrew P. Nelson, a former director and WLBCs former Chief
Financial Officer, are set forth in the Summary
Compensation Table above. The table includes compensation
information for Mark Schulhof and Blake L. Sartini and who are
no longer members of WLBCs Board, but served in such
capacity until October 28, 2010 and February 14, 2011,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or Paid in
|
|
|
Stock
|
|
|
Option
|
|
|
All other
|
|
|
|
|
|
|
Cash
|
|
|
Awards
|
|
|
Awards
|
|
|
Compensation
|
|
|
Total
|
|
Name
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(2)
|
|
|
($)
|
|
|
($)
|
|
|
Michael B. Frankel, Chairman
|
|
|
5,890
|
|
|
$
|
322,000
|
|
|
|
|
|
|
|
50,000
|
(3)
|
|
|
377,890
|
|
Terrence L. Wright, Vice Chairman
|
|
|
2,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,945
|
|
Richard A.C. Coles
|
|
|
2,945
|
|
|
$
|
322,000
|
|
|
|
|
|
|
|
|
|
|
|
324,945
|
|
Robert G. Goldstein
|
|
|
2,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,356
|
|
Curtis W. Anderson, CPA
|
|
|
4,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,123
|
|
Steven D. Hill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Schulhof
|
|
|
|
|
|
$
|
322,000
|
|
|
|
|
|
|
|
|
|
|
|
322,000
|
|
Blake. L. Sartini
|
|
|
2,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,356
|
|
|
|
|
(1) |
|
Consists of annual Board fees, Board Chairman, committee
chairman, and committee fees. |
|
|
|
(2) |
|
Reflects a one time grant of 50,000 Private Shares to each of
Mssrs. Frankel, Coles and Schulhof on October 28, 2010 in
consideration of his 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. The amounts shown reflect the aggregate grant date
fair value of stock awards and stock options computed in
accordance with FASB ASC Topic 718, and are not necessarily
indicative of the compensation actually received by the
non-employee directors. The fair value of each option grant is
estimated based on the fair market value on the date of grant. |
|
|
|
(3) |
|
Reflects a one time payment paid to Mr. Frankel on
October 28, 2010 in consideration of his 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. |
45
INFORMATION
RELATED TO WESTERN LIBERTY BANCORP
AND
SERVICE1ST
BANK OF NEVADA
Overview
WLBC is a new Nevada financial institution bank
holding company and conducts its operations through its
wholly-owned subsidiary,
Service1st.
Service1st 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.
Service1st 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,
Service1st 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
Service1st
received 2,282,668 shares of Common Stock as Base
Acquisition Consideration. In addition, the holders of
Service1sts
outstanding options and warrants now hold options and warrants
of similar tenor (such warrants being the
Service1st Warrants)
to purchase up to 289,781 shares of Common Stock. In
addition to the Base Acquisition Consideration, each of the
former stockholders of
Service1st 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
Service1st at
the close of business on August 31, 2010. The total number
of shares of Common Stock issuable to the former
Service1st 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
46
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 holders 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 WLBCs
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
Service1st and
conducting operations through
Service1st.
In conjunction with the transaction, WLBC infused
$25 million of capital onto the balance sheet of
Service1st.
Regulation
Service1st 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.
Enhanced supervision of recently chartered
banks. In connection with the FDICs
approval of deposit insurance, the FDIC subjected
Service1st to
customary conditions applicable to de novo banks for a
period of three years, including the requirement that during
such three-year period
Service1st maintain
a Tier 1 capital leverage ratio of not less than 8.0%. In
addition, during the three-year period,
Service1st was
required to operate within the parameters of the business plan
submitted as part of
Service1sts
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
Service1st from
January 2010 to January 2014. In connection with the extension,
at the FDICs request,
Service1st 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.
Supervisory conditions imposed by the FDIC. In
May of 2009,
Service1st entered
into the MOU with the FDIC and the Nevada Financial Institutions
Division. Pursuant to the MOU,
Service1st 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,
Service1st 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,
Service1st,
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
Service1st
with the FDIC and Nevada Financial Institutions Division in May
of 2009. Under the Consent Order,
Service1st
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
Service1st;
(ii) maintain a Tier I leverage
47
ratio at or above 8.5% (as of September 30, 2010,
Service1sts
Tier I leverage ratio was at 9.23%) and a total risk-based
capital ratio at or above 12% (as of September 30, 2010,
Service1sts
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
Service1sts
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
Service1sts
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
FDICs 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
Service1sts
market area) and reduce its reliance on existing brokered
deposits, if any.
Conditions arising out of the recent
acquisition. During the application process for
the acquisition of
Service1st by
WLBC, we made a number of commitments to the FDIC. First, we
agreed to maintain the Tier 1 leverage capital ratio of
Service1st at
10% or greater until October 28, 2013 or, if later, when
the September 1, 2010 Consent Order agreed to by
Service1st with
the FDIC and the Nevada Financial Institutions Division
terminates. We also agreed that for that same time period we
will make no change in the directors or executive management of
Service1st unless
we first receive the FDICs non-objection to the proposed
change. We assured the FDIC in writing during the application
process that we will not seek to expand by acquisition until
Service1st is
restored to a satisfactory condition, which at a minimum means
that the September 1, 2010 Consent Order must first be
terminated. Until that occurs, any growth on
Service1sts
part must be the result of organic growth in the banks
existing business. We also agreed to seek advance approval both
from the FDIC and the Nevada Financial Institutions Division for
any major deviation from the business plan that we submitted
during the acquisition application process.
As a condition to obtaining Federal Reserve approval of
WLBCs acquisition of
Service1st,
Director Jason N. Ader made a number of commitments to the
Federal Reserve on behalf of Hayground Cove. Unless written
approval of the Federal Reserve is obtained by Hayground Cove in
advance, Hayground Cove committed, among other things, that it
will not, directly or indirectly, (i) exercise or attempt
to exercise a controlling influence over the management or
policies of WLBC or
Service1st,
(ii) have or seek to have more than one
representative on the board of directors of WLBC or
Service1st,
(iii) have an interest of 4.9% or more in the voting
securities of WLBC, including for purposes of calculating the
4.9% threshold, the WLBC voting securities held by Jason N. Ader
or by other officers and directors of Hayground Cove,
(iv) no Hayground Cove representative may serve as an
officer or employee of WLBC or
Service1st,
and (v) no director representative of Hayground Cove
may serve as chairman of the board of directors of WLBC or
Service1st.
The Federal Reserve likewise requested passivity commitments
from certain other holders of WLBCs voting stock. In the
case of entities, investment funds, or other nonindividual
investors holding a substantial percentage of the voting stock
of a bank or bank holding company, it is common for these
investors to make passivity commitments as an alternative to
registering as and becoming subject to regulation and
supervision as bank holding companies under the Bank Holding
Company Act of 1956 and Regulation Y of the Federal
Reserve. See Supervision and Regulation.
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
48
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 Vegass 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%.
Service1sts
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,
Service1st 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,
Service1st believes
it is well-positioned to pursue opportunities available in the
market and to provide lending support in the Nevada economy.
Lending
Activities
Service1st 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. Service1sts
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.
Service1sts
policy is to obtain collateral whenever it is available or
desirable, depending upon the degree of risk
Service1st is
willing to accept. Repayment of loans is expected from the
borrowers cash flows or the sale proceeds of the
collateral. Deterioration in the performance of the economy or
real estate values in
Service1sts
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
Service1sts
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.
Service1st 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,
Service1st had
$62.4 million in commercial real estate loans, which
represented 51% of its loan portfolio.
Commercial and industrial
loans. Service1st focuses
its commercial lending on small to medium size businesses
located in or serving the Las Vegas community.
Service1st considers
small businesses to include commercial, professional
and retail businesses.
Service1sts
commercial and industrial loan products include:
|
|
|
|
|
working capital loans and lines of credit;
|
|
|
|
business term loans; and
|
|
|
|
inventory and accounts receivable financing.
|
As of September 30, 2010,
Service1st 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,
Service1st had
$8.9 million in construction, land development and other
land loans, which represented 7.4% of its loan portfolio.
49
Residential real estate loans. While
residential mortgage lending is not a significant part of
Service1sts
lending business, it has made some loans secured by 1-4
single-family residential properties. As of September 30,
2010,
Service1st had
$10.3 million in residential loans, which represented 8.5%
of its loan portfolio.
Consumer loans. To a lesser extent,
Service1st 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
Service1sts
loan portfolio. As of September 30, 2010,
Service1st had
$131,000 in consumer loans, which represented 0.1% of its loan
portfolio.
Depository
Services
Service1st offers
a variety of traditional demand, savings and time deposit
accounts to individuals, professionals and businesses within the
Nevada region, including the following products:
|
|
|
|
|
Demand Checking/Business Checking
|
|
|
|
|
|
Checking accounts
|
|
|
|
Interest bearing checking accounts
|
|
|
|
|
|
Traditional savings accounts
|
|
|
|
|
|
Consumer accounts
|
|
|
|
Business accounts
|
|
|
|
|
|
Certificates of Deposit
|
|
|
|
|
|
Regular accounts over/under $100,000
|
|
|
|
Freedom CD a flexible, liquid certificate of deposit
product that permits customers to deposit or withdraw funds,
subject to certain restrictions, without penalty prior to the
end of the CD term.
|
Service1sts
deposit base is generated from the Nevada area. The competition
for these deposits in
Service1sts
market is strong.
Service1st 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
Service1sts
interest-bearing deposits was 1.16% for the nine months ended
September 30, 2010. For additional information concerning
Service1sts
deposits see Managements Discussion and Analysis
of Financial Condition and Results of Operations
Service1st
Bank of Nevada Financial Condition
Deposits.
Other
Services
In addition to traditional commercial banking activities,
Service1st provides
other financial and related services to its customers, including:
|
|
|
|
|
1st net
online banking;
|
|
|
|
Direct deposits, direct debit and electronic bill payment;
|
|
|
|
Wire transfers;
|
|
|
|
Lock box services;
|
|
|
|
Merchant related services (including point of sale payment
processing);
|
|
|
|
Courier service;
|
|
|
|
Safe deposit boxes;
|
|
|
|
Cash management services (including account reconciliation,
collections, and sweep accounts);
|
|
|
|
Corporate and consumer credit cards;
|
|
|
|
Night depository;
|
|
|
|
Cashiers checks; and
|
|
|
|
Notary services.
|
50
Credit
Policies and Administration
Loan and credit administration policies adopted by
Service1st Banks
board of directors 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.
For real-estate secured loans, appraisals are ordered from
outside appraisers at a loans 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 collaterals 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 before
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,
Service1st may
not recover the outstanding balance of the loan.
Service1sts
loan approval procedures are executed through a tiered loan
limit authorization process. Each loan officers individual
lending limit and those of the Senior Loan Committee are set by
Service1sts
board of directors. All debt due from the borrower (including
unfunded commitments and guaranties) and the borrowers
related entities is aggregated when determining whether a
proposed new loan is within the authority of an individual
lender or of the Senior Loan Committee. Each senior vice
president team leader may unilaterally approve real-estate
secured loans of up to $750,000, other secured loans of up to
$500,000, and unsecured loans of up to $375,000. Credit
applications exceeding a senior vice president team
leaders authority are submitted for approval by
Service1sts
Chief Executive Officer, or Chief Credit Officer, each of whom
may unilaterally approve real estate-secured loans of up to
$1,500,000, other secured loans of up to $1,250,000, and
unsecured loans of up to $1,000,000, with higher limits for
joint approvals by more than one of the executive officers or
senior vice presidents. As an alternative approval process,
credits may be submitted to the Senior Loan Committee. The
Senior Loan Committee consists of
Service1st Banks
Chief Executive Officer and Chief Credit Officer, and the
banks senior vice president team leaders. A quorum
consists of at least the Chief Executive Officer or Chief Credit
Officer plus two other members. The Senior Loan Committee has
the authority to approve loan applications, but loans exceeding
$5,000,000 also require the approval of the Chief Executive
Officer.
Service1st Banks
board of directors also has a loan and investment committee that
is responsible for establishing and providing supervision and
oversight over
Service1sts
credit and investment policies and administration. Credits
granted as an exception to loan policy 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 boards loan and investment committee.
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
Service1st that
directors not be present when their loan is presented at a board
meeting for discussion and approval.
Service1st believes
that all of its insider loans were made on terms substantially
similar to those offered to unaffiliated individuals. As of
December 31, 2010, the aggregate amount of all loans
outstanding to
Service1sts
executive officers, directors, and greater than 10% stockholders
and their respective affiliates was approximately
$2.4 million, which represented 2.2% of the banks
total gross loans.
51
Asset
Quality
General
To measure asset quality,
Service1st 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
Service1sts
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,
Service1st will
attempt to remedy the deficiency by contacting the borrower and
seeking payment.
Service1st
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
Service1sts
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,
Service1st 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
Service1sts
loans, including its non-performing assets, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations of
Service1st
Bank of Nevada Financial Condition
Loans.
Service1sts
Chief Credit Officer continuously monitors the status of the
loan portfolio and prepares and presents to
Service1sts
board of directors a monthly report listing all past due
credits.
Service1st prepares
detailed status reports for all relationships rated
watch or lower on a quarterly basis. These reports
are provided to
Service1sts
management and its board of directors.
Service1st generally
stops accruing income on loans when interest or principal
payments are in arrears for 90 days, or earlier if
management deems appropriate.
Service1st 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.
Service1st classifies
its loans using a ten category grading system and uses
52
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
Service1sts
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
Service1sts
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
Service1st or
other institutions. When it is recognized that chances for
repayment on such a credit have become severely impaired, and
Service1st 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.
53
Allowance
for Loan Losses
The allowance for loan losses reflects
Service1sts
evaluation of the probable losses in its loan portfolio. The
allowance for loan losses is maintained at a level that
represents
Service1st managements
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
Service1sts
management and adjusted on a monthly basis.
Service1st maintains
the allowance through provisions for loan losses that it charges
to income.
Service1st 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 managements judgment, is deemed to be
uncollectible.
In assessing the adequacy of the allowance,
Service1st considers
the results of its loan review process.
Service1st 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.
Service1sts
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.
Service1st 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
Service1st considers
in connection with determining the overall allowance for loan
losses is subject to a written and board approved methodology
that includes:
|
|
|
|
|
results of the internal credit quality review;
|
|
|
|
general economic and business conditions affecting key lending
areas;
|
|
|
|
credit quality trends (including trends in nonperforming loans
expected to result from existing conditions);
|
|
|
|
collateral values;
|
|
|
|
loan volumes and concentrations;
|
|
|
|
age of the loan portfolio;
|
|
|
|
specific industry conditions within portfolio segments;
|
|
|
|
duration of the current business cycle;
|
|
|
|
bank regulatory examination results; and
|
|
|
|
external loan review results.
|
In addition to the foregoing factors, the loan grading system
used by
Service1st also
plays a role in setting the level of the allowance since each
grade tier has a fixed percentage allocation assigned to it.
Service1sts
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
Service1sts
management has identified significant adverse conditions or
circumstances related to a specific loan.
Service1sts
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.
54
The assessment will also include an unallocated component.
Service1st 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.
Service1st reviews
the resulting allowance by comparing the balance in the
allowance to peer information.
Service1sts
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.
Service1sts
board of directors reviews and approves the assessment prior to
the filing of quarterly or annual financial information.
Various regulatory agencies, as well as
Service1sts
outsourced loan review function, as an integral part of their
review process, periodically review
Service1sts
loan portfolios and the related allowance for loan losses. In
determining adequacy, regulatory agencies may from time to time
require
Service1st 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,
Service1sts
allowance for loan losses was $7.0 million, representing
5.8% of total loans.
Investment
Activities
Service1sts
investment policy was established and approved by
Service1sts
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
Service1sts
interest rate risk management policies.
Service1sts
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.
Service1sts
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.
Service1st does
not plan to purchase collateralized debt obligations, adjustable
rate preferred securities, or private label collateralized
mortgage obligations.
Service1sts
policies also govern the use of derivatives, and provide that
Service1st may
prudently use derivatives as a risk management tool to reduce
its overall exposure to interest rate risk, and not for
speculative purposes.
Service1sts
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
Service1st 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
Service1st 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
Service1st.
Service1st competes
for loans, deposits
55
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
|
Total Assets
|
|
|
|
|
|
|
(As of September 30,
|
|
|
(As of September 30,
|
|
Name of Bank
|
|
Date of Opening
|
|
|
2010)
|
|
|
2010)
|
|
|
Nevada Commerce Bank
|
|
|
March 2000
|
|
|
$
|
155 million
|
|
|
$
|
167 million
|
|
Bank of North Las Vegas
|
|
|
August 2005
|
|
|
$
|
82 million
|
|
|
$
|
91 million
|
|
1st
Commerce Bank
|
|
|
October 2006
|
|
|
$
|
42 million
|
|
|
$
|
44 million
|
|
Service1st
Bank
|
|
|
January 2007
|
|
|
$
|
172 million
|
|
|
$
|
193 million
|
|
First Security Bank
|
|
|
January 2007
|
|
|
$
|
87 million
|
|
|
$
|
105 million
|
|
Nevada National Bank
|
|
|
February 2007
|
|
|
$
|
31 million
|
|
|
$
|
38 million
|
|
Bank of George
|
|
|
October 2007
|
|
|
$
|
107 million
|
|
|
$
|
118 million
|
|
Meadows Bank
|
|
|
March 2008
|
|
|
$
|
156 million
|
|
|
$
|
194 million
|
|
Other competitors include regional banks, such Zions
Nevada State Bank, Western Alliance Bancorporations 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
Service1sts
competitors are much larger in total assets and capitalization,
have greater access to capital markets and offer a broader range
of financial services than
Service1st 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.
56
THE
BUSINESS OF WESTERN LIBERTY BANCORP
Business
Overview
WLBC is a new Nevada financial institution bank
holding company and conducts its operations through its
wholly-owned subsidiary,
Service1st.
Service1st 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.
Service1st 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
Service1st
received 2,282,668 shares of Common Stock as Base
Acquisition Consideration. In addition, the holders of
Service1sts
outstanding options and warrants now hold options and warrants
of similar tenor (such warrants being the
Service1st Warrants)
to purchase up to 289,781 shares of Common Stock. In
addition to the Base Acquisition Consideration, each of the
former stockholders of
Service1st 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
Service1st at
the close of business on August 31, 2010. The total number
of shares of Common Stock issuable to the former
Service1st 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
57
of the remainder of such holders 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 WLBCs 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
Service1st and
conducting operations through
Service1st.
In conjunction with the transaction, WLBC infused
$25 million of capital onto the balance sheet of
Service1st.
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:
|
|
|
|
|
provide for the government to invest additional capital into
banks and otherwise facilitate bank capital formation (commonly
referred to as the Troubled Asset Relief Program, or
TARP);
|
|
|
|
increase the limits on federal deposit insurance; and
|
|
|
|
provide for various forms of economic stimulus, including to
assist homeowners in restructuring and lowering mortgage
payments on qualifying loans.
|
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
Service1st as
a platform, we expect to be well-positioned to grow organically
our existing base of deposits. The staff of
Service1st 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
Service1st 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 todays 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.
58
Nevada
Market
The Nevada market has an overall favorable business climate
given its favorable tax environment. Nevadas 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, Nevadas population grew
by more than 30% to more than 2.6 million people. At the
same time, Clark Countys population grew by more than 35%
to approximately 1.9 million people. During 2009, the
states 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
Service1st as
many of the other local institutions face capital shortages and
the threat of failure.
Strong
Capital and Liquidity Position
The balance sheet of
Service1st
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
Service1st,
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
Service1st 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
managements 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.
59
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 40 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.
60
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL DATA
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
Service1st
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 managements best estimate of the fair value of the
tangible and intangible assets acquired and liabilities assumed
as of September 30, 2010. 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
Managements Discussion and Analysis of Financial
Condition and Results of Operations Western Liberty
Bancorp, and Managements Discussion and
Analysis of Financial Condition and Results of Operations
Service1st
Bank of Nevada in this prospectus.
61
WESTERN
LIBERTY BANCORP
Unaudited
Pro Forma Condensed Combined Balance Sheet
As of
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Combined
|
|
|
Pro Forma
|
|
|
|
|
|
Combined
|
|
|
|
WLBC
|
|
|
Service
1st
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
|
Pro Forma
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
84,318
|
|
|
$
|
27,825
|
|
|
$
|
112,143
|
|
|
$
|
(1,000
|
)
|
|
|
H
|
|
|
$
|
108,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,884
|
)
|
|
|
K
|
|
|
|
|
|
Certificates of deposit
|
|
|
|
|
|
|
32,174
|
|
|
|
32,174
|
|
|
|
|
|
|
|
|
|
|
|
32,174
|
|
Investment securities AFS
|
|
|
|
|
|
|
3,899
|
|
|
|
3,899
|
|
|
|
|
|
|
|
|
|
|
|
3,899
|
|
Investment securities HTM
|
|
|
|
|
|
|
7,584
|
|
|
|
7,584
|
|
|
|
276
|
|
|
|
D
|
|
|
|
7,860
|
|
Loans
|
|
|
|
|
|
|
120,855
|
|
|
|
120,855
|
|
|
|
(12,085
|
)
|
|
|
D
|
|
|
|
108,770
|
|
Allowance for loan losses
|
|
|
|
|
|
|
(7,021
|
)
|
|
|
(7,021
|
)
|
|
|
7,021
|
|
|
|
D
|
|
|
|
|
|
Premises and equipment, net
|
|
|
|
|
|
|
1,321
|
|
|
|
1,321
|
|
|
|
|
|
|
|
|
|
|
|
1,321
|
|
Other real estate owned
|
|
|
|
|
|
|
3,019
|
|
|
|
3,019
|
|
|
|
(300
|
)
|
|
|
E
|
|
|
|
2,719
|
|
Core deposit intangible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,352
|
|
|
|
C
|
|
|
|
4,352
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
769
|
|
|
|
A
|
|
|
|
769
|
|
Accrued interest receivable and other assets
|
|
|
551
|
|
|
|
3,534
|
|
|
|
4,085
|
|
|
|
|
|
|
|
|
|
|
|
4,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
84,869
|
|
|
$
|
193,190
|
|
|
$
|
278,059
|
|
|
$
|
(3,851
|
)
|
|
|
|
|
|
$
|
274,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
$
|
|
|
|
$
|
75,026
|
|
|
$
|
75,026
|
|
|
|
|
|
|
|
|
|
|
$
|
75,026
|
|
Interest bearing non-time deposits
|
|
|
|
|
|
|
60,076
|
|
|
|
60,076
|
|
|
|
|
|
|
|
|
|
|
|
60,076
|
|
Time Deposits
|
|
|
|
|
|
|
36,773
|
|
|
|
36,773
|
|
|
|
184
|
|
|
|
D
|
|
|
|
36,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
|
|
|
|
171,875
|
|
|
|
171,875
|
|
|
|
184
|
|
|
|
|
|
|
|
172,059
|
|
Accrued interest on deposits and other liabilities
|
|
|
379
|
|
|
|
1,538
|
|
|
|
1,917
|
|
|
|
4,358
|
|
|
|
J
|
|
|
|
6,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
379
|
|
|
|
173,413
|
|
|
|
173,792
|
|
|
|
4,542
|
|
|
|
|
|
|
|
178,334
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
B
|
|
|
|
1
|
|
Additional paid-in capital
|
|
|
103,143
|
|
|
|
52,616
|
|
|
|
155,759
|
|
|
|
(52,616
|
)
|
|
|
B
|
|
|
|
117,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,442
|
|
|
|
G
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,626
|
|
|
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,358
|
)
|
|
|
J
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,884
|
)
|
|
|
K
|
|
|
|
|
|
Retained-earnings deficit
|
|
|
(18,654
|
)
|
|
|
(32,065
|
)
|
|
|
(50,719
|
)
|
|
|
32,065
|
|
|
|
B
|
|
|
|
(22,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,442
|
)
|
|
|
G
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
H
|
|
|
|
|
|
Treasury stock
|
|
|
|
|
|
|
(775
|
)
|
|
|
(775
|
)
|
|
|
775
|
|
|
|
B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
84,490
|
|
|
|
19,777
|
|
|
|
104,267
|
|
|
|
(8,393
|
)
|
|
|
|
|
|
|
95,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
84,869
|
|
|
$
|
193,190
|
|
|
$
|
278,059
|
|
|
$
|
(3,851
|
)
|
|
|
|
|
|
$
|
274,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
62
WESTERN
LIBERTY BANCORP
Unaudited
Pro Forma Condensed Combined Statement of Operations
For the
Nine Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Combined
|
|
|
Pro Forma
|
|
|
|
|
|
Combined
|
|
|
|
WLBC
|
|
|
Service1st
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
Interest Income
|
|
$
|
5
|
|
|
$
|
6,116
|
|
|
$
|
6,121
|
|
|
$
|
(55
|
)
|
|
|
D
|
|
|
$
|
6,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243
|
|
|
|
D
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
1,083
|
|
|
|
1,083
|
|
|
|
|
|
|
|
|
|
|
|
1,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
5
|
|
|
|
5,033
|
|
|
|
5,038
|
|
|
|
188
|
|
|
|
|
|
|
|
5,226
|
|
Provision for loan losses
|
|
|
|
|
|
|
3,938
|
|
|
|
3,938
|
|
|
|
|
|
|
|
|
|
|
|
3,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
5
|
|
|
|
1,095
|
|
|
|
1,100
|
|
|
|
188
|
|
|
|
|
|
|
|
1,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income
|
|
|
|
|
|
|
466
|
|
|
|
466
|
|
|
|
|
|
|
|
|
|
|
|
466
|
|
Noninterest expense
|
|
|
2,819
|
|
|
|
6,920
|
|
|
|
9,739
|
|
|
|
534
|
|
|
|
C
|
|
|
|
10,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188
|
|
|
|
G
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before federal income tax benefit
|
|
|
(2,814
|
)
|
|
|
(5,359
|
)
|
|
|
(8,173
|
)
|
|
|
(534
|
)
|
|
|
|
|
|
|
(8,707
|
)
|
Federal income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I
|
|
|
|
|
|
NET LOSS
|
|
$
|
(2,814
|
)
|
|
$
|
(5,359
|
)
|
|
$
|
(8,173
|
)
|
|
$
|
(534
|
)
|
|
|
|
|
|
$
|
(8707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) attributable to Common Stock
|
|
$
|
(2,814
|
)
|
|
$
|
(5,359
|
)
|
|
$
|
(8,173
|
)
|
|
|
(534
|
)
|
|
|
|
|
|
$
|
(8,707
|
)
|
Pro forma net loss per common share Basic
|
|
$
|
(0.26
|
)
|
|
$
|
(107.59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.54
|
)
|
Pro forma net loss per common share Diluted(1)
|
|
$
|
(0.26
|
)
|
|
$
|
(107.59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.54
|
)
|
Weighted Average Number of Share Outstanding
Basic(1)
|
|
|
10,959,169
|
|
|
|
49,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,007,936
|
|
Weighted Average Number of Share Outstanding
Diluted(1)
|
|
|
10,959,169
|
|
|
|
49,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,007,936
|
|
|
|
|
(1) |
|
When an entity has a net loss from continuing operations the
inclusion of potential common shares in the computation of
diluted per-share amounts is prohibited. Accordingly, we have
utilized the basic shares outstanding amount to calculate both
basic and diluted loss per share for all periods presented. This
pro forma presentation assumes the transaction occurred on
January 1, 2009. |
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
63
WESTERN
LIBERTY BANCORP
Unaudited
Pro Forma Condensed Combined Statement of Operations
For the
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Combined
|
|
|
Pro Forma
|
|
|
|
|
|
Combined
|
|
|
|
WLBC
|
|
|
Service1st
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
Interest Income
|
|
$
|
139
|
|
|
$
|
9,043
|
|
|
$
|
9,182
|
|
|
$
|
(221
|
)
|
|
|
D
|
|
|
$
|
9,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
385
|
|
|
|
D
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
2,676
|
|
|
|
2,676
|
|
|
|
(184
|
)
|
|
|
D
|
|
|
|
2,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
139
|
|
|
|
6,367
|
|
|
|
6,506
|
|
|
|
348
|
|
|
|
|
|
|
|
6,854
|
|
Provision for loan losses
|
|
|
|
|
|
|
15,665
|
|
|
|
15,665
|
|
|
|
|
|
|
|
|
|
|
|
15,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for loan losses
|
|
|
139
|
|
|
|
(9,298
|
)
|
|
|
(9,159
|
)
|
|
|
348
|
|
|
|
|
|
|
|
(8,811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income
|
|
|
|
|
|
|
514
|
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
|
514
|
|
Noninterest expense
|
|
|
15,037
|
|
|
|
8,593
|
|
|
|
23,630
|
|
|
|
791
|
|
|
|
C
|
|
|
|
26,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,504
|
|
|
|
G
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before federal income tax benefit
|
|
|
(14,898
|
)
|
|
|
(17,377
|
)
|
|
|
(32,275
|
)
|
|
|
(2,947
|
)
|
|
|
|
|
|
|
(35,222
|
)
|
Federal income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I
|
|
|
|
|
|
NET LOSS
|
|
$
|
(14,898
|
)
|
|
$
|
(17,377
|
)
|
|
$
|
(32,275
|
)
|
|
$
|
(2,947
|
)
|
|
|
|
|
|
$
|
(35,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Income attributable to Common Stock subject to possible
conversion
|
|
$
|
(96
|
)
|
|
|
|
|
|
$
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(96
|
)
|
Pro forma net income (loss) attributable to Common Stock not
subject to possible conversion
|
|
$
|
(14,994
|
)
|
|
$
|
(17,377
|
)
|
|
$
|
(32,371
|
)
|
|
$
|
(2,947
|
)
|
|
|
|
|
|
$
|
(35,318
|
)
|
Pro forma net loss per common share Basic
|
|
$
|
(0.45
|
)
|
|
$
|
(342.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.96
|
)
|
Pro forma net loss per common share Diluted(1)
|
|
$
|
(0.45
|
)
|
|
$
|
(342.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.96
|
)
|
Weighted Average Number of Share Outstanding
Basic(1)
|
|
|
33,169,481
|
|
|
|
50,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,718,940
|
|
Weighted Average Number of Share Outstanding
Diluted(1)
|
|
|
33,169,481
|
|
|
|
50,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,718,940
|
|
|
|
|
(1) |
|
When an entity has a net loss from continuing operations the
inclusion of potential common shares in the computation of
diluted per-share amounts is prohibited. Accordingly, we have
utilized the basic shares outstanding amount to calculate both
basic and diluted loss per share for all periods presented. |
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
64
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
Service1st Banks
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
Service1st Bank
is summarized as follows (in thousands):
|
|
|
|
|
Fair value of WLBC Common Stock consideration exchanged with
Service1st
Bank common stock
|
|
$
|
15,268
|
|
Fair value of WLBC Common Stock contingent consideration
exchanged with
Service1st
Bank common stock
|
|
|
4,358
|
|
Allocated to:
|
|
|
|
|
Historical book value of
Service1st
Banks assets and liabilities
|
|
|
19,777
|
|
To adjust
Service1st
Banks assets and liabilities to fair value:
|
|
|
|
|
Securities, held to maturity
|
|
|
276
|
|
Loans
|
|
|
(5,064
|
)
|
Other Real Estate Owned
|
|
|
(300
|
)
|
Time Deposits
|
|
|
(184
|
)
|
Core Deposit Intangible
|
|
|
4,352
|
|
|
|
|
|
|
Total allocation of purchase price
|
|
|
18,857
|
|
|
|
|
|
|
Excess of purchase price over allocation to identifiable assets
and liabilities
|
|
$
|
769
|
|
|
|
|
|
|
Pro Forma
Adjustments and Assumptions
A) WLBC issued 2,370,722 shares of common stock (prior
to the exercise of any dissenters rights) based on a price
of $8.00 per share to exchange for all of the shares of
Service1st 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
65
WESTERN
LIBERTY BANCORP
Notes to
Unaudited Condensed Combined Pro Forma Financial
Statements (Continued)
September 30, 2010 is $18,967,000. The Base 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
Service1st as
of the Valuation Date (as defined herein). Using the
September 30, 2010 tangible book value of
Service1st,
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 WLBCs 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
Service1st Banks
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
Service1st Bank.
The preliminary fair value adjustment and related amortization
is as follows (in thousands):
|
|
|
|
|
|
|
Core Deposit
|
|
|
Intangible
|
|
Fair Value Adjustment
|
|
$
|
4,352
|
|
Amortization Period
|
|
|
10 yrs
|
|
Amortization:
|
|
|
|
|
For the nine months ended September 30, 2010
|
|
$
|
534
|
|
For the year ended December 31, 2009
|
|
$
|
791
|
|
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
Service1st 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 $974,000
fair value adjustment was due to fixed rate loans related to the
acquisition. The fair value was based on discounted cash flows
using current market rates applied to the estimated life and
credit risk including consideration of widening credit spreads
for performing loans. This fair value adjustment will be
accreted to income over a weighted average life of
3.0 years. The preliminary fair value adjustment and
related amortization is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to
|
|
|
|
|
|
|
Maturity
|
|
|
|
Time
|
|
|
Investments
|
|
Loans
|
|
Deposits
|
|
|
($ in 000s)
|
|
Fair Value Adjustment
|
|
$
|
276
|
|
|
$
|
(974
|
)
|
|
$
|
184
|
|
Amortization Period
|
|
|
1.3 yrs
|
|
|
|
3.0 yrs
|
|
|
|
1.0 yr
|
|
Amortization (Accretion):
|
|
|
|
|
|
|
|
|
|
|
|
|
Method (level yield)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2010
|
|
$
|
(55
|
)
|
|
$
|
243
|
|
|
$
|
|
|
For the year ended December 31, 2009
|
|
$
|
(221
|
)
|
|
$
|
325
|
|
|
$
|
(184
|
)
|
66
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 sellers 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.
|
|
|
|
|
|
|
September 30, 2010
|
|
|
Basic and diluted shares:
|
|
|
|
|
WLBC shares outstanding
|
|
|
10,959,169
|
|
Shares issued to exchange with
Service1st
stockholders
|
|
|
2,370,722
|
|
Shares issued as Contingent Acquisition Consideration to
Service1st
stockholders
|
|
|
341,804
|
|
Restricted stock units granted to directors, officers and
consultants
|
|
|
200,000
|
|
Restricted shares issued to CFO per employment agreement
|
|
|
38,819
|
|
Restricted shares issued to CEO per employment agreement
|
|
|
155,279
|
|
Common stock issued to a director and former directors
|
|
|
150,000
|
|
Common stock issued in conjunction with the warrant conversion
|
|
|
1,502,088
|
|
Common stock options and warrants exchanged with
Service1st
holders
|
|
|
289,781
|
|
|
|
|
|
|
|
|
|
16,007,909
|
|
|
|
|
|
|
G) Reflects the pro forma adjustment to Non-Interest
Expense, representing the Employment Contract the Company has
entered into with the CFO. As approved at the October 7,
2009 stockholder meeting, the CFO will receive a one-time grant
of restricted stock equal to $250,000, divided by the closing
price of our common stock on the Effective Date. In addition,
the CEO will receive a one-time grant of restricted stock equal
to $1,000,000, divided by the closing price of our common stock
on the Effective Date. The restricted stock will vest 20% on
each of the first, second, third, fourth and fifth anniversaries
of the Effective Date. The total grant consideration of
$1,250,000 for the one-time grants of restricted stock is
considered in common stock outstanding based on the stock price
of $6.44 resulting in 194,100 shares outstanding disclosed
in Note F. As previously discussed in Note 4 to the
Condensed Financial Statements (unaudited), the Company awarded
200,000 restricted stock units and 150,000 shares of common
stock to certain directors, officers, and consultants in
consideration of their substantial service to and in support of
WLBC during the period in which WLBC sought regulatory approval
to become a bank holding company. As a result of these awards,
for past services, the Company recorded stock compensation
expense of $2,254,000 as of October 28, 2010 based on the
closing stock price. The stock price is based on the
October 28, 2010 closing price.
67
WESTERN
LIBERTY BANCORP
Notes to
Unaudited Condensed Combined Pro Forma Financial
Statements (Continued)
Our Board has approved the award of up to 1,500,000 shares
of Restricted Stock in connection with the Acquisition, which we
expect to be awarded to certain members of our management and
our consultants, in connection with the Acquisition. As soon as
practicable after the closing of the Acquisition, the
Compensation Committee will meet to determine which members of
our management and our consultants will receive equity grants
and the allocation of such grants. As such, the shares have not
been included in the pro forma financial statements.
H) Reflects the estimated payment of $1.0 million of
fees yet to be incurred prior to the closing of the transaction.
The fees are non-recurring items directly attributable to the
closing of the transaction and are not expected to have a
continuing impact on operations and therefore are not included
in the Unaudited Pro Forma Statement of Operations.
I) No tax provision or deferred taxes are reflected in the
pro forma acquisition adjustments due to the net operating
losses previously incurred by
Service1st Bank
and the uncertainty of realization of deferred taxes in future
periods.
J) Reflects the maximum estimated amount for the contingent
consideration. The fair value of the contingent consideration
has not been determined as of this filing date.
K) The conversion of the Companys warrants took place
with the transaction closing on October 28, 2010. The
Company paid a consent fee of $0.06, and one thirty-second
(1/32) of one share of WLBC common stock for each warrant. This
resulted in the issuance of 1,502,117 shares of common
stock and disbursement of $2,844,065.
Selected
Unaudited Pro Forma Combined Financial Information
The following selected unaudited pro forma combined balance
sheet data combines the pro forma consolidated balance sheet of
WLBC and
Service1st Bank
after giving effect to the Acquisition, as if the Acquisition
had been consummated on September 30, 2010. The selected
unaudited pro forma combined statement of operations data for
the nine months ended September 30, 2010 give effect to the
Acquisition as of January 1, 2009.
The summary unaudited pro forma combined financial data
described above should be read in conjunction with the
historical financial statements of WLBC and
Service1st Bank
and the related notes thereto. The unaudited pro forma
information is not necessarily indicative of the financial
position or results of operations that may have actually
occurred had the merger taken place on the dates noted, or the
future financial position or operating results of the combined
company.
68
WESTERN
LIBERTY BANCORP
SERVICE1st
BANK
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
|
|
|
|
|
|
|
As of September 30, 2010
|
|
|
Pro Forma Combined
|
|
|
(WLBC &
Service1st
Bank)
|
|
|
(In thousands, except
|
|
|
share and per share data)
|
|
Selected Balance Sheet Data
|
|
|
|
|
Assets
|
|
$
|
274,208
|
|
Cash and cash equivalents
|
|
$
|
108,259
|
|
Loans
|
|
$
|
108,770
|
|
Deposits
|
|
$
|
172,059
|
|
Stockholders Equity
|
|
$
|
95,874
|
|
Shares Outstanding
|
|
|
16,007,936
|
|
Selected Statement of Operations Data
(For the nine months ended September 30, 2010)
|
|
|
|
|
Interest Income
|
|
$
|
6,309
|
|
Net Interest Income
|
|
$
|
5,226
|
|
Net Income (loss)
|
|
$
|
(8,707
|
)
|
Per Share Data
|
|
|
|
|
Net Income (loss) per common share
|
|
$
|
(0.54
|
)
|
Book value per share
|
|
$
|
5.99
|
|
Capital Ratios
|
|
|
|
|
Total capital to risk weighted assets
|
|
|
65.66
|
%
|
Tier 1 capital to risk weighted assets
|
|
|
65.66
|
%
|
Tier 1 capital to assets
|
|
|
33.72
|
%
|
69
SELECTED
HISTORICAL FINANCIAL INFORMATION WESTERN LIBERTY
BANCORP
Our balance sheet data as of September 30, 2010 and related
statements of operations, changes in stockholders equity
and cash flows for the three and nine months ended
September 30, 2010 and 2009 (including related notes and
schedules, if any) are derived from our unaudited financial
statements.
Our balance sheet data as of December 31, 2009, 2008 and
2007 and related statements of operations, changes in
stockholders equity and cash flows for the year ended
December 31, 2009 and the period from June 28, 2007
(inception) to December 31, 2009, 2008 and 2007 (including
related notes and schedules, if any) are derived from our
audited financial statements.
This information should be read together with WLBCs
financial information and related notes, Unaudited Pro
Forma Condensed Combined Financial Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations Western Liberty
Bancorp and other financial information included
elsewhere in this prospectus. The historical results included
below and elsewhere in this prospectus are not indicative of the
future performance of WLBC.
70
WESTERN
LIBERTY BANCORP
BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
83,317,971
|
|
|
$
|
87,969,242
|
|
|
$
|
1,445,882
|
|
|
$
|
81,163
|
|
Investments held in trust
|
|
|
|
|
|
|
|
|
|
|
316,692,141
|
|
|
|
315,127,891
|
|
Prepaid expenses
|
|
|
551,360
|
|
|
|
555,198
|
|
|
|
257,180
|
|
|
|
257,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
84,869,331
|
|
|
$
|
88,520,440
|
|
|
$
|
318,395,203
|
|
|
$
|
315,466,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
379,031
|
|
|
$
|
628,493
|
|
|
$
|
682,057
|
|
|
$
|
825,494
|
|
Deferred underwriters commission
|
|
|
|
|
|
|
|
|
|
|
9,584,655
|
|
|
|
9,584,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
379,031
|
|
|
|
628,493
|
|
|
|
10,266,712
|
|
|
|
10,410,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, subject to possible conversion,
9,584,654 shares stated at conversion value
|
|
|
|
|
|
|
|
|
|
|
94,983,921
|
|
|
|
94,538,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 1,000,000 shares
authorized; None issued or outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 100,000,000 shares
authorized; 10,959,169 at September 30, 2010 and
December 31, 2009 and 39,936,064 at December 31, 2008
and 2007 issued and outstanding, respectively
|
|
|
1,096
|
|
|
|
1,096
|
|
|
|
3,036
|
|
|
|
3,036
|
|
Additional paid-in capital
|
|
|
103,142,784
|
|
|
|
103,730,471
|
|
|
|
214,082,720
|
|
|
|
209,903,332
|
|
Accumulated deficit
|
|
|
(18,653,580
|
)
|
|
|
(15,839,620
|
)
|
|
|
(941,186
|
)
|
|
|
611,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,490,300
|
|
|
|
87,891,947
|
|
|
|
213,144,570
|
|
|
|
210,517,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
84,869,331
|
|
|
$
|
88,520,440
|
|
|
$
|
318,395,203
|
|
|
$
|
315,466,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
71
WESTERN
LIBERTY BANCORP
STATEMENTS
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
June 28, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
(Inception) to
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
1,237,192
|
|
|
|
4,969,837
|
|
|
|
3,406,752
|
|
|
|
8,267,056
|
|
|
|
14,168,517
|
|
|
|
2,619,043
|
|
|
|
73,606
|
|
Stock based compensation
|
|
|
(1,850,000
|
)
|
|
|
93,750
|
|
|
|
(587,687
|
)
|
|
|
281,249
|
|
|
|
868,938
|
|
|
|
4,624,952
|
|
|
|
284,014
|
|
Loss from operations
|
|
|
612,808
|
|
|
|
(5,063,587
|
)
|
|
|
(2,819,065
|
)
|
|
|
(8,548,305
|
)
|
|
|
(15,037,455
|
)
|
|
|
(7,243,995
|
)
|
|
|
(357,620
|
)
|
Interest income
|
|
|
1,493
|
|
|
|
5,925
|
|
|
|
5,105
|
|
|
|
87,109
|
|
|
|
139,021
|
|
|
|
5,691,449
|
|
|
|
968,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
614,301
|
|
|
$
|
(5,057,662
|
)
|
|
$
|
(2,813,960
|
)
|
|
$
|
(8,461,196
|
)
|
|
$
|
(14,898,434
|
)
|
|
$
|
(1,552,546
|
)
|
|
$
|
611,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
614,301
|
|
|
$
|
5,057,662
|
|
|
$
|
(2,813,960
|
)
|
|
$
|
(8,461,196
|
)
|
|
$
|
(14,898,434
|
)
|
|
$
|
(1,552,546
|
)
|
|
$
|
611,360
|
|
Deferred interest on investments held in trust relating to
common shares subject to possible conversion
|
|
|
|
|
|
|
(95,847
|
)
|
|
|
|
|
|
|
(95,847
|
)
|
|
|
(95,847
|
)
|
|
|
(445,564
|
)
|
|
|
(321,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Common Stockholders
|
|
$
|
614,301
|
|
|
$
|
(5,153,509
|
)
|
|
$
|
(2,813,960
|
)
|
|
$
|
(8,557,043
|
)
|
|
$
|
(14,994,281
|
)
|
|
$
|
(1,998,110
|
)
|
|
$
|
290,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares subject to possible
conversion outstanding
|
|
|
|
|
|
|
9,584,654
|
|
|
|
|
|
|
|
9,584,654
|
|
|
|
|
|
|
|
9,584,654
|
|
|
|
9,584,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share common shares subject to possible conversion
|
|
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
$
|
0.01
|
|
|
$
|
|
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
basic
|
|
|
10,959,169
|
|
|
|
39,936,063
|
|
|
|
10,959,169
|
|
|
|
39,936,063
|
|
|
|
33,169,481
|
|
|
|
39,936,063
|
|
|
|
14,451,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding diluted
|
|
|
59,226,927
|
|
|
|
39,936,063
|
|
|
|
10,959,169
|
|
|
|
39,936,063
|
|
|
|
33,169,481
|
|
|
|
39,936,064
|
|
|
|
54,900,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share
|
|
$
|
0.06
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
0.01
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.45
|
)
|
|
|
(0.05
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
72
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
WESTERN LIBERTY BANCORP
The following discussion and analysis should be read in
conjunction with our financial statements and notes to the
financial statements included in this prospectus. This
discussion and analysis contains forward-looking statements that
involve risk, uncertainties and assumptions. Certain risks,
uncertainties and other factors, including but not limited to
those set forth under the section entitled Cautionary
Note Regarding Forward-Looking Statements may cause
actual results to differ materially from those projected in the
forward-looking statements.
Overview
We are a new Nevada bank holding company and conduct
our operations through our wholly-owned subsidiary,
Service1st.
Service1st provides
a full range of traditional community banking services focusing
on core commercial business in the form of commercial and
commercial real estate lending, small business lending, consumer
loans and a broad range of commercial and consumer depository
products. We intend to pursue additional acquisitions and to
fund the growth of our loan portfolio and deposit base, as and
when appropriate, subject to advance regulatory approval.
Off-Balance
Sheet Arrangements
We have no obligations, assets or liabilities that would be
considered off-balance sheet arrangements. We do not participate
in transactions that create relationships with unconsolidated
entities or financial partnerships, often referred to as
variable interest entities, which would have been established
for the purpose of facilitating off-balance sheet arrangements.
See
Service1sts
discussion regarding off-balance sheet arrangements existing in
the subsidiary bank in the section entitled
Managements Discussion and Analysis
Service1st
Bank of Nevada below.
We have not entered into any off-balance sheet financing
arrangements, established any special purpose entities,
guaranteed any debt or commitments of other entities, or entered
into any non-financial assets.
Contractual
Obligations, Commitments and Contingencies
We do not have any long-term debt, capital lease obligations,
operating lease obligations or long-term liabilities. We
previously paid a monthly fee of $10,000 for office space and
general and administrative services payable to Hayground Cove.
We began incurring this fee on November 27, 2007, and
incurred this fee through August 31, 2009.
Results
of Operations
For
the Fiscal Years Ended December 31, 2009 and
2008
For the fiscal years ended December 31, 2009 and 2008, we
had a net loss of $14,994,281 and $1,998,110 ($14,898,434 and
$1,552,546 before the adjustment of $95,847 and $445,564 of net
interest attributable to Common Stock subject to redemption),
respectively. Since we did not have any revenue, all of our
income was derived from interest income, most of which was
earned on funds held in our trust account. Our operating
expenses for the fiscal years ended December 31, 2009 and
2008 were $15,037,455 and $7,243,995, respectively, and
consisted primarily of expenses related to stock based
compensation, legal and accounting professional fees, insurance
costs, pursuing a business combination and due diligence.
Results
of Operations for the Three Months Ended September 30, 2010
and 2009
For the three months ended September 30, 2010, we had net
income of $614,301 compared to a net loss of $5,057,662 for the
same period in 2009. Our general and administrative expenses for
the three months ended September 30, 2010 and 2009 were
$1,237,192 and $4,969,837, respectively, and consisted primarily
of
73
expenses related to insurance costs, legal and accounting
professional fees related to pursuing a business combination and
due diligence. In September 2010, we reversed $1,850,000 of
stock based compensation expense previously recorded. On
completion of the Acquisition, the vesting requirements for such
compensation, consisting of restricted stock units, were not
satisfied, so that the restricted stock units did not, and now
cannot, vest according to their terms. Management made this
determination on September 30, 2010 upon receipt of the
final approval from the applicable regulatory agencies. As a
result of this determination, we reversed the stock compensation
expense ($1,850,000) previously recorded for the 200,000
restricted stock units described above.
Results
of Operations for the Nine Months Ended September 30, 2010
and 2009
For the nine months ended September 30, 2010, we had a net
loss of $2,813,960 compared to a net loss of $8,557,043 for the
same period in 2009. Our general and administrative expenses for
the nine months ended September 30, 2010 and 2009 were
$3,406,752 and $8,267,056, respectively, and consisted primarily
of expenses related to insurance costs, legal and accounting
professional fees related to pursuing a business combination and
due diligence. In September 2010, we reversed $1,850,000 of
stock based compensation expense previously recorded. On
completion of the Acquisition, the vesting requirements for such
compensation, consisting of restricted stock units, were not
satisfied, so that the restricted stock units did not, and now
cannot, vest according to their terms. Management made this
determination on September 30, 2010 upon receipt of the
final approval from the applicable regulatory agencies. As a
result of this determination, we reversed the stock compensation
expense ($1,850,000) previously recorded for the 200,000
restricted stock units described above.
Liquidity
and Capital Resources
On November 27, 2007, we consummated our initial public
offering of 31,948,850 units and consummated a private
placement of 8,500,000 warrants. A total of $314,158,960 of the
net proceeds from the transactions, including $9,584,655 of
deferred underwriting discount, were deposited into the trust
account established for the benefit of our public stockholders.
On October 7, 2009, our stockholders authorized the
Continental Stock Transfer & Trust Company, as
trustee, (the Trustee) to distribute and terminate
our trust account immediately following stockholder approval of
the Acquisition. As a result, the Trustee 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. The Trustee distributed the remaining balance to us
from the trust account.
As of September 30, 2010, we had total assets of
$84,869,331, including unrestricted cash and cash equivalents of
$84,317,971, net of all payments made to underwriters, advisors,
consultants in connection with our initial public offering and
operations thereafter.
Critical
Accounting Policies and Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements, the
disclosure of contingent assets and liabilities in the financial
statements and the accompanying notes, and the reported amounts
of revenue and expenses during the periods presented. Actual
amounts and results could differ from those estimates. If we
were to effect a business combination, estimates and assumptions
would be based on historical factors, current circumstances and
the experience and judgment of our management, and we would
evaluate these assumptions and estimates on an ongoing basis and
may employ outside experts to assist in our evaluations. The
estimates and assumptions that management believes are the most
significant in preparing our financial statements are described
below.
74
Fair
value of financial instruments
We do not enter into financial instruments or derivative
contracts for trading or speculative purposes. The carrying
amounts of financial instruments classified as current assets
and liabilities approximate their fair value due to their short
maturities.
Income
Taxes
We account for income taxes using the asset and liability
approach to financial accounting and reporting for income taxes.
Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of
assets and liabilities that will result in future taxable or
deductible amounts, based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount
expected to be realized.
Quantitative
and Qualitative Disclosures about Market Risk
Market risk is a broad term for the risk of economic loss due to
adverse changes in the fair value of a financial instrument.
These changes may be the result of various factors, including
interest rates, foreign exchange rates, commodity prices
and/or
equity prices. Until such time as we consummated the
Acquisition, we had not been exposed to risks associated with
foreign exchange rates, commodity prices, equity prices or other
market-driven rates or prices. Given our limited risk in our
exposure to government securities and money market funds, we did
not view the interest rate risk to be significant. On
October 28, 2010, we completed the Acquisition. Our
management reviewed the interest rate risk identified by
Service1st which
is deemed to be low to moderate on a pre-Acquisition
basis. On a post-acquisition basis, the risk was deemed not
material given our consolidated capital position.
We have not engaged in any hedging activities since our
inception. We do not currently expect to engage in any hedging
activities with respect to the market activities to which we are
exposed.
75
SELECTED
HISTORICAL FINANCIAL INFORMATION
SERVICE1ST
BANK OF NEVADA
Service1sts
balance sheet data as of September 30, 2010 and related
statements of operations, changes in shareholders equity
and comprehensive loss, and cash flows for the three and nine
months ended September 30, 2010 and September 30, 2009
are derived from
Service1sts
unaudited financial statements, which are included elsewhere in
this prospectus.
Service1sts
balance sheet data as of December 31, 2009 and
December 31, 2008 and related statements of operations,
changes in shareholders equity and cash flows for each of
the years ended December 31, 2009 and December 31,
2008, and the period from January 16, 2007 (inception) to
December 31, 2007 are derived from
Service1sts
audited financial statements, which are included elsewhere in
this prospectus.
This information should be read together with
Service1sts
reviewed financial statements and related notes,
Unaudited Pro Forma Condensed Combined Financial
Information, Managements Discussion and
Analysis of Financial Condition and Results of
Operations
Service1st
Bank of Nevada and other financial information
included elsewhere in this prospectus. The historical results
included below and elsewhere in this prospectus are not
indicative of the future performance of
Service1st.
Selected
Financial Data of
Service1st
Set forth below are selected financial data of
Service1st
for the three and nine months ended September 30, 2010 and
September 30, 2009, the years ended December 31, 2009
and 2008 and the period from January 16, 2007 (inception)
to December 31, 2007. You should read this information in
conjunction with
Service1sts
unaudited financial statements and notes to the financial
statements included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the
|
|
|
At or For the
|
|
|
At or For the
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Years Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007(4)
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands except per share data)
|
|
|
Selected Results of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
1,909
|
|
|
$
|
2,219
|
|
|
$
|
6,116
|
|
|
$
|
6,751
|
|
|
$
|
9,043
|
|
|
$
|
8,497
|
|
|
$
|
6,370
|
|
Interest expense
|
|
|
286
|
|
|
|
752
|
|
|
|
1,083
|
|
|
|
2,118
|
|
|
|
2,676
|
|
|
|
2,022
|
|
|
|
1,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
1,623
|
|
|
|
1,467
|
|
|
|
5,033
|
|
|
|
4,633
|
|
|
|
6,367
|
|
|
|
6,475
|
|
|
|
4,757
|
|
Provision for loans loss
|
|
|
707
|
|
|
|
3,429
|
|
|
|
3,938
|
|
|
|
4,391
|
|
|
|
15,665
|
|
|
|
3,669
|
|
|
|
938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for loan loss
|
|
|
916
|
|
|
|
(1,962
|
)
|
|
|
1,095
|
|
|
|
242
|
|
|
|
(9,298
|
)
|
|
|
2,806
|
|
|
|
3,819
|
|
Non-interest income
|
|
|
160
|
|
|
|
145
|
|
|
|
466
|
|
|
|
385
|
|
|
|
514
|
|
|
|
340
|
|
|
|
163
|
|
Non-interest expense
|
|
|
2,447
|
|
|
|
1,989
|
|
|
|
6,921
|
|
|
|
5,651
|
|
|
|
8,593
|
|
|
|
8,263
|
|
|
|
8,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,371
|
)
|
|
$
|
(3,806
|
)
|
|
$
|
(5,360
|
)
|
|
$
|
(5,024
|
)
|
|
$
|
(17,377
|
)
|
|
$
|
(5,117
|
)
|
|
$
|
(4,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share
|
|
$
|
(27.52
|
)
|
|
$
|
(75.14
|
)
|
|
$
|
(107.60
|
)
|
|
$
|
(98.92
|
)
|
|
$
|
(342.86
|
)
|
|
$
|
(100.70
|
)
|
|
$
|
(83.08
|
)
|
Book value
|
|
$
|
397.04
|
|
|
$
|
743.76
|
|
|
$
|
397.04
|
|
|
$
|
741.68
|
|
|
$
|
492.24
|
|
|
|
832.8
|
|
|
$
|
925.18
|
|
Selected Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
193,190
|
|
|
$
|
226,627
|
|
|
$
|
193,190
|
|
|
$
|
226,627
|
|
|
$
|
211,760
|
|
|
$
|
159,494
|
|
|
$
|
130,992
|
|
Cash and cash equivalents
|
|
|
27,825
|
|
|
|
50,350
|
|
|
|
27,825
|
|
|
|
50,350
|
|
|
|
49,633
|
|
|
|
9,987
|
|
|
|
32,178
|
|
Certificates of deposit(3)
|
|
|
32,174
|
|
|
|
10,807
|
|
|
|
32,174
|
|
|
|
10,807
|
|
|
|
9,313
|
|
|
|
0
|
|
|
|
0
|
|
Investments and other securities
|
|
|
11,482
|
|
|
|
19,408
|
|
|
|
11,482
|
|
|
|
19,408
|
|
|
|
17,635
|
|
|
|
11,740
|
|
|
|
7,114
|
|
Gross loans, including net deferred loan fees
|
|
|
120,856
|
|
|
|
148,205
|
|
|
|
120,856
|
|
|
|
148,205
|
|
|
|
136,966
|
|
|
|
137,216
|
|
|
|
89,472
|
|
Allowance for loan losses
|
|
|
7,021
|
|
|
|
5,405
|
|
|
|
7,021
|
|
|
|
5,405
|
|
|
|
6,404
|
|
|
|
2,883
|
|
|
|
922
|
|
Total deposits
|
|
|
171,876
|
|
|
|
185,888
|
|
|
|
171,876
|
|
|
|
185,888
|
|
|
|
185,320
|
|
|
|
109,891
|
|
|
|
81,337
|
|
Total stockholders equity
|
|
|
19,777
|
|
|
|
37,671
|
|
|
|
19,777
|
|
|
|
37,671
|
|
|
|
24,519
|
|
|
|
42,316
|
|
|
|
47,009
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the
|
|
|
At or For the
|
|
|
At or For the
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Years Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007(4)
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands except per share data)
|
|
|
Performance Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin(1)
|
|
|
6.59
|
%
|
|
|
5.92
|
%
|
|
|
3.28
|
%
|
|
|
3.24
|
%
|
|
|
3.22
|
%
|
|
|
4.59
|
%
|
|
|
4.79
|
%
|
Efficiency ratio(2)
|
|
|
125.76
|
%
|
|
|
113.34
|
%
|
|
|
125.86
|
%
|
|
|
112.61
|
%
|
|
|
124.88
|
%
|
|
|
121.24
|
%
|
|
|
166.26
|
%
|
Return on average assets
|
|
|
(5.90
|
)%
|
|
|
(5.94
|
)%
|
|
|
(3.37
|
)%
|
|
|
(3.38
|
)%
|
|
|
(8.48
|
)%
|
|
|
(3.52
|
)%
|
|
|
(4.07
|
)%
|
Return on average equity
|
|
|
(61.12
|
)%
|
|
|
(31.95
|
)%
|
|
|
(32.09
|
)%
|
|
|
(16.10
|
)%
|
|
|
(43.24
|
)%
|
|
|
(11.12
|
)%
|
|
|
(8.70
|
)%
|
Asset Quality:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans
|
|
|
17,116
|
|
|
|
18,911
|
|
|
|
20,135
|
|
|
|
17,116
|
|
|
$
|
7,799
|
|
|
$
|
3,434
|
|
|
$
|
20
|
|
Allowance for loan losses as a percentage of nonperforming loans
|
|
|
41.02
|
%
|
|
|
28.58
|
%
|
|
|
34.87
|
%
|
|
|
41.02
|
%
|
|
|
82.11
|
%
|
|
|
83.95
|
%
|
|
|
4,610.69
|
%
|
Allowance for loan losses as a percentage of portfolio loans
|
|
|
5.81
|
%
|
|
|
3.65
|
%
|
|
|
5.81
|
%
|
|
|
3.65
|
%
|
|
|
4.68
|
%
|
|
|
2.10
|
%
|
|
|
1.03
|
%
|
Nonperforming loans as a percentage of total portfolio loans
|
|
|
14.16
|
%
|
|
|
12.76
|
%
|
|
|
14.16
|
%
|
|
|
12.76
|
%
|
|
|
5.69
|
%
|
|
|
2.50
|
%
|
|
|
0.02
|
%
|
Nonperforming loans as a percentage of total assets
|
|
|
8.86
|
%
|
|
|
8.34
|
%
|
|
|
8.86
|
%
|
|
|
8.34
|
%
|
|
|
3.68
|
%
|
|
|
2.15
|
%
|
|
|
0.02
|
%
|
Net charge offs to average portfolio loans
|
|
|
1.77
|
%
|
|
|
1.31
|
%
|
|
|
2.53
|
%
|
|
|
1.31
|
%
|
|
|
8.43
|
%
|
|
|
1.44
|
%
|
|
|
0.03
|
%
|
Capital Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average equity to average assets
|
|
|
9.65
|
%
|
|
|
18.59
|
%
|
|
|
10.51
|
%
|
|
|
21.01
|
%
|
|
|
19.60
|
%
|
|
|
31.62
|
%
|
|
|
46.82
|
%
|
Tier 1 equity to average assets
|
|
|
9.23
|
%
|
|
|
20.65
|
%
|
|
|
9.23
|
%
|
|
|
20.65
|
%
|
|
|
10.95
|
%
|
|
|
25.78
|
%
|
|
|
37.78
|
%
|
Tier 1 risk-based capital ratio
|
|
|
15.59
|
%
|
|
|
25.73
|
%
|
|
|
15.59
|
%
|
|
|
25.73
|
%
|
|
|
16.28
|
%
|
|
|
28.21
|
%
|
|
|
52.47
|
%
|
Total risk-based capital ratio
|
|
|
16.90
|
%
|
|
|
27.00
|
%
|
|
|
16.90
|
%
|
|
|
27.00
|
%
|
|
|
17.57
|
%
|
|
|
29.48
|
%
|
|
|
53.70
|
%
|
|
|
|
(1) |
|
Net interest margin represents net interest income as a
percentage of average interest-earning assets. |
|
(2) |
|
Efficiency ratio represents noninterest expenses as a percentage
of the total of net interest income plus noninterest income. |
|
(3) |
|
Certificates of deposit issued by other banks with original
maturities greater than three months. |
|
(4) |
|
Service1st
commenced operations on January 16, 2007. Thus, the 2007
data represents a partial year; commencing on January 16,
2007 to December 31, 2007. |
77
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SERVICE1ST
BANK OF NEVADA
The following discussion and analysis should be read in
conjunction with
Service1sts
financial statements and notes to the financial statements
included elsewhere in this prospectus. This discussion and
analysis contains forward-looking statements that involve risk,
uncertainties and assumptions. Certain risks, uncertainties and
other factors, including but not limited to those set forth
under Cautionary Note Regarding Forward-Looking
Statements, may cause actual results to differ
materially from those projected in the forward-looking
statements.
Overview
Business of
Service1st: Service1st
was formed on November 3, 2006 and commenced operations as
a commercial bank on January 16, 2007 under a state charter
from the Nevada Financial Institutions Division and with federal
deposit insurance from the FDIC.
Service1st
was initially capitalized with $50 million raised in a
private placement. At September 30, 2010,
Service1st
had total assets of $193.2 million, total gross loans,
including net deferred loan fees of $120.9 million and
total deposits of $171.9 million. At December 31,
2009,
Service1st
had total assets of $211.8 million, total gross loans,
including net deferred loan fees of $137.0 million and
total deposits of $185.3 million.
As a traditional community bank operating from its headquarters
and two retail banking locations in the greater Las Vegas area,
Service1st
provides a variety of loans to its customers, including
commercial real estate loans, construction and land development
loans, commercial and industrial loans, Small Business
Administration (SBA) loans, and to a lesser
extent consumer loans. As of September 30, 2010 and
December 31, 2009, loans secured by real estate constituted
67.6% and 65.8% of
Service1sts
loan portfolio, respectively.
Service1st
relies on locally-generated deposits to provide
Service1st
with funds for making loans. The majority of its business is
generated in the Nevada market.
Service1st
generates substantially all of its revenue from interest on
loans and investment securities and service fees and other
charges on customer accounts. This revenue is offset by interest
expense paid on deposits and other borrowings and non-interest
expense such as administrative and occupancy expenses. Net
interest income is the difference between interest income on
interest-earning assets, such as loans and securities, minus
interest expense on interest-bearing liabilities, such as
customer deposits and other borrowings used to fund those
assets. Interest rate fluctuations, as well as changes in the
amount and type of earning assets and liabilities and the level
of nonperforming assets combine to affect net interest income.
Service1st
receives fees from its deposit customers in the form of service
fees, checking fees and other fees. Other services such as safe
deposit and wire transfers provide additional fee income.
Service1st
may also generate income from time to time from the sale of
investment securities. The fees collected by
Service1st
are found under Non-interest Income in the
statements of operations contained within
Service1sts
financial statements (which are included elsewhere in this
prospectus). Offsetting these earnings are operating expenses
referred to as Non-Interest Expense in the
statements of operations. Because banking is a very people
intensive industry, the largest operating expense is employee
compensation and related expenses.
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
and continued economic downturn have 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.
78
Although new home sales decreased by 7.3% for the quarter ended
September 30, 2010 compared to the same period in 2009,
median new home prices continued to decrease 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 Vegass critical gaming industry. According
to the CBER Report, Las Vegas area gaming revenues decreased
18.4% from December 2007 to December 2008, decreased 2.4% from
December 2008 to December 2009, but increased 1.5% for the
quarter ended September 30, 2010 compared to 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%.
Summary
of Results of Operations and Financial Condition
Since formation at the beginning of 2007,
Service1st
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,
Service1st
has experienced deterioration in the quality of its loan
portfolio, largely as a result of the challenging economic
conditions in the Las Vegas market.
Three
Months Ended September 30, 2010
For the three months ended September 30, 2010,
Service1st
recorded a net loss of $1.4 million or $27.52 per common
share, as compared with a net loss of $3.8 million or
$75.14 per common share for the three months ended
September 30, 2009. In the third quarter of 2010 the net
loss decreased by $2.4 million when compared to the third
quarter 2009. Provision for loan loss expense was the major
contributor to the decrease in net loss. For the three months
ended September 30, 2010, provision for loan loss expense
was $707,000 compared with provision for loan loss expense of
$3.4 million as of September 30, 2009. Even though
provision for loan loss expense decreased quarter over quarter,
further deterioration in the loan portfolio can be seen in the
progression of the percentage of net charge-offs to average
loans outstanding for the three months ended September 30,
2010, which was at 1.77% for the three months ended
September 30, 2010, compared with 1.31% for the three
months ended September 30, 2009. Net income was positively
impacted by an increase in net interest margins from 2.83% for
the three months ended September 30, 2009 to 3.20% for the
same period in 2010. However, non-interest expense increased
$458,000 for the three months ended September 30, 2010
versus September 30, 2009. The increase in non-interest
expense is primarily the result of increased expenses associated
with the pending acquisition. Non-interest expense was
$2.4 million for the three months ended September 30,
2010, compared with non-interest expense of $2.0 million as
of September 30, 2009.
Net interest income and interest rate spread were positively
affected in the third quarter of 2010 by
Service1sts
deposit rate reduction strategy. During the three months ended
September 2009 and the three months ended September 2010,
Service1st
sought to decrease the rates on its deposit base in order to
increase its net interest income, interest rate spread and net
interest margin. Total average deposits, which includes interest
bearing, noninterest bearing deposits and repurchase agreements
increased $15.6 million as of September 30, 2010 from
$176.7 million as of September 30, 2009 to
$192.3 million as of September 30, 2010. Average
non-interest bearing deposits increased $18.8 million from
$49.4 million as of September 30, 2009 to
$68.2 million as of September 30, 2010 while average
certificates of deposits decreased $20.5 million from
$64.6 million as of September 30, 2009 to
$44.1 million as of September 30, 2010 as a result of
the deposit rate reduction strategy. In addition, overall rates
on deposits decreased 1.45%, from 2.39% as of September 30,
2009 to 0.94% as of September 30, 2010. This resulted in
interest expense decreasing $465,000, from
$752,000 September 30, 2009 to
$286,000 September 30, 2010.
Service1st
increased average certificates of deposit held at other banks by
$25.2 million while the average investment securities
portfolio increased by $2.0 million. Average interest
bearing deposits and federal funds sold decreased
$10.6 million during the third quarter of 2010 and average
loan balances decreased $21.3 million.
79
Net interest income was positively impacted in the third quarter
of 2010 by a $465,000 reduction in interest expense. However,
interest income was adversely affected in the third quarter of
2010 by $16.8 million in nonaccrual loans which continue to
impact the loan portfolio. With many real estate projects
requiring an extended time to market, some borrowers have
exhausted their liquidity and ceased making payments on their
loans, which has required
Service1st to
place their loans on nonaccrual status.
Service1sts
nonaccrual loans increased from 5.69% of total portfolio loans
at year end 2009 to 14.16% as of September 30, 2010.
The allowance for loan and lease loss has grown steadily during
the banks years of operations as a result of the economic
environment in the Nevada market and potential problem loans in
Service1sts
loan portfolio. The allowance stood at $7.0 million at
September 30, 2010, or 5.81% of outstanding loans, and
$5.4 million at September 30, 2009 or 3.65% of
outstanding loans. The increase in the allowance for the three
months ended September 30, 2010 compared to the third
quarter of 2009 was primarily attributable to a provision for
loan losses of $707,000 and total recoveries of $510,00, offset
by loan charge-offs of $2.7 million. The allowance balance
in the third quarter of 2009 was primarily attributable to a
provision for loan losses of $3.4 million, and
$1.9 million in loan charge-offs.
Nine
Months Ended September 30, 2010
For the nine months ended September 30, 2010,
Service1st recorded
a net loss of $5.4 million or $107.60 per common share, as
compared with a net loss of $5.0 million or $98.92 per
common share for the three months ended September 30, 2009.
The $400,000 increase in net loss for the nine months ended 2010
was primarily the result of a $1.3 million increase in
non-interest expense which was mostly offset by a
$1.0 million decrease in interest expense. Non-interest
expense increased $1.3 million primarily as the result of
increased expenses associated with the pending acquisition.
Non-interest expense was $6.9 million as of
September 30, 2010, compared with non-interest expense of
$5.7 million as of September 30, 2009. Interest
expense decreased $1.0 million due to
Service1sts
deposit rate reduction strategy. During 2009 and the first nine
months of 2010,
Service1st
sought to decrease the rates on its deposit base in order to
increase its net interest income, interest rate spread and net
interest margin. Interest expense was $1.1 million as of
September 30, 2010, compared with interest expense of
$2.1 million for the nine months ended September 30,
2009. Provision expense was $3.9 million as of
September 30, 2010, compared with provision expense of
$4.4 million as of September 30, 2009. Even though
provision expense decreased $453,000, deterioration in the loan
portfolio can be seen in the progression of the percentage of
net charge-offs to average loans outstanding for the nine months
ended September 30, 2010, which was at 2.53%, compared with
1.27% for the nine months ended September 30, 2009.
Overall, net income was mildly affected by the increase in net
interest margins to 4.97% for the nine months ended
September 30, 2010 from 4.91% for the same period in 2009.
Net interest income and interest rate spread were positively
affected during the first nine months of 2010 by
Service1sts
deposit rate reduction strategy, as further described above.
However, interest income was adversely affected during the first
nine months of 2010 by nonaccrual loans, which continue to
affect the loan portfolio.
As discussed above, the allowance for loan and lease losses has
grown steadily during the banks years of operations. The
increase in the allowance during the first nine months of 2010
compared to the same period in 2009 was primarily attributable
to a provision for loan losses of $3.9 million, recoveries
of $610,000, offset by loan charge-offs of $3.9 million.
The allowance balance in the first nine months of 2009 was
primarily attributable to a provision for loan losses of
$4.4 million, no recoveries, and loan charge-offs of
$1.9 million.
Year
Ended December 31, 2009
For the year ended December 31, 2009,
Service1st
recorded a net loss of $17.4 million, or $342.86 per common
share, as compared with a net loss of $5.1 million, or
$100.70 per common share, in 2008, and a net loss of
$4.2 million, or $83.08 per common share, in 2007. The
increase in net loss in 2009 was primarily the result of a
$12.0 million increase in the provision for loan losses
from 2008 to 2009 to address deterioration in
Service1sts
loan portfolio; the provision for loan loss expense was
$15.7 million in 2009, compared with provision for loan
loss expense of $3.7 million in 2008 and $938,000 in 2007.
The deterioration in the loan
80
portfolio can also be seen in the progression of the percentage
of net loan charge-offs to average loans outstanding, which was
at 8.43% at December 31, 2009, compared with 1.44% at
December 31, 2008 and 0.03% at December 31, 2007. Net
income was also adversely affected by the decrease in net
interest margins to 3.22% in 2009 from 4.59% in 2008 and 4.79%
in 2007.
Net interest income and margins were adversely affected in 2009
by
Service1sts
deposit and liquidity strategy. During 2009,
Service1st
sought to expand its core deposit base in order to increase its
liquidity in anticipation of loan growth. Total deposits
increased in 2009 by $75.4 million, including a
$24.3 million increase of time deposits of $100,000 or
more. However, the anticipated loan growth did not materialize
and modest increases in gross loans were offset by loan
charge-offs. Instead,
Service1st
increased cash and cash equivalents in 2009 by
$39.6 million, certificates of deposit held at other banks
by $9.3 million and investment securities portfolio by
$5.9 million. (Cash and cash equivalents consist of cash
and amounts due from banks, federal funds sold and certificates
of deposits with original maturities of three months or less).
Consequently, cash and cash equivalents, certificates of deposit
held at other banks and investment securities totaled
$76.6 million, or 36.2% of total assets, at
December 31, 2009. This compares with $21.7 million,
or 13.6% of total assets for these same asset categories at
December 31, 2008.
Net interest income was also adversely impacted in 2009, and to
a lesser extent in 2008, by the increase in nonaccrual loans.
With many real estate projects requiring an extended time to
market, some borrowers have exhausted their liquidity and ceased
making payments on their loans, which has required
Service1st
to place their loans on nonaccrual status.
Service1sts
nonaccrual loans increased to 5.69% of total portfolio loans at
year end 2009, as compared with 2.50% at year end 2008 and 0.02%
at year end 2007.
The allowance for loan losses stood at $6.4 million at year
end 2009, or 4.68% of outstanding loans, as compared with
$2.9 million at year end 2008, or 2.10% of outstanding
loans, and $922,000 at year end 2007, or 1.03% of outstanding
loans. The increase in 2009 was primarily attributable to a
provision for loan losses of $15.7 million, offset by loan
charge-offs of $12.2 million. The increase in 2008 was
primarily attributable to a provision for loan losses of
$3.7 million, offset partially by $1.7 million in loan
charge-offs. The increase in 2007 was primarily attributable to
a provision for loan losses of $938,000, slightly offset by
$16,000 in charge-offs.
Sufficiency
of Capital
As
Service1st
commenced operations with $50.0 million of capital, it has
sufficient capital to absorb the losses it has experienced
during its years of operations. With total stockholders
equity of $19.8 million at September 30, 2010,
Service1st
had a leverage ratio (the ratio of Tier 1 equity to average
assets) of 9.23%, well above the 5.00% regulatory requirements
for well-capitalized banks and the 8.00% requirement for
Service1st
due to its status as a de novo bank. At
September 30, 2010, Tier 1 risk-based capital stood at
15.59%, and total risk-based capital at 16.90%, both of which
exceed the risk-based capital guidelines for well
capitalized banks of 6.00% and 10.00%, respectively. In
addition,
Service1st is
also required to maintain a Tier 1 leverage capital ratio of
8.50% and a total risk-based capital ratio of 12.00% per its
September 1, 2010 consent order. Notwithstanding that
Service1sts
capital ratios make the bank eligible to be considered
well capitalized on the basis of capital ratios, the
FDIC by letter dated July 29, 2010 advised
Service1st
that imposition of the Consent Order effective September 1,
2010 would result in the institution being considered
adequately capitalized for prompt corrective action
purposes. Finally, WLBC assured the FDIC in the application
process that WLBC would maintain the Tier 1 leverage capital
ratio of Service
1st at
10.0% or more until October 28, 2013 or, if later, until the
September 1, 2010 consent order terminates.
Critical
Accounting Policies and Estimates
Service1sts
significant accounting policies are described in Note 1 of
its audited financial statements (which are included elsewhere
in this prospectus), including information regarding recently
issued accounting pronouncements,
Service1sts
adoption of such policies and the related impact of their
adoption. Certain of these policies, along with various
estimates that
Service1st
is required to make in recording its financial transactions, are
important to have a complete understanding of
Service1sts
financial position. In addition,
81
these estimates require
Service1st
to make complex and subjective judgments, many of which include
matters with a high degree of uncertainty. The following is a
summary of these critical accounting policies and significant
estimates.
Allowance
for Loan Losses
The allowance for loan losses is an estimate of the credit risk
in
Service1sts
loan portfolio and appears on the balance sheet as a
contra asset which reduces gross loans. The
allowance is established (or once established, increased) by
recording provision expense. Loans charged off on
Service1sts
books reduce the allowance. Subsequent recoveries of charged off
loans, if any, increase the allowance.
The allowance is an amount that
Service1sts
management believes will be adequate to absorb probable losses
on existing loans that may become uncollectible, based on
evaluation of the collectability of loans and prior credit loss
experience. This evaluation also takes into consideration such
factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, specific problem credits,
peer bank information, and current economic conditions that may
affect the borrowers ability to pay. Due to the credit
concentration of
Service1sts
loan portfolio in real estate secured loans, future adjustments
to the allowance may be necessary if there are significant
changes in economic or other conditions. In addition, the FDIC
and state banking regulatory agencies, as an integral part of
their examination process, periodically review
Service1sts
allowance for loan losses, and may require
Service1st
to make additions to the allowance based on their judgment about
information available to them at the time of their examinations.
The allowance consists of specific and general components. The
specific component relates to loans that are classified as
impaired. For such loans, an allowance is established when the
discounted cash flows (or collateral value or observable market
price) of the impaired loan is lower than the carrying value of
that loan. The general component covers non-impaired loans and
is based on statistics on local trends and peers
historical loss experience adjusted for qualitative and
environmental factors.
A loan is impaired when it is probable
Service1st
will be unable to collect all contractual principal and interest
payments due in accordance with the original terms of the loan
agreement. Impaired loans are measured based on the present
value of expected future cash flows discounted at the
loans effective interest rate or, as a practical
expedient, at the loans observable market price or the
fair value of the collateral if the loan is collateral
dependent. The amount of impairment, if any, and any subsequent
changes are included in the allowance for loan losses.
During the nine months ended September 30, 2010,
Service1st foreclosed
on two real estate secured loans. The assets foreclosed on are
now reported as other real estate owned which consists of
property acquired due to foreclosures on real estate secured
loans. As of September 30, 2010 total other real estate
owned consisted of $2.4 million in commercial real estate
and $625,000 in construction, land development, and other land
loans.
Service1st did
not have any other real estate owned as of December 31,
2009, December 31,2008 or December 31, 2007.
Investment
Securities Portfolio
Securities classified as available for sale are equity
securities and those debt securities
Service1st
intends to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various
factors, including significant movements in interest rates,
changes in the maturity mix of
Service1sts
assets and liabilities, liquidity needs, regulatory capital
considerations and other similar considerations. Securities
available for sale are reported at fair value with unrealized
gains or losses reported as other comprehensive income (loss),
net of related deferred tax effect. Realized gains or losses,
determined on the basis of the cost of specific securities sold,
are included in earnings.
Securities classified as held to maturity are those debt
securities
Service1st
has both the intent and ability to hold to maturity regardless
of changes in market conditions, liquidity needs, or general
economic conditions. These securities are carried at amortized
cost, adjusted for amortization of premium and accretion of
discount
82
computed by the interest method over the contractual lives. The
sale of a security within three months of its maturity date or
after at least 85% of the principal outstanding has been
collected is considered a maturity for purposes of
classification and disclosure. Purchase premiums and discounts
are generally recognized in interest income using the
effective-yield method over the term of the securities.
Service1sts
management evaluates securities for
other-than-temporary
impairment at least on a quarterly basis, and more frequently
when economic or market conditions warrant such evaluation.
Consideration is given to (1) the length of time and the
extent to which the fair value has been less than cost,
(2) the financial condition and near term prospects of the
issuer, including an evaluation of credit ratings, (3) the
impact of changes in market interest rates, (4) the intent
of
Service1st
to sell a security and (5) whether it is more likely than
not
Service1st
will have to sell the security before recovery of its cost basis.
Stock-Based
Compensation
Service1st
records the fair value of stock compensation granted to
employees and directors as expense over the vesting period. The
cost of the award is based on the grant-date fair value. The
compensation expenses recognized related to stock options
granted under
Service1sts
2007 Stock Option Plan were approximately $607,000 for the nine
months ended September 30, 2010, and $379,000 for the nine
months ended September 30, 2009. In addition, stock option
expense for the entire years of 2009, 2008 and 2007 were
$379,000, $423,000 and $439,000, respectively.
Income
Taxes
Deferred taxes are provided on an asset and liability method
whereby deferred tax assets are recognized for deductible
temporary differences and tax credit carry-forwards and deferred
tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for
the effect of changes in tax laws and rates on the date of
enactment. As a result Western Liberty Bancorps
acquisition of
Service1st,
which was finalized at the close of business on October 28,
2010,
Service1sts
net operating loss utilization will be subject to an annual
limitation on the net operating loss against future taxable
income. Internal revenue code section 382 places a
limitation on the amount of taxable income that can be offset by
net operating loss carry forwards after a change in control
(generally greater than 50% change in ownership) of a loss
corporation.
Recent
accounting pronouncements
In June 2009, the Financial Accounting Standards Board (FASB)
issued revised guidance for accounting for the transfers of
financial assets. The guidance removes the concept of a
qualifying special-purpose entity (QSPE). This guidance also
clarifies the requirements for isolation and limitations on
portions of financial assets eligible for sale accounting. This
guidance is effective for fiscal years beginning after
November 15, 2009. The Bank adopted this guidance on
January 1, 2010. The adoption of this guidance did not
impact on the Banks financial position, results of
operations, or cash flows.
In August 2009, the FASB issued guidance clarifying the
measurement of liabilities at fair value in the absence of
observable market information. This guidance was effective for
the Bank beginning January 1, 2010. The adoption of this
guidance did not have a material impact the Banks
financial position, results of operations, or cash flows.
In December 2007, the FASB issued guidance establishing
principles and requirements for how an acquirer in a business
combination: (a) recognizes and measures in its financial
statements identifiable assets acquired, liabilities assumed,
and any noncontrolling interest in the acquiree;
(b) recognizes and measures goodwill acquired in a business
combination or a gain from a bargain purchase; and
(c) determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial
effects of a business combination. This guidance is effective
for business combinations for which the acquisition date is on
or after the beginning of the first annual reporting period
beginning on or after December 15, 2008;
83
therefore this guidance will be applied for the contemplated
business combination disclosed in Note 16. The Bank is
currently evaluating the provisions of this guidance and the
expected impact on its financial position, results of
operations, or cash flows.
New authoritative accounting guidance relating to investments in
debt and equity securities (i) changes existing guidance
for determining whether an impairment is other than temporary to
debt securities and (ii) replaces the existing requirement
that an entitys management assert it has both the intent
and ability to hold an impaired security until recovery with a
requirement that management assert (a) it does not have the
intent to sell the security, and (b) it is more likely than
not it will not have to sell the security before recovery of its
cost basis. Under this guidance, declines in the fair value of
held-to-maturity
and
available-for-sale
securities below their cost that are deemed to be other than
temporary are reflected in earnings as realized losses to the
extent the impairment is related to credit losses. The amount of
the impairment related to other factors is recognized in other
comprehensive income. The Bank adopted this guidance in 2009.
The adoption did not have a material impact on the Banks
financial statements, results of operations, or cash flows.
In January 2010 the FASB issued guidance requiring enhanced fair
value disclosures about (1) the different classes of assets
and liabilities measured at fair value, (2) the valuation
techniques and inputs used, (3) the activity in
level 3 fair value measurements and (4) the transfers
between levels 1, 2, and 3. The increased disclosure
requirements further set forth in the update that in the
reconciliation for fair value measurements using significant
unobservable inputs (level 3), a reporting entity should
present separately information about purchases, sales, issuances
and settlements (that is, gross amounts shall be disclosed as
opposed to a single net figure). Increased disclosures regarding
the level 3 fair value reconciliation are required for
fiscal years beginning after December 15, 2010.
Acquisition
of
Service1st
Bank of Nevada
On October 28, 2010, WLBC consummated its acquisition (the
Acquisition) of
Service1st Bank
of Nevada, a Nevada-chartered non-member bank
(Service1st)
pursuant to a Merger Agreement (the Merger
Agreement), dated as of November 6, 2009, as amended
by a First Amendment to the Merger Agreement, dated as of
June 21, 2010 (Amendment No. 1 and,
together with the Merger Agreement, the Amended Merger
Agreement), each among WL-S1 Interim Bank, a Nevada
corporation and wholly-owned subsidiary of WLBC
(Acquisition Sub),
Service1st and
Curtis W. Anderson, as representative of the former stockholders
of
Service1st.
Pursuant to the Amended Merger Agreement, Acquisition Sub merged
with and into
Service1st,
with
Service1st being
the surviving entity and becoming WLBCs wholly-owned
subsidiary. WLBC previously received the requisite approvals of
certain bank regulatory authorities to complete the Acquisition
to become a bank holding company.
The former stockholders of
Service1st received
2,282,668 shares of Common Stock in exchange for all of the
outstanding shares of capital stock of
Service1st
(the Base Acquisition Consideration). In addition,
the holders of
Service1sts
outstanding options and warrants now hold options and warrants
of similar tenor to purchase up to 289,781 shares of Common
Stock.
In addition to the Base Acquisition Consideration, each of the
former stockholders of
Service1st may
be entitled to receive additional consideration (the
Contingent Acquisition Consideration), payable in
Common Stock, if at any time within the first two years after
the consummation of the Acquisition, 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
Service1st at
the close of business on the last day of the calendar month
immediately before the calendar month in which the final
regulatory approval necessary for the completion of the
Acquisition was obtained. The total number of shares of our
common stock issuable to the former
Service1st 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.
At the close of business on October 28, 2010, WLBC was a
new Nevada financial institution bank holding company by
consummating the acquisition of
Service1st and
conducting operations through
Service1st.
In conjunction with the transaction, WLBC infused
$25 million of capital onto the balance sheet of
Service1st.
84
On October 29, 2010, the common shares of WLBC began
trading on the Nasdaq Global Market, under the ticker symbol
WLBC.
During the bank regulatory application process for the
Acquisition, we made a number of commitments to the FDIC. First,
we agreed to maintain the Tier 1 leverage capital ratio of
Service1st at
10% or greater until October 28, 2013 or, if later, when
the September 1, 2010 Consent Order agreed to by
Service1st with
the FDIC and the Nevada Financial Institutions Division
terminates. We also agreed that for that same time period we
will make no change in the directors or executive management of
Service1st unless
we first receive the FDICs non-objection to the proposed
change. We assured the FDIC in writing during the application
process that we will not seek to expand by acquisition until
Service1st is
restored to a satisfactory condition, which at a minimum means
that the September 1, 2010 Consent Order must first be
terminated. Until that occurs, any growth on
Service1sts
part must be the result of organic growth in the banks
existing business. We also agreed to seek advance approval both
from the FDIC and the Nevada Financial Institutions Division for
any major deviation from the business plan that we submitted
during the acquisition application process.
Results
of Operations
Service1sts
results of operations depend substantially on its ability to
generate net interest income, which is the difference between
the interest income on its interest-earning assets (primarily
loans and investment securities) minus interest expense on its
interest-bearing liabilities (primarily deposits). Revenue is
also generated by non-interest income, consisting principally of
account and other service fees. These sources of revenue are
burdened by two categories of expense: first, the provision for
loan losses, which consists of a charge against earnings in an
amount that
Service1sts
management judges necessary to maintain
Service1sts
allowance for loan losses at a level deemed adequate to absorb
probable loan losses inherent in the loan portfolio; and second,
non-interest expense, which consists primarily of operating
expenses, such as compensation to employees.
The management of interest income and interest expense is
fundamental to the performance of
Service1st.
Net interest income and interest expense on interest-bearing
liabilities, such as deposits and other borrowings, is the
largest component of
Service1sts
net revenue. Net interest income depends upon the volume of
interest-earning assets and interest-bearing liabilities and the
rates earned or paid on them.
Service1sts
management closely monitors both total net interest income and
the net interest margin (net interest income divided by average
earning assets).
Net interest income and net interest margin are affected by
several factors including (1) the level of, and the
relationship between the dollar amount of interest earning
assets and interest-bearing liabilities; and (2) the
relationship between re-pricing or maturity of
Service1sts
variable-rate and fixed-rate loans, securities, deposits and
borrowings.
Variable rate loans constitute 59.12% of
Service1sts
portfolio at September 30, 2010, and approximately 51.45%
of
Service1sts
variable rate loans are indexed to the national prime rate. At
December 31, 2009, variable rate loans constituted 72.6% of
Service1sts
portfolio and approximately 40% of
Service1sts
loans were indexed to the national prime rate. However, a
majority of these prime-rate based loans are subject to
floors, ranging from 5.5% to 8.5%. Currently the
prime rate is under the applicable floor rate for substantially
all of
Service1sts
prime-rate based loans.
Movements in the national prime rate that increase the
applicable loan rates above applicable floors have a direct
impact on
Service1sts
loan yield and interest income. The national prime rate remained
at 3.25% throughout 2009 and the first nine months of 2010, as
the Federal Reserve maintained the targeted federal funds rate
steady. Based on economic forecasts generally available to the
banking industry,
Service1st
currently believes it is reasonably possible that the targeted
federal funds rate and the national prime rate will remain flat
in the foreseeable future and increase in the long term;
however, there can be no assurance to that effect or as to the
timing or the magnitude of any increase should an increase
occur, as changes in market interest rates are dependent upon a
variety of factors that are beyond
Service1sts
control.
Service1st,
through its asset and liability policies and practices, seeks to
maximize net interest income without exposing
Service1st
to an excessive level of interest rate risk. Interest rate risk
is managed by monitoring the pricing, maturity and repricing
options of all classes of interest-bearing assets and
liabilities.
85
See Managements Discussion and Analysis of
Financial Condition and Results of Operations of
Service1st
Bank of Nevada Quantitative and Qualitative
Disclosures About Market Risk in this section for more
information.
The following tables set forth
Service1sts
average balance sheet, average yields on earning assets, average
rates paid on interest-bearing liabilities, net interest margins
and net interest income/spread for the three and nine months
ended September 30, 2010 and 2009 and the years and period
ended December 31, 2009, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Average
|
|
|
Income/
|
|
|
|
|
|
Average
|
|
|
Income/
|
|
|
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
|
|
($ in thousands)
|
|
|
INTEREST EARNING ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
38,500
|
|
|
$
|
105
|
|
|
|
1.11
|
%
|
|
$
|
13,267
|
|
|
$
|
41
|
|
|
|
1.25
|
%
|
Interest bearing deposits
|
|
|
25,517
|
|
|
|
16
|
|
|
|
0.25
|
%
|
|
|
35,847
|
|
|
|
23
|
|
|
|
0.26
|
%
|
Federal funds sold
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
268
|
|
|
|
0
|
|
|
|
0.00
|
%
|
Securities
|
|
|
15,300
|
|
|
|
130
|
|
|
|
3.45
|
%
|
|
|
13,320
|
|
|
|
147
|
|
|
|
4.51
|
%
|
Portfolio loans(1)
|
|
|
126,274
|
|
|
|
1,658
|
|
|
|
5.33
|
%
|
|
|
147,597
|
|
|
|
2,008
|
|
|
|
5.52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earnings assets/interest income
|
|
|
205,591
|
|
|
|
1,909
|
|
|
|
3.77
|
%
|
|
|
210,299
|
|
|
|
2,219
|
|
|
|
4.28
|
%
|
NONINTEREST EARNING ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
9,859
|
|
|
|
|
|
|
|
|
|
|
|
9,906
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(8,454
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,403
|
)
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
7,365
|
|
|
|
|
|
|
|
|
|
|
|
3,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
214,361
|
|
|
|
|
|
|
|
|
|
|
$
|
219,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY INTEREST-BEARING LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking
|
|
|
35,423
|
|
|
|
77
|
|
|
|
0.88
|
%
|
|
|
21,215
|
|
|
|
109
|
|
|
|
2.08
|
%
|
Money markets
|
|
|
43,211
|
|
|
|
67
|
|
|
|
0.63
|
%
|
|
|
38,878
|
|
|
|
150
|
|
|
|
1.56
|
%
|
Savings
|
|
|
1,362
|
|
|
|
2
|
|
|
|
0.60
|
%
|
|
|
859
|
|
|
|
3
|
|
|
|
1.42
|
%
|
Time deposits under $100,000
|
|
|
5,355
|
|
|
|
14
|
|
|
|
1.06
|
%
|
|
|
6,279
|
|
|
|
42
|
|
|
|
2.71
|
%
|
Time deposits $100,000 and over
|
|
|
38,699
|
|
|
|
126
|
|
|
|
1.32
|
%
|
|
|
58,335
|
|
|
|
445
|
|
|
|
3.09
|
%
|
Repurchase agreements
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
1,716
|
|
|
|
3
|
|
|
|
0.71
|
%
|
Short-term borrowings
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities liabilities/interest expense
|
|
|
124,050
|
|
|
|
286
|
|
|
|
0.94
|
%
|
|
|
127,282
|
|
|
|
752
|
|
|
|
2.39
|
%
|
Noninterest-bearing demand deposits
|
|
|
68,215
|
|
|
|
|
|
|
|
|
|
|
|
49,422
|
|
|
|
|
|
|
|
|
|
Accrued interest on deposits and other liabilities
|
|
|
1,414
|
|
|
|
|
|
|
|
|
|
|
|
1,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
193,679
|
|
|
|
|
|
|
|
|
|
|
|
178,385
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
20,682
|
|
|
|
|
|
|
|
|
|
|
|
40,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
214,361
|
|
|
|
|
|
|
|
|
|
|
$
|
219,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and interest rate spread(2)
|
|
|
|
|
|
$
|
1,623
|
|
|
|
2.83
|
%
|
|
|
|
|
|
$
|
1,467
|
|
|
|
1.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin(3)
|
|
|
|
|
|
|
|
|
|
|
3.20
|
%
|
|
|
|
|
|
|
|
|
|
|
2.83
|
%
|
Ratio of average interest-earning assets to interest-bearing
liabilities
|
|
|
|
|
|
|
166
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165
|
%
|
|
|
|
(1) |
|
Average balance includes nonaccrual loans of approximately
$15,256,000 and $19,567,000 for 2010, and 2009, respectively.
Net loan fees or (costs) of $(63,000) and $(22,000) are included
in the yield computation for 2010 and 2009, respectively. |
86
|
|
|
(2) |
|
Net interest spread represents the average yield earned on
interest earning assets less the average rate paid on interest
bearing liabilities. |
|
(3) |
|
Net interest margin represents net interest income as a
percentage of average interest-earning assets. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Average
|
|
|
Income/
|
|
|
|
|
|
Average
|
|
|
Income/
|
|
|
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
|
|
($ in thousands)
|
|
|
INTEREST EARNING ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
28,565
|
|
|
$
|
255
|
|
|
|
1.21
|
%
|
|
$
|
9,129
|
|
|
$
|
82
|
|
|
|
1.21
|
%
|
Interest bearing deposits
|
|
|
30,935
|
|
|
|
58
|
|
|
|
0.25
|
%
|
|
|
20,814
|
|
|
|
39
|
|
|
|
0.25
|
%
|
Federal funds sold
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
4,709
|
|
|
|
8
|
|
|
|
0.23
|
%
|
Securities
|
|
|
14,839
|
|
|
|
432
|
|
|
|
3.94
|
%
|
|
|
14,185
|
|
|
|
462
|
|
|
|
4.40
|
%
|
Portfolio loans(1)
|
|
|
131,078
|
|
|
|
5,371
|
|
|
|
5.54
|
%
|
|
|
142,613
|
|
|
|
6,160
|
|
|
|
5.84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earnings assets/interest income
|
|
|
205,417
|
|
|
|
6,116
|
|
|
|
4.02
|
%
|
|
|
191,450
|
|
|
|
6,751
|
|
|
|
4.77
|
%
|
NONINTEREST EARNING ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
9,250
|
|
|
|
|
|
|
|
|
|
|
|
7,281
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(7,688
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,621
|
)
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
5,533
|
|
|
|
|
|
|
|
|
|
|
|
3,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
212,512
|
|
|
|
|
|
|
|
|
|
|
$
|
198,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY INTEREST-BEARING
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking
|
|
|
31,982
|
|
|
|
328
|
|
|
|
1.39
|
%
|
|
|
18,164
|
|
|
|
262
|
|
|
|
1.95
|
%
|
Money markets
|
|
|
42,589
|
|
|
|
197
|
|
|
|
0.63
|
%
|
|
|
40.910
|
|
|
|
525
|
|
|
|
1.73
|
%
|
Savings
|
|
|
1,580
|
|
|
|
7
|
|
|
|
0.60
|
%
|
|
|
617
|
|
|
|
7
|
|
|
|
1.53
|
%
|
Time deposits under $100,000
|
|
|
5,880
|
|
|
|
61
|
|
|
|
1.40
|
%
|
|
|
5,704
|
|
|
|
122
|
|
|
|
2.89
|
%
|
Time deposits $100,000 and over
|
|
|
44,256
|
|
|
|
490
|
|
|
|
1.50
|
%
|
|
|
50,257
|
|
|
|
1,189
|
|
|
|
3.20
|
%
|
Repurchase agreements
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
2,056
|
|
|
|
13
|
|
|
|
0.85
|
%
|
Short-term borrowings
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities liabilities/interest expense
|
|
|
126,287
|
|
|
|
1,083
|
|
|
|
1.16
|
%
|
|
|
117,708
|
|
|
|
2,118
|
|
|
|
2.43
|
%
|
Noninterest-bearing demand deposits
|
|
|
62,400
|
|
|
|
|
|
|
|
|
|
|
|
37,640
|
|
|
|
|
|
|
|
|
|
Accrued interest on deposits and other liabilities
|
|
|
1,492
|
|
|
|
|
|
|
|
|
|
|
|
1,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
190,179
|
|
|
|
|
|
|
|
|
|
|
|
156,844
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
22,333
|
|
|
|
|
|
|
|
|
|
|
|
41,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
212,512
|
|
|
|
|
|
|
|
|
|
|
$
|
198,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and interest rate spread(2)
|
|
|
|
|
|
$
|
5,033
|
|
|
|
2.87
|
%
|
|
|
|
|
|
$
|
4,633
|
|
|
|
2.34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin(3)
|
|
|
|
|
|
|
|
|
|
|
3.31
|
%
|
|
|
|
|
|
|
|
|
|
|
3.27
|
%
|
Ratio of average interest-earning assets to interest-bearing
liabilities
|
|
|
163
|
%
|
|
|
|
|
|
|
|
|
|
|
163
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Average balance includes nonaccrual loans of approximately
$12,463,000 and $10,356,000 for 2010, and 2009, respectively. |
|
|
|
Net loan fees or (costs) of ($162,000) and ($70,000) are
included in the yield computation for 2010 and 2009,
respectively. |
87
|
|
|
(2) |
|
Net interest spread represents the average yield earned on
interest earning assets less the average rate paid on interest
bearing liabilities. |
|
(3) |
|
Net interest margin represents net interest income as a
percentage of average interest-earning assets. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
|
|
Period Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007(4)
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Average
|
|
|
Income/
|
|
|
|
|
|
Average
|
|
|
Income/
|
|
|
|
|
|
Average
|
|
|
Income/
|
|
|
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
|
|
($ in thousands)
|
|
|
INTEREST EARNING ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
9,562
|
|
|
$
|
125
|
|
|
|
1.31
|
%
|
|
$
|
845
|
|
|
$
|
37
|
|
|
|
4.38
|
%
|
|
$
|
368
|
|
|
$
|
15
|
|
|
|
4.08
|
%
|
Interest bearing deposits
|
|
|
24,585
|
|
|
|
62
|
|
|
|
0.25
|
%
|
|
|
5,024
|
|
|
|
115
|
|
|
|
2.29
|
%
|
|
|
42,632
|
|
|
|
2,279
|
|
|
|
5.35
|
%
|
Federal funds sold
|
|
|
3,522
|
|
|
|
8
|
|
|
|
0.23
|
%
|
|
|
7,958
|
|
|
|
152
|
|
|
|
1.91
|
%
|
|
|
7,083
|
|
|
|
345
|
|
|
|
4.87
|
%
|
Investment securities
|
|
|
15,856
|
|
|
|
646
|
|
|
|
4.07
|
%
|
|
|
8,598
|
|
|
|
357
|
|
|
|
4.15
|
%
|
|
|
2,922
|
|
|
|
151
|
|
|
|
5.17
|
%
|
Portfolio loans(1)
|
|
|
143,984
|
|
|
|
8,202
|
|
|
|
5.70
|
%
|
|
|
118,536
|
|
|
|
7,837
|
|
|
|
6.61
|
%
|
|
|
46,395
|
|
|
|
3,580
|
|
|
|
7.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earnings assets/interest income
|
|
|
197,509
|
|
|
|
9,043
|
|
|
|
4.58
|
%
|
|
|
140,961
|
|
|
|
8,498
|
|
|
|
6.03
|
%
|
|
|
99,400
|
|
|
|
6,370
|
|
|
|
6.41
|
%
|
NON-INTEREST EARNING ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
8,329
|
|
|
|
|
|
|
|
|
|
|
|
2,603
|
|
|
|
|
|
|
|
|
|
|
|
1,809
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(4,274
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,468
|
)
|
|
|
|
|
|
|
|
|
|
|
(443
|
)
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
3,421
|
|
|
|
|
|
|
|
|
|
|
|
3,393
|
|
|
|
|
|
|
|
|
|
|
|
2,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
204,985
|
|
|
|
|
|
|
|
|
|
|
$
|
145,489
|
|
|
|
|
|
|
|
|
|
|
$
|
103,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY INTEREST-BEARING
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
19,609
|
|
|
|
388
|
|
|
|
1.98
|
%
|
|
|
10,246
|
|
|
|
158
|
|
|
|
1.54
|
%
|
|
|
5,253
|
|
|
|
167
|
|
|
|
3.18
|
%
|
Money markets
|
|
|
41,271
|
|
|
|
627
|
|
|
|
1.52
|
%
|
|
|
52,649
|
|
|
|
1,344
|
|
|
|
2.55
|
%
|
|
|
32,321
|
|
|
|
1,258
|
|
|
|
3.89
|
%
|
Savings
|
|
|
850
|
|
|
|
12
|
|
|
|
1.41
|
%
|
|
|
336
|
|
|
|
6
|
|
|
|
1.79
|
%
|
|
|
18
|
|
|
|
|
|
|
|
0.00
|
%
|
Time deposits under $100,000
|
|
|
5,887
|
|
|
|
156
|
|
|
|
2.65
|
%
|
|
|
2,088
|
|
|
|
69
|
|
|
|
3.30
|
%
|
|
|
388
|
|
|
|
15
|
|
|
|
3.87
|
%
|
Time deposits $100,00 and over
|
|
|
51,175
|
|
|
|
1,480
|
|
|
|
2.89
|
%
|
|
|
10,910
|
|
|
|
386
|
|
|
|
3.54
|
%
|
|
|
3,138
|
|
|
|
132
|
|
|
|
4.21
|
%
|
Repurchase Agreements
|
|
|
1,538
|
|
|
|
13
|
|
|
|
0.85
|
%
|
|
|
3,303
|
|
|
|
59
|
|
|
|
1.79
|
%
|
|
|
1,115
|
|
|
|
40
|
|
|
|
3.59
|
%
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
0.00
|
%
|
|
|
3
|
|
|
|
|
|
|
|
1.60
|
%
|
|
|
|
|
|
|
|
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities/interest expense
|
|
|
120,330
|
|
|
|
2,676
|
|
|
|
2.22
|
%
|
|
|
79,535
|
|
|
|
2,022
|
|
|
|
2.54
|
%
|
|
|
42,233
|
|
|
|
1,612
|
|
|
|
3.82
|
%
|
NON-INTEREST BEARING LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing demand deposits
|
|
|
42,916
|
|
|
|
|
|
|
|
|
|
|
|
18,927
|
|
|
|
|
|
|
|
|
|
|
|
11,819
|
|
|
|
|
|
|
|
|
|
Accrued interest on deposits and other liabilities
|
|
|
1,555
|
|
|
|
|
|
|
|
|
|
|
|
1,022
|
|
|
|
|
|
|
|
|
|
|
|
756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
164,801
|
|
|
|
|
|
|
|
|
|
|
|
99,484
|
|
|
|
|
|
|
|
|
|
|
|
54,808
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
40,184
|
|
|
|
|
|
|
|
|
|
|
|
46,005
|
|
|
|
|
|
|
|
|
|
|
|
48,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
204,985
|
|
|
|
|
|
|
|
|
|
|
$
|
145,489
|
|
|
|
|
|
|
|
|
|
|
$
|
103,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and interest rate spread(2)
|
|
|
|
|
|
$
|
6,367
|
|
|
|
2.36
|
%
|
|
|
|
|
|
$
|
6,476
|
|
|
|
3.49
|
%
|
|
|
|
|
|
$
|
4,758
|
|
|
|
2.59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin(3)
|
|
|
|
|
|
|
|
|
|
|
3.22
|
%
|
|
|
|
|
|
|
|
|
|
|
4.59
|
%
|
|
|
|
|
|
|
|
|
|
|
4.79
|
%
|
Ratio of average interest-earning assets to interest-bearing
liabilities
|
|
|
164
|
%
|
|
|
|
|
|
|
|
|
|
|
177
|
%
|
|
|
|
|
|
|
|
|
|
|
235
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Average balances include nonaccrual loans of approximately
$9,470,000, $1,335,000 and $5,000, for, 2009, 2008 and 2007,
respectively. Net loan fees or (costs) of $(122,000), $11,000
and $66,000 are included in the yield computation for 2009, 2008
and 2007, respectively. |
|
(2) |
|
Net interest spread represents the average yield earned on
interest earning assets less the average rate paid on interest
bearing liabilities. |
|
(3) |
|
Net interest margin represents net interest income as a
percentage of average interest-earning assets. |
88
|
|
|
(4) |
|
Service1st
commenced operations on January 16, 2007, thus the 2007
data represents a partial year; January 16, 2007 to
December 31, 2007. |
The volume and rate variances tables below set forth the dollar
difference in interest earned and paid for each major category
of interest-earning assets and interest-bearing liabilities for
the noted periods, and the amount of such change attributable to
changes in average balances (volume) or changes in average
interest rates. Volume variances are equal to the increase or
decrease in the average balance times the prior period rate and
rate variances are equal to the increase or decrease in the
average rate times the prior period average balance. Variances
attributable to both rate and volume changes are equal to the
change in rate times the change in average balance and are
allocated proportionately to the changes due to volume and
changes due to rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2010 Compared to 2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Average
|
|
|
Average
|
|
|
Increase
|
|
|
|
Volume
|
|
|
Rate
|
|
|
(Decrease)
|
|
|
|
($ in thousands)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
69
|
|
|
$
|
(5
|
)
|
|
$
|
64
|
|
Interest bearing balances
|
|
|
(6
|
)
|
|
|
(1
|
)
|
|
|
(7
|
)
|
Federal funds sold
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Investment securities
|
|
|
17
|
|
|
|
(35
|
)
|
|
|
(18
|
)
|
Portfolio loans
|
|
|
(280
|
)
|
|
|
(70
|
)
|
|
|
(350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in interest income
|
|
|
(200
|
)
|
|
|
(111
|
)
|
|
|
(311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking
|
|
$
|
31
|
|
|
$
|
(63
|
)
|
|
$
|
(32
|
)
|
Money markets
|
|
|
7
|
|
|
|
(90
|
)
|
|
|
(83
|
)
|
Savings
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Time deposits under $100,000
|
|
|
(2
|
)
|
|
|
(26
|
)
|
|
|
(28
|
)
|
Time deposits $100,000 and over
|
|
|
(64
|
)
|
|
|
(254
|
)
|
|
|
(318
|
)
|
Repurchase agreements
|
|
|
0
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Short-term borrowings
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in interest expense
|
|
|
(27
|
)
|
|
|
(438
|
)
|
|
|
(465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net interest income
|
|
$
|
(173
|
)
|
|
$
|
327
|
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010 Compared to 2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Average
|
|
|
Average
|
|
|
Increase
|
|
|
|
Volume
|
|
|
Rate
|
|
|
(Decrease)
|
|
|
|
($ in thousands)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
174
|
|
|
$
|
(1
|
)
|
|
$
|
173
|
|
Interest bearing balances
|
|
|
19
|
|
|
|
0
|
|
|
|
19
|
|
Federal funds sold
|
|
|
0
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
Investment securities
|
|
|
19
|
|
|
|
(49
|
)
|
|
|
(30
|
)
|
Portfolio loans
|
|
|
(473
|
)
|
|
|
(316
|
)
|
|
|
(789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in interest income
|
|
|
(261
|
)
|
|
|
(374
|
)
|
|
|
(635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking
|
|
$
|
142
|
|
|
$
|
(76
|
)
|
|
$
|
66
|
|
Money markets
|
|
|
8
|
|
|
|
(336
|
)
|
|
|
(328
|
)
|
Savings
|
|
|
4
|
|
|
|
(4
|
)
|
|
|
0
|
|
Time deposits under $100,000
|
|
|
2
|
|
|
|
(63
|
)
|
|
|
(61
|
)
|
Time deposits $100,000 and over
|
|
|
(66
|
)
|
|
|
(632
|
)
|
|
|
(689
|
)
|
Repurchase agreements
|
|
|
0
|
|
|
|
(13
|
)
|
|
|
(13
|
)
|
Short-term borrowings
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in interest expense
|
|
|
90
|
|
|
|
(1,124
|
)
|
|
|
(1,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net interest income
|
|
$
|
(351
|
)
|
|
$
|
750
|
|
|
$
|
399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009 Compared to 2008
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Average
|
|
|
Average
|
|
|
Increase
|
|
|
|
Volume
|
|
|
Rate
|
|
|
(Decrease)
|
|
|
|
($ in thousands)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
131
|
|
|
$
|
(43
|
)
|
|
$
|
88
|
|
Interest bearing deposits
|
|
|
123
|
|
|
|
(176
|
)
|
|
|
(53
|
)
|
Federal funds sold
|
|
|
(56
|
)
|
|
|
(88
|
)
|
|
|
(144
|
)
|
Investment securities
|
|
|
296
|
|
|
|
(7
|
)
|
|
|
289
|
|
Portfolio loans
|
|
|
1,541
|
|
|
|
(1,176
|
)
|
|
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in interest income
|
|
|
2,035
|
|
|
|
(1,490
|
)
|
|
|
545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking
|
|
$
|
176
|
|
|
$
|
54
|
|
|
$
|
230
|
|
Money markets
|
|
|
(250
|
)
|
|
|
(467
|
)
|
|
|
(717
|
)
|
Savings
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
6
|
|
Time deposits under $100,000
|
|
|
103
|
|
|
|
(16
|
)
|
|
|
87
|
|
Time deposits $100,000 and over
|
|
|
1,177
|
|
|
|
(83
|
)
|
|
|
1,094
|
|
Repurchase agreements
|
|
|
(23
|
)
|
|
|
(23
|
)
|
|
|
(46
|
)
|
Short-term borrowings
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in interest expense
|
|
|
1,190
|
|
|
|
(536
|
)
|
|
|
654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net interest income
|
|
$
|
845
|
|
|
$
|
(954
|
)
|
|
$
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008 Compared to 2007
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Average
|
|
|
Average
|
|
|
Increase
|
|
|
|
Volume
|
|
|
Rate
|
|
|
(Decrease)
|
|
|
|
($ in thousands)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
21
|
|
|
$
|
1
|
|
|
$
|
22
|
|
Interest bearing deposits
|
|
|
(1,313
|
)
|
|
|
(851
|
)
|
|
|
(2,164
|
)
|
Federal funds sold
|
|
|
38
|
|
|
|
(231
|
)
|
|
|
(193
|
)
|
Investment securities
|
|
|
241
|
|
|
|
(35
|
)
|
|
|
206
|
|
Portfolio loans
|
|
|
4,837
|
|
|
|
(580
|
)
|
|
|
4,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in interest income
|
|
|
3,824
|
|
|
|
(1,696
|
)
|
|
|
2,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking
|
|
$
|
106
|
|
|
$
|
(115
|
)
|
|
$
|
(9
|
)
|
Money markets
|
|
|
615
|
|
|
|
(529
|
)
|
|
|
86
|
|
Savings
|
|
|
0
|
|
|
|
6
|
|
|
|
6
|
|
Time deposits under $100,000
|
|
|
56
|
|
|
|
(2
|
)
|
|
|
54
|
|
Time deposits $100,000 and over
|
|
|
278
|
|
|
|
(24
|
)
|
|
|
254
|
|
Repurchase agreements
|
|
|
47
|
|
|
|
(28
|
)
|
|
|
19
|
|
Short-term borrowings
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in interest expense
|
|
|
1,102
|
|
|
|
(691
|
)
|
|
|
410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net interest income
|
|
$
|
2,722
|
|
|
$
|
(1,004
|
)
|
|
$
|
1,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison
of the Three Months Ended September 30, 2010 with the Three
Months Ended September 30, 2009
For the three months ended September 30, 2010, total
average interest-earning assets were $205.6 million and
total average interest-bearing liabilities were
$124.1 million, generating net interest income of
$1.6 million. For the three months ended September 30,
2009, total average interest-earning assets were
$210.3 million and total average interest-bearing
liabilities were $127.3 million, generating net interest
income of $1.5 million. Total average balances of interest
earning assets decreased by $4.7 million, or 2.24%, while
total average balances of interest-bearing liabilities decreased
by $3.2 million, or 2.54%.
During the three months ended September 30, 2010,
Service1st
experienced a $21.3 million balance reduction in its
average loan portfolio due to paydowns, payoffs and loan charge
offs. Total assets grew primarily through increases of average
balances of lower yielding assets. Certificates of deposit in
other banks grew $25.2 million, or 190.19% from
$13.3 million for the three months ended September 30,
2009 to $38.5 million for the three months ended
September 30, 2010. A concerted effort was made by
management to invest cash into certificates of deposits held at
other banks which yielded north of 1% rather than leaving them
in interest bearing deposits that yield approximately 0.25%.
Average balances of interest bearing deposits decreased by
$10.3 million, or 28.82%, to $25.5 million as of
September 30, 2010 compared to $35.8 million at
September 30, 2009. This decrease was due to managements
decision to invest these funds into short-term, higher yielding
assets (consisting of certificates of deposit in other banks
which yielded a return slightly greater than 1%) rather than
leave the monies in interest bearing deposits (which yield
approximately 0.25%).
Interest income was also adversely impacted by nonaccrual loans,
which inhibited the growth of interest earning assets. With many
real estate projects requiring an extended time to market, some
borrowers have exhausted their liquidity, which has required
Service1st
to place their loans on nonaccrual status. Non-performing loans
were $17.1 million, or 14.16% of total portfolio loans at
September 30, 2010 versus
91
$7.8 million, or 5.69%, of total portfolio loans at
December 31, 2009. As further described below, however,
during 2009, quarter-end balances of nonperforming loans were
significantly higher than this range.
As a result of all of these factors, the average yield on
interest earning assets decreased from 4.28% for the three
months ended September 30, 2009 to 3.77% for the three
months ended September 30, 2010. Total interest income
decreased $311,000, from $2.2 million for the three months
ended September 30, 2009 to $1.9 million for the three
months ended September 30, 2010.
The decrease in interest earning assets was largely attributable
to the decrease in average loans of $21.3 million, from
$147.6 million at September 30, 2009 to
$126.3 million at September 30, 2010 as noted above.
Interest income on loans decreased $350,000, from
$2.0 million for the three months ended September 30,
2009 to $1.7 million for the three months ended
September 30, 2010.
The decrease in interest expense of $465,000 is primarily the
result of a deposit rate reduction strategy which is evident by
a $20.6 million reduction in total time deposits. Average
time deposits totaled $64.6 million for the three months
ended September 30, 2009 and decreased to
$44.1 million for the three months ended September 30,
2010.
As a result of both modest decreases in interest rates and
increases in low-yielding liquid assets,
Service1sts
net interest rate spread (yield earned on average
interest-earning assets less the average rate paid on
interest-bearing liabilities) increased to 2.84% as of
September 30, 2010 compared with 1.89% as of
September 30, 2009, and its net interest margin increased
from 2.83% as of September 30, 2009 to 3.20% as of
September 30, 2010.
Comparison
of the Nine Months Ended September 30, 2010 with the Nine
Months Ended September 30, 2009
For the nine months ended September 30, 2010, total average
interest-earning assets were $205.4 million and total
average interest-bearing liabilities were $126.3 million,
generating net interest income of $5.0 million. For the
nine months ended September 30, 2009, total average
interest-earning assets were $191.5 million and total
average interest-bearing liabilities were $117.7 million,
generating net interest income of $4.6 million. Total
average balances of interest earning assets increased by
$14.0 million, or 7.30%, while total average balances of
interest-bearing liabilities increased by $8.6 million, or
7.29%.
During the nine months ended September 30, 2010,
Service1st
experienced a $11.5 million balance reduction in its
average loan portfolio due to paydowns, payoffs and loan charge
offs of loans. Total assets grew primarily through increases of
average balances of lower yielding assets (consisting of
certificates of deposit in other banks and interest-bearing
deposits) of $29.6 million, or a growth of 98.71%, from
$29.9 million for the nine months ended September 30,
2009 to $59.5 million for the nine months ended
September 30, 2010.
Average balances of investment securities increased $654,000, or
4.61%, to $14.8 million as of September 30, 2010 from
$14.2 million for the nine months ended September 30,
2009. The modest increase was due to the additions in investment
securities to the existing portfolio.
Interest income was also adversely impacted by nonaccrual loans,
which inhibited the growth of interest earning assets. With many
real estate projects requiring an extended time to market, some
borrowers have exhausted their liquidity, which has required
Service1st
to place their loans on nonaccrual status. Non-performing loans
were $17.1 million, or 14.16% of total loans at
September 30, 2010 versus $7.8 million, or 5.69%, of
total portfolio loans at December 31, 2009.
As a result of all of these factors, the average yield on total
interest earning assets decreased from 4.77% for the nine months
ended September 30, 2009 to 4.02% for the nine months ended
September 30, 2010. Despite the increase in total interest
earning assets, total interest income decreased $635,000, from
$6.7 million for nine months ended September 30, 2009
to $6.1 million for nine months ended September 30,
2010.
The increase in total interest earning assets was funded largely
by an increase of $33.3 million in average balances of
deposit liabilities, from $155.3 million for the nine
months ended September 30, 2009 to $188.7 million for
the nine months ended September 30, 2010. The increase was
primarily attributable to
92
increases in average balances of noninterest-bearing deposits of
$24.7 million, interest checking of $13.8 million and
money markets of $1.7 million.
The decrease in interest expense of $1.0 million or 48.84%
is primarily the result of a deposit rate reduction strategy
which is reflected in interest rates going from 2.43% as of
September 30, 2009 to 1.16% as of September 30, 2010.
As a result of both modest decreases in interest rates and large
increases in low-yielding liquid assets,
Service1sts
net interest rate spread (yield earned on average
interest-earning assets less the average rate paid on
interest-bearing liabilities) increased to 2.87% as of
September 30, 2010 compared with 2.34% as of
September 30, 2009, and its net interest margin increased
from 3.27% as of September 30, 2009 to 3.31% as of
September 30, 2010.
Comparison
of the Year Ended December 31, 2009 with the Year Ended
December 31, 2008
For the year ended December 31, 2009, total average
interest-earning assets were $197.5 million and total
average interest-bearing liabilities were $120.3 million,
generating net interest income of $6.4 million. For the
year ended December 31, 2008, total average
interest-earning assets were $141.0 million and total
average interest-bearing liabilities were $79.5 million,
generating net interest income of $6.5 million. Total
average balances of interest earning assets increased by
$56.5 million, or 40.1%, while total average balances of
interest-bearing liabilities increased by $40.8 million, or
51.3%.
During 2009,
Service1st
sought to expand its core deposit base in order to increase its
liquidity in anticipation of loan growth. However, while the
average balance of its portfolio loans increased by
$25.5 million, from $118.5 million for the year ended
December 31, 2008 to $144.0 million for the year ended
December 31, 2009, anticipated loan growth did not fully
materialize, and instead total assets grew primarily through
increases of average balances of lower yielding assets
(consisting of certificates of deposit in other banks,
interest-bearing deposits and federal funds sold) of
$23.9 million, or a growth of 173.2%, from
$13.8 million as of December 31, 2008 to
$37.7 million as of December 31, 2009. This additional
liquidity had a negative impact on the average yield on
Service1sts
total interest earning assets.
Average balances of investment securities also grew by
$7.3 million during the year, or 84.9%, from
$8.6 million at December 31, 2008 to
$15.9 million at December 31, 2009. As interest rates
on the investment portfolio slightly decreased, from 4.15% in
2008 to 4.07% in 2009, the increase in investment securities
contributed to interest income.
The modest increase in the average balances of portfolio loans
of $25.5 million was partially offset by a decrease in
their yield from 6.61% to 5.70%, resulting in a net addition to
net interest income of only $365,000. Yields on many of the
prime-rate based loans were protected by interest-rate floors.
Interest income was also adversely impacted by the increase in
nonaccrual loans, which inhibited the growth of interest earning
assets. With many real estate projects requiring an extended
time to market, some borrowers have exhausted their liquidity,
which has required
Service1st
to place their loans on nonaccrual status. Non-performing loans
grew from $3.4 million, or 2.50%, of total loans at
December 31, 2008, to $7.8 million, or 5.69%, of total
portfolio loans at December 31, 2009. However, during 2009,
nonperforming loans grew beyond this range, with
$3.4 million at March 31, 2009, $8.7 million at
June 30, 2009 and $17.9 million at September 30,
2009. In the fourth quarter of 2009,
Service1st
charged off $10.3 million in loans, including many
nonperforming loans, such that at December 31, 2009, the
total of nonperforming loans fell to $7.8 million. The high
balances of nonperforming loans during 2009 adversely impacted
interest income growth.
As a result of all of these factors, the average yield on total
interest earning assets decreased from 6.03% for 2008 to 4.58%
for 2009. As a result, despite the increase in total interest
earning assets, total interest income increased only modestly,
from $8.5 million for 2008 to $9.0 million for 2009.
The increase in total interest earning assets was funded largely
by an increase of $66.5 million in average balances of
deposit liabilities, from $95.2 million at
December 31, 2008 to $161.7 million at
December 31,
93
2009. The increase was primarily attributable to increases in
average balances of time deposits over $100,000 of
$40.3 million and non-interest bearing demand deposits of
$24.0 million.
The increase in interest expense in 2009 of $654,000 is
primarily the result of the growth in the volume in interest
bearing deposits and, in particular, time deposits over
$100,000, which was only partially offset by decreases in rates.
As a result of both modest decreases in interest rates and large
increases in low-yielding liquid assets,
Service1sts
net interest rate spread (yield earned on average
interest-earning assets less the average rate paid on
interest-bearing liabilities) decreased to 2.36% in 2009
compared with 3.49% in 2008, and its net interest margin also
decreased from 4.59% in 2008 to 3.22% in 2009.
Comparison
of the Year Ended December 31, 2008 with the Year Ended
December 31, 2007
For the year ended December 31, 2007, total average
interest-earning assets were $99.4 million and total
average interest-bearing liabilities were $42.2 million,
generating net interest income of $4.8 million. Net
interest income increased by $1.7 million, or 36.1%, to
$6.5 million in 2008, primarily as a result of an increase
in interest income derived primarily from an increase in
Service1sts
average loan balances from $46.4 million for 2007 to
$118.5 million for 2008, offset by an increase in interest
expense on total interest-bearing liabilities from
$1.6 million in 2007 to $2.0 million in 2008 and a
decrease in the yield on total interest-earning assets from
6.41% for 2007 to 6.03% for 2008. The increase in total interest
earning assets was funded largely by an increase of
$42.2 million in average balances of deposit liabilities.
The yield on total interest-bearing liabilities decreased from
3.82% for 2007 to 2.54% for 2008. As a result,
Service1sts
net interest rate spread increased from 2.59% for the year ended
December 31, 2007 to 3.49% for the year ended
December 31, 2008, and its net interest margin decreased
slightly from 4.79% for the year ended December 31, 2007 to
4.59% for the year ended December 31, 2008.
Provision
for Loan Losses
The provision for loan losses in each period is reflected as a
charge against earnings in that period. The provision is equal
to the amount required to maintain the allowance for loan losses
at a level that, in
Service1sts
judgment, is adequate to absorb probable loan losses inherent in
the loan portfolio. The amount of the provision for loan losses
in any period is affected by reductions to the allowance in the
period resulting from loan charge-offs and increases to the
allowance in the period as a result of recoveries from loans
charged-off. In addition, changes in the size of the loan
portfolio and the recognition of changes in current risk factors
affect the amount of the provision.
During 2009 and the first nine months of 2010,
Service1st
has continued to experience significant competitive pressures
and challenging economic conditions in the markets in which it
operates. The Las Vegas economy, as well as the national
economy, has continued to show signs of significant weakness.
Weakness in the residential market has expanded into the
commercial real estate market, as builders and related
industries downsize. These economic trends have adversely
affected
Service1sts
asset quality and increased loan charge-offs.
Service1st
has responded by increasing provision expense to replenish and
build the allowance for loan losses allocable to adversely
affected segments of
Service1sts
loan portfolio in particular, construction and land
development loans and commercial and industrial loans.
Continuation of these economic and real estate factors is likely
to continue to affect
Service1sts
asset quality and overall performance during 2010 and 2011.
Comparison
of the Three Months Ended September 30, 2010 with the Three
Months Ended September 30, 2009
Service1sts
provision for loan loss was $707,000 for the three months ended
September 30, 2010, compared with $3.4 million for the
same period in 2009. This significant decrease in the provision
for loan losses is primarily attributable to; a shrinking loan
portfolio, and to $12.2 million in loans being charged off
in the fourth quarter of 2009. In addition, there was
$2.7 million of loan charge-offs taken during the three
months ended September 30, 2010, of which $515,000 was in
construction and land development, $654,000 was in the
commercial real estate, $1.6 million was in commercial and
industrial while none were taken in residential real estate,
compared with $1.9 million of loan charge-offs during the
three months ended
94
September 30, 2009. As a result, net loan charge-offs to
average loans outstanding increased from 1.31% for the three
months ended September 30, 2009 to 1.77% for the three
months ended September 30, 2010. The decrease in provision
for loan loss and increase in loan charge offs are attributable
to the continuing weak economic conditions in the markets served
by
Service1st.
Further information regarding the credit quality of the loan
portfolio can be found in under the subsections below entitled
Financial Condition
Nonperforming Assets, Potential
Problem Loans, and Impaired
Loans.
Comparison
of the Nine Months Ended September 30, 2010 with the Nine
Months Ended September 30, 2009
Service1sts
provision for loan loss was $3.9 million for the nine
months ended September 30, 2010, compared with
$4.4 million for the same period in 2009. This decrease in
the provision for loan losses is primarily attributable to; a
shrinking loan portfolio, and to $12.2 million in loans
being charged off in the fourth quarter of 2009. There were
$3.9 million of loan charge-offs taken during nine months
ended September 30, 2010, of which $1.2 million was in
construction and land development, $922,000 was in the
commercial real estate, $202,000 was in residential real estate
and $1.7 million was in commercial and industrial; compared
with $1.9 million of loan charge-offs during the nine
months ended September 30, 2009. As a result, net
charge-offs to average loans outstanding increased from 1.27%
for the nine months ended September 30, 2009 to 2.53% for
the nine months ended September 30, 2010. The slight
decrease in provision for loan loss as well as loan charge offs
and the increase in nonperforming loans are attributable to the
continuing weak economic conditions in the markets served by
Service1st.
Comparison
of the Year Ended December 31, 2009 with the Year Ended
December 31, 2008
Service1sts
provision for loan losses was $15.7 million for the year
ended December 31, 2009, compared with $3.7 million
for the year ended December 31, 2008. The significant
increase in the provision for loan losses from 2008 to 2009 is
primarily attributable to $12.2 million of loan charge-offs
taken in 2009, of which $7.7 million was in
Service1sts
construction and land development portfolio (compared with
$1.7 million in 2008), and of which $4.4 million was
in the commercial and industrial loan portfolio (compared with
no charge-offs in 2008). As a result, net charge-offs to average
loans outstanding increased from 1.44% in 2008 to 8.43% in 2009.
The increase is also attributable to the increase in
Service1sts
allowance for loan losses, from $2.9 million, or 2.10% of
outstanding loans at December 31, 2008, to
$6.4 million, or 4.68% of outstanding loans at
December 31, 2009. The increase in the allowance for loan
losses reflects the continuing weak economic conditions in the
markets served by
Service1st,
which resulted in an overall increase in nonperforming loans
from $3.4 million, or 2.50%, of total portfolio loans at
December 31, 2008, to $7.8 million, or 5.69%, of total
portfolio loans at December 31, 2009. In addition,
Service1sts
potential problem loans (loans classified as special mention,
substandard, doubtful or loss) totaled approximately
$36.2 million at December 31, 2009 compared with
$19.5 million at December 31, 2008.
Comparison
of the Year Ended December 31, 2008 with the Year Ended
December 31, 2007
In 2007, its initial year of operations,
Service1st
booked $938,000 of provision for loan loss expense to increase
the allowance for loan losses commensurate with loan growth. As
the loan portfolio continued to grow in 2008 and began to
season, nonperforming loans grew and the portfolio began to
exhibit weaknesses reflective of the decline in economic
conditions. Charge-offs in 2008 were $1.7 million compared
with $16,000 in charge-offs for 2007. In response to these
conditions,
Service1st
increased its provision to $3.7 million in 2008.
Non-Interest
Income
Non-interest income primarily consists of loan documentation and
late fees, service charges on deposits and other fees such as
wire and ATM fees.
95
Comparison
of the Three Months Ended September 30, 2010 with the Three
Months Ended September 30, 2009
Non-interest income increased from $145,000 for the three months
ended September 30, 2009 to $160,000 for the three months
ended September 30, 2010. The increase of $15,000 is
attributable to a continuing effort by
Service1sts
management to adhere to fee income policies, including limiting
waivers of such fees. This effort began in mid-2008 and is
anticipated to continue throughout 2010.
Comparison
of the Nine Months Ended September 30, 2010 with the Nine
Months Ended September 30, 2009
Non-interest income increased from $385,000 for the nine months
ended September 30, 2009 to $466,000 for the nine months
ended September 30, 2010. The increase of $81,000 is
attributable to a continuing effort by
Service1sts
management to adhere to fee income policies, including limiting
waivers of such fees. This effort began in mid-2008 and is
anticipated to continue throughout 2010.
Comparison
of the Year Ended December 31, 2009 with the Year Ended
December 31, 2008
Non-interest income increased from $340,000 for 2008 to $514,000
for 2009. The increase of $174,000 is primarily the result of a
continuing effort by
Service1sts
management to adhere to fee income policies, including limiting
waivers of such fees. This effort began in mid-2008 and carried
throughout 2009.
Comparison
of the Year Ended December 31, 2008 with the Year Ended
December 31, 2007
Non-interest income increased to $340,000 in 2008, up from
$163,000 in 2007. The increase in non-interest income of
$177,000 was primarily a result of a concerted effort by
Service1sts
management to adhere to fee income policies, including limiting
waivers of such fees.
Non-Interest
Expense
The following table sets for the principal elements of
non-interest expenses for the three and nine months ended
September 30, 2010 and 2009 and the years and period ending
December 31, 2009, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Nine Months Ended
|
|
|
Years and Period Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007(1)
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
Non-interest expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
1,150
|
|
|
$
|
1,016
|
|
|
$
|
3,265
|
|
|
$
|
3,118
|
|
|
$
|
3,875
|
|
|
$
|
5,029
|
|
|
$
|
3,632
|
|
Occupancy, equipment and depreciation
|
|
|
388
|
|
|
|
420
|
|
|
|
1,232
|
|
|
|
1.236
|
|
|
|
1,673
|
|
|
|
1,664
|
|
|
|
1,120
|
|
Computer service charges
|
|
|
73
|
|
|
|
87
|
|
|
|
218
|
|
|
|
244
|
|
|
|
328
|
|
|
|
313
|
|
|
|
170
|
|
Professional fees
|
|
|
535
|
|
|
|
31
|
|
|
|
1,528
|
|
|
|
118
|
|
|
|
1,026
|
|
|
|
256
|
|
|
|
323
|
|
Advertising and business development
|
|
|
26
|
|
|
|
44
|
|
|
|
74
|
|
|
|
72
|
|
|
|
88
|
|
|
|
157
|
|
|
|
422
|
|
Insurance
|
|
|
157
|
|
|
|
123
|
|
|
|
448
|
|
|
|
348
|
|
|
|
500
|
|
|
|
145
|
|
|
|
92
|
|
Telephone
|
|
|
28
|
|
|
|
26
|
|
|
|
79
|
|
|
|
72
|
|
|
|
101
|
|
|
|
104
|
|
|
|
76
|
|
Stationery and supplies
|
|
|
8
|
|
|
|
7
|
|
|
|
22
|
|
|
|
24
|
|
|
|
32
|
|
|
|
45
|
|
|
|
107
|
|
Director fees
|
|
|
6
|
|
|
|
12
|
|
|
|
30
|
|
|
|
32
|
|
|
|
44
|
|
|
|
23
|
|
|
|
147
|
|
Organization costs
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,238
|
|
Stock warrants
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
213
|
|
Loss on disposition of equipment
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3
|
|
|
|
0
|
|
|
|
0
|
|
Provision for unfunded commitments
|
|
|
(87
|
)
|
|
|
117
|
|
|
|
(442
|
)
|
|
|
90
|
|
|
|
498
|
|
|
|
40
|
|
|
|
181
|
|
Other
|
|
|
162
|
|
|
|
106
|
|
|
|
466
|
|
|
|
296
|
|
|
|
425
|
|
|
|
487
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,446
|
|
|
$
|
1,989
|
|
|
$
|
6,920
|
|
|
$
|
5,650
|
|
|
$
|
8,593
|
|
|
$
|
8,263
|
|
|
$
|
8,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the period January 16, 2007, the date
Service1st
commenced operations, to December 21, 2007 |
96
Comparison
of the Three Months Ended September 30, 2010 with the Three
Months Ended September 30, 2009
Non-interest expense increased $457,000 from $2.0 million
for the three months ended September 30, 2009 to
$2.4 million for the three months ended September 30,
2010. Provision for unfunded commitments decreased $204,000 due
to reductions in balances on unfunded line of credit. The
$204,000 reduction in provision for unfunded commitment expense
was offset by a $504,000 increase in professional fees which was
due to additional legal, audit and consulting fees incurred by
Service1st
in connection with its pending acquisition by WLBC. In addition,
salaries and employee benefits increased $134,000 which is
primarily the result of stock options fully vesting upon the
retirement of an employee. The employees retirement was
effective on July 17, 2010.
Comparison
of the Nine Months Ended September 30, 2010 with the Nine
Months Ended September 30, 2009
Non-interest expense increased $1.3 million from the nine
months ended September 30, 2009 to the nine months ended
September 30, 2010. Total non-interest expense went from
$5.7 million in 2009, to $6.9 million in 2010.
Provision for unfunded commitments decreased $532,000 due to
reductions in available balances for unfunded lines of credit.
The $532,000 reduction in provision for unfunded commitment
expense was offset by a $1.4 million increase in
professional fees which was due to additional legal, audit and
consulting fees incurred by
Service1st
in connection with its pending acquisition by WLBC. In addition,
salaries and employee benefits increased $147,000 which is
primarily the result of accelerated stock options fully vesting
upon an employee retirement which became effective on
July 17, 2010.
Comparison
of the Year Ended December 31, 2009 with the Year Ended
December 31, 2008
Non-interest expense was primarily flat, year over year:
$8.6 million for 2009, compared with $8.3 for 2008.
Salaries and employee benefits decreased $1.2 million in
2009 from $5.0 million in 2008 to $3.9 million in
2009. The $1.2 million decrease was due to staff
reductions, as well as a reduction in salaries and benefits for
the remaining employees. These cost-savings were partially
offset by a $770,000 increase in professional fees during the
same period, of which $741,000 was due to additional legal,
audit and consulting fees incurred by
Service1st
in connection with its pending acquisition by WLBC. In addition,
FDIC insurance premiums increased $346,000, primarily due to
growth in deposits of $75.4 million. The increase in the
provision for unfunded commitments expense was primarily a
result of an additional $498,000 to the reserve amount for
unfunded lines of credit. These lines of credit are commitments
that
Service1st
has underwritten for its borrowers, but have yet to be funded by
the bank.
Comparison
of the Year Ended December 31, 2008 with the Year Ended
December 31, 2007
Non-interest expense of $8.3 million in 2008 was $82,000
more than in 2007. The increase was primarily a result of a
$1.4 million increase in salaries and benefits, a $544,000
increase in occupancy expense and a $143,000 increase in
computer service charges. These items were substantially offset
by decreases in
year-over-year
expenses. In 2007,
Service1st
incurred high (one-time) expenses associated with the opening of
Service1st.
Accordingly, 2008 expense levels were lower than in 2007 by the
following amounts in the following categories: $1.2 million
in organizational costs and $213,000 in stock warrant costs (all
of which were expensed in 2007 but not repeated in 2008),
$265,000 in advertising and business development, $124,000 in
directors fees, $67,000 in professional fees, $62,000 in
stationery and supplies and $114,000 in non-interest expenses.
Income
Taxes
Due to
Service1st
incurring operating losses from inception, no provision for
income taxes has been recorded since the inception of
Service1st.
97
Financial
Condition
Assets
Total assets stood at $193.2 million as of
September 30, 2010, a decrease of $18.6 million, or
8.78%, from $211.8 million as of December 31, 2009.
The decrease was principally attributable to a
$21.8 million decrease in cash and cash equivalents
(consisting of cash and due from banks, federal funds sold and
certificates of deposits with original maturities of three
months or less), a $16.1 million decrease in gross loans,
and a $6.2 million decrease in investment securities. These
three decreases noted above total $44.1 million and were
partially offset, by a $22.9 million increase in
certificates of deposits held at other banks. Cash and cash
equivalents at September 30, 2010 were $27.8 million
down from $49.6 million at December 31, 2009 as a
result of $13.4 million decrease in deposits, primarily due
to rate reduction strategies, coupled with a change of
investment strategy (which involved moving dollars out of cash
and cash equivalents that earn approximately 0.25% and into
certificates of deposits which earn slightly greater than
1.00%). Gross loans at September 30, 2010 were
$120.9 million down from $137.0 million at
December 31, 2009 as a result of principal paydowns/payoffs
exceeding principal advances and new loan growth by
$15.2 million, loans reclassified to other real estate
owned (OREO) of $3.0 million and charge offs of
$3.9 million.
Total assets stood at $211.8 million as of
December 31, 2009, an increase of $52.3 million, or
32.8%, from $159.5 million as of December 31,
2008. The increase was principally attributable to an increase
of $39.6 million in cash and cash equivalents (consisting
of cash and due from banks, federal funds sold and certificates
of deposits with original maturities of three months or less),
and an increase of $9.3 million in certificate of deposits
held at other banks and of $5.9 million in investment
securities. Gross loans at December 31, 2009 were
$137.0 million, down from $137.2 million at
December 31, 2008, as modest loan growth in 2009 was
largely offset by $12.2 million in charge-offs.
Cash
and Cash Equivalents
Cash and cash equivalents consist of cash and due from banks,
federal funds sold and certificates of deposits with original
maturities of three months or less. Cash and cash equivalents
totaled $27.8 million at September 30, 2010 and
$49.6 million at December 31, 2009. Cash and cash
equivalents are managed based upon liquidity needs. The decrease
in cash and cash equivalents reflects
Service1sts
efforts to expand its investments in short term certificates of
deposits, in anticipation of rising interest rates, until loan
volume begins to increase. At that time, monies invested in
short term certificates of deposits are anticipated to be
reinvested in new loan originations. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations of
Service1st
Bank of Nevada Liquidity and Asset/Liability
Management in this section below for more information.
Investment
Securities and Certificates of Deposits held at other
Banks
Service1st
invests in investment grade securities and certificates of
deposits at other banks with original maturities exceeding three
months for the following reasons: (i) such investments can
be readily reduced in size to provide liquidity for loan
fundings or deposit withdrawals; (ii) investment securities
provide a source of assets to pledge to secure lines of credit
(and, potentially, deposits from governmental entities), as may
be required by law or by specific agreement with a depositor or
lender; (iii) they can be used as an interest rate risk
management tool, since they provide a large base of assets, the
maturity and interest rate characteristics of which can be
changed more readily than the loan portfolio to better match
changes in the deposit base and other funding sources of
Service1st;
and (iv) they represent an alternative interest-earning use
of funds when loan demand is weak or when deposits grow more
rapidly than loans. Further, if and when
Service1st
becomes profitable, tax free investment securities can be a
source of partially tax-exempt income.
Service1st
uses two portfolio classifications for its investment
securities: Held to Maturity, and Available
for Sale. The Held to Maturity portfolio consists only of
securities that
Service1st
has both the intent and ability to hold until maturity, to be
sold only in the event of concerns with an issuers credit
worthiness, a change in tax law that eliminates their tax exempt
status, or other infrequent situations as permitted by
U.S. generally accepted accounting principles. Accounting
guidance requires Available for Sale
98
securities to be marked to estimated fair value with an offset
to accumulated other comprehensive income, a component of
stockholders equity.
Service1sts
investment portfolio is currently composed primarily of:
(i) U.S. Government Agency securities;
(ii) investment grade corporate debt securities; and
(iii) collateralized mortgage obligations. At
September 30, 2010, investment securities and certificates
of deposit totaled $43.7 million, an increase of 62.00% or
$16.7 million, compared with $26.9 million at
December 31, 2009. At December 31, 2009, investment
securities and certificates of deposit totaled
$26.9 million, an increase of 129.54% or
$15.2 million, compared with $11.7 million at
December 31, 2008. The significant increase in certificates
of deposit is the result of
Service1sts
attempt to continue to deploy cash into earning assets as loan
demand remains sluggish.
Service1st
has not used interest rate swaps or other derivative instruments
to hedge fixed rate loans or to otherwise mitigate interest rate
risk.
The tables below summarize
Service1sts
investment portfolio at September 30, 2010,
December 31, 2009 and December 31, 2008. Securities
are identified as
available-for-sale
or held to maturity.
Service1st
did not have any investments available for sale at
December 31, 2008. Unrealized gains or losses on
available-for-sale
securities are recorded as accumulated other comprehensive
income in stockholders equity.
Held-to-maturity
securities are carried at cost, adjusted for amortization of
premiums or accretion of discounts. Amortization of premiums or
accretion of discounts on mortgage-backed securities is
periodically adjusted for estimated prepayments. Securities
measured at fair value are reported at fair value, with
unrealized gains and losses included in stockholders
equity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
($ in thousands)
|
|
|
Investments Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency Securities
|
|
$
|
2,002
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
2,002
|
|
Collateralized Mortgage Obligations
|
|
|
1,910
|
|
|
|
1
|
|
|
|
(14
|
)
|
|
|
1,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,912
|
|
|
$
|
1
|
|
|
$
|
(14
|
)
|
|
$
|
3,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
($ in thousands)
|
|
|
Investments-Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Debt Securities
|
|
$
|
6,919
|
|
|
$
|
274
|
|
|
$
|
0
|
|
|
$
|
7,193
|
|
SBA Loan Pools
|
|
|
664
|
|
|
|
2
|
|
|
|
0
|
|
|
|
666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,583
|
|
|
$
|
276
|
|
|
$
|
0
|
|
|
$
|
7,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
($ in thousands)
|
|
|
Investments Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency Securities
|
|
$
|
5,247
|
|
|
$
|
|
|
|
$
|
(18
|
)
|
|
$
|
5,229
|
|
Collateralized Mortgage Obligations
|
|
|
2,209
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
2,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,456
|
|
|
$
|
|
|
|
$
|
(23
|
)
|
|
$
|
7,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
($ in thousands)
|
|
|
Investments-Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency Securities
|
|
$
|
997
|
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
1,000
|
|
Corporate Debt Securities
|
|
|
8,390
|
|
|
|
477
|
|
|
|
|
|
|
|
8,867
|
|
SBA Loan Pools
|
|
|
814
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,201
|
|
|
$
|
480
|
|
|
$
|
(5
|
)
|
|
$
|
10,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
($ in thousands)
|
|
|
Investments-Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency Securities
|
|
$
|
6,009
|
|
|
$
|
74
|
|
|
$
|
|
|
|
$
|
6,083
|
|
Corporate Debt Securities
|
|
|
4,805
|
|
|
|
139
|
|
|
|
|
|
|
|
4,944
|
|
Collateralized Mortgage Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA Loan Pools
|
|
|
925
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,739
|
|
|
$
|
213
|
|
|
$
|
(20
|
)
|
|
$
|
11,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables below summarize the maturity dates and investment
yields on
Service1sts
investment portfolio at September 30, 2010 and
December 31, 2009 for securities identified as available
for sale or held to maturity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010
|
|
|
|
(Unaudited)
|
|
|
|
Due Under 1
|
|
|
Due
|
|
|
Due
|
|
|
Due Over
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
1-5 Years
|
|
|
5-10 Years
|
|
|
10 Years
|
|
|
Total
|
|
|
|
Amount/Yield
|
|
|
Amount/Yield
|
|
|
Amount/Yield
|
|
|
Amount/Yield
|
|
|
Amount/Yield
|
|
|
|
($ in thousands)
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
2,002
|
|
|
|
0.61
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
2,002
|
|
|
|
0.61
|
%
|
Corporate Debt Securities
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
Collateralized Mortgage Obligations
|
|
|
1,030
|
|
|
|
2.70
|
%
|
|
|
867
|
|
|
|
2.67
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
1,897
|
|
|
|
2.69
|
%
|
Small Business Administration Loan Pools
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale
|
|
$
|
1,030
|
|
|
|
0.00
|
%
|
|
$
|
2,881
|
|
|
|
1.24
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
3,899
|
|
|
|
0.91
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
Corporate Debt Securities
|
|
|
3,998
|
|
|
|
5.30
|
%
|
|
|
2,921
|
|
|
|
6.98
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
6,919
|
|
|
|
6.01
|
%
|
Collateralized Mortgage Obligations
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
Small Business Administration Loan Pools
|
|
|
8
|
|
|
|
2.96
|
%
|
|
|
16
|
|
|
|
4.21
|
%
|
|
|
100
|
|
|
|
2.22
|
%
|
|
|
540
|
|
|
|
2.70
|
%
|
|
|
664
|
|
|
|
2.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity
|
|
$
|
4,006
|
|
|
|
5.30
|
%
|
|
$
|
2,937
|
|
|
|
6.96
|
%
|
|
$
|
100
|
|
|
|
2.22
|
%
|
|
$
|
540
|
|
|
|
2.70
|
%
|
|
$
|
7,583
|
|
|
|
5.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
Due Under 1
|
|
|
Due
|
|
|
Due
|
|
|
Due Over
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
1-5 Years
|
|
|
5-10 Years
|
|
|
10 Years
|
|
|
Total
|
|
|
|
Amount/Yield
|
|
|
Amount/Yield
|
|
|
Amount/Yield
|
|
|
Amount/Yield
|
|
|
Amount/Yield
|
|
|
|
($ in thousands)
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency Securities
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
5,229
|
|
|
|
1.48
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
5,229
|
|
|
|
1.48
|
%
|
Corporate Debt Securities
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
Collateralized Mortgage Obligations
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
2,204
|
|
|
|
2.65
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
2,204
|
|
|
|
2.65
|
%
|
Small Business Administration Loan Pools
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
7,433
|
|
|
|
1.83
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
7,433
|
|
|
|
1.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency Securities
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
997
|
|
|
|
1.55
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
$
|
997
|
|
|
|
1.55
|
%
|
Corporate Debt Securities
|
|
|
4,011
|
|
|
|
3.74
|
%
|
|
|
4,379
|
|
|
|
7.11
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
8,390
|
|
|
|
5.50
|
%
|
Collateralized Mortgage Obligations
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
Small Business Administration Loan Pools
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
38
|
|
|
|
3.41
|
%
|
|
|
136
|
|
|
|
2.94
|
%
|
|
|
641
|
|
|
|
2.72
|
%
|
|
|
814
|
|
|
|
2.79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity
|
|
$
|
4,011
|
|
|
|
3.74
|
%
|
|
$
|
5,414
|
|
|
|
6.06
|
%
|
|
$
|
136
|
|
|
|
2.94
|
%
|
|
$
|
641
|
|
|
|
2.72
|
%
|
|
$
|
10,201
|
|
|
|
4.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
As of September 30, 2010 and December 31, 2009, 2008,
and 2007 substantially all of
Service1sts
loan customers were located in Nevada.
The following table summarizes the composition of
Service1sts
loan portfolio by type and percentage of the loan portfolio for
the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
Loans secured by real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other land loans
|
|
$
|
8,892
|
|
|
|
7.36
|
%
|
|
$
|
20,279
|
|
|
|
14.80
|
%
|
|
$
|
38,608
|
|
|
|
28.12
|
%
|
|
$
|
18,234
|
|
|
|
20.37
|
%
|
Commercial real estate
|
|
|
62,416
|
|
|
|
51.67
|
%
|
|
|
68,523
|
|
|
|
50.02
|
%
|
|
|
41,114
|
|
|
|
29.95
|
%
|
|
|
29,482
|
|
|
|
32.93
|
%
|
Residential (1-4 family)
|
|
|
10,307
|
|
|
|
8.53
|
%
|
|
|
1,367
|
|
|
|
1.00
|
%
|
|
|
483
|
|
|
|
0.35
|
%
|
|
|
176
|
|
|
|
0.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate secured loans
|
|
|
81,615
|
|
|
|
67.56
|
%
|
|
|
90,169
|
|
|
|
65.82
|
%
|
|
|
80,205
|
|
|
|
58.42
|
%
|
|
|
47,892
|
|
|
|
53.49
|
%
|
Loans not secured by real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
39,052
|
|
|
|
32.33
|
%
|
|
|
46,470
|
|
|
|
33.92
|
%
|
|
|
56,556
|
|
|
|
41.20
|
%
|
|
|
39,872
|
|
|
|
44.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
131
|
|
|
|
0.11
|
%
|
|
|
342
|
|
|
|
0.26
|
%
|
|
|
522
|
|
|
|
0.38
|
%
|
|
|
1,765
|
|
|
|
1.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, Gross
|
|
|
120,797
|
|
|
|
100.00
|
%
|
|
|
136,981
|
|
|
|
100.00
|
%
|
|
|
137,283
|
|
|
|
100.00
|
%
|
|
|
89,529
|
|
|
|
100.00
|
%
|
Net deferred loan fees (costs)
|
|
|
58
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan, Gross, net of deferred fees
|
|
|
120,856
|
|
|
|
|
|
|
|
136,966
|
|
|
|
|
|
|
|
137,216
|
|
|
|
|
|
|
|
89,472
|
|
|
|
|
|
Less: Allowance for loan losses
|
|
|
(7,021
|
)
|
|
|
|
|
|
|
(6,404
|
)
|
|
|
|
|
|
|
(2,883
|
)
|
|
|
|
|
|
|
(922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, Net
|
|
$
|
113,834
|
|
|
|
|
|
|
$
|
130,562
|
|
|
|
|
|
|
$
|
134,333
|
|
|
|
|
|
|
$
|
88,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans, net of deferred fees and the allowance for loan
losses, decreased $16.7 million from December 31, 2009
to September 30, 2010, as a result of $3.3 million in
new loans and $51.79 million in principal advances being
offset by $4.2 million in loan payoffs and
$60.0 million in principal reductions, $4.0 million in
charged off loans, $3.0 million in loans being reclassified
to other real estate owned (OREO), deferred fees of $58,000 and
an increase in the allowance for loan losses of $617,000.
Construction, land development and other land loans decreased
$11.4 million from 14.80% to 7.36% of the loan portfolio,
which reflects $10.2 million in paydowns/payoffs and
$1.2 million of loan charge-offs in the first nine months
of 2010. Commercial and industrial loans also decreased over the
same period, by $7.4 million, from 33.92% to 32.33% of the
loan portfolio by reason the depressed business climate, reduced
101
loan demand plus $1.7 million of loan charge-offs and
another $625,000 in loan balances being classified to other real
estate owned.. Over the same period, residential real estate
loans increased by $8.9 million, from 1.00% to 8.53% of the
portfolio. During second quarter 2010
Service1st
accepted a residential property as collateral on a
$3.0 million loan. Since this $3.0 million loan was
classified as commercial and industrial during the first quarter
2010 it was reclassified from commercial and industrial to
residential real estate in the second quarter 2010, which caused
the residential real estate balance to increase. In addition, a
term loan with a draw down period was also collateralized by
multiple residential real estate properties and as a result, the
borrower advanced additional funds of $1.5 million, which
resulted in residential real estate increasing an additional
$1.5 million. In addition, two loans totaling
$4.6 million were reclassified out of the category of
construction, land development and other land loans into
residential real estate loans during third quarter 2010 as the
construction for each residential property was completed.
The tables below reflects the maturity distribution for
Service1sts
loans, by category of loans, and the amount of fixed versus
variable rate interest loans, as of September 30, 2010 and
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
(Unaudited)
|
|
|
|
Due Within
|
|
|
Due 1-5
|
|
|
Due Over
|
|
|
|
|
|
|
One Year
|
|
|
Years
|
|
|
Five Years
|
|
|
Total
|
|
|
|
($ in thousands)
|
|
|
Loans secured by real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other land loans
|
|
$
|
6,095
|
|
|
$
|
2,797
|
|
|
$
|
0
|
|
|
$
|
8,892
|
|
Commercial real estate
|
|
|
350
|
|
|
|
35,006
|
|
|
|
27,060
|
|
|
|
62,416
|
|
Residential real estate (1-4 family)
|
|
|
7,706
|
|
|
|
2,436
|
|
|
|
165
|
|
|
|
10,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate secured loans
|
|
|
14,151
|
|
|
|
40,239
|
|
|
|
27,225
|
|
|
|
81,615
|
|
Loans not secured by real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
20,238
|
|
|
|
14,362
|
|
|
|
4,452
|
|
|
|
39,052
|
|
Consumer
|
|
|
73
|
|
|
|
58
|
|
|
|
0
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, Gross
|
|
$
|
34,462
|
|
|
$
|
54,659
|
|
|
$
|
31,677
|
|
|
$
|
120,798
|
|
Interest rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
8,694
|
|
|
|
35,215
|
|
|
|
5,739
|
|
|
|
49,648
|
|
Variable
|
|
|
25,767
|
|
|
|
19,444
|
|
|
|
25,938
|
|
|
|
71,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, Gross
|
|
$
|
34,462
|
|
|
$
|
54,659
|
|
|
$
|
31,677
|
|
|
$
|
120,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Due Within
|
|
|
Due 1-5
|
|
|
Due Over
|
|
|
|
|
|
|
One Year
|
|
|
Years
|
|
|
Five Years
|
|
|
Total
|
|
|
|
($ in thousands)
|
|
|
Loans secured by real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other land loans
|
|
$
|
18,748
|
|
|
$
|
1,532
|
|
|
$
|
|
|
|
$
|
20,279
|
|
Commercial real estate
|
|
|
13,308
|
|
|
|
25,685
|
|
|
|
29,529
|
|
|
|
68,523
|
|
Residential real estate (1-4 family)
|
|
|
18
|
|
|
|
873
|
|
|
|
476
|
|
|
|
1,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate secured loans
|
|
$
|
32,073
|
|
|
$
|
28,090
|
|
|
$
|
30,005
|
|
|
$
|
90,169
|
|
Loans not secured by real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
27,737
|
|
|
|
14,784
|
|
|
|
3,950
|
|
|
|
46,470
|
|
Consumer
|
|
|
262
|
|
|
|
79
|
|
|
|
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, Gross
|
|
$
|
60,073
|
|
|
$
|
42,954
|
|
|
$
|
33,955
|
|
|
$
|
136,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
$
|
15,518
|
|
|
$
|
19,923
|
|
|
$
|
2,029
|
|
|
$
|
37,469
|
|
Variable
|
|
|
44,555
|
|
|
|
23,031
|
|
|
|
31,926
|
|
|
|
99,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, Gross
|
|
$
|
60,073
|
|
|
$
|
42,954
|
|
|
$
|
33,955
|
|
|
$
|
136,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrations
Service1sts
loan portfolio has a concentration of loans secured by real
estate. As of September 30, 2010 and December 31,
2009, loans secured by real estate comprised 67.56% and 65.82%
of total gross loans, respectively. Substantially all of these
loans are secured by first liens. Approximately 29.98% and
27.56% of these real estate secured loans are owner occupied as
of September 30, 2010 and December 31, 2009,
respectively. A loan is considered owner occupied if the
borrower occupies at least fifty percent of the collateral
securing such loan.
Service1sts
policy is to obtain collateral whenever it is available or
desirable, depending upon the degree of risk
Service1st
is willing to accept. Repayment of loans is expected from the
borrowers cash flows or the sale proceeds of the
collateral. Deterioration in the performance of the economy and
real estate values in
Service1sts
primary market areas has had, and is expected to continue to
have, an adverse impact on collectability of outstanding loans.
Interest
Reserves
Interest reserves are generally established at the time of the
loan origination as an expense item in the budget for a
construction and land development loan.
Service1sts
practice is to monitor the construction, sales
and/or
leasing progress to determine the feasibility of ongoing
construction and development projects. If at any time during the
life of the loan the project is determined not to be viable,
Service1st
generally has the ability to discontinue the use of the interest
reserve and take appropriate action to protect its collateral
position via negotiation
and/or legal
action as deemed appropriate. At September 30, 2010,
Service1st
had no loans with an interest reserves. At December 31,
2009,
Service1st
had five loans with an outstanding balance of $8.8 million
where available interest reserves amount to $532,000. In
instances where projects have been determined unviable, the
interest reserves have been frozen.
Nonperforming
Assets
Nonperforming assets consists of:
(i) nonaccrual loans. In general, loans
are placed on nonaccrual status when
Service1st
determines timely recognition of interest to be in doubt due to
the borrowers financial condition and collection efforts.
Service1st
generally discontinues accrual of interest when a loan is
90 days delinquent unless the loan is well secured and in
the process of collection;
103
(ii) loans past due 90 days or more and still
accruing interest. Loans past due 90 days or
more and still accruing interest consist primarily of loans
90 days or more past their maturity date but not their
interest due date.
(iii) restructured loans. Restructured
loans have modified terms to reduce either principal or interest
due to deterioration in the borrowers financial
condition, and
(iv) other real estate owned, or OREO. If
a bank takes title to the borrowers real property that
serves as collateral for a defaulted loan, such property is
referred to as other real estate owned (OREO). As of
September 30, 2010,
Service1st
had $3.0 million in OREO.
The following table sets forth nonperforming assets at the dates
indicated by category of asset.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
Nonaccrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Secured by Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other land loans
|
|
$
|
5,629
|
|
|
$
|
6,524
|
|
|
$
|
3,434
|
|
|
$
|
0
|
|
Commercial real estate
|
|
|
8,633
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Residential real estate (1-4 family)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans secured by real estate
|
|
|
14,262
|
|
|
|
6,524
|
|
|
|
3,434
|
|
|
|
0
|
|
Commercial and industrial
|
|
|
2,504
|
|
|
|
1,275
|
|
|
|
0
|
|
|
|
0
|
|
Consumer
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans
|
|
|
16,766
|
|
|
|
7,799
|
|
|
|
3,434
|
|
|
|
20
|
|
Past due (>90days) loans and accruing interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Secured by Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other land loans
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Commercial real estate
|
|
$
|
350
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Residential real estate (1-4 family)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans secured by real estate
|
|
|
350
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Commercial and industrial
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Consumer
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total past due loans accruing interest
|
|
|
350
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Restructured loans (still on accrual)(1)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total nonperforming loans
|
|
$
|
17,116
|
|
|
$
|
7,799
|
|
|
$
|
3,434
|
|
|
$
|
20
|
|
Other real estate owned (OREO)
|
|
$
|
3,019
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
20,135
|
|
|
$
|
7,799
|
|
|
$
|
3,434
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Performing Loans as a percentage of total portfolio loans
|
|
|
14.16
|
%
|
|
|
5.69
|
%
|
|
|
2.50
|
%
|
|
|
0.02
|
%
|
Non-Performing Loans as a percentage of total assets
|
|
|
8.86
|
%
|
|
|
3.68
|
%
|
|
|
2.15
|
%
|
|
|
0.02
|
%
|
Allowance for loan losses as a percentage of nonperforming loans
|
|
|
41.02
|
%
|
|
|
82.11
|
%
|
|
|
83.95
|
%
|
|
|
4,610.69
|
%
|
|
|
|
(1) |
|
As of September 30, 2010, December 31, 2009 and
December 31, 2008,
Service1st
had approximately $11.0 million, $526,000 and
$3.4 million, respectively, in loans classified as
restructured loans. All of such |
104
|
|
|
|
|
loans were on nonaccrual.
Service1st
had no loans classified as restructured loans as of
December 31, 2007. |
As shown in the table above, all of
Service1sts
nonperforming assets are as of the dates indicated.
At September 30, 2010, nonperforming loans totaled
$17.1 million, or 14.16%, of total portfolio loans, an
increase of $9.3 million, or 119.46%, from
December 31, 2009. Total nonperforming assets as of
September 30, 2010 were $20.1 million compared to
$7.8 million as of December 31, 2009, a growth of
$12.3 million or 158.17%. Nonperforming loans increased
$9.3 million while nonperforming assets increased
$12.3 million due to continued adverse economic conditions
in the Nevada market. During 2009, nonperforming assets totaled
$3.4 million at March 31, 2009, $8.7 million at
September 30, 2009 and $17.9 million at
September 30, 2009. In the fourth quarter of 2009,
Service1st charged
off $10.3 million in loans, including many nonperforming
loans, such that at December 31, 2009, the total of
nonperforming assets fell to $7.8 million.
The largest category of nonperforming assets is commercial real
estate loans and represents one of the loan categories in which
Service1st
has been most severely impacted by adverse economic conditions
in Nevada. The other category in which
Service1st
has been significantly impacted by adverse economic conditions
is construction, land development and other land loans. With
many real estate projects requiring an extended time to market,
many of
Service1sts
borrowers have exhausted their liquidity and stopped making
payments, thereby requiring
Service1st
to place the loans on nonaccrual. As a result,
Service1sts
portfolio of nonperforming commercial real estate loans, which
had a zero balance at December 31, 2009, increased to
$9.0 million at September 30, 2010. This
$9.0 million balance is derived by adding $8.6 million
in commercial real estate nonaccrual loans to commercial real
estate loans which are greater than 90 days past due. At
September 30, 2010, nonperforming construction, land
development and other land loans totaled $5.6 million, a
13.72% reduction from the $6.5 million balance at
December 31, 2009, primarily as a result of loan payoffs
and paydowns of approximately $1.2 million and loan
charge-offs of $530,000 of nonperforming loans during the first
nine months of 2010, coupled with additions of $800,000 in
nonperforming construction, land development and other land
loans which were added during the first nine months of 2010.
Given the current economic conditions in Nevada,
Service1st
has effectively stopped making commercial real estate loans and
construction, land development and other land loans (except for
contractually required disbursements under existing facilities)
unless borrowers can provide strong financial support outside
the project under development.
The other loan category with nonperforming assets is commercial
and industrial loans which increased $1.2 million from
$1.3 million at December 31, 2009 to $2.5 million
as of September 30, 2010.
Service1st had
a net $1.9 million in commercial and industrial loans
placed on non-accrual status during the first nine months of
2010 as a result of adverse economic conditions. In addition,
charge-offs totaled $388,000 for nonperforming commercial and
industrial loans in the first nine months of 2010.
105
Potential
Problem Loans
Service1st
classifies its loans consistent with federal banking regulations
using a ten category grading system. The following table
presents information regarding potential problem loans, which
are graded as Other Loans Especially Mentioned,
Substandard, Doubtful, and
Loss but still performing and not impaired as of the
dates indicated. These loan grades are described in further
detail in the section entitled Information Related to
Western Liberty Bancorp and
Service1stBank
of Nevada Asset Quality.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
At December 31, 2009
|
|
|
At December 31, 2008
|
|
|
|
# of
|
|
|
Loan
|
|
|
|
|
|
Percent of
|
|
|
# of
|
|
|
Loan
|
|
|
|
|
|
Percent of
|
|
|
# of
|
|
|
Loan
|
|
|
|
|
|
Percent of
|
|
|
|
Loans
|
|
|
Balance
|
|
|
%
|
|
|
Total Loans
|
|
|
Loans
|
|
|
Balance
|
|
|
%
|
|
|
Total Loans
|
|
|
Loans
|
|
|
Balance
|
|
|
%
|
|
|
Total Loans
|
|
|
|
($ in thousands)
|
|
|
Construction, land development and other land loans
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
4
|
|
|
$
|
8,578
|
|
|
|
24.78
|
%
|
|
|
6.26
|
%
|
|
|
4
|
|
|
$
|
11,927
|
|
|
|
61.12
|
%
|
|
|
8.69
|
%
|
Commercial real estate
|
|
|
2
|
|
|
|
3,610
|
|
|
|
25.81
|
%
|
|
|
2.99
|
%
|
|
|
5
|
|
|
|
11,178
|
|
|
|
32.29
|
%
|
|
|
8.16
|
%
|
|
|
1
|
|
|
|
350
|
|
|
|
1.79
|
%
|
|
|
0.26
|
%
|
Residential real estate (1-4 family)
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Commercial and industrial
|
|
|
17
|
|
|
|
10,378
|
|
|
|
74.19
|
%
|
|
|
8.59
|
%
|
|
|
22
|
|
|
|
14,790
|
|
|
|
42.73
|
%
|
|
|
10.80
|
%
|
|
|
4
|
|
|
|
7,237
|
|
|
|
37.09
|
%
|
|
|
5.27
|
%
|
Consumer
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
2
|
|
|
|
68
|
|
|
|
0.20
|
%
|
|
|
0.05
|
%
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
|
19
|
|
|
$
|
13,988
|
|
|
|
100.00
|
%
|
|
|
11.58
|
%
|
|
|
33
|
|
|
|
34,614
|
|
|
|
100.00
|
%
|
|
|
25.27
|
%
|
|
|
9
|
|
|
$
|
19,514
|
|
|
|
100
|
%
|
|
|
14.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service1sts
potential problem loans consisted of 19 loans and totaled
approximately $14.0 million at September 30, 2010 and
consisted of 33 loans which totaled $34.6 million at
December 31, 2009. This $20.6 million decrease is due
primarily to $11.2 million in loan payoffs and paydowns,
$4.7 million being moved to a non-accrual status,
$2.5 million moved to OREO, $2.0 million in loans
being charged off, $2.9 million being moved to an impaired
loan status, $939,000 being removed from the problem loan status
due to the loans being upgraded slightly offset by
$3.5 million in additional loans being classified as
potential problem loan in 2010 and $150,000 of advances on
potential problem loans. The problem loans presented above are
the result of a difficult economic environment in the markets
Service1st
operates. Commercial and industrial loans comprise approximately
74.19% of the total aggregate balance of potential problem loans
at September 30, 2010 compared to approximately 42.73% at
December 31, 2009. Commercial real estate comprises
approximately 25.81% of the total aggregate balance of potential
problem loans at September 30, 2010 compared to
approximately 32.29% at December 31, 2009. Commercial and
industrial loans is the only loan category which experienced an
increase in problem loan balances since December 31, 2009,
all other categories of loans decreased.
Service1sts
potential problem loans consisted of 33 loans and totaled
approximately $34.6 million at December 31, 2009 and
consisted of 9 loans and totaled $19.5 million at
December 31, 2008. This increase is due primarily to an
increased deterioration in the commercial real estate and
commercial and industrial loan portfolios of $10.8 million
and $7.6 million, respectively. These increases in problem
loans are the result of a difficult economic environment in the
markets
Service1st
operates. Construction and land loans comprise approximately
24.78% of the total aggregate balance of potential problem loans
at December 31, 2009 compared to approximately 61.12% at
December 31, 2008. This decrease is the result of
$7.8 million of charge-offs taken in 2009 for construction,
land development and other land loans. The majority of
Service1sts
potential problem loans are secured by real estate.
Impaired
Loans
A loan is impaired when it is probable that
Service1st
will be unable to collect all contractual principal and interest
payments due in accordance with the terms of the loan agreement.
Impaired loans are measured based on the present value of
expected future cash flows discounted at the loans
effective interest rate or, as a practical expedient, at the
loans observable market price or the fair value of the
collateral if the loan is collateral dependent. The amount of
impairment, if any, and any subsequent changes are either
included in the allowance for loan losses or charged off
Service1sts
books if deemed necessary.
106
The categories of nonaccrual loans and impaired loans overlap,
although they are not coextensive.
Service1st
considers all circumstances regarding the loan and borrower on
an individual basis when determining whether a loan is impaired
such as the collateral value, reasons for the delay, payment
record, the amount past due, and number of days past due.
As of September 30, 2010 and December 31, 2009, the
aggregate total amount of loans classified as impaired, was
$21.2 million and $9.4 million, respectively. The
total specific allowance for loan losses related to these loans
was $2.4 million at September 30, 2010 and $841,000 at
December 31, 2009. The increase in total impaired loans
reflects the overall decline in economic conditions in Nevada.
As of September 30, 2010 and December 31, 2009,
Service1st
had approximately $11.0 million and $526,000, respectively,
in loans classified as restructured loans. All such loans were
on nonaccrual. The $526,000 restructured loan is present in both
September 30, 2010 and December 31, 2009 balances and
originally consisted of two construction and land development
loans on adjacent properties, which were originated in 2007 to a
single borrower. These loans exhibited signs of distress in 2008
and were restructured in 2008, resulting in an outstanding
balance of $3.4 million as of December 31, 2008.
Updated appraisals were ordered for these two properties in
2009; however, both appraisals reflected continued deterioration
in value. As a result,
Service1st
charged off $2.9 million of the outstanding balance, which
resulted in a remaining outstanding balance of $526,000 as of
December 31, 2009 and September 30, 2010. This loan is
secured by 30 improved lots.
A $550,000 unsecured line of credit to an individual for
business investment purposes and classified as a commercial and
industrial loan was restructured in May 2010. After reviewing
the December 2009 personal and business financial
statements it was determined that the borrower was unable to
meet the terms of the credit agreement. A restructured loan was
approved and put in place which included a reduced monthly
payment. The borrower has been cooperative and is making
payments as agreed. As of September 30, 2010 the balance on
the unsecured line of credit was $479,000.
A $3.3 million construction and land development loan,
which was secured by 13.38 acres of vacant land, was
restructured in May 2010. The borrower had delayed development
of their planned industrial project due to the depressed
economic environment. The borrower tried to sell the property
without success for the past two years and had been paying
monthly interest out of pocket. At the end of 2009 the borrower
became delinquent on monthly interest payments and sought
relief. Prior to restructuring the loan the bank had already
recognized a charge-off of $891,000 once the loan had become
impaired.
Service1st
agreed to a restructured loan provided the borrower brought all
past due payments current at time of restructure. As of
September 30, 2010 the outstanding balance on this
restructured loan was $2.4 million and is past due for the
June, 2010s payment. As a result, notice of default was
filed in October 2010.
A $4.0 million land loan which is secured by
12.0 acres of vacant land was restructured in March 2010.
The borrower was an investment limited liability company
(LLC) supported by a guarantor. The guarantor indicated
that the LLC was unable to sell the property or continue to
service the debt. This same guarantor was a principal in a
related transaction in which the bank collected just over
$1.0 million dollars and charged off the remaining
$2.0 million. In exchange for partial repayment of the
related transaction, the bank agreed to a restructure of this
$4.0 million loan, of which $2.0 million was charged
off. As of September 30, 2010 the outstanding balance on
this restructured loan was $1.9 million and the borrower is
paying as agreed.
Four related loans to the same borrower were restructured in
June 2010. The loans consist of two commercial and industrial
loans totaling $650,000 that were related to the borrowers
medical practice and two real estate-secured loans totaling
$5.4 million, consisting of a $3.2 million loan on the
property in which the borrowers medical office is located
and a $2.2 million loan for the purchase of a medical
office building for lease. The borrower had already defaulted on
several single family residential properties, demonstrating to
the bank his financial weakness and in ability to service all of
his obligations. Given the borrowers financial
deterioration, the bank agreed to a reduction in monthly
payments of the combined credits. As of September 30, 2010
the outstanding balance was $5.7 million.
107
The breakdown of total impaired loans and the related specific
reserves at September 30, 2010, December 31, 2009 and
December 31, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
|
(Unaudited)
|
|
|
|
Impaired
|
|
|
|
|
|
Percent of
|
|
|
Reserve
|
|
|
|
|
|
Percent of
|
|
|
|
Balance
|
|
|
%
|
|
|
Total Loans
|
|
|
Balance
|
|
|
%
|
|
|
Total Allowance
|
|
|
|
($ in thousands)
|
|
|
Construction, land development and other land loans
|
|
$
|
6,485
|
|
|
|
30.52
|
%
|
|
|
5.37
|
%
|
|
$
|
89
|
|
|
|
3.66
|
%
|
|
|
1.27
|
%
|
Commercial real estate
|
|
|
12,258
|
|
|
|
57.69
|
%
|
|
|
10.14
|
%
|
|
|
1,540
|
|
|
|
63.27
|
%
|
|
|
21.93
|
%
|
Residential real estate (1-4 family)
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Commercial and industrial
|
|
|
2,504
|
|
|
|
11.79
|
%
|
|
|
2.07
|
%
|
|
|
805
|
|
|
|
33.06
|
%
|
|
|
11.46
|
%
|
Consumer
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
21,247
|
|
|
|
100.00
|
%
|
|
|
17.58
|
%
|
|
$
|
2,434
|
|
|
|
100.00
|
%
|
|
|
34.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
|
Impaired
|
|
|
|
|
|
Percent of
|
|
|
Reserve
|
|
|
|
|
|
Percent of
|
|
|
|
Balance
|
|
|
%
|
|
|
Total Loans
|
|
|
Balance
|
|
|
%
|
|
|
Total Allowance
|
|
|
|
($ in thousands)
|
|
|
Construction, land development and other land loans
|
|
$
|
8,081
|
|
|
|
86.37
|
%
|
|
|
5.91
|
%
|
|
$
|
453
|
|
|
|
53.91
|
%
|
|
|
7.63
|
%
|
Commercial real estate
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Residential real estate (1-4 family)
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.93
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Commercial and industrial
|
|
$
|
1,275
|
|
|
|
13.63
|
%
|
|
|
1.05
|
%
|
|
$
|
388
|
|
|
|
46.09
|
%
|
|
|
6.53
|
%
|
Consumer
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
9,356
|
|
|
|
100.00
|
%
|
|
|
6.84
|
%
|
|
$
|
841
|
|
|
|
100.00
|
%
|
|
|
14.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008
|
|
|
|
Impaired
|
|
|
|
|
|
Percent of
|
|
|
Reserve
|
|
|
|
|
|
Percent of
|
|
|
|
Balance
|
|
|
%
|
|
|
Total Loans
|
|
|
Balance
|
|
|
%
|
|
|
Total Allowance
|
|
|
|
($ in thousands)
|
|
|
Construction, land development and other land loans
|
|
$
|
7,380
|
|
|
|
100
|
%
|
|
|
5.38
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Commercial real estate
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Residential real estate (1-4 family)
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Commercial and industrial
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Consumer
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
7,380
|
|
|
|
100.00
|
%
|
|
|
5.38
|
%
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of interest income recognized on impaired loans for
the nine months ended September 30, 2010 and the year ended
December 31, 2009 were approximately $197,000 and $103,000,
respectively. A total of $21.2 million was recognized on
impaired loans for the nine months ended September 30,
2009, $9.4 million at December 31, 2009, and none for
the period ended December 31, 2008.
108
Allowance
for Loan Losses
The following table presents the activity in
Service1sts
allowance for loan losses for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
Allowance for Loan and Lease Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the period
|
|
$
|
8,551
|
|
|
$
|
3,845
|
|
|
$
|
6,404
|
|
|
$
|
2,883
|
|
|
$
|
2,883
|
|
|
$
|
922
|
|
|
$
|
0
|
|
Provisions charged to operating expenses
|
|
|
707
|
|
|
|
3,429
|
|
|
|
3,938
|
|
|
|
4,391
|
|
|
|
15,666
|
|
|
|
3,669
|
|
|
|
938
|
|
Recoveries of loans previously charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other
|
|
|
293
|
|
|
|
0
|
|
|
|
293
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Commercial
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Residential (including multi-family)
|
|
|
1
|
|
|
|
0
|
|
|
|
1
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Commercial and industrial
|
|
|
216
|
|
|
|
0
|
|
|
|
316
|
|
|
|
0
|
|
|
|
9
|
|
|
|
0
|
|
|
|
0
|
|
Consumer
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
510
|
|
|
|
0
|
|
|
|
610
|
|
|
|
0
|
|
|
|
9
|
|
|
|
3
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged-off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other
|
|
|
515
|
|
|
|
1,600
|
|
|
|
1,151
|
|
|
|
1,600
|
|
|
|
7,745
|
|
|
|
1,711
|
|
|
|
0
|
|
Commercial
|
|
|
654
|
|
|
|
0
|
|
|
|
922
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Residential (including multi-family)
|
|
|
0
|
|
|
|
0
|
|
|
|
202
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Commercial and industrial
|
|
|
1,579
|
|
|
|
269
|
|
|
|
1,655
|
|
|
|
269
|
|
|
|
4,409
|
|
|
|
0
|
|
|
|
0
|
|
Consumer
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charged-off
|
|
|
2,748
|
|
|
|
1,869
|
|
|
|
3,931
|
|
|
|
1,869
|
|
|
|
12,154
|
|
|
|
1,711
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
2,238
|
|
|
|
1,869
|
|
|
|
3,320
|
|
|
|
1,869
|
|
|
|
12,145
|
|
|
|
1,708
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
7,021
|
|
|
$
|
5,405
|
|
|
$
|
7,021
|
|
|
$
|
5,405
|
|
|
|
6,404
|
|
|
$
|
2,883
|
|
|
$
|
922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs to average loans outstanding
|
|
|
1.77
|
%
|
|
|
1.31
|
%
|
|
|
2.53
|
%
|
|
|
1.27
|
%
|
|
|
8.43
|
%
|
|
|
1.44
|
%
|
|
|
0.03
|
%
|
Allowance for loan loss to outstanding loans
|
|
|
5.81
|
%
|
|
|
3.65
|
%
|
|
|
5.81
|
%
|
|
|
3.65
|
%
|
|
|
4.68
|
%
|
|
|
2.10
|
%
|
|
|
1.03
|
%
|
The accounting principles used by
Service1st
in maintaining the allowance for loan losses are discussed in
the section entitled Critical Accounting Policies and
Estimates Allowance for Loan Losses. The
allowance is maintained at a level management believes to be
adequate to absorb estimated future credit losses inherent in
Service1sts
loan portfolio, based on evaluation of the collectability of the
loans, prior credit loss experience, credit loss experience of
other banks and other factors deemed relevant.
The allowance for loan losses is established through a provision
for loan losses charged to operations and is increased by the
collection of monies on loans previously charged off
(recoveries) and reduced by loans that are charged off.
Service1sts
board of directors reviews the adequacy of the allowance for
loan losses on a monthly basis. As of September 30, 2010,
Service1st
had established an allowance of $7.0 million, after
increasing the allowance by $3.9 million in provisions,
$610,000 in recoveries, and decreasing it by charge-offs of
$3.9 million. The allowance has increased from 4.68% of
outstanding loans at December 31, 2009 to 5.81% at
September 30, 2010, reflecting the increase in
nonperforming loans and deterioration in economic conditions.
109
Service1sts
methodology for the allowance for loan losses incorporates
several quantitative and qualitative risk factors used to
establish the appropriate allowance for loan loss at each
reporting date. Quantitative factors include delinquency and
charge-off trends, collateral values, the composition, volume
and overall quality of the loan portfolio (including outstanding
loan commitments), changes in nonperforming loans,
concentrations and information about individual loans.
Historical loss experience is an important quantitative factor
for many banks, but thus far less so for
Service1st,
because it has been in operation for just over three years.
Qualitative factors include the economic condition of
Service1sts
operating markets. Specific changes in the risk factors are
based on perceived risk of similar groups of loans classified by
collateral type and purpose. Statistics on local trends and
peers are also incorporated into the allowance. While
Service1st
management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary
if there are significant changes in economic or other
conditions. In addition, the FDIC and the Nevada Financial
Institutions Division, as an integral part of their examination
processes, periodically review
Service1sts
allowances for loan losses, and may require additions to
Service1sts
allowance based on their judgment about information available to
them at the time of their examinations.
Service1st
periodically reviews the assumptions and formulae used in
determining the allowance and makes adjustments if required to
reflect the current risk profile of the portfolio.
When
Service1st
determines that it is unable to collect all contractual
principal and interest payments due in accordance with the terms
of the loan agreement, the loan becomes impaired. Impaired loans
are measured based on the present value of expected future cash
flows discounted at the loans effective interest rate or,
as a practical expedient, at the loans observable market
price or the fair value of the collateral if the loan is
collateral dependent. The amount of impairment, if any, and any
subsequent changes are included in the allowance for loan losses
or charged off
Service1sts
books if deemed necessary.
Service1sts
loan portfolio has a concentration of loans in commercial
real-estate related loans and includes significant credit
exposure to the commercial real estate industry. The specific
reserves for collateral dependent impaired loans are based on
the fair value of the collateral less estimated selling costs
(including brokerage fees) and other miscellaneous costs that
may be incurred to make the collateral more marketable (such as
clean-up
costs) and to cure past due amounts (such as delinquent property
taxes). The fair value of collateral is determined based on
third-party appraisals. See Information Related to
Western Liberty Bancorp and
Service1st
Bank of Nevada Allowance for Loan
Losses for more information. In some cases,
adjustments are made to the appraised values due to known
changes in market conditions or known changes in the collateral.
Service1sts
management believes that the allowance as of September 30,
2010 and the methodology utilized in deriving that level are
adequate to absorb known and inherent risks in the loan
portfolio. However, credit quality is affected by many factors
beyond
Service1sts
control, including local and national economies, and facts may
exist which are not currently known to
Service1st
that adversely affect the likelihood of repayment of various
loans in the loan portfolio and realization of collateral upon
default. Accordingly, no assurance can be given that
Service1st
will not sustain loan losses materially in excess of the
allowance for loan losses. In addition, the FDIC, as a major
part of its examination process, periodically reviews the
allowance for loan losses and could require additional
provisions to be made. The allowance is based on estimates, and
actual losses may vary from the estimates. However, as the
volume of the loan portfolio grows, additional provisions will
be required to maintain the allowance at adequate levels. No
assurance can be given that continuing adverse economic
conditions or unforeseen events will not lead to increases in
delinquent loans, the provision for loan losses
and/or
charge-offs.
110
The following table presents the allocation of
Service1sts
allowance for loan losses by loan category and percentage of
loans in each category to total loans as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($s in thousands)
|
|
|
Allowance for Loan and Lease Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Secured by Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other
|
|
$
|
255
|
|
|
|
7.36
|
%
|
|
$
|
1,322
|
|
|
|
14.80
|
%
|
|
$
|
1,083
|
|
|
|
28.12
|
%
|
|
$
|
133
|
|
|
|
20.37
|
%
|
Commercial
|
|
|
2.996
|
|
|
|
51.67
|
%
|
|
|
1,890
|
|
|
|
50.02
|
%
|
|
|
484
|
|
|
|
29.95
|
%
|
|
|
234
|
|
|
|
32.93
|
%
|
Residential (including multi-family)
|
|
|
318
|
|
|
|
8.53
|
%
|
|
|
54
|
|
|
|
1.00
|
%
|
|
|
6
|
|
|
|
0.35
|
%
|
|
|
1
|
|
|
|
0.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans secured by real estate
|
|
|
3,569
|
|
|
|
67.56
|
%
|
|
|
3,266
|
|
|
|
65.82
|
%
|
|
|
1,573
|
|
|
|
58.42
|
%
|
|
|
368
|
|
|
|
53.49
|
%
|
Commercial and industrial
|
|
|
3,447
|
|
|
|
32.33
|
%
|
|
|
3,135
|
|
|
|
33.92
|
%
|
|
|
1,177
|
|
|
|
41.20
|
%
|
|
|
535
|
|
|
|
44.54
|
%
|
Consumer
|
|
|
6
|
|
|
|
0.11
|
%
|
|
|
3
|
|
|
|
0.26
|
%
|
|
|
133
|
|
|
|
0.38
|
%
|
|
|
19
|
|
|
|
1.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses
|
|
$
|
7,021
|
|
|
|
100.00
|
%
|
|
$
|
6,404
|
|
|
|
100.00
|
%
|
|
$
|
2,883
|
|
|
|
100
|
%
|
|
$
|
922
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The loan category with the largest level of historical net loan
charge-offs is attributed to
Service1sts
commercial and industrial loan category which had net loan
charge-offs of $1.7 million as of September 30, 2010
and $4.4 million during 2009. This loan balance totaled
$39.1 million as of September 30, 2010 and, as
previously discussed, $2.5 million were on nonaccrual as of
September 30, 2010. The allocated allowance of $805,000
represented 33.06% of such loans outstanding as of
September 30, 2010 and 46.09% of such loans that were on
nonaccrual as of December 31, 2009.
Service1sts
construction, land development and other land loans had net
charge-offs of $1.2 million as of September 30, 2010,
$7.7 million for all of 2009 and $1.7 million in 2008.
Service1sts
loan balance in this category as of September 30, 2010
totaled $8.9 million and, as previously discussed,
$5.6 million of these loans are on nonaccrual as of
September 30, 2010. The allocated allowance of $89,000
represented 3.66% of such loans outstanding as of
September 30, 2010 and 53.91% of such loans that were on
nonaccrual as of December 31, 2009.
Service1sts
commercial real estate loans had loan net charge-offs of
$922,000 as of September 30, 2010, and none for all of
2009.
Service1sts
loan balance in this category as of September 30, 2010
totaled $62.4 million and, as previously discussed,
$8.6 million of these loans are on nonaccrual as of
September 30, 2010. The allocated allowance of
$1.5 million represented 63.27% of such loans outstanding
as of September 30, 2010 and 0.00% of such loans that were
on nonaccrual as of December 31, 2009.
Deferred
Tax Asset
As of September 30, 2010 and December 31, 2009, a
valuation allowance for the entire net deferred tax asset was
considered necessary as
Service1st
determined it was not more likely than not that the deferred tax
asset would be realized. Federal operating loss carryforwards
begin to expire in 2027.
Internal Revenue Code Section 382 places a limitation on
the amount of taxable income that can be offset by net operating
loss carry forwards after a change in control (generally greater
than 50% change in ownership) of a loss corporation.
Accordingly, utilization of net operating loss carry forwards
may be subject to an annual limitation regarding their
utilization against future taxable income upon a change in
control.
Deposits
Service1sts
activities are based in Nevada.
Service1sts
deposit base is also primarily generated from this area.
Deposits have historically been the primary source for funding
Service1sts
asset growth.
111
During 2009 and the first nine months of 2010,
Service1st
sought to decrease the rates on its deposit base in order to
increase its net interest income, interest rate spread and net
interest margin. Deposits decreased $13.4 million or 7.25%
as of September 30, 2010 from $185.3 million as of
December 31, 2009 to $171.9 million as of
September 30, 2010. Time deposits decreased
$23.8 million or 39.27% from $60.6 million as of
December 31, 2009 to $36.8 million as of
September 30, 2010 as a result of the deposit rate
reduction strategy. In addition, money market accounts decreased
$13.3 million or 31.80% from $41.8 million as of
December 31, 2009 to $28.5 million as of
September 30, 2010. Approximately $10.0 million of the
$13.3 million decrease in money market accounts moved out
of money market accounts and into noninterest bearing deposits
due to the announcement of
Service1sts
consent order, the remaining $3.3 million left
Service1st altogether.
Overall rates on deposits decreased 52.33%, from 3.65% as of
September 30, 2009 to 1.74% as of September 30, 2010.
This resulted in interest expense decreasing $1.0 million
from September 30, 2009 to September 30, 2010. Total
deposits decreased 7.25% during the first nine months of 2010
which is reflective of
Service1st
effectively managing deposit rates down in order to lower their
cost of funds.
The following table reflects the summary of deposit categories
by dollar and percentage at September 30, 2010,
December 31, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
At December 31, 2009
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
Non-Interest-bearing deposits
|
|
$
|
75,026
|
|
|
|
43.65
|
%
|
|
$
|
56,463
|
|
|
|
30.47
|
%
|
|
$
|
21,578
|
|
|
|
19.64
|
%
|
Interest-bearing deposits
|
|
|
30,484
|
|
|
|
17.74
|
%
|
|
|
25,094
|
|
|
|
13.54
|
%
|
|
|
8,888
|
|
|
|
8.09
|
%
|
Money Markets
|
|
|
28,490
|
|
|
|
16.58
|
%
|
|
|
41,773
|
|
|
|
22.54
|
%
|
|
|
44,330
|
|
|
|
40.34
|
%
|
Savings
|
|
|
1,102
|
|
|
|
0.64
|
%
|
|
|
1,436
|
|
|
|
0.77
|
%
|
|
|
503
|
|
|
|
0.46
|
%
|
Time deposits under $100,000
|
|
|
5,015
|
|
|
|
2.92
|
%
|
|
|
6,238
|
|
|
|
3.37
|
%
|
|
|
4,586
|
|
|
|
4.17
|
%
|
Time deposits $100,00 and over
|
|
|
31,758
|
|
|
|
18.48
|
%
|
|
|
54,316
|
|
|
|
29.31
|
%
|
|
|
30,006
|
|
|
|
27.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
$
|
171,875
|
|
|
|
100.00
|
%
|
|
$
|
185,320
|
|
|
|
100.00
|
%
|
|
$
|
109,891
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposits of $100,000 or more at
September 30, 2010 and December 31, 2009 totaled
$31.8 million and $54.3 million, respectively. These
deposits are generally more rate sensitive than other deposits
and are more likely to be withdrawn to obtain higher yields
elsewhere if available. Scheduled maturities of certificates of
deposits in amounts of $100,000 or more at September 30,
2010 and December 31, 2009 were as follows:
Certificates
of Deposit Maturities > $100,000
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
($s in thousands)
|
|
|
Three months or less
|
|
$
|
16,940
|
|
|
$
|
6,327
|
|
Over three months to six months
|
|
|
3,838
|
|
|
|
8,404
|
|
Over six months to twelve months
|
|
|
10,980
|
|
|
|
39,585
|
|
Over 12 months
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
31,758
|
|
|
$
|
54,316
|
|
|
|
|
|
|
|
|
|
|
112
Capital
Resources
The current and projected capital position of
Service1st
and the impact of capital plans on long term strategies are
reviewed regularly by management.
Service1sts
capital position represents the level of capital available to
support continuing operations and expansion.
Service1st
is subject to certain regulatory capital requirements mandated
by the FDIC and generally applicable to all banks in the United
States. For more information, see the section entitled
Supervision and Regulation. Failure to meet
minimum capital requirements can result in restrictions on
activities (including restrictions on the rates paid on
deposits), and otherwise may cause federal or state bank
regulators to initiate enforcement
and/or other
action against
Service1st.
Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, banks must meet specific capital
guidelines that involve quantitative measures of their assets,
liabilities and certain off-balance sheet item as calculated
under regulatory accounting practices.
Service1sts
capital amounts and classifications are also subject to
qualitative judgments by the FDIC about components, risk
weightings and other factors. In accordance with
Service1sts
consent order dated September 1, 2010,
Service1st must
maintain its Tier 1 capital in such an amount to ensure
that its leverage ratio equals or exceeds 8.50%. In addition,
Service1st shall
also maintain its total risk-based capital ratio in such an
amount as to equal or exceed 12.00%.
Service1st
was initially capitalized at formation at the beginning of 2007
with $50 million. Due to operating losses and provisions to
the allowance for loan losses during
Service1sts
first three years of operations,
Service1sts
capital at September 30, 2010 was $19.8 million, which
Service1st
deems adequate to support continuing operations and growth. As a
de novo bank,
Service1st
is required to maintain a Tier 1 capital leverage ratio of
not less than 8.0% during its first seven years of operations.
Service1sts
capital ratios at September 30, 2010, relative to the
ratios require of well capitalized banks under the
prompt corrective action regime put in place by federal banking
regulations, are as follows:
|
|
|
|
|
|
|
|
|
Capital Ratios:
|
|
Service1st
|
|
|
Well Capitalized
|
|
|
Tier 1 equity to average assets
|
|
|
9.23
|
%
|
|
|
5.00
|
%
|
Tier 1 risk-based capital ratio
|
|
|
15.59
|
%
|
|
|
6.00
|
%
|
Total risk-based capital ratio
|
|
|
16.90
|
%
|
|
|
10.00
|
%
|
Notwithstanding that
Service1sts
capital ratios make the bank eligible to be considered
well capitalized on the basis of capital ratios, the
FDIC by letter dated July 29, 2010 advised
Service1st that
imposition of the Consent Order effective September 1, 2010
would result in the institution being considered
adequately capitalized for prompt corrective action
purposes. By the terms of the September 1, 2010 Consent
Order
Service1st is
required to maintain a Tier 1 leverage capital ratio of at
least 8.50% and a total risk-based capital ratio of 12.00%. In
addition, WLBC assured the FDIC in the application process that
WLBC would maintain the Tier 1 leverage capital ratio of
Service1st
at 10.00% or more until October 28, 2013 or, if later,
until the September 1, 2013 consent order terminates.
When the Acquisition was consummated on October 28, 2010,
under the Merger Agreement, WLBC infused an additional
$25 million of capital into
Service1st
at the closing of the Acquisition.
Liquidity
and Asset/Liability Management
Liquidity management refers to
Service1sts
ability to provide funds on an ongoing basis to meet
fluctuations in deposit levels as well as the credit needs and
requirements of its clients. Both assets and liabilities
contribute to
Service1sts
liquidity position. Lines of credit with the regional Federal
Reserve Bank and Federal Home Loan Bank, as well as short term
investments, increases in deposits and loan repayments all
contribute to liquidity while loan funding, investing and
deposit withdrawals decrease liquidity.
Service1st
assesses the likelihood of projected funding requirements by
reviewing current and forecasted economic conditions and
individual client funding needs.
Service1sts
sources of liquidity consists of cash and due from correspondent
banks, overnight funds sold to correspondents and the Federal
Reserve Bank, certificates of deposits at other financial
institution (non-brokered), unpledged security investments and
lines of credit with the Federal Reserve Bank of
San Francisco
113
and Federal Home Loan Bank of San Francisco. As of
September 30, 2010
Service1st
had approximately $27.8 million in cash and cash
equivalents, approximately $32.2 million in certificates of
deposits at other financial institutions, with maturities of one
year or less. In addition,
Service1st
had $4.6 million in unpledged security investments, of
which $3.9 million is classified as available for sale,
while the remaining $664,000 is classified as held to maturity.
Service1st
also has a $6.8 million collateralized line of credit with
the Federal Reserve Bank of San Francisco and a
$18.1 million collateralized line of credit with the
Federal Home Loan Bank of San Francisco. Both the
$6.8 million line of credit with the Federal Reserve of
San Francisco and the $18.1 million line of credit
with the Federal Home Loan Bank have a zero balance.
Liquidity is also affected by portfolio maturities and the
effect of interest rate fluctuations on the marketability of
both assets and liabilities.
Service1st
can sell any of its unpledged securities held in the available
for sale category to meet liquidity needs. These securities are
also available to pledge as collateral for borrowings if the
need should arise.
Service1sts
management believes the level of liquid assets and available
credit facilities are sufficient to meet current and anticipated
funding needs during the next twelve months. In addition,
Service1sts
Asset/Liability
Management Committee oversees
Service1sts
liquidity position by reviewing a monthly liquidity report.
While management recognizes that
Service1st
may use some of its existing liquidity to issue loans during the
next twelve months, it is not aware of any trends, demands,
commitments, events or uncertainties that are reasonably likely
to impair
Service1sts
liquidity.
Off-Balance
Sheet Arrangements
In the normal course of business,
Service1st
is a party to financial instruments with off-balance-sheet risk.
These financial instruments include commitments to extend credit
and letters of credit. To varying degrees, these instruments
involve elements of credit and interest rate risk in excess of
the amount recognized in the statement of financial position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
At December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(unaudited)
|
|
|
|
|
|
|
($ in thousands)
|
|
Commitments to extend credit
|
|
$
|
20,044
|
|
|
$
|
25,035
|
|
|
$
|
32,001
|
|
Commitments to extend credit to directors and officers
(undisbursed amount)
|
|
$
|
2,394
|
|
|
$
|
1,392
|
|
|
$
|
441
|
|
Standyby/commercial letters of credit
|
|
$
|
695
|
|
|
$
|
1,408
|
|
|
$
|
152
|
|
Service1st
maintains an allowance for unfunded commitments, based on the
level and quality of
Service1sts
undisbursed loan funds, which comprises the majority of
Service1sts
off-balance sheet risk. As of September 30, 2010 and
December 31, 2009, the allowance for unfunded commitments
was approximately $377,000 and $819,000, respectively.
Management is not aware of any other material off-balance sheet
arrangements or commitments outside of the ordinary course of
Service1sts
business.
114
Contractual
Obligations
The following table is a summary of
Service1sts
contractual obligations as of December 31, 2009, by
contractual maturity date for the next five years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
|
Payments due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
1-3
|
|
|
3-5
|
|
|
After
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
($ in thousands)
|
|
|
Long Term Borrowed Funds
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Capital Lease Obligations
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Operating Lease Obligations
|
|
|
3,104
|
|
|
|
889
|
|
|
|
2,215
|
|
|
|
0
|
|
|
|
0
|
|
Purchase Obligations
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Other Long Term Liabilities
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,104
|
|
|
$
|
889
|
|
|
$
|
2,215
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative
and Qualitative Disclosures About Market Risk
Market risk is a broad term for the risk of economic loss due to
adverse changes in the fair value of a financial instrument.
These changes may be the result of various factors, including
interest rates, foreign exchange rates, commodity prices
and/or
equity prices. As a financial institution,
Service1sts
primary component of market risk is interest rate volatility.
Net interest income is the primary component of
Service1sts
net income, and fluctuations in interest rates will ultimately
affect the level of both income and expense recorded on a large
portion of
Service1sts
assets and liabilities. In addition to directly impacting net
interest income, changes in the level of interest rates can also
affect (i) the amount of loans originated and sold by
Service1st,
(ii) the ability of borrowers to repay adjustable or
variable rate loans, (iii) the average maturity of loans,
(iv) the rate of amortization of premiums paid on
securities, (v) the fair value of
Service1sts
saleable assets, (vi) the amount of unrealized gains and
losses on securities available for sale, the volume of interest
bearing non-maturity deposits and (vii) the early
withdrawal likelihood of customer originated certificates of
deposit.
Interest rate risk occurs when assets and liabilities reprice at
different times as interest rates change. In general, the
interest that
Service1st
earns on its assets and pays on its liabilities are established
contractually for specified period of time. Market interest
rates change over time and if a financial institution cannot
quickly adapt to changes in interest rates, it may be exposed to
volatility in earnings. For instance, if
Service1st
were to fund long-term fixed rate assets with short-term
variable rate deposits, and interest rates were to rise over the
term of the assets, the short-term variable deposits would rise
in cost, adversely affecting net interest income. Similar risks
exist when rate sensitive assets (for example, prime rate based
loans) are funded by longer-term fixed rate liabilities in a
falling interest rate environment.
Service1st
manages its mix of assets and liabilities with the goals of
limiting its exposure to interest rate risk, ensuring adequate
liquidity, and coordinating its sources and uses of funds while
maintaining an acceptable level of net interest income given the
current interest rate environment.
Service1sts
primary source of funds has been retail deposits, consisting
primarily of interest-bearing checking accounts and time
deposits.
Service1sts
management believes retail deposits, unlike brokered deposits,
reduce the effects of interest rate fluctuations because they
generally represent a more stable source of funds.
Service1st
also maintains availability of lines of credit from the FHLB of
San Francisco and the Federal Reserve Bank of
San Francisco as additional sources of funds, but has not
drawn on them. Borrowings under these lines generally have a
long-term to maturity than retail deposits.
Service1st
also uses interest rate floors, ranging from 5.5% to
8.5%, on a majority of its prime-rate based loans to protect
against a loss of net interest income that would result from a
decline in interest rates. At September 30, 2010 and
December 31, 2009, approximately 30.57% and 40% of
Service1sts
loans are indexed to the national prime rate, respectively.
Currently the prime rate is under the applicable floor rate for
115
substantially all of
Service1sts
prime-rate based loans.
Service1sts
net interest income may be adversely impacted if the prime rate
were to increase but remain below the applicable floor rate
since any such increase may result in an increase in
Service1sts
interest expenses without an increase in
Service1sts
interest income derived from such prime-rate based loans until
the prime rate exceeds the applicable floor rate.
Service1st
has an interest rate risk management system that captures
material sources of interest rate risk and generates reports for
senior management and the board of directors.
Service1st
board establishes interest rate risk management policies that
govern the measurement and control of interest rate risk. The
asset/liability management committee provides oversight of
Service1sts
interest rate risk management. The Chief Financial Officer is
responsible for
day-to-day
management of
Service1sts
interest rate sensitivity position and examines the potential
impact of differing interest rate scenarios. Key measurements
include, but are not limited to, traditional gap ratios,
earnings at risk, economic value of equity, net interest margin
trends relative to peer banks and performance relative to market
interest rate cycles.
Risk tolerance limits are set based on net profit impact of
instantaneous and sustained interest rate shocks of
100 basis points, with quarterly measures of shocks up to
300 basis points. The effect of interest rate shocks on
Service1sts
economic value of equity will also be considered.
Service1sts
interest rate risk model is back-tested to ensure integrity of
key assumptions and to compare actual results after significant
rate changes to predicted results. Applicable measurements are
reviewed for consistency with
Service1sts
target aggregates and for indication of actual or potential
adverse trends. Interest rate risk management reports are
prepared quarterly and back-tested as market conditions warrant.
The computation of prospective effects of hypothetical interest
rate changes are based on numerous assumptions, including
relative levels of market interest rates, asset prepayments and
deposit decay, and should not be relied upon as indicative of
actual results. Further, the computations do not contemplate any
actions
Service1st may
undertake in response to changes in interest rates. Actual
amounts may differ from the projections set forth below should
market conditions vary from underlying assumptions.
December 31,
2009
Sensitivity of Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
Adjusted Net
|
|
Change
|
Interest Rate Scenario
|
|
Interest Income
|
|
from Base
|
|
|
($ in thousands)
|
|
Up 300 basis points
|
|
$
|
7,699
|
|
|
|
22.13
|
%
|
Up 200 basis points
|
|
|
7,244
|
|
|
|
14.91
|
%
|
Up 100 basis points
|
|
|
6,784
|
|
|
|
7.61
|
%
|
BASE
|
|
|
6,304
|
|
|
|
0.00
|
%
|
Down 100 basis points
|
|
|
6,371
|
|
|
|
1.06
|
%
|
Down 200 basis points
|
|
|
6,551
|
|
|
|
3.92
|
%
|
Down 300 basis points
|
|
|
6,577
|
|
|
|
4.33
|
%
|
116
SUPERVISION
AND REGULATION
The following summary of Federal and state laws governing the
supervision and regulation of bank holding companies and banks
is not comprehensive. The summary is qualified in its entirety
by reference to applicable statutes and regulations.
Holding companies. We have sought and received
approval of the Federal Reserve to become a bank holding company
under the Bank Holding Company Act of 1956. Bank holding
companies are subject to extensive regulation, supervision, and
examination by the Federal Reserve, acting principally through
its local Federal Reserve Bank.
A bank holding company must serve as a source of financial and
managerial strength for its subsidiary banks and must not
conduct its operations in an unsafe or unsound manner. The
Federal Reserve requires bank holding companies to maintain
capital at or above certain prescribed levels. It is the Federal
Reserve policy that a bank holding company should provide
capital to its subsidiary banks during periods of financial
stress or adversity and maintain the financial flexibility and
capital-raising capacity to obtain additional resources for
assisting subsidiary banks. Bank holding companies may also be
required to give written notice to and receive approval from the
Federal Reserve before purchasing or redeeming Common Stock or
other equity securities.
Under Bank Holding Company Act section 5(e), the Federal
Reserve may require a bank holding company to terminate any
activity or relinquish control of a nonbank subsidiary if the
Federal Reserve determines that the activity or control
constitutes a serious risk to the financial safety, soundness,
or stability of a subsidiary bank. Pursuant to the Federal
Deposit Insurance Corporation Improvement Act of 1991 addition
of the prompt corrective action provisions to the Federal
Deposit Insurance Act, section 38(f)(2)(I) of the Federal
Deposit Insurance Act now provides that a federal bank
regulatory authority may require a bank holding company to
divest itself of an undercapitalized bank subsidiary if the
agency determines that divestiture will improve the banks
financial condition and prospects.
A bank holding company must obtain Federal Reserve approval to:
|
|
|
|
|
acquire ownership or control of any voting shares of another
bank or bank holding company, if after the acquisition the
acquiring company would own or control more than 5% of the
shares of the other bank or bank holding company (unless the
acquiring company already owns or controls a majority of the
shares),
|
|
|
|
acquire all or substantially all of the assets of another
bank, or
|
|
|
|
merge or consolidate with another bank holding company.
|
The Federal Reserve will not approve an acquisition, merger, or
consolidation that would have a substantially anticompetitive
result unless the anticompetitive effects of the proposed
transaction are clearly outweighed by a greater public interest
in satisfying the convenience and needs of the community to be
served. The Federal Reserve also considers capital adequacy and
other financial and managerial factors in its review of
acquisitions and mergers, as well as the parties
performance under the Community Reinvestment Act of 1977.
With certain exceptions, the Bank Holding Company Act prohibits
a bank holding company from acquiring or retaining ownership or
control of more than 5% of the outstanding voting shares of any
company that is not a bank or bank holding company or from
engaging in activities other than banking, managing or
controlling banks, or providing services for holding company
subsidiaries. The principal exceptions to these prohibitions
involve non-bank activities identified by statute, by Federal
Reserve regulation, or by Federal Reserve order as activities so
closely related to the business of banking or of managing or
controlling banks as to be a proper incident thereto, including
securities brokerage services, investment advisory services,
fiduciary services, and management advisory and data processing
services, among others. A bank holding company that also
qualifies as and elects to become a financial holding
company may engage in a broader range of activities that
are financial in nature (and complementary to such activities),
specifically non-bank activities identified by the Gramm-
Leach-Bliley Act of 1999 or by Federal Reserve and Treasury
regulation as financial in nature or incidental to a financial
activity. Activities that are defined as financial in nature
include securities
117
underwriting, dealing, and market making, sponsoring mutual
funds and investment companies, engaging in insurance
underwriting and agency activities, and making merchant banking
investments in non- financial companies. To become and remain a
financial holding company, a bank holding company and its
subsidiary banks must be well capitalized, well managed, and,
except in limited circumstances, have at least a satisfactory
rating under the Community Reinvestment Act. If after becoming a
financial holding company and undertaking activities not
permissible for a bank holding company the company fails to
satisfy the standards for financial holding company status, the
company must enter into an agreement with the Federal Reserve to
comply with all applicable capital and management requirements.
If the company does not return to compliance within
180 days, the Federal Reserve may order the company to
divest its subsidiary bank or banks or the company may
discontinue the activities that are permissible solely for a
financial holding company.
The Bank Holding Company Act, the Change in Bank Control Act of
1978, and the Federal Reserves Regulation Y require
that advance notice be given to the Federal Reserve or that
affirmative approval of the Federal Reserve be obtained to
acquire control of a bank or bank holding company, with limited
exceptions. The Federal Reserve may act during the advance
notice period to prevent the acquisition of control. Subject to
guidance issued by the Federal Reserve in September 2008,
control is conclusively presumed to exist if a person or entity
acquires 25% or more of any class of voting stock of a bank
holding company or insured depository institution. Control is
rebuttably presumed to exist if a person or entity acquires 10%
or more but less than 25% of the voting stock and either the
issuer has a class of securities registered under
section 12 of the Exchange Act, as we do, or no other
person or entity will own, control, or hold the power to vote a
greater percentage of voting stock immediately after the
transaction. In its September 2008 guidance, the Federal Reserve
stated that generally it will be able to conclude that an
investor does not have a controlling influence over a bank or
bank holding company if the investor does not own more than 15%
of the voting power and 33% of the total equity of the bank or
bank holding company, including nonvoting equity securities. The
investor may, however, be required to make passivity commitments
to the Federal Reserve, promising to refrain from taking various
actions that might constitute exercise of a controlling
influence. Under prior Federal Reserve guidance, a board seat
was generally not permitted for an investment of 10% or more of
the equity or voting power. But under the September 2008
guidance, the Federal Reserve may permit a non-controlling
investor to have a board seat.
We are also subject to examination by and may be required to
file reports with the Nevada Financial Institutions Division
under sections 666.065 et seq. of the Nevada Revised
Statutes. We would have to obtain the approval of the Nevada
Commissioner of Financial Institutions to acquire another bank,
and any transfer of control of a Nevada bank holding company
would have to be approved in advance by the Nevada Commissioner.
Banks. Service1st is
chartered by the State of Nevada and is therefore subject to
regulation, supervision, and examination not only by the FDIC
but also by the Nevada Financial Institutions Division. Federal
and state statutes governing the business of banking and
insurance of bank deposits as well as implementing regulations
promulgated by the Federal and state banking regulatory agencies
cover most aspects of bank operations, including capital
requirements, reserve requirements against deposits, reserves
for possible loan losses and other contingencies, dividends and
other distributions to stockholders, customers interests
in deposit accounts, payment of interest on certain deposits,
permissible activities and investments, securities that a bank
may issue and borrowings that a bank may incur, rate of growth,
number and location of branch offices, and acquisition and
merger activity with other financial institutions. In addition
to minimum capital requirements, Federal law imposes other
safety and soundness standards having to do with such things as
internal controls, information systems, internal audit systems,
loan documentation, credit underwriting, interest rate risk
exposure, asset growth, asset quality, earnings, and
compensation and benefits.
If as a result of examination the FDIC determines that a
banks financial condition, capital resources, asset
quality, earnings prospects, management, liquidity or other
aspects of the banks operations are unsatisfactory, or
that the bank or its management is in violation of any law or
regulation, the FDIC may take a number of remedial actions.
Federal bank regulatory agencies make regular use of their
authority to bring enforcement actions against banks and bank
holding companies for unsafe or unsound practices in the conduct
of their businesses and for violations of any law, rule or
regulation, any condition imposed in writing by the
118
appropriate federal banking regulatory authority or any written
agreement with the authority. Possible enforcement actions
include appointment of a conservator or receiver, issuance of a
cease-and-desist
order that could be judicially enforced, termination of a
banks deposit insurance, imposition of civil money
penalties, issuance of directives to increase capital, issuance
of formal and informal agreements, including memoranda of
understanding, issuance of removal and prohibition orders
against institution-affiliated parties, and enforcement of such
actions through injunctions or restraining orders. In addition,
a bank holding companys inability to serve as a source of
strength for its subsidiary banks could serve as an additional
basis for a regulatory action against the bank holding company.
Under Nevada Revised Statutes section 661.085, if the
stockholders equity of a Nevada-chartered bank becomes
impaired, the Nevada Commissioner must require the bank to make
the impairment good within three months. If the impairment is
not made good, the Nevada Commissioner may take possession of
the bank and liquidate it.
Capital. Regulatory capital guidelines. A
banks capital hedges its risk exposure, absorbing losses
that can be predicted as well as losses that cannot be
predicted. According to the Federal Financial Institutions
Examination Councils explanation of the capital component
of the Uniform Financial Institutions Rating System, commonly
known as the CAMELS rating system, a rating system
employed by the Federal bank regulatory agencies, a financial
institution must maintain capital commensurate with the
nature and extent of risks to the institution and the ability of
management to identify, measure, monitor, and control these
risks. The effect of credit, market, and other risks on the
institutions financial condition should be considered when
evaluating the adequacy of capital. The minimum ratio of
total capital to risk-weighted assets is 8.0%, of which at least
4.0% must consist of so-called Tier 1 capital. The minimum
Tier 1 leverage ratio Tier 1 capital to
average assets is 3.0% for the highest rated
institutions and at least 4.0% for all others. These ratios are
absolute minimums. In practice, banks are expected to operate
with more than the absolute minimum capital. As of
September 30, 2010
Service1sts
total risk-based capital ratio was 16.9%, its Tier 1
risk-based capital ratio was 15.6%, and its Tier 1 equity
to average assets ratio was 9.2%. The FDIC may establish greater
minimum capital requirements for specific institutions. A bank
that does not achieve and maintain the required capital levels
may be issued a capital directive by the FDIC to ensure the
maintenance of required capital levels. The Federal Reserve
imposes substantially similar capital requirements on bank
holding companies as well.
Tier 1 capital consists of common stock, retained earnings,
non-cumulative perpetual preferred stock, trust preferred
securities up to a certain limit, and minority interests in
certain subsidiaries, less most other intangible assets.
Tier 2 capital consists of preferred stock not qualifying
as Tier 1 capital, limited amounts of subordinated debt,
other qualifying term debt, a limited amount of the allowance
for loan and lease losses, and certain other instruments that
have some characteristics of equity. To determine risk-weighted
assets, the nominal dollar amounts of assets on the balance
sheet and credit-equivalent amounts of off-balance-sheet items
are multiplied by one of several risk adjustment percentages
ranging from 0.0% for assets considered to have low credit risk,
such as cash and certain U.S. government securities, to
100.0% for assets with relatively higher credit risk, such as
business loans, and a 200% risk-weight for selected investments
that are rated below investment grade or, if not rated, that are
equivalent to investments rated below investment grade. A
banking organizations risk-based capital ratios are
obtained by dividing its Tier 1 capital and total
qualifying capital (Tier 1 capital and a limited amount of
Tier 2 capital) by its total risk-adjusted assets.
During the application process for the acquisition of
Service1st by
WLBC, we made a written commitment to the FDIC that we will
maintain the Tier 1 leverage capital ratio of
Service1st at
10% or greater. This commitment will expire three years after
the October 28, 2010 completion of the acquisition of
Service1st or,
if later, when the September 1, 2010 Consent Order agreed
to by
Service1st with
the FDIC and the Nevada Financial Institutions Division
terminates.
Prompt corrective action. To resolve the
problems of undercapitalized institutions and to prevent a
recurrence of the banking crisis of the late 1980s and early
1990s, the Federal Deposit Insurance Corporation Improvement Act
of 1991 established a system known as prompt corrective
action. Under the prompt corrective action provisions and
implementing regulations, every institution is classified into
one of five categories, depending on its total risk-based
capital ratio, its Tier 1 risk-based capital ratio, its
leverage ratio, and subjective factors. The categories are
well capitalized, adequately
capitalized, undercapitalized,
119
significantly undercapitalized and critically
undercapitalized. To be considered well capitalized for
purposes of the prompt corrective action rules a bank must
maintain total risk-based capital of 10.0% or greater,
Tier 1 risk-based capital of 6.0% or greater, and leverage
capital of 5.0% or greater. An institution with a capital level
that might qualify for well-capitalized or adequately
capitalized status may nevertheless be treated as though it were
in the next lower capital category if its primary federal
banking supervisory authority determines that an unsafe or
unsound condition or practice warrants that treatment.
Notwithstanding that
Service1sts
capital ratios make the bank eligible to be considered
well capitalized on the basis of capital ratios, the
FDIC by letter dated July 29, 2010 advised
Service1st
that imposition of the Consent Order would result in the
institution being considered adequately capitalized
for prompt corrective action purposes.
A financial institutions operations can be significantly
affected by its capital classification under the prompt
corrective action rules. For example, an institution that is not
well capitalized generally is prohibited from accepting brokered
deposits and offering interest rates on deposits higher than the
prevailing rate in its market without advance regulatory
approval, which can have an adverse effect on the banks
liquidity. At each successively lower capital category, an
insured depository institution is subject to additional
restrictions. Undercapitalized institutions are required to take
specified actions to increase their capital or otherwise
decrease the risks to the federal deposit insurance funds. A
bank holding company must guarantee that a subsidiary bank that
adopts a capital restoration plan will satisfy its plan
obligations. Any capital loans made by a bank holding company to
a subsidiary bank are subordinated to the claims of depositors
in the bank and to certain other indebtedness of the subsidiary
bank. If bankruptcy of a bank holding company occurs, any
commitment by the bank holding company to a Federal banking
regulatory agency to maintain the capital of a subsidiary bank
would be assumed by the bankruptcy trustee and would be entitled
to priority of payment. Bank regulatory agencies generally are
required to appoint a receiver or conservator shortly after an
institution becomes critically undercapitalized.
Deposit insurance. Bank deposits are insured
by the FDIC to applicable limits through the Deposit Insurance
Fund. Insured banks must pay deposit insurance premiums assessed
semiannually and paid quarterly. The insurance premium amount is
based upon a risk classification system established by the FDIC.
Banks with higher levels of capital and a low degree of
supervisory concern are assessed lower premiums than banks with
lower levels of capital or a higher degree of supervisory
concern. Effective January 1, 2009 the FDIC increased
assessment rates uniformly for all risk categories by 7 cents
for the first quarter 2009 assessment period. In 2009, the FDIC
adopted a rule that imposed a special assessment on banks, which
was payable in September 2009, and that allowed the FDIC to
impose additional special assessments to replenish the Deposit
Insurance Fund, which was badly depleted by bank failures. As an
alternative to imposing additional special assessments on
insured depository institutions or borrowing from the
U.S. Treasury, on November 12, 2009 the FDIC adopted a
proposal to increase deposit insurance assessments effective on
January 1, 2011 and to require all insured depository
institutions to prepay by the end of 2009 their deposit
insurance assessments for the fourth quarter of 2009 and for the
entirety of 2010 through 2012. Institutions record the prepaid
FDIC insurance assessments as an asset as of December 31,
2009, later charging the assessments to expense in the periods
to which the assessments apply. We anticipate that assessment
rates will continue to increase for the foreseeable future
because of the significant cost of bank failures, because of the
relatively large number of troubled banks, and because of the
requirement of the recently enacted Dodd-Frank Wall Street
Reform and Consumer Protection Act that the FDIC increase its
insurance fund reserves to $1.35 for each $100 of insured
deposits (as of September 30, 2010, the reserve fund was
negative-$0.15 for each $100 of insured deposits). On
November 9, 2010, the FDIC proposed to change its
assessment base from total domestic deposits to average total
assets minus average tangible equity, as required in the
Dodd-Frank Wall Street Reform and Consumer Protection Act. The
new assessment base will apply to the second quarter of 2011.
The FDIC intends to raise the same expected revenue under the
new base as under the current assessment base.
During a December 14, 2010 board meeting, the FDIC voted on
a final rule to set the deposit insurance funds designated
reserve ratio at 2% of estimated insured deposits effective
January 1, 2011. The FDIC said a historical analysis of
losses to the insurance fund showed that a long-term, minimum
goal of at least 2% is necessary to maintain a positive fund
balance and stable assessment rates. The Federal Deposit
Insurance Act requires the FDIC board to set the designated
reserve ratio annually based on the risk of loss to the
insurance
120
fund and the economic conditions affecting the banking
industry, and with the aim of preventing sharp swings in
assessment rates. The FDIC expects to take action on assessment
rates and assessment dividends in the first quarter of 2011.
The $100,000 basic deposit insurance limit in place for many
years was increased temporarily to $250,000 by the Emergency
Economic Stabilization Act of 2008, which became law on
October 3, 2008. On July 21, 2010, the Dodd-Frank
Wall Street Reform and Consumer Protection Act,
section 335, made the $250,000 insurance limit permanent.
Dividends and distributions. We have never
declared or paid cash dividends on our capital stock. We
currently intend to retain any future earnings for future growth
and do not anticipate paying any cash dividends for the
foreseeable future. Any determination in the future to pay
dividends will be at the discretion of the Board and will depend
on our earnings, financial condition, results of operations,
business prospects, capital requirements, regulatory
restrictions, contractual restrictions and other factors that
the Board may deem relevant.
A bank holding companys ability to pay dividends is
subject to Federal Reserve supervisory authority, taking in to
account the bank holding companys capital position, its
ability to satisfy its financial obligations as they come due,
and its capacity to act as a source of financial strength to its
subsidiaries. In addition, Federal Reserve policy discourages
the payment of dividends by a bank holding company if the
dividends are not supported by current operating earnings.
Because we do not have significant assets other than the stock
of
Service1st,
we are dependent on dividends from the bank for revenue and cash
flow. Furthermore, Federal Reserve and FDIC policy statements
provide that banks should generally pay dividends solely out of
current operating earnings. A bank may not pay a dividend if the
bank is undercapitalized or if payment would cause the bank to
become undercapitalized.
A bank holding company may not purchase or redeem its equity
securities without advance written approval of the Federal
Reserve under Federal Reserve Rule 225.4(b) if the purchase
or redemption combined with all other purchases and redemptions
by the bank holding company during the preceding 12 months
equals or exceeds 10% of the bank holding companys
consolidated net worth. However, advance approval is not
necessary if the bank holding company is well managed, not the
subject of any unresolved supervisory issues, and both before
and immediately after the purchase or redemption is well
capitalized.
Under sections 661.235 and 661.240 of the Nevada Revised
Statutes, a Nevada-chartered bank , such as
Service1st,
whose deposits are insured by the FDIC may not make
distributions (including dividends) to or for the benefit of its
stockholders if the distributions would reduce the banks
stockholders equity below the banks initial
stockholders equity. Pursuant to Nevada Revised Statutes
section 78.288(2), which applies to Nevada corporations
generally, including
Service1st,
a corporation may not make distributions (including dividends)
to or for the benefit of its stockholders if, after giving
effect to the distribution, the corporation would be unable to
pay its debts as they become due in the usual course of
business, or the corporations total assets would be less
than the sum of its total liabilities plus the amount that would
be needed to satisfy the preferential rights (if any) upon
dissolution of stockholders whose preferential rights are
superior to those receiving the distribution (unless the
corporations articles of incorporation override this
latter limitation, which
Service1sts
articles do not). Relying on 12 U.S.C. 1818(b), the FDIC
may restrict a banks ability to pay a dividend if the FDIC
has reasonable cause to believe that the dividend would
constitute an unsafe and unsound practice. A banks ability
to pay dividends may be affected also by the FDICs capital
maintenance requirements and prompt corrective action rules.
Selected regulations. Transactions with
affiliates. Transactions by a bank with an
affiliate, including a holding company, are subject to
restrictions imposed by Federal Reserve Act sections 23A
and 23B and implementing regulations, which are intended to
protect banks from abuse in financial transactions with
affiliates, preventing federally insured deposits from being
diverted to support the activities of unregulated entities
engaged in nonbanking businesses. Affiliate-transaction limits
could impair our ability to obtain funds from our bank
subsidiary for our cash needs, including funds for payment of
dividends, interest, and operational expenses. Affiliate
transactions include, but are not limited to, extensions of
credit to affiliates,
121
investments in securities issued by affiliates, the use of
affiliates securities as collateral for loans to any
borrower, and purchase of affiliate assets. Generally,
section 23A and section 23B of the Federal Reserve Act:
|
|
|
|
|
limit the extent to which a bank or its subsidiaries may lend to
or engage in various other kinds of transactions with any one
affiliate to an amount equal to 10% of the institutions
capital and surplus, limiting the aggregate of covered
transactions with all affiliates to 20% of capital and surplus,
|
|
|
|
impose strict collateral requirements on loans or extensions of
credit by a bank to an affiliate,
|
|
|
|
impose restrictions on investments by a subsidiary bank in the
stock or securities of its holding company,
|
|
|
|
impose restrictions on the use of a holding companys stock
as collateral for loans by the subsidiary bank, and
|
|
|
|
require that affiliate transactions be on terms substantially
the same as those provided to a non-affiliate.
|
Loans to
insiders. Service1sts
authority to extend credit to insiders meaning
executive officers, directors and greater than 10%
stockholders or to entities those persons control,
is subject to section 22(g) and section 22(h) of the
Federal Reserve Act and Regulation O of the Federal
Reserve. Among other things, these 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 banks
capital position, and require that specified approval procedures
be adhered to by the bank. Loans to an individual insider may
not exceed the Federal legal limit on loans to any one borrower,
which in general terms is 15% of capital but can be higher in
some circumstances. The aggregate of all loans to all insiders
may not exceed the banks unimpaired capital and surplus.
Insider loans exceeding the greater of 5% of capital or $25,000
must be approved in advance by a majority of the board, with any
interested director not participating in such voting by the
board. Executive officers may borrow in unlimited amounts to
finance their childrens education or to finance the
purchase or improvement of their residence, but they may borrow
no more than $100,000 for most other purposes. Loans to
executive officers exceeding $100,000 may be allowed if the loan
is fully secured by government securities or a segregated
deposit account. A violation of these restrictions could result
in the assessment of substantial civil monetary penalties, the
imposition of a
cease-and-desist
order or other regulatory sanctions.
Loans to one borrower. Under
section 662.145 of the Nevada Revised Statutes, a
Nevada-chartered banks outstanding loans to one person
generally may not exceed 25% of the banks 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
banks loans to that borrower for purposes of applying this
25% limit.
Guidance concerning commercial real estate
lending. In December 2006 the FDIC and other
Federal banking agencies issued final guidance on sound risk
management practices for concentrations in commercial real
estate lending, including acquisition and development lending,
construction lending, and other land loans, which recent
experience in Nevada and elsewhere has shown can be particularly
high-risk lending. According to a 2009 FDIC publication, a
majority of the community banks that became problem banks or
failed in 2008 had similar risk profiles: the banks often had
extremely high concentrations, relative to their capital, in
residential acquisition, development, and construction lending,
loan underwriting and credit administration functions at these
institutions typically were criticized by examiners, and many of
the institutions had exhibited rapid asset growth funded with
brokered deposits.
The guidance does not establish rigid limits on commercial real
estate lending but does create a much sharper supervisory focus
on the risk management practices of banks with concentrations in
commercial real estate lending. According to the guidance, an
institution that has experienced rapid growth in commercial real
estate lending, has notable exposure to a specific type of
commercial real estate, or is approaching or exceeds
122
the following supervisory criteria may be identified for further
supervisory analysis of the level and nature of its commercial
real estate concentration risk:
|
|
|
|
|
total reported loans for construction, land development, and
other land represent 100% or more of the institutions
total capital; or
|
|
|
|
total commercial real estate loans represent 300% or more of the
institutions total capital and the outstanding balance of
the institutions commercial real estate loan portfolio has
increased by 50% or more during the prior 36 months.
|
These measures are intended merely to enable the banking
agencies to quickly identify institutions that could have an
excessive commercial real estate lending concentration,
potentially requiring close supervision to ensure that the
institutions have sound risk management practices in place.
Conversely, these measures do not imply that banks are
authorized by the December 2006 guidance to accumulate a
commercial real estate lending concentration up to the 100% and
300% thresholds.
Guidance concerning subprime lending. In 2007
the FDIC and other Federal banking agencies issued final
guidance on subprime mortgage lending to address issues relating
to certain subprime mortgages, especially adjustable-rate
mortgage products that can cause payment shock. The subprime
guidance identified prudent safety and soundness and consumer
protection standards that the regulators expect banks and
financial institutions to follow to ensure borrowers obtain
loans they can afford to repay.
Guidance concerning newly organized banks. The
FDIC issued supervisory guidance on August 28, 2009
extending from three years to seven the period in which newly
organized institutions are subject to enhanced supervision. The
FDIC extended the period of enhanced supervision beyond three
years because banks in their first seven years of operation were
over-represented among banks that failed in 2008 and 2009.
Service1st commenced
operations in January 2007. The FDIC will require banks that
have not yet been in operation for three years to submit updated
financial statements and business plans for years four through
seven. The expansion of the supervisory period includes
subjecting young banks to higher capital requirements and more
frequent examinations over seven years. A bank subject to the
expanded supervisory period is not permitted to deviate
materially from the banks approved business plan without
first obtaining the FDICs approval. As a condition to
obtaining FDIC approval of WLBCs acquisition of
Service1st,
we agreed to give the FDIC notice at least 60 days in
advance for any major deviation from the business plan that we
submitted to the FDIC during the acquisition application process.
Interstate banking and
branching. Section 613 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act enacted in July
2010 amends the interstate branching provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994. These expanded de novo branching authority
amendments will authorize a state or national bank to open a
de novo branch in another state if the law of the state
where the branch is to be located would permit a state bank
chartered by that state to open the branch. Under prior law, an
out-of-state
bank could open a de novo branch in another state only if
the particular state permitted
out-of-state
banks to establish a de novo branch. In section 607
the Dodd-Frank Act also increases the approval threshold for
interstate bank acquisitions, requiring that a bank holding
company be well capitalized and well managed as a condition to
approval of an interstate bank acquisition, rather than being
merely adequately capitalized and adequately managed, and that
an acquiring bank be and remain well capitalized and well
managed as a condition to approval of an interstate bank merger.
Consumer protection laws and
regulations. Service1st is
subject to regular examination by the FDIC to ensure compliance
with statutes and regulations applicable to the banks
business, including consumer protection statutes and
implementing regulations, some of which are discussed below.
Violations of any of these laws may result in fines,
reimbursements, and other related penalties.
Community Reinvestment Act. The Community
Reinvestment Act of 1977 is intended to encourage insured
depository institutions to satisfy the credit needs of their
communities, within the limits of safe and sound lending. The
Community Reinvestment Act does not establish specific lending
requirements or programs for financial institutions, nor does it
limit an institutions discretion to develop the types of
products and services it believes are best suited to its
particular community. The Act requires that bank regulatory
agencies
123
conduct regular Community Reinvestment Act examinations and
provide written evaluations of institutions Community
Reinvestment Act performance. The Act also requires that an
institutions Community Reinvestment Act performance rating
be made public. Community Reinvestment Act performance
evaluations are based on a four-tiered rating system:
Outstanding, Satisfactory, Needs to Improve and Substantial
Noncompliance. Community Reinvestment Act performance
evaluations are used principally in the evaluation of regulatory
applications submitted by an institution. Performance
evaluations are considered in evaluating applications for such
things as mergers, acquisitions, and applications to open
branches. According to its CRA Performance Evaluation dated
March 18, 2009,
Service1st was
rated Satisfactory.
Equal Credit Opportunity Act. The Equal Credit
Opportunity Act generally prohibits discrimination in any credit
transaction, whether for consumer or business purposes, on the
basis of race, color, religion, national origin, sex, marital
status, age (except in limited circumstances), receipt of income
from public assistance programs, or good faith exercise of any
rights under the Consumer Credit Protection Act.
Truth in Lending Act. The Truth in Lending Act
is designed to ensure that credit terms are disclosed in a
meaningful way so that consumers may compare credit terms more
readily and knowledgeably. As a result of the Truth in Lending
Act, all creditors must use the same credit terminology to
express rates and payments, including the annual percentage
rate, the finance charge, the amount financed, the total of
payments and the payment schedule, among other things.
Fair Housing Act. The Fair Housing Act makes
it unlawful for any lender to discriminate in its
housing-related lending activities against any person because of
race, color, religion, national origin, sex, handicap, or
familial status. A number of lending practices have been held by
the courts to be illegal under the Fair Housing Act, including
some practices that are not specifically mentioned in the
Federal Housing Act.
Home Mortgage Disclosure Act. The Home
Mortgage Disclosure Act arose out of public concern over credit
shortages in certain urban neighborhoods. The Home Mortgage
Disclosure Act requires financial institutions to collect data
that enable regulatory agencies to determine whether the
financial institutions are serving the housing credit needs of
the neighborhoods and communities in which they are located. The
Home Mortgage Disclosure Act also requires the collection and
disclosure of data about applicant and borrower characteristics
as a way to identify possible discriminatory lending patterns.
The vast amount of information that financial institutions
collect and disclose concerning applicants and borrowers
receives attention not only from state and Federal banking
supervisory authorities but also from community-oriented
organizations and the general public.
Real Estate Settlement Procedures Act. The
Real Estate Settlement Procedures Act requires that lenders
provide borrowers with disclosures regarding the nature and cost
of real estate settlements. The Real Estate Settlement
Procedures Act also prohibits abusive practices that increase
borrowers costs, such as kickbacks and fee-splitting
without providing settlement services.
Privacy. Under the Gramm-Leach-Bliley Act, all
financial institutions are required to establish policies and
procedures to restrict the sharing of non-public customer data
with non-affiliated parties and to protect customer data from
unauthorized access. In addition, the Fair Credit Reporting Act
of 1971 includes many provisions concerning national credit
reporting standards and permits consumers to opt out of
information-sharing for marketing purposes among affiliated
companies.
Predatory lending. What is commonly referred
to as predatory typically involves one or more of the following
elements
|
|
|
|
|
making unaffordable loans based on a borrowers assets
rather than the borrowers ability to repay an obligation,
|
|
|
|
inducing a borrower to refinance a loan repeatedly in order to
charge high points and fees each time the loan is refinanced, or
loan flipping, and
|
|
|
|
engaging in fraud or deception to conceal the true nature of the
loan obligation from an unsuspecting or unsophisticated borrower.
|
124
The Home Ownership and Equity Protection Act of 1994 and
implementing regulations adopted by the Federal Reserve require
specified disclosures and extend additional protection to
borrowers in closed-end consumer credit transactions, such as
home repairs or renovation, that are secured by a mortgage on
the borrowers primary residence. The disclosures and
protections are applicable to high cost transactions
with any of the following features
|
|
|
|
|
interest rates for first lien mortgage loans more than eight
percentage points above the yield on U.S. Treasury
securities having a comparable maturity,
|
|
|
|
interest rates for subordinate lien mortgage loans more than
10 percentage points above the yield on U.S. Treasury
securities having a comparable maturity, or
|
|
|
|
total points and fees paid in the credit transaction exceed the
greater of either 8% of the loan amount or a specified dollar
amount that is inflation-adjusted each year.
|
The Home Ownership and Equity Protection Act prohibits or
restricts numerous credit practices, including loan flipping by
the same lender or loan servicer within a year of the loan being
refinanced. Lenders are presumed to have violated the law unless
they document that the borrower has the ability to repay.
Lenders that violate the rules face cancellation of loans and
penalties equal to the finance charges paid. The Home Ownership
and Equity Protection Act also governs so-called reverse
mortgages. In January 2008, the Federal Reserve issued
final rules under the Home Ownership and Equity Protection Act
to address practices in the subprime mortgage market before the
onset of the Great Recession. Since October 1, 2009, the
rules require disclosures and additional protections or
prohibitions on certain practices connected with
higher-priced mortgages, which the rules define as
closed-end mortgage loans that are secured by a consumers
principal dwelling and that have an annual percentage rate
(APR) that exceeds the average prime offer rates for
a comparable transaction published by the Federal Reserve Board
by at least 1.5 percentage points for first-lien loans, or
3.5 percentage points for subordinate-lien loans. The
Federal Reserve derives average prime offer rates from the
Freddie Mac Primary Mortgage Market
Survey®.
For higher-priced mortgage loans, the final rules:
|
|
|
|
|
Prohibit creditors from extending credit without regard to a
consumers ability to repay from sources other than the
collateral itself;
|
|
|
|
|
|
Require creditors to verify income and assets they rely upon to
determine repayment ability;
|
|
|
|
|
|
Prohibit prepayment penalties except under certain
conditions; and
|
|
|
|
|
|
Require creditors to establish escrow accounts for taxes and
insurance in the case of first-lien higher-priced mortgage
loans, but permit creditors to allow borrowers to cancel escrows
12 months after loan consummation.
|
Corporate governance and accounting
legislation. The Sarbanes-Oxley Act of 2002 was
adopted to enhance corporate responsibility, increase penalties
for accounting and auditing improprieties at publicly traded
companies, and protect investors by improving the accuracy and
reliability of corporate disclosures pursuant to the securities
laws. It applies generally to all companies that file or are
required to file periodic reports with the SEC under the
Exchange Act, including WLBC. Under the Sarbanes-Oxley Act, the
SEC and securities exchanges adopted extensive additional
disclosure, corporate governance and other related rules. Among
its many provisions, the Sarbanes-Oxley Act subjects bonuses
issued to top executives to disgorgement if a subsequent
restatement of a companys financial statements was due to
corporate misconduct, prohibits an officer or director from
misleading or coercing an auditor, prohibits insider trades
during pension fund blackout periods, imposes new
criminal penalties for fraud and other wrongful acts, and
extends the period during which securities fraud lawsuits can be
brought against a company or its officers.
Anti-money laundering and anti-terrorism
legislation. The Bank Secrecy Act of 1970
requires financial institutions to maintain records and report
transactions to prevent the financial institutions from being
used to hide money derived from criminal activity and tax
evasion. The Bank Secrecy Act establishes (a) record
keeping requirements to assist government enforcement agencies
with tracing financial transactions and flow of funds,
(b) reporting requirements for Suspicious Activity Reports
and Currency Transaction Reports to
125
assist government enforcement agencies with detecting patterns
of criminal activity, (c) enforcement provisions
authorizing criminal and civil penalties for illegal activities
and violations of the Bank Secrecy Act and its implementing
regulations, and (d) safe harbor provisions that protect
financial institutions from civil liability for their
cooperative efforts.
Title III of the USA PATRIOT Act of 2001 added
anti-terrorist financing provisions to the requirements of the
Bank Secrecy Act and its implementing regulations. Among other
things, the USA PATRIOT Act requires all financial institutions,
including subsidiary banks and non-banking affiliates, to
institute and maintain a risk-based anti-money laundering
compliance program that includes a customer identification
program, provides for information sharing with law enforcement
and between certain financial institutions by means of an
exemption from the privacy provisions of the Gramm-Leach-Bliley
Act, prohibits U.S. banks and broker-dealers from
maintaining accounts with foreign shell banks,
establishes due diligence and enhanced due diligence
requirements for certain foreign correspondent banking and
foreign private banking accounts, and imposes additional record
keeping requirements for certain correspondent banking
arrangements. The USA PATRIOT Act also grants broad authority to
the Secretary of the Treasury to take actions to combat money
laundering. Federal bank regulators are required to evaluate the
effectiveness of a financial institutions efforts to
combat money laundering when evaluating an application submitted
by the financial institution.
The Treasurys Office of Foreign Asset Control administers
and enforces economic and trade sanctions against targeted
foreign countries, entities, and individuals based on
U.S. foreign policy and national security goals. As a
result, financial institutions must scrutinize transactions to
ensure that they do not represent obligations of or ownership
interests in entities owned or controlled by sanctioned targets.
Monetary policy. The earnings of financial
institutions are affected by the policies of regulatory
authorities, including monetary policy of the Federal Reserve.
An important function of the Federal Reserve is regulation of
aggregate national credit and money supply. The Federal Reserve
accomplishes these goals with measures such as open market
transactions in securities, establishment of the discount rate
on bank borrowings, and changes in reserve requirements against
bank deposits. These methods are used in varying combinations to
influence overall growth and distribution of financial
institutions loans, investments and deposits, and they
also affect interest rates charged on loans or paid on deposits.
Monetary policy is influenced by many factors, including
inflation, unemployment, short-term and long-term changes in the
international trade balance, and fiscal policies of the United
States government. Federal Reserve monetary policy has had and
will continue to have a significant effect on the operating
results of financial institutions.
Developments affecting management and corporate
governance. In June of 2010 the Federal banking
agencies jointly published their final Guidance on Sound
Incentive Compensation Policies. The goal is to enable financial
organizations to manage the safety and soundness risks of
incentive compensation arrangements and to assist them with
identification of improperly-structured compensation
arrangements. To ensure that incentive compensation arrangements
do not encourage employees to take excessive risks that
undermine safety and soundness, the incentive compensation
guidance sets forth these key principles
|
|
|
|
|
incentive compensation arrangements should provide employees
incentives that appropriately balance risk and financial results
in a manner that does not encourage employees to expose the
organization to imprudent risk,
|
|
|
|
these arrangements should be compatible with effective controls
and risk management, and
|
|
|
|
these arrangements should be supported by strong corporate
governance, including active and effective oversight by the
board of directors.
|
To implement the interagency guidance, a financial organization
must regularly review incentive compensation arrangements for
all executive and non-executive employees who, either
individually or as part of a group, have the ability to expose
the organization to material amounts of risk, as well as to
regularly review the risk-management, control, and corporate
governance processes related to these arrangements. The
organization must immediately address any identified
deficiencies in compensation arrangements or processes that are
inconsistent with safety and soundness and must ensure that
incentive compensation arrangements are consistent with the
principles discussed in the guidance.
126
In addition to numerous provisions that affect the business of
banks and bank holding companies, the recently enacted
Dodd-Frank Wall Street Reform and Consumer Protection Act
includes in Title IX a number of provisions affecting
corporate governance and executive compensation, for example the
requirements that stockholders be given the opportunity to
consider and vote upon executive compensation disclosed in a
companys annual meeting proxy statement, that a
companys compensation committee be comprised entirely of
independent directors and that the committee have stated minimum
authorities, that annual meeting proxy statements disclose the
ratio of CEO compensation to the median compensation of all
other employees, that company policy provide for recovery of
excess incentive compensation after an accounting restatement,
and that stockholders have the ability to designate director
nominees for inclusion in a companys annual meeting proxy
statement. Section 956 also provides for adoption of
incentive compensation guidelines jointly by the Federal banking
agencies and the SEC, the National Credit Union Administration,
and the Federal Housing Finance Agency. Due for adoption by the
end of April 2011, the guidelines could be different from the
Guidance on Sound Incentive Compensation Policies adopted by the
Federal bank regulators in June of 2010. The new guidelines
adopted under Dodd-Frank Act section 956 could impose
additional compliance burdens beyond those already imposed by
the Federal bank regulatory agency guidelines adopted in June of
2010.
Finally, during the application process for the acquisition of
Service1st by
WLBC, we made a written commitment to the FDIC that we will make
no change in the directors or executive management of
Service1st unless
we first receive the FDICs non-objection to the proposed
change. This commitment will expire three years after the
October 28, 2010 completion of the acquisition of
Service1st or,
if later, when the September 1, 2010 Consent Order agreed
to by
Service1st with
the FDIC and the Nevada Financial Institutions Division
terminates.
Recent initiatives. The economic upheaval that
reached crisis proportions in the third and fourth quarters of
2008 and the resulting adverse impact on the national, regional,
and local economies has not ended and might not end for some
time. Legislation has been enacted and the Treasury Department,
the Federal Reserve, and the FDIC have taken actions in the
meantime to stabilize the financial industry, promote recovery,
and prevent a recurrence of a similar crisis. The purpose of
these legislative and regulatory initiatives is to stabilize
U.S. financial markets. The U.S. Congress and Federal
bank regulatory agencies could adopt additional regulatory
requirements or restrictions in response to the threats to the
financial system, which changes could adversely affect our
operations. In addition, the legislative and regulatory actions
already taken or that could be taken might not have the intended
beneficial impact on the financial markets or the banking
industry. If the market does not respond favorably to these
legislative and regulatory initiatives, WLBCs prospects
and results of operations would be adversely affected. We cannot
assure you that these initiatives will improve economic
conditions generally or the financial markets or financial
services industry in particular. The failure of legislative and
regulatory initiatives to stabilize the financial markets could
materially adversely affect our ability to access the capital
and credit markets, our business, financial condition, results
of operations and the market price for our Common Stock.
Enacted on October 3, 2008, the Emergency Economic
Stabilization Act of 2008 created the Troubled Asset Relief
Program (TARP), giving the U.S. Treasury
Department authority to purchase and insure certain types of
troubled assets. One component of TARP is a generally available
capital access program known as the Capital Purchase Program
under which a financial institution may issue preferred shares
and warrants to purchase shares of its common stock to the
Treasury. The goal of the Capital Purchase Program is to help
stabilize the financial system as a whole and ensure the
availability of credit necessary for the countrys economic
recovery.
Service1st is
not a participant in the Capital Purchase Program. Enacted on
February 17, 2009, the American Recovery and Reinvestment
Act of 2009 includes numerous economic stimulus provisions and
makes more restrictive the executive compensation limits
applicable to Capital Purchase Program participants.
On July 21, 2010 the Dodd-Frank Wall Street Reform and
Consumer Protection Act became law. The Dodd-Frank Act is a
landmark financial reform bill, changing the current bank
regulatory structure and affecting the lending, investment,
trading, and operating activities of financial institutions and
holding companies. Implementation of the Dodd-Frank Act will
require new mandatory and discretionary rulemakings
127
by numerous Federal regulatory agencies. More than 2,300 pages
long, the Dodd-Frank Act includes the following
provisions
|
|
|
|
|
section 111 establishes a new Financial Stability Oversight
Counsel to monitor systemic financial risks. The Board of
Governors of the Federal Reserve is given extensive new
authorities to impose strict controls on large bank holding
companies with total consolidated assets equal to or in excess
of $50 billion and systemically significant non-bank
financial companies to limit the risk they might pose for the
economy and to other large interconnected companies. The
Dodd-Frank Act also grants to the Treasury Department, FDIC and
the FRB broad new powers to seize, close and wind-down too
big to fail financial institutions (including non-bank
institutions) in an orderly fashion.
|
|
|
|
Title X establishes a new independent Federal regulatory
body within the Federal Reserve System that is dedicated
exclusively to consumer protection. Known as the Bureau of
Consumer Financial Protection, this new regulatory body will
assume responsibility for most consumer protection laws, with
rulemaking, supervisory, examination, and enforcement authority.
It will also be in charge of setting appropriate consumer
banking fees and caps. According to Dodd-Frank Act
section 1025, the new regulatory body has examination and
enforcement authority over banks with more than $10 billion
in assets, but section 1026 makes clear that banks with
assets of $10 billion or less will continue to be examined
by their bank regulators for consumer law compliance. In
addition, the Dodd-Frank Act permits states to adopt consumer
protection laws and regulations that are stricter than those
regulations promulgated by the Consumer Financial Protection
Bureau. Although our bank does not currently offer many of these
consumer products or services, compliance with any such new
regulations would increase our cost of operations and, as a
result, could limit our ability to expand into these products
and services.
|
|
|
|
section 171 restricts the amount of trust preferred
securities that may be considered Tier 1 capital. For
depository institution holding companies with total assets of
less than $15 billion, trust preferred securities issued
before May 19, 2010 may continue to be included in
Tier 1 capital, but future issuances of trust preferred
securities will no longer be eligible for treatment as
Tier 1 capital.
|
|
|
|
|
|
under section 334 the FDICs minimum reserve ratio is
to be increased from 1.15% to 1.35%, with the goal of attaining
that 1.35% level by September 30, 2020; however, financial
institutions with assets of less than $10 billion like
Service1st
are to be exempt from the cost of the increase. FDIC insurance
coverage of up to $250,000 for deposit accounts is made
permanent by section 335, section 343 extends until
January 1, 2013 unlimited FDIC insurance for
non-interest-bearing demand deposit accounts, more commonly
known as checking accounts, and section 627 repeals the
longstanding prohibition against financial institutions paying
interest on checking accounts.
|
Section 331 changes the way deposit insurance premiums are
calculated by the FDIC as well. That is, deposit insurance
premiums are calculated based upon an institutions
so-called assessment base. Until the Dodd-Frank Act became law
the assessment base consisted of an institutions deposit
liabilities. Section 331, however, makes clear that the
assessment base shall now be the difference between total assets
and tangible equity, so in other words the assessment base will
take account of all liabilities, not merely deposit liabilities.
This change is likely to have a greater impact on large banks,
which tend to rely on a variety of funding sources, than on
smaller community banks, which tend to rely primarily on deposit
funding.
|
|
|
|
|
the Office of the Comptroller of the Currencys ability to
preempt state consumer protection laws is constrained by
section 1044, and because of section 1042 state
attorneys general have greater authority to enforce state
consumer protection laws against national banks and their
operating subsidiaries.
|
|
|
|
section 619 embodies the so-called Volcker
rule, prohibiting a banking entity from engaging in
proprietary trading or from sponsoring or investing in a hedge
fund or private equity fund.
|
|
|
|
imposing a 5% risk retention requirement on securitizers of
asset-backed securities, section 941 could have an impact on
financial institutions that originate mortgages for sale into
the secondary market.
|
128
|
|
|
|
|
Like other provisions of the Dodd-Frank Act, the scope and
impact of section 941 will be determined by future
rulemaking.
|
We are evaluating the potential impact of the Dodd-Frank Act on
our business, financial condition, results of operations, and
prospects. The Dodd-Frank Act could affect the profitability of
community banking, require changes in the business practices of
community banking organizations, lead to more stringent capital
and liquidity requirements, and otherwise adversely affect the
community banking business. However, because much of the
Dodd-Frank Act will be phased in over time and will not become
effective until Federal agency rulemaking initiatives are
completed, we cannot predict with confidence precisely how the
Dodd-Frank Act will affect community banking organizations. We
are confident, however, that short- and long-term compliance
costs for all financial organizations, both large and small,
will be greater because of the Dodd-Frank Act.
129
OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the
beneficial ownership of Common Stock as of March 30, 2011
by:
|
|
|
|
|
each person known by us to be the beneficial owner of more than
5% of the shares of Common Stock;
|
|
|
|
each of our current executive officers and directors;
|
|
|
|
all of our executive officers and directors as a group.
|
Beneficial ownership is determined under the rules and
regulations of the Securities and Exchange Commission, which
provide that a person is deemed to beneficially own all shares
of Common Stock that such person has the right to acquire within
60 days. Although shares that a person has the right to
acquire within 60 days are counted for the purposes of
determining that individuals beneficial ownership, such
shares generally are not deemed to be outstanding for the
purpose of computing the beneficial ownership of any other
person.
|
|
|
|
|
|
|
|
|
|
|
Amount and
|
|
|
|
|
Nature of
|
|
|
|
|
Beneficial
|
|
Percent of
|
Name of Beneficial Owner of Common Stock
|
|
Ownership(1)
|
|
Class(2)
|
|
Trafelet Capital Management, L.P.(2)
|
|
|
906,545
|
|
|
|
6.01
|
%
|
Weiss Multi-Strategy Advisers LLC(3)
|
|
|
1,222,278
|
|
|
|
8.10
|
%
|
Fidelity Management and Research Company(4)
|
|
|
3,750,000
|
|
|
|
24.85
|
%
|
Wells Fargo, et al.(5)
|
|
|
1,213,928
|
|
|
|
8.05
|
%
|
Mendon Capital Advisors Corp.(6)
|
|
|
1,881,854
|
|
|
|
12.47
|
%
|
KBW Asset Management, Inc.(7)
|
|
|
761,866
|
|
|
|
5.05
|
%
|
Jason N. Ader(8)
|
|
|
400,372
|
|
|
|
2.87
|
%
|
Richard A.C. Coles(9)
|
|
|
50,195
|
|
|
|
*
|
|
Michael B. Frankel(10)
|
|
|
50,000
|
|
|
|
*
|
|
George A. Rosenbaum, Jr.(11)
|
|
|
38,819
|
|
|
|
*
|
|
Terrence L. Wright(12)
|
|
|
69,163
|
|
|
|
*
|
|
Curtis W. Anderson(13)
|
|
|
36,790
|
|
|
|
*
|
|
Robert G. Goldstein
|
|
|
|
|
|
|
|
|
Steven D. Hill(14)
|
|
|
41,742
|
|
|
|
*
|
|
William E. Martin(15)
|
|
|
174,365
|
|
|
|
1.16
|
%
|
Patricia A. Ochal(16)
|
|
|
31,555
|
|
|
|
*
|
|
Richard Deglman(17)
|
|
|
14,281
|
|
|
|
*
|
|
Daniel B. Silvers(18)
|
|
|
|
|
|
|
|
|
Andrew P. Nelson(19)
|
|
|
25,165
|
|
|
|
*
|
|
Blake L. Sartini(20)
|
|
|
233,274
|
|
|
|
1.55
|
%
|
Mark Schulhof(21)
|
|
|
50,000
|
|
|
|
*
|
|
All current and former directors and officers as a group (15
individuals)
|
|
|
1,215,721
|
|
|
|
8.03
|
%
|
All current directors and officers as a group (11 individuals)
|
|
|
907,282
|
|
|
|
5.99
|
%
|
|
|
|
(1) |
|
The percentage ownership of each individual is based on the
assumption that there are 15,088,023 shares of Common
Stock, including shares of Restricted Stock, issued and
outstanding. |
|
|
|
(2) |
|
Beneficial ownership is based on information contained in a
Schedule 13G/A filed by Trafelet Capital Management, L.P.,
Trafelet & Company, LLC, and Remy Trafelet with the
SEC on February 14, 2011. The business address of Trafelet
Capital Management, L.P. is 590 Madison Avenue 37th Floor New
York, New York 10022. |
130
|
|
|
(3) |
|
Beneficial ownership is based on information contained in a
Schedule 13G/A filed by Weiss Multi-Strategy Advisers LLC,
George A Weiss and Frederick E. Doucette with the SEC on
February 11, 2011. The business address of Weiss
Multi-Strategy Advisers LLC is One State Street, 20th Floor,
Hartford, Connecticut 06109. |
|
|
|
(4) |
|
Beneficial ownership is based on information contained in a Form
13G/A filed by FMR LLC and dated as of January 10, 2011.
FMR LLC acts as investment advisor to affiliated investment
funds and has voting or investment power over the WLBC shares
held by the funds. The business address of FMR LLC is 82
Devonshire Street, Boston, Massachusetts 02109. |
|
|
|
(5) |
|
Beneficial ownership is based on information contained in a
Schedule 13G/A filed by Wells Fargo and Company, Wells
Capital Management Inc., and Wells Fargo Funds Management, LLC
with the SEC on January 20, 2011. The business address of
Wells Fargo and Company is 420 Montgomery Street,
San Francisco, California 94104. The business address of
Wells Capital Management Inc. and Wells Fargo
Fund Management, LLC is 525 Market Street, 10th Floor,
San Francisco, California 94105. |
|
|
|
(6) |
|
Beneficial ownership is based on information contained in a
Schedule 13G/A filed by Mendon Capital Advisors Corp.
Burnham Financial Industries Fund, Burnham Asset Management
Corp. and Anton V. Schutz with the SEC on February 14,
2011. Mendham Capital Advisors Corp. acts as investment advisor
to Burnham Financial Industries Fund, which is a registered
investment company. Anton V. Schutz is the sole shareholder and
President of Mendon Capital Advisors Corp. Burnham Asset
Management Corp., in its capacity as an investment adviser, has
authority to vote and dispose of certain shares of the
Issuers common stock and has delegated such authority to
Mendon Capital Advisors Corp. The business address of Mendon
Capital Advisors Corp. and Anton V. Schutz is 150 Allens Creek
Road, Rochester, New York 14618. The business address of Burnham
Financial Industries Fund is 1325 Avenue of the Americas, 26th
Floor, New York, New York 10019. |
|
|
|
(7) |
|
Beneficial ownership is based on information contained in a
Schedule 13G filed by KBW Asset Management, Inc. with the
SEC on February 11, 2001. The business address of KBW Asset
Management is 787 Seventh Ave.,
6th
Floor, New York, NY 10019. |
|
|
|
(8) |
|
The securities attributable to Jason N. Ader include 69,764
shares held in his individual capacity, 330,428 shares of
Common Stock held by Hayground Cove, of which Mr. Ader is
the sole member, through Doha Partners I, LP,
HC Institutional Partners LP, HC Overseas Partners
Ltd. and HC Turbo Fund Ltd. and 180 shares held for
the account of his immediate family. Hayground Cove is
controlled by Jason N. Ader and he and his father are investors
in Hayground Cove. Beneficial ownership does not include 50,000
Restricted Stock Units that shall be settled for one share of
Common Stock per Restricted Stock Unit on the earlier to occur
of (i) a change of control of WLBC and (ii) the
Settlement Date. |
|
|
|
(9) |
|
Richard A.C. Coles beneficial ownership consists of
50,195 shares of Common Stock. |
|
|
|
(10) |
|
Michael B. Frankels beneficial ownership consists of
50,000 shares of Common Stock. |
|
|
|
(11) |
|
George A. Rosenbaum, Jr.s beneficial ownership includes
38,819 shares of Restricted Stock which will vest 20% on
each of the first, second, third, fourth and fifth anniversaries
of the closing date of the Acquisition, which occurred on
October 28, 2010, subject to Mr. Rosenbaums
continuous employment through each vesting date. |
|
|
|
(12) |
|
Terrence L. Wrights beneficial ownership consists of
67,117 shares of Common Stock,
Service1st
Warrants exercisable into 3,046 shares of Common Stock,
vested options immediately exercisable into 2,948 shares of
Common Stock and options exercisable into 810 shares of
Common Stock that will vest on April 17, 2011.
Mr. Wrights beneficial ownership does not include
options exercisable into 572 shares of Common Stock that
will vest on August 11, 2011. |
|
|
|
(13) |
|
Curtis W. Andersons beneficial ownership consists of
29,986 shares of Common Stock,
Service1st
Warrants exercisable into 3,046 shares of Common Stock,
vested options immediately exercisable into 2,948 shares of
Common Stock and options exercisable into 810 shares of
Common Stock that will vest on April 17, 2011.
Mr. Andersons beneficial ownership does not include
options exercisable into 572 shares of Common Stock that
will vest on August 11, 2011. |
131
|
|
|
(14) |
|
Steven D. Hills beneficial ownership consists of
35,698 shares of Common Stock,
Service1st
Warrants exercisable into 3,046 shares of Common
Stock, vested options immediately exercisable into
2,316 shares of Common Stock and options exercisable into
682 shares of Common Stock that will vest on April 17,
2011. Mr. Hills beneficial ownership does not include
options exercisable into 475 shares of Common Stock that
will vest on August 11, 2011. |
|
|
|
(15) |
|
William E. Martins beneficial ownership includes
19,086 shares of Common Stock and 155,279 shares of
Restricted Stock which will vest 20% on each of the first,
second, third, fourth and fifth anniversaries of the closing
date of the Acquisition, which occurred on October 28,
2010, subject to Mr. Martins continuous employment
through each vesting date. Mr. Martins beneficial
ownership does not include options exercisable into
23,798 shares of Common Stock that will vest on
December 31, 2012 if
Service1sts
total deposits are equal to or greater than $750 million as
of that date. |
|
|
|
(16) |
|
Patricia A. Ochals beneficial ownership consists of
10,661 shares of Common Stock,
Service1st
Warrants exercisable into 3,141 shares of Common Stock and
vested options immediately exercisable into 17,753 shares
of Common Stock. Ms. Ochals beneficial ownership does
not include options exercisable into 7,235 shares of Common
Stock that will vest in two installments on June 12, 2011
and 2012 and options exercisable into 10,709 shares of
Common Stock that will vest in three installments on
August 11, 2011, 2012 and 2013. |
|
|
|
(17) |
|
Richard Deglmans beneficial ownership consists of vested
options immediately exercisable into 14,281 shares of
Common Stock. Mr. Deglmans beneficial ownership does
not include options exercisable into 21,417 shares of
Common Stock that will vest in three installments on
August 11, 2011, 2012 and 2013. |
|
|
|
(18) |
|
Daniel B. Silvers is our former President.
Mr. Silvers beneficial ownership does not include
100,000 Restricted Stock Units that shall be settled for one
share of Common Stock per Restricted Stock Unit on the earlier
to occur of (i) a change of control of WLBC and
(ii) the Settlement Date. |
|
|
|
(19) |
|
Andrew P. Nelson is our former Chief Financial Officer and
Assistant Secretary, and a former member of the Board.
Mr. Nelsons beneficial ownership includes
25,165 shares of Common Stock. Mr. Nelsons
beneficial ownership does not include 100,000 Restricted Stock
Units that shall be settled for one share of Common Stock per
Restricted Stock Unit on the earlier to occur of (i) a
change of control of WLBC and (ii) the Settlement Date. |
|
|
|
(20) |
|
Blake L. Sartini is a former member of the Board.
Mr. Sartinis beneficial ownership consists of
227,230 shares of Common Stock, Service1st Warrants
exercisable into 3,046 shares of Common Stock, vested
options immediately exercisable into 2,316 shares of Common
Stock and options exercisable into 682 shares of Common
Stock that will vest on April 17, 2011.
Mr. Sartinis beneficial ownership does not include
options exercisable into 475 shares of Common Stock that
will vest on August 11, 2011. |
|
|
|
(21) |
|
Mark Schulhof is a former member of the Board.
Mr. Schulhofs beneficial ownership consists of
50,000 shares of Common Stock. |
132
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Code of
Ethics and Related Person Policy
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.
In order to prepare our prospectus each member of the Board and
the board of directors of
Service1st and
each executive officer was required to complete an extensive
questionnaire. The purpose of the questionnaire is to obtain
information from directors and executive officers to verify
disclosures required to be made in these documents. This process
is to facilitate disclosure of any related party transactions
entered into between themselves (or family members or entities
in which they hold an interest) and WLBC that in the aggregate
exceeds $120,000, that is currently proposed or that occurred
during the preceding year. When completing the questionnaire,
each director and executive officer is required to report any
such transaction.
These procedures are intended to determine whether any such
related party transaction impairs the independence of a director
or presents a conflict of interest on the part of a director,
employee or officer.
Related
Party Transactions
Purchases
of Private Shares by Hayground Cove, Our Executive Officers and
Directors
On July 16, 2007, we issued 8,625,000 Private Shares (of
which 637,786 were redeemed because the underwriters did not
fully exercise their over-allotment option, resulting in a total
of 7,987,214 shares outstanding after redemption), to
certain of our affiliates for an aggregate amount of $8,625 in
cash, at a purchase price of $0.001 per share.
In connection with our formation, Hayground Cove, and the funds
and accounts it manages, purchased 8,348,500 Private Shares.
Andrew Nelson, our former Chief Financial Officer, and our
current Assistant Secretary and director purchased 25,000
Private Shares, Scott LaPorta, our former Chief Executive
Officer, as well as our former directors Robert Foresman, Carl
H. Hahn, Philip A. Marineau and Steven Westly, each purchased
25,000 Private Shares, and our former director Marc Soloway
purchased 50,000 Private Shares. Jason Ader, a current member of
the Board and our former Chairman and Chief Executive Officer,
did not directly purchase any Private Shares; however, he is the
sole member of Hayground Cove.
All of the Private Shares were issued in connection with our
organization pursuant to the exemption from registration
contained in Section 4(2) of the Securities Act. The
Private Shares were sold for an aggregate offering price of
$8,625 at a purchase price of $0.001 per share. No underwriting
commissions were paid, nor was there any general solicitation,
with respect to such sales.
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.
Private
Warrants
On November 27, 2007, Hayground Cove and our former Chief
Executive Officer, Scott LaPorta, purchased in a private
placement transaction pursuant to Section 4(2) under the
Securities Act a total of 8,500,000 Private Warrants (7,500,000
by Hayground Cove and 1,000,000 by our former Chief Executive
Officer) from us at a price of $1.00 per warrant. The $8,500,000
purchase price of the Private Warrants was added to the proceeds
of our initial public offering to be held in our trust account
pending our completion of one or more business combinations.
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
133
of the remainder of such holders 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 WLBCs initial
public offering, and such shares were freely tradable
immediately upon issuance.
Settlement
Agreement
Our former Chief Executive Officer, Scott LaPorta, had an option
to purchase 495,000 shares of our Common Stock at an
exercise price of $0.001 per share. On December 23, 2008,
we entered into a settlement agreement with Mr. LaPorta in
connection with his termination as our Chief Executive Officer
and his resignation from the Board. The settlement agreement
provided that his employment terminated without cause effective
as of December 23, 2008. He received a severance payment
from us in the sum of $247,917, less applicable withholding
taxes. The settlement agreement also provided that: (i) he
retained his option to purchase 495,000 shares of our
Common Stock from Hayground Cove at an exercise price of $0.001
per share under the terms of his employment agreement and his
termination under the terms of the settlement agreement did not
forfeit his option; (ii) he was fully vested in the option,
but was not entitled to exercise all or any portion of the
option until on or after the date that is six months after the
closing date of a Business Combination; (iii) he retained
the 25,000 Private Shares he received in connection with his
service on the Board under his employment agreement and we
relinquished any and all rights to redeem or repurchase those
shares; (iv) he retained the 1,000,000 Private Warrants he
purchased and we relinquished any and all rights to redeem or
repurchase those warrants; (v) we maintain directors and
officers liability insurance that names him as an insured
for a period of six years following the effective date of the
settlement agreement at a level commensurate with that which is
then applicable to our most senior executives and directors;
(vi) he acknowledged that his non-solicitation obligations
under his employment agreement survive the termination thereof,
and he therefore may not, until December 24, 2010, solicit
our employees, personnel, consultants, advisers or contractors
or encourage in any manner our customers or clients to reduce
their relationship with us; and (vii) he acknowledged that
his option, the shares of our stock he may acquire upon exercise
of his option, the shares he received as a member of the Board
and his warrants are all subject to the terms of a
lock-up
agreement, dated October 3, 2007, between Hayground Cove
and us. The settlement agreement also provides for a mutual
general release of claims he has or may have against us or our
officers, directors and affiliates or we have or may have
against him. The consummation of the Acquisition did not
constitute a Business Combination as defined in the
Settlement Agreement, and we believe that consummation of a
Business Combination under such definition is unlikely to occur
in the future.
Lending
Relationship with Prior Director
When
Service1st
commenced business on January 16, 2007, the bank sought
ways to deploy in the form of loans and investments the
significant amount of capital that was raised in the
establishment of the bank. In the first quarter of 2007,
Service1st
purchased a $5 million portion of an existing term loan to
Golden Gaming, Inc., of which Blake L. Sartini, a former member
of the Board and a former member of the Board of Directors of
Service1st,
is now and was then Chairman, Chief Executive Officer, and
principal stockholder. Mr. Sartini resigned as a director
of
Service1st
on or about December 1, 2010. Mr. Sartini resigned as
a director of Western Liberty Bancorp effective
February 14, 2011.
Service1sts
$5 million loan interest constituted less than 5% of the
entire loan amount.
Service1st
sold its interest in the Golden Gaming loan on or about
February 24, 2011 to a private investment fund for
approximately $3.0 million. At the time of sale, the
principal balance of the
Service1sts
loan interest was approximately $3.8 million. Secured by a
First Deed of Trust on a casino facility and maturing in
November of 2011, the loan began to experience weakness in 2009
in tandem with increasing distress in the Clark County economy.
The loan became nonperforming in 2010. At the time of sale the
loan was on nonaccrual status, with a majority of the loan
classified as substandard and the remainder doubtful.
134
Payment
for Due Diligence Services
In October 2009, WLBC made a one-time payment of $2,600,000 to
Hayground Cove Asset Management LLC for due diligence and other
services related to various acquisition opportunities and other
activities since WLBCs inception. Proceeds from the
payment were disbursed by Hayground Cove Asset Management LLC to
certain of its employees, affiliates and consultants (some of
whom also served at the time as WLBCs officers
and/or
directors) that provided support to WLBC in connection with its
efforts in finding and pursuing potential transactions.
Sponsor
Support Agreement
Pursuant to a Second Amended and Restated Sponsor Support
Agreement, dated as of August 13, 2009, between us and
Hayground Cove (the Sponsor Support
Agreement), we have agreed that neither we nor
Hayground Cove (or any affiliates of Hayground Cove) will enter
into any private negotiations to purchase any of our securities,
or solicit tenders of any of our securities. We have agreed to
indemnify Hayground and its affiliates for any liabilities
arising from the Sponsor Support Agreement or otherwise.
Employment
Agreement with George A. Rosenbaum Jr.
On December 18, 2009, we entered into a second amended and
restated employment agreement with George A. Rosenbaum Jr.
Mr. Rosenbaums currently serves as our Chief
Financial Officer and as Executive Vice President of
Service1st.
Pursuant to the terms of his employment agreement,
Mr. Rosenbaums 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 unless either party elects not to renew the
term. Mr. Rosenbaum is entitled to a base salary of
$200,000. In addition, Mr. Rosenbaum received
38,819 shares of Restricted Stock on the closing date of
the Acquisition, which occurred on October 28, 2010 as
described below under the Section entitled Restricted
Stock Grants and Restricted Stock Unit Grants.
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.
Employment
Agreement with William E. Martin
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
Service1st.
Pursuant to the terms of his employment agreement,
Mr. Martins 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
unless either party elects not to renew the term.
Mr. Martin is entitled to a base salary of $325,000. In
addition Mr. Martin received 155,279 shares of
Restricted Stock as described below under the Section entitled
Restricted Stock Grants and Restricted Stock Unit
Grants in consideration for his future services in
accordance with the terms of his employment agreement.
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 years salary in the event there is a change
in control at
135
Service1st and
Mr. Martin remains the Chief Executive Officer of such
through the closing of the change in control.
Mr. Martins employment agreement contains customary
representations, covenants and termination provisions.
Restricted
Stock Grants and Restricted Stock Unit Grants
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
Service1st,
and George A. Rosenbaum, Jr., our current Chief Financial
Officer and the Executive Vice President of
Service1st.
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. Martins and Rosenbaums 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 holders 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. See the
sections entitled Employment Agreement with George A.
Rosenbaum, Jr. and Employment Agreement
with William E. Martin below, and the section entitled
Executive Officer and Director Compensation
Employment Agreements.
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,
WLBCs 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.
In addition, on October 28, 2010, in consideration of their
substantial service to and support of WLBC during the period in
which WLBC sought the requisite regulatory approval to become a
bank holding company in connection with the Acquisition, WLBC
made a one-time payment of $200,000, $450,000, $50,000 and
$50,000 to each of Jason N. Ader, Daniel B. Silvers, Michael B.
Frankel and Andrew Nelson, respectively.
136
PRICE
RANGE OF WESTERN LIBERTY BANCORP SECURITIES AND
DIVIDENDS
Our equity securities trade on the Nasdaq under the symbol WLBC.
The following table sets forth, for the fourth quarter of the
year ended December 31, 2007 and each quarter in the years
ended December 31, 2010, 2009 and 2008, the high and low
sales price of our units, Common Stock and Warrants as reported
on the Nasdaq, the New York Stock Exchange Amex (the
NYSE Amex) or the
Over-the-Counter
(OTC)
Bulletin Board®,
an electronic stock listing service provided by the Nasdaq Stock
Market, Inc. (the OTCBB), as the case may be.
Prior to listing on Nasdaq, our securities were listed on each
of the NYSE Amex and the OTCBB. Prior to November 27, 2007,
there was no established public trading market for our
securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Common Stock
|
|
Warrants
|
Quarter Ended
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter (from November 27, 2007)
|
|
$
|
10.10
|
|
|
$
|
9.75
|
|
|
$
|
9.05
|
|
|
$
|
9.05
|
|
|
$
|
0.90
|
|
|
$
|
0.90
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
10.00
|
|
|
|
9.66
|
|
|
|
9.20
|
|
|
|
9.00
|
|
|
|
0.92
|
|
|
|
0.71
|
|
Second Quarter
|
|
|
10.53
|
|
|
|
9.67
|
|
|
|
9.30
|
|
|
|
9.03
|
|
|
|
1.04
|
|
|
|
0.57
|
|
Third Quarter
|
|
|
10.00
|
|
|
|
9.30
|
|
|
|
9.49
|
|
|
|
9.22
|
|
|
|
0.90
|
|
|
|
0.25
|
|
Fourth Quarter
|
|
|
9.24
|
|
|
|
8.49
|
|
|
|
9.18
|
|
|
|
8.40
|
|
|
|
0.30
|
|
|
|
0.05
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
9.55
|
|
|
|
9.15
|
|
|
|
9.48
|
|
|
|
9.14
|
|
|
|
0.17
|
|
|
|
0.08
|
|
Second Quarter
|
|
|
9.76
|
|
|
|
9.48
|
|
|
|
9.69
|
|
|
|
9.44
|
|
|
|
0.23
|
|
|
|
0.09
|
|
Third Quarter
|
|
|
10.70
|
|
|
|
9.90
|
|
|
|
9.89
|
|
|
|
9.65
|
|
|
|
1.25
|
|
|
|
0.20
|
|
Fourth Quarter
|
|
|
10.30
|
|
|
|
7.75
|
|
|
|
9.83
|
|
|
|
6.42
|
|
|
|
1.20
|
|
|
|
0.55
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
8.60
|
|
|
|
7.95
|
|
|
|
8.04
|
|
|
|
6.18
|
|
|
|
0.80
|
|
|
|
0.35
|
|
Second Quarter
|
|
|
7.50
|
|
|
|
7.00
|
|
|
|
9.00
|
|
|
|
5.75
|
|
|
|
0.45
|
|
|
|
0.22
|
|
Third Quarter
|
|
|
7.50
|
|
|
|
7.50
|
|
|
|
7.80
|
|
|
|
4.80
|
|
|
|
0.30
|
|
|
|
0.18
|
|
Fourth Quarter
|
|
|
7.50
|
|
|
|
7.50
|
|
|
|
7.80
|
|
|
|
4.80
|
|
|
|
0.30
|
|
|
|
0.18
|
|
137
Performance
Graph
The graph below is a comparison of the cumulative total return
of our Common Stock from December 28, 2007, the date that
our Common Stock first became separately tradable, through
September 30, 2010 with the comparable cumulative return
for two indices, the S&P 500 Index and the Dow Jones
Industrial Average Index. The graph plots the growth in value of
an initial investment of $100 in each of our Common Stock, the
S&P 500 Index and the Dow Jones Industrial Average Index
over the indicated time periods, and assuming reinvestment of
all dividends, if any, paid on the securities. We have not paid
cash dividends and, therefore, the cumulative total return
calculation for us is based solely upon stock price appreciation
and not upon reinvestment of cash dividends. The stock price
performance shown on the graph is not necessarily indicative of
future price performance.
Holders
of Common Equity
On March 30, 2011, there were approximately 197 holders of
record of our public Common Stock. Such numbers do not include
beneficial owners holding shares, or holders of our Private
Shares. On March 30, 2011, there were approximately
71 holders of record of our Private Shares.
Dividends
We have not paid any dividends on our Common Stock to date and
we do not intend to pay cash dividends at this time. The payment
of dividends will depend on our revenues and earnings, if any,
capital requirements and general financial condition. The
payment of dividends will be within the discretion of our
then-Board. Our Board currently intends to retain any earnings
for use in our business operations and, accordingly, we do not
anticipate the board declaring any dividends prior to a business
combination. In addition, by the terms of the September 1,
2010 Consent Order,
Service1st
cannot pay cash dividends unless it first obtains the written
consent of the FDIC and the Commissioner of the Nevada FID.
Recent
Sales of Unregistered Securities
On July 16, 2007, we issued an aggregate amount of
8,575,000 Private Shares, at a purchase price of $0.001 per
share, in private placement transactions. On August 1,
2007, we issued 25,000 Private Shares, at a purchase price of
$0.001 per share, in a private placement. On September 28,
2007, we issued 25,000 Private Shares, at a purchase price of
$0.001 per share, in a private placement. In total, prior to our
initial public
138
offering we issued 8,625 Private Shares for an aggregate amount
of $8,625 in cash. Of those shares, 637,786 were redeemed
because the underwriters did not fully exercise their
over-allotment option, resulting in a total of
7,987,214 shares outstanding after the redemption.
On August 1, 2007, our former Chief Executive Officer
agreed to purchase 1,000,000 Private Warrants. Our former Chief
Executive Officer purchased such Private Warrants from us
immediately prior to the consummation of our initial public
offering on November 27, 2007.
On October 19, 2007, Hayground Cove agreed to purchase
7,500,000 of our Private Warrants. Hayground Cove purchased such
Private Warrants from us immediately prior to the consummation
of our initial public offering on November 27, 2007.
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.
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 holders 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 WLBCs
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
Service1st,
and George A. Rosenbaum, Jr., our current Chief Financial
Officer and the Executive Vice President of
Service1st.
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. Martins and Rosenbaums 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 holders 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. See the
section entitled Executive Officer and Director
Compensation Employment Agreements.
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,
WLBCs 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
139
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.
The sales of the above securities were deemed to be exempt from
the registration under the Securities Act of 1933 in reliance on
Section 3(a)(9) or Section 4(2) of the Securities Act,
as applicable. In addition, the future issuance of Common Stock
underlying the Restricted Stock Units and the
Service1st
Warrants will be similarly exempt. In any such transaction
pursuant to Section 4(2) of the Securities Act, such entity
represented its intention to acquire the securities for
investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were
affixed to the instruments representing such securities issued
in such transactions.
140
LEGAL
MATTERS
Proskauer Rose LLP, Eleven Times Square, New York, New York
10036, has acted as counsel for WLBC. Grady &
Associates, 20950 Center Ridge Road, Suite 100, Rocky
River, Ohio, 44116, has acted as special regulatory counsel for
WLBC.
EXPERTS
The financial statements of WLBC as of December 31, 2009
and for the year then ended included in this prospectus have
been so included in reliance on the report of Crowe Horwath LLP,
independent registered public accounting firm, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of WLBC as of December 31, 2008
and for the year then ended and for the period from
June 28, 2007 (inception) to December 31, 2007
included in this prospectus have been so included in reliance on
the report of Hays & Company LLP, independent
registered public accounting firm, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of
Service1st as
of December 31, 2009 and 2008 and for the years ended
December 31, 2009, and 2008, and the period from
January 16, 2007 (inception) to December 31, 2007,
included in this prospectus have been so included in reliance
upon the report of Grant Thornton LLP, independent registered
public accountants, as set forth in their report appearing
elsewhere herein, given on the authority of said firm as experts
in auditing and accounting in giving said report.
WHERE YOU
CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
SEC as required by the Exchange Act. You may read and copy
reports, proxy statements and other information filed by us with
the SEC at the SEC Public Reference Room located at
100 F Street, N.E., Washington, D.C. 20549. You
may obtain information on the operation of the Public Reference
Room by calling the SEC at
1-800-SEC-0330.
You may also obtain copies of the materials described above at
prescribed rates by writing to the SEC, Public Reference
Section, 100 F Street, N.E., Washington, D.C.
20549. You may access information on us at the SEC web site
containing reports, proxy statements and other information at:
http://www.sec.gov.
Information and statements contained in this prospectus are
qualified in all respects by reference to the copy of the
relevant contract or other document included as an annex to this
prospectus.
If you would like additional copies of this prospectus or any of
our reports and proxy statements filed with the SEC as required
under the Exchange Act free of charge, you should contact our
Assistant Secretary via telephone or in writing:
George A. Rosenbaum, Jr.
Chief Financial Officer
Western Liberty Bancorp
8363 W. Sunset Road, Suite 350
Las Vegas, Nevada 89113
(702) 966-7400
141
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
SERVICE1ST
BANK OF NEVADA
|
|
|
|
|
|
|
|
|
|
Financial Statements
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-20
|
|
|
|
|
F-21
|
|
|
|
|
F-22
|
|
|
|
|
F-23
|
|
|
|
|
F-24
|
|
|
|
|
F-25
|
|
|
|
|
|
|
WESTERN LIBERTY BANCORP
|
|
|
|
|
|
|
|
|
|
Financial Statements
|
|
|
|
|
|
|
|
F-48
|
|
|
|
|
F-49
|
|
|
|
|
F-50
|
|
|
|
|
F-51
|
|
|
|
|
F-52
|
|
|
|
|
F-66
|
|
|
|
|
F-68
|
|
|
|
|
F-69
|
|
|
|
|
F-70
|
|
|
|
|
F-71
|
|
|
|
|
F-72
|
|
F-1
SERVICE1ST
BANK OF NEVADA
BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
Cash and due from banks
|
|
$
|
12,585,357
|
|
|
$
|
13,686,456
|
|
Interest-bearing deposits in banks
|
|
|
15,239,755
|
|
|
|
35,946,806
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
27,825,112
|
|
|
|
49,633,262
|
|
Certificates of deposit
|
|
|
32,173,600
|
|
|
|
9,313,000
|
|
Securities, available for sale
|
|
|
3,899,100
|
|
|
|
7,433,591
|
|
Securities, held to maturity (estimated fair value $7,859,338
and $10,676,582, respectively)
|
|
|
7,583,373
|
|
|
|
10,201,396
|
|
Loans, net of allowance for loan losses of $7,021,398 and
$6,403,794, respectively
|
|
|
113,834,162
|
|
|
|
130,562,660
|
|
Premises and equipment, net
|
|
|
1,320,989
|
|
|
|
1,633,724
|
|
Accrued interest receivable
|
|
|
530,717
|
|
|
|
528,608
|
|
Other real estate owned
|
|
|
3,019,000
|
|
|
|
|
|
Other assets
|
|
|
3,003,607
|
|
|
|
2,453,770
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
193,189,660
|
|
|
$
|
211,760,011
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest bearing demand
|
|
$
|
75,026,426
|
|
|
$
|
56,463,145
|
|
Interest bearing:
|
|
|
|
|
|
|
|
|
Demand
|
|
|
30,483,962
|
|
|
|
25,094,322
|
|
Savings and money market
|
|
|
29,592,187
|
|
|
|
43,208,602
|
|
Time, $100,000 or more
|
|
|
31,757,899
|
|
|
|
54,316,415
|
|
Other time
|
|
|
5,014,692
|
|
|
|
6,237,624
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
171,875,166
|
|
|
|
185,320,108
|
|
Accrued interest payable and other liabilities
|
|
|
1,537,855
|
|
|
|
1,921,129
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
173,413,021
|
|
|
|
187,241,237
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Common stock, par value: $.01; shares authorized: 25,000,000;
shares issued: 50,811; shares outstanding September 30,
2010 and December 31, 2009: 50,811 less 1,000 shares
held in treasury
|
|
|
508
|
|
|
|
508
|
|
Additional paid-in capital
|
|
|
52,616,299
|
|
|
|
52,008,958
|
|
Accumulated deficit
|
|
|
(32,052,403
|
)
|
|
|
(26,692,642
|
)
|
Accumulated other comprehensive loss, net
|
|
|
(12,765
|
)
|
|
|
(23,050
|
)
|
Less cost of treasury stock, 1,000 shares
|
|
|
(775,000
|
)
|
|
|
(775,000
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
19,776,639
|
|
|
|
24,518,774
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
193,189,660
|
|
|
$
|
211,760,011
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
financial statements.
F-2
SERVICE1ST
BANK OF NEVADA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Interest and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
1,658,058
|
|
|
$
|
2,007,808
|
|
|
$
|
5,371,264
|
|
|
$
|
6,160,643
|
|
Securities, taxable
|
|
|
129,396
|
|
|
|
147,574
|
|
|
|
431,822
|
|
|
|
461,802
|
|
Federal funds sold and other
|
|
|
121,407
|
|
|
|
63,737
|
|
|
|
312,940
|
|
|
|
128,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income
|
|
|
1,908,861
|
|
|
|
2,219,119
|
|
|
|
6,116,026
|
|
|
|
6,751,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
286,493
|
|
|
|
748,462
|
|
|
|
1,083,286
|
|
|
|
2,104,826
|
|
Repurchase sweep agreements
|
|
|
|
|
|
|
3,244
|
|
|
|
|
|
|
|
12,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
286,493
|
|
|
|
751,706
|
|
|
|
1,083,286
|
|
|
|
2,117,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
1,622,368
|
|
|
|
1,467,413
|
|
|
|
5,032,740
|
|
|
|
4,633,411
|
|
Provision for loan losses
|
|
|
707,439
|
|
|
|
3,428,763
|
|
|
|
3,938,087
|
|
|
|
4,391,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provision for loan losses
|
|
|
914,929
|
|
|
|
(1,961,350
|
)
|
|
|
1,094,653
|
|
|
|
242,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges
|
|
|
110,163
|
|
|
|
105,509
|
|
|
|
351,194
|
|
|
|
226,640
|
|
Loan and late fees
|
|
|
1,721
|
|
|
|
17,946
|
|
|
|
14,885
|
|
|
|
91,960
|
|
Other
|
|
|
48,243
|
|
|
|
21,230
|
|
|
|
99,985
|
|
|
|
65,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,127
|
|
|
|
144,685
|
|
|
|
466,064
|
|
|
|
384,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
1,150,561
|
|
|
|
1,016,292
|
|
|
|
3,265,309
|
|
|
|
3,117,878
|
|
Occupancy, equipment and depreciation
|
|
|
388,061
|
|
|
|
420,440
|
|
|
|
1,232,139
|
|
|
|
1,235,522
|
|
Computer service charges
|
|
|
73,097
|
|
|
|
87,683
|
|
|
|
218,457
|
|
|
|
244,358
|
|
Professional fees
|
|
|
534,688
|
|
|
|
31,113
|
|
|
|
1,527,507
|
|
|
|
117,514
|
|
Advertising and business development
|
|
|
26,049
|
|
|
|
44,461
|
|
|
|
73,603
|
|
|
|
72,134
|
|
Insurance
|
|
|
156,953
|
|
|
|
123,018
|
|
|
|
447,555
|
|
|
|
348,007
|
|
Telephone
|
|
|
28,074
|
|
|
|
25,579
|
|
|
|
78,587
|
|
|
|
72,271
|
|
Stationery and supplies
|
|
|
7,804
|
|
|
|
7,317
|
|
|
|
22,414
|
|
|
|
23,708
|
|
Director fees
|
|
|
6,496
|
|
|
|
11,991
|
|
|
|
30,085
|
|
|
|
32,461
|
|
Provision for unfunded commitments
|
|
|
(86,720
|
)
|
|
|
117,206
|
|
|
|
(441,500
|
)
|
|
|
89,729
|
|
Licensing fees
|
|
|
18,179
|
|
|
|
10,478
|
|
|
|
56,499
|
|
|
|
27,744
|
|
Correspondent bank fees/charges
|
|
|
41,492
|
|
|
|
36,840
|
|
|
|
117,392
|
|
|
|
70,041
|
|
Other real estate owned expenses
|
|
|
14,304
|
|
|
|
|
|
|
|
36,501
|
|
|
|
|
|
Other
|
|
|
86,859
|
|
|
|
56,734
|
|
|
|
255,930
|
|
|
|
199,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,445,897
|
|
|
|
1,989,152
|
|
|
|
6,920,478
|
|
|
|
5,650,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,370,841
|
)
|
|
$
|
(3,805,817
|
)
|
|
$
|
(5,359,761
|
)
|
|
$
|
(5,024,279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(27.52
|
)
|
|
$
|
(75.14
|
)
|
|
$
|
(107.60
|
)
|
|
$
|
(98.92
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
financial statements.
F-3
SERVICE1ST
BANK OF NEVADA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Net loss
|
|
$
|
(1,370,841
|
)
|
|
$
|
(3,805,817
|
)
|
|
$
|
(5,359,761
|
)
|
|
$
|
(5,024,279
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (loss)/gain on securities available-for-sale,
net of taxes
|
|
|
(19,593
|
)
|
|
|
|
|
|
|
10,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(1,390,434
|
)
|
|
$
|
(3,805,817
|
)
|
|
$
|
(5,349,476
|
)
|
|
$
|
(5,024,279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
financial statements.
F-4
SERVICE1ST
BANK OF NEVADA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2010
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
|
|
|
(Issued)
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Deficit
|
|
|
Income (loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
Balance, December 31, 2009
|
|
|
50,811
|
|
|
$
|
508
|
|
|
$
|
52,008,958
|
|
|
$
|
(26,692,642
|
)
|
|
$
|
(23,050
|
)
|
|
|
1,000
|
|
|
$
|
(775,000
|
)
|
|
$
|
24,518,774
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
607,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
607,341
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,359,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,359,761
|
)
|
Unrealized gain on securities available for sale, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,285
|
|
|
|
|
|
|
|
|
|
|
|
10,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010
|
|
|
50,811
|
|
|
$
|
508
|
|
|
$
|
52,616,299
|
|
|
$
|
(32,052,403
|
)
|
|
$
|
(12,765
|
)
|
|
|
1,000
|
|
|
$
|
(775,000
|
)
|
|
$
|
19,776,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
financial statements.
F-5
SERVICE1ST
BANK OF NEVADA
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,359,761
|
)
|
|
$
|
(5,024,279
|
)
|
Adjustments to reconcile net loss to net cash (used in)/provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation of premises and equipment
|
|
|
384,770
|
|
|
|
475,512
|
|
Amortization of securities premiums/discounts, net
|
|
|
45,525
|
|
|
|
(6,491
|
)
|
Gain on sale of security
|
|
|
(13,430
|
)
|
|
|
(14,394
|
)
|
Provision for loan losses
|
|
|
3,938,087
|
|
|
|
4,391,277
|
|
Stock warrants and stock option expense
|
|
|
607,341
|
|
|
|
379,353
|
|
Decrease (increase) in accrued interest receivable
|
|
|
(2,109
|
)
|
|
|
(184,076
|
)
|
Decrease (increase) in other assets
|
|
|
(467,882
|
)
|
|
|
(115,188
|
)
|
(Decrease) increase in accrued interest payable and other
liabilities
|
|
|
(383,274
|
)
|
|
|
197,972
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(1,250,733
|
)
|
|
|
99,686
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of certificates of deposit
|
|
|
(39,921,100
|
)
|
|
|
(35,345,900
|
)
|
Proceeds from certificates of deposit
|
|
|
17,060,500
|
|
|
|
24,538,900
|
|
Purchases of securities available for sale
|
|
|
(6,000,000
|
)
|
|
|
(6,165,260
|
)
|
Proceeds from sale of securities available for sale
|
|
|
4,000,000
|
|
|
|
|
|
Proceeds from call/maturity of securities available for sale
|
|
|
5,488,537
|
|
|
|
|
|
Purchase of securities held to maturity
|
|
|
|
|
|
|
(6,035,441
|
)
|
Proceeds from maturities of securities held to maturity
|
|
|
2,560,212
|
|
|
|
4,054,849
|
|
Proceeds from sale of securities held to maturity
|
|
|
|
|
|
|
493,125
|
|
Purchase of premises and equipment
|
|
|
(72,035
|
)
|
|
|
(3,715
|
)
|
Proceeds from disposition of premises and equipment
|
|
|
|
|
|
|
4,213
|
|
Net decrease (increase) in loans
|
|
|
9,771,411
|
|
|
|
(12,856,759
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(7,112,475
|
)
|
|
|
(31,315,988
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Net (decrease) increase in deposits
|
|
|
(13,444,942
|
)
|
|
|
75,995,734
|
|
Net repayments from repurchase sweep agreements
|
|
|
|
|
|
|
(4,416,556
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(13,444,942
|
)
|
|
|
71,579,178
|
|
|
|
|
|
|
|
|
|
|
(Decrease) Increase in cash and cash equivalents
|
|
|
(21,808,150
|
)
|
|
|
40,362,876
|
|
Cash and cash equivalents, beginning
|
|
|
49,633,262
|
|
|
|
9,986,696
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, ending
|
|
$
|
27,825,112
|
|
|
$
|
50,349,572
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid on deposits and repurchase sweep agreements
|
|
$
|
1,172,256
|
|
|
$
|
1,939,311
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing and financing
activities:
|
|
|
|
|
|
|
|
|
Transfers of loans to other real estate owned
|
|
$
|
3,019,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Principal paydowns on SBA loan pool securities reclassified to
other assets
|
|
$
|
81,955
|
|
|
$
|
5,784
|
|
|
|
|
|
|
|
|
|
|
Treasury stock received in settlement of an impaired loan
|
|
$
|
|
|
|
$
|
775,000
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
financial statements.
F-6
SERVICE1ST
BANK OF NEVADA
(Unaudited)
|
|
Note 1.
|
Nature of
Business and Summary of Significant Accounting
Policies
|
Nature
of business
Service1st Bank
of Nevada (the Bank) was formed on November 3, 2006 and
commenced operations as a financial institution on
January 16, 2007 when a state charter was received from the
Nevada Financial Institutions Division (NFID) and federal
deposit insurance was granted by the Federal Deposit Insurance
Corporation (FDIC). The Bank is under the supervision of and
subject to regulation and examination by the NFID and the FDIC.
The Bank has two branches located in Las Vegas, Nevada, which
accept deposits and grant loans to customers. The Banks
loan portfolio contains primarily commercial and real estate
loans concentrated in Nevada. Segment information is not
presented since all of the Banks results are attributed to
Service1st Bank
of Nevada.
The accounting and reporting policies of the Bank conform to
accounting principles generally accepted in the United States of
America and general practice in the banking industry. A summary
of the significant accounting policies used by the Bank is as
follows:
Management has evaluated all significant events and transactions
that occurred subsequent to September 30, 2010, for
potential recognition or disclosure in these financial
statements. See note 9.
Use
of estimates in the preparation of financial
statements
The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results may differ from those estimates. A
material estimate that is particularly susceptible to
significant change in the near term relates to the determination
of the allowance for loan losses.
Interim
financial information
The accompanying unaudited financial statements as of and for
the three months ended and nine months ended September 30,
2010 and 2009 have been prepared in condensed format, and
therefore do not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements. These statements have been
prepared on a basis that is substantially consistent with the
accounting principles applied to the Banks financial
statements for the year ended December 31, 2009. The
information furnished in these interim statements reflects all
adjustments which are, in the opinion of management, necessary
for a fair statement of the results for each respective period
presented. Such adjustments are of a normal recurring nature.
The results of operations in the interim statements are not
necessarily indicative of the results that may be expected for
any other quarter or for the full year. The interim financial
information should be read in conjunction with the Banks
audited financial statements.
Other
assets acquired through foreclosure
Other assets acquired through foreclosure consist primarily of
properties acquired as a result of, or in-lieu-of, foreclosure.
Properties or other assets are classified as other real estate
owned and other repossessed property and are initially reported
at fair value of the asset less estimated selling costs.
Subsequent write downs are based on the lower of carrying value
or fair value, less estimated costs to sell the property. Costs
related to the development or improvement of the assets are
capitalized and costs relating to holding the assets are charged
to non-interest expense. Property is evaluated regularly to
ensure the recorded amount is supported by its current fair
value and valuation allowances.
F-7
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
Fair
values of financial instruments
The Bank discloses fair value information about financial
instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value.
Management uses its best judgment in estimating the fair value
of the Banks financial instruments. However, there are
inherent weaknesses in any estimation technique. Therefore, for
substantially all financial instruments, the fair value
estimates presented herein are not necessarily indicative of the
amounts the Bank could have realized in a sales transaction as
of September 30, 2010 and December 31, 2009. The
estimated fair value amounts as of September 30, 2010 and
December 31, 2009 have been measured as of that date and
have not been reevaluated or updated for purposes of these
financial statements subsequent to that date. As such, the
estimated fair values of these financial statements subsequent
to the reporting date may be different than the amounts reported
as of September 30, 2010 and December 31, 2009.
The information in Note 8 should not be interpreted as an
estimate of the fair value of the entire Bank since a fair value
calculation is only required for a limited portion of the
Banks assets and liabilities. Due to the wide range of
valuation techniques and the degree of subjectivity used in
making the estimate, comparisons between the Banks
disclosures and those of other companies or banks may not be
meaningful.
Cash and
cash equivalents including interest bearing deposits in
banks
The carrying amounts reported in the balance sheet for cash and
cash equivalents including interest bearing deposits in banks
approximate their fair value.
Certificates
of deposit
The carrying amounts reported in the balance sheet for
certificates of deposit approximate their fair value as the
terms on the certificates of deposits do not exceed one year.
Securities
Fair values for securities are based on quoted market prices
where available or on quoted market prices for similar
securities in the absence of quoted prices on the specific
security.
Loans
For variable rate loans that reprice frequently and that have
experienced no significant change in credit risk, fair values
are based on carrying values. Variable rate loans comprise
approximately 59% and 73% of the loan portfolio as of
September 30, 2010 and December 31, 2009,
respectively. Fair value for all other loans is estimated based
on discounted cash flows using interest rates currently being
offered for loans with similar terms to borrowers with similar
credit quality. Prepayments prior to the repricing date are not
expected to be significant. Loans are expected to be held to
maturity and any unrealized gains or losses are not expected to
be realized.
Impaired
loans
The fair value of an impaired loan is estimated using one of
several methods, including collateral value, market value of
similar debt, enterprise value, liquidation value, and
discounted cash flows. Those impaired loans not requiring an
allowance for probable losses represent loans for which the fair
value of the expected repayments or collateral exceeds the
recorded investment in such loans.
F-8
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
Accrued
interest receivable and payable
The carrying amounts reported in the balance sheet for accrued
interest receivable and payable approximate their fair value.
Restricted
stock
The Bank is a member of the FHLB system and maintains an
investment in capital stock of the FHLB of an amount pursuant to
the agreement with the FHLB. This investment is carried at cost
since no ready market exists, and there is no quoted market
value.
Deposit
liabilities
The fair value disclosed for demand and savings deposits is by
definition equal to the amount payable on demand at their
reporting date (carrying amount). The carrying amount for
variable-rate deposit accounts approximates their fair value.
Due to the short-term maturities of fixed-rate certificates of
deposit, their carrying amount approximates their fair value.
Early withdrawals of fixed-rate certificates of deposit are not
expected to be significant.
Off-balance
sheet instruments
Fair values for the Banks off-balance sheet instruments,
lending commitments and standby letters of credit, are based on
quoted fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and
the counterparties credit standing.
Loss
per share
Diluted earnings per share are based on the weighted average
outstanding common shares (excluding treasury shares, if any)
during each period, including common stock equivalents. Basic
earnings per share are based on the weighted average outstanding
common shares during the year.
Basic and diluted losses per share, based on the weighted
average outstanding shares, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stock
|
|
$
|
(1,370,841
|
)
|
|
$
|
(3,805,817
|
)
|
|
$
|
(5,359,761
|
)
|
|
$
|
(5,024,279
|
)
|
Weighted average common shares outstanding
|
|
|
49,811
|
|
|
|
50,647
|
|
|
|
49,811
|
|
|
|
50,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
$
|
(27.52
|
)
|
|
$
|
(75.14
|
)
|
|
$
|
(107.60
|
)
|
|
$
|
(98.92
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to the Banks historical net losses, all of the
Banks stock based awards are considered anti-dilutive, and
accordingly, basic and diluted loss per share is the same.
Recent
accounting pronouncements
New authoritative accounting guidance concerning fair value
measurements and disclosures, amends prior accounting guidance
to amend and expand disclosure requirements about transfers in
and out of Levels 1 and 2, clarified existing fair value
disclosure requirements about the appropriate level of
disaggregation, and clarified that a description of valuation
techniques and inputs used to measure fair value was required
for
F-9
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
recurring and nonrecurring Level 2 and 3 fair value
measurements. The new authoritative accounting guidance became
effective for the Bank on January 1, 2010, except for the
disclosures about purchases, sales, issuances, and settlements
in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods
within those fiscal years. The new required disclosures are
included in Note 2 Fair Value Accounting.
New authoritative accounting guidance concerning transfers and
servicing, amends prior accounting guidance to enhance reporting
about transfers of financial assets, including securitizations,
and where companies have continuing exposure to the risks
related to transferred financial assets. The new authoritative
accounting guidance eliminates the concept of a qualifying
special-purpose entity and changes the requirements for
derecognizing financial assets. The new authoritative accounting
guidance also requires additional disclosures about all
continuing involvements with transferred financial assets
including information about gains and losses resulting from
transfers during the period. The new authoritative accounting
guidance became effective January 1, 2010, and did not have
a significant impact on the Banks financial statements.
New authoritative accounting guidance concerning receivables,
amended prior guidance to provide a greater level of
disaggregated information about the credit quality of loans and
leases and the Allowance for Loan and Lease Losses (Allowance).
The new authoritative guidance also requires additional
disclosures related to credit quality indicators, past due
information, and information related to loans modified in
troubled debt restructuring. The provisions of the new
authoritative guidance will be effective in the reporting period
ending December 31, 2010. The new authoritative guidance
amends only the disclosure requirements for loans and leases and
the Allowance; the adoption will have no impact on the
Banks statements of income and condition.
|
|
Note 2.
|
Fair
Value Accounting
|
The Bank uses a fair value hierarchy that prioritizes inputs to
valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1
measurements) and the lowest priority to unobservable inputs
(level 3 measurements). The three levels of the fair value
hierarchy are described below:
Level 1 Unadjusted quoted prices in active
markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities;
Level 2 Quoted prices for similar instruments
in active markets, quoted prices for identical or similar
instruments in markets that are not active, or model-based
valuation techniques where all significant assumptions are
observable, either directly or indirectly, in the market;
Level 3 Valuation is generated from model-based
techniques where all significant assumptions are not observable,
either directly or indirectly, in the market. These unobservable
assumptions reflect our own estimates of assumptions that market
participants would use in pricing the asset or liability.
Valuation techniques may include use of matrix pricing,
discounted cash flow models and similar techniques.
F-10
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
Fair
value on a recurring basis
Financial assets measured at fair value on a recurring basis
include the following:
Securities available for sale. Securities
reported as available for sale are reported at fair value
utilizing Level 2 inputs. For these securities the Bank
obtains fair value measurements from an independent pricing
service. The fair value measurements consider observable data
that may include dealer quotes, market spreads, cash flows, the
U.S. Treasury yield curve, live trading levels, trade
execution data, market consensus prepayment speeds, credit
information, and the bonds terms and conditions, among
other things.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of September 30, 2010
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency Securities
|
|
$
|
2,002,190
|
|
|
$
|
|
|
|
$
|
2,002,190
|
|
|
$
|
|
|
Collateralized Mortgage Obligation Securities
|
|
|
1,896,910
|
|
|
|
|
|
|
|
1,896,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,899,100
|
|
|
$
|
|
|
|
$
|
3,899,100
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2009
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency Securities
|
|
$
|
5,228,926
|
|
|
$
|
|
|
|
$
|
5,228,926
|
|
|
$
|
|
|
Collateralized Mortgage Obligation Securities
|
|
|
2,204,665
|
|
|
|
|
|
|
|
2,204,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,433,591
|
|
|
$
|
|
|
|
$
|
7,433,591
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-11
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
Fair
value on a nonrecurring basis
Certain assets are measured at fair value on a nonrecurring
basis; that is, the instruments are not measured at fair value
on an ongoing basis, but are subject to fair value adjustments
in certain circumstances (for example, when there is evidence of
impairment). The following table presents such assets carried on
the balance sheet by caption and by level within the fair value
hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Other assets acquired through foreclosure, September 30,
2010
|
|
$
|
3,019,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,019,000
|
|
Impaired loans, September 30, 2010
|
|
|
18,813,164
|
|
|
|
|
|
|
|
|
|
|
|
18,813,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,832,164
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
21,832,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans, December 31, 2009
|
|
$
|
6,958,595
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,958,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans. The specific reserves for
collateral dependent impaired loans are based on the fair value
of the collateral less estimated costs to sell. The fair value
of collateral is determined based on third-party appraisals. In
some cases, adjustments are made to the appraised values due to
various factors, including age of the appraisal, age of
comparables included in the appraisal, and known changes in the
market and in the collateral. Accordingly, the resulting fair
value measurement has been categorized as a Level 3
measurement. When the loans are determined not to be collateral
dependent the Bank uses the discounted cash flow method in
estimating the impairment of the loan. The majority of the Banks
impaired loans are secured by real estate.
Other assets acquired through
foreclosure. Other assets acquired through
foreclosure consist of properties acquired as a result of, or
in-lieu-of, foreclosure. Properties are classified as other real
estate owned and are initially reported at the fair value using
appraised value, less estimated costs to sell. Such properties
are periodically re-appraised. There is risk for subsequent
volatility. When significant adjustments were based on
unobservable inputs, such as when management determines the fair
value of the collateral is further impaired below appraised
value and there is no observable market price, the resulting
fair value measurement has been categorized as a level 3
measurement.
Carrying amounts and fair values of investment securities as of
September 30, 2010 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
Securities Available for Sale
|
|
Amortized Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
U.S. Agencies
|
|
$
|
2,002,378
|
|
|
$
|
|
|
|
$
|
(188
|
)
|
|
$
|
2,002,190
|
|
Collateralized Mortgage Obligation Securities
|
|
|
1,909,487
|
|
|
|
1,061
|
|
|
|
(13,638
|
)
|
|
|
1,896,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,911,865
|
|
|
$
|
1,061
|
|
|
$
|
(13,826
|
)
|
|
$
|
3,899,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-12
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
Securities Held to Maturity
|
|
Amortized Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Corporate Debt Securities
|
|
$
|
6,919,444
|
|
|
$
|
273,876
|
|
|
$
|
|
|
|
$
|
7,193,320
|
|
Small Business Administration Loan Pools
|
|
|
663,929
|
|
|
|
2,427
|
|
|
|
(337
|
)
|
|
|
666,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,583,373
|
|
|
$
|
276,303
|
|
|
$
|
(337
|
)
|
|
$
|
7,859,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amounts and fair values of investment securities as of
December 31, 2009 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
Securities Available for Sale
|
|
Amortized Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
U.S. Agencies
|
|
$
|
5,247,459
|
|
|
$
|
|
|
|
$
|
(18,533
|
)
|
|
$
|
5,228,926
|
|
Collateralized Mortgage Obligation Securities
|
|
|
2,209,182
|
|
|
|
|
|
|
|
(4,517
|
)
|
|
|
2,204,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,456,641
|
|
|
$
|
|
|
|
$
|
(23,050
|
)
|
|
$
|
7,433,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
Securities Held to Maturity
|
|
Amortized Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
U.S. Agencies
|
|
$
|
996,876
|
|
|
$
|
3,434
|
|
|
$
|
|
|
|
$
|
1,000,310
|
|
Corporate Debt Securities
|
|
|
8,390,055
|
|
|
|
476,570
|
|
|
|
|
|
|
|
8,866,625
|
|
Small Business Administration Loan Pools
|
|
|
814,465
|
|
|
|
74
|
|
|
|
(4,892
|
)
|
|
|
809,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,201,396
|
|
|
$
|
480,078
|
|
|
$
|
(4,892
|
)
|
|
$
|
10,676,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank had realized gains on sale of securities of
approximately $13,000 and $17,000 as of September 30, 2010
and December 31, 2009. There were no realized losses as of
September 30, 2010, or December 31, 2009 and 2008.
Information pertaining to securities with gross losses at
September 30, 2010, aggregated by investment category and
length of time that individual securities have been in a
continuous loss position follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
Less than Twelve Months
|
|
|
Over Twelve Months
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
(Losses)
|
|
|
Fair Value
|
|
|
(Losses)
|
|
|
Fair Value
|
|
|
Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agencies
|
|
$
|
(188
|
)
|
|
$
|
1,002,190
|
|
|
$
|
|
|
|
$
|
|
|
Collateralized Mortgage Obligations Securities
|
|
|
(13,638
|
)
|
|
|
1,426,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(13,826
|
)
|
|
$
|
2,428,437
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agencies
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Corporate Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Administration Loan Pools
|
|
|
|
|
|
|
|
|
|
|
(337
|
)
|
|
|
134,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(337
|
)
|
|
$
|
134,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
Information pertaining to securities with gross losses at
December 31, 2009, aggregated by investment category and
length of time that individual securities have been in a
continuous loss position follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Less than Twelve Months
|
|
|
Over Twelve Months
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
(Losses)
|
|
|
Fair Value
|
|
|
(Losses)
|
|
|
Fair Value
|
|
|
Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agencies
|
|
$
|
(18,533
|
)
|
|
$
|
5,228,926
|
|
|
$
|
|
|
|
$
|
|
|
Collateralized Mortgage Obligations Securities
|
|
|
(4,517
|
)
|
|
|
2,204,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(23,050
|
)
|
|
$
|
7,433,591
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agencies
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Corporate Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Administration Loan Pools
|
|
|
|
|
|
|
|
|
|
|
(4,892
|
)
|
|
|
764,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(4,892
|
)
|
|
$
|
764,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010 and December 31, 2009, 7 and
22 debt securities have unrealized losses with aggregate
degradation of approximately 0.5% and 0.4% as of
September 30, 2010 and December 31, 2009 from the
Banks amortized costs basis. These unrealized losses
totaling approximately $14,000 and $28,000 at September 30,
2010 and December 31, 2009, respectively, related primarily
to fluctuations in the current interest rate environment and
other factors, but do not presently represent realized losses.
As of September 30, 2010 and December 31, 2009, there
are no securities that have been determined to be other than
temporarily impaired.
The amortized cost and fair value of securities as of
September 30, 2010 by contractual maturities are shown
below. The maturities of small business administration loan
pools may differ from their contractual maturities because the
loans underlying the securities may be repaid without any
penalties; therefore, these securities are listed separately in
the maturity summary.
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
1,029,596
|
|
|
$
|
1,017,860
|
|
Due after one year through five years
|
|
|
2,882,269
|
|
|
|
2,881,240
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,911,865
|
|
|
$
|
3,899,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Securities held to maturity
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
3,998,409
|
|
|
$
|
4,042,285
|
|
Due after one year through five years
|
|
|
2,921,035
|
|
|
|
3,151,035
|
|
Small Business Administration Loan Pools
|
|
|
663,929
|
|
|
|
666,019
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,583,373
|
|
|
$
|
7,859,339
|
|
|
|
|
|
|
|
|
|
|
F-14
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
The components of the Banks loan portfolio as of
September 30, 2010 and December 31, 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Construction, land development, and other land loans
|
|
$
|
8,891,879
|
|
|
$
|
20,279,335
|
|
Commercial real estate
|
|
|
62,416,006
|
|
|
|
68,522,872
|
|
Residential real estate
|
|
|
10,306,877
|
|
|
|
1,366,804
|
|
Commercial and industrial
|
|
|
39,051,572
|
|
|
|
46,470,075
|
|
Consumer
|
|
|
131,107
|
|
|
|
341,969
|
|
Less: net deferred loan costs (fees)
|
|
|
58,119
|
|
|
|
(14,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
120,855,560
|
|
|
|
136,966,454
|
|
Less: allowance for loan losses
|
|
|
(7,021,398
|
)
|
|
|
(6,403,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
113,834,162
|
|
|
$
|
130,562,660
|
|
|
|
|
|
|
|
|
|
|
Information about impaired and non-accrual loans as of and for
the periods ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Impaired loans without a valuation allowance
|
|
$
|
9,292,040
|
|
|
$
|
6,528,035
|
|
Impaired loans with a valuation allowance
|
|
|
11,955,152
|
|
|
|
2,828,160
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
21,247,192
|
|
|
$
|
9,356,195
|
|
|
|
|
|
|
|
|
|
|
Related allowance for loan losses on impaired loans
|
|
$
|
2,434,028
|
|
|
$
|
840,660
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual loans
|
|
$
|
16,766,428
|
|
|
$
|
7,799,255
|
|
|
|
|
|
|
|
|
|
|
Loans past due 90 days or more and still accruing
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Average balance during the period on impaired loans
|
|
$
|
23,252,402
|
|
|
$
|
14,938,982
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010, approximately $9,292,000 of the
Banks impaired loans do not have any specific valuation
allowance. Substantially all of these loans are real estate
secured and partial charge-offs were recognized on a significant
portion of these loans during the fourth quarter of 2009 due to
declines in appraised values. The Bank typically updates
appraisals every six months on impaired credits. If real estate
values continue to decline and as updated appraisals are
received, the Bank may have to increase its allowance for loan
losses appropriately.
During the nine months ended September 30, 2010 the Bank
foreclosed on two real estate secured loans. The foreclosed on
assets are now reported as other real estate owned which
consists of property acquired due to foreclosure on real estate
secured loans. As of September 30, 2010 total other real
estate owned consisted of $2,394,000 in commercial real estate
and $625,000 in construction, land development, and other land
loans. The Bank did not have any other real estate owned as of
December 31, 2009.
F-15
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
Changes in the allowance for loan losses for the three months
ended and nine months ended September 30, 2010 and 2009 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Balance, beginning
|
|
$
|
8,551,408
|
|
|
$
|
3,845,516
|
|
|
$
|
6,403,794
|
|
|
$
|
2,882,882
|
|
Provisions charged to operating expense
|
|
|
707,439
|
|
|
|
3,428,763
|
|
|
|
3,938,087
|
|
|
|
4,391,277
|
|
Recoveries of amounts charged off
|
|
|
510,100
|
|
|
|
|
|
|
|
610,100
|
|
|
|
120
|
|
Less amounts charged off
|
|
|
(2,747,549
|
)
|
|
|
(1,868,833
|
)
|
|
|
(3,930,583
|
)
|
|
|
(1,868,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, ending
|
|
$
|
7,021,398
|
|
|
$
|
5,405,446
|
|
|
$
|
7,021,398
|
|
|
$
|
5,405,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5.
|
Income
Tax Matters
|
As of September 30, 2010 and December 31, 2009, a
valuation allowance for the entire deferred tax asset is
considered necessary as the Bank has determined that it is not
more likely than not that the deferred tax assets will be
realized.
|
|
Note 6.
|
Commitments
and Contingencies
|
In the normal course of business, the Bank is involved in
various legal proceedings. In the opinion of management, any
liability resulting from such proceedings would not have a
material adverse effect on the financial statements.
Financial
instruments with off-balance sheet risk
A summary of the contract amount of the Banks exposure to
off-balance sheet risk is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Commitments to extend credit
|
|
$
|
19,348,693
|
|
|
$
|
25,035,246
|
|
Standby letters of credit
|
|
|
695,175
|
|
|
|
1,408,150
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,043,868
|
|
|
$
|
26,443,396
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7.
|
Regulatory
Capital
|
On September 1, 2010,
Service1st
entered into a Consent Order (as more fully discussed in
footnote 9). The Consent Order placed several limitations
on the bank. The bank was designated as Adequately
Capitalized for Prompt Corrective Action purposes. The
Tier 1 capital ratio was set to a minimum of 8.5% and the
Total Risk Based minimum capital ratio was established at 12.0%.
F-16
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
Therefore, the Bank is required to maintain a Tier 1
Capital ratio of not less than 8.5% and a Total Risk-Based
Capital ratio of not less than 12.0%. The actual capital amounts
and ratios for the Bank as of September 30, 2010 and
December 31, 2009 are presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
Regulatory Guidance
|
|
Regulatory Guidance
|
|
|
Actual
|
|
for Adequately Capitalized
|
|
for Well-Capitalized
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Total Capital (to Risk Weighted Assets)
|
|
$
|
21,440,000
|
|
|
|
16.9
|
%
|
|
$
|
10,150,000
|
|
|
|
8.0
|
%
|
|
$
|
12,688,000
|
|
|
|
10.0
|
%
|
Tier 1 Capital (to Risk Weighted Assets)
|
|
|
19,782,000
|
|
|
|
15.6
|
%
|
|
|
5,075,000
|
|
|
|
4.0
|
%
|
|
|
7,613,000
|
|
|
|
6.0
|
%
|
Tier 1 Capital (to Average Assets)
|
|
|
19,782,000
|
|
|
|
9.2
|
%
|
|
|
8,574,000
|
|
|
|
4.0
|
%
|
|
|
10,718,000
|
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
Regulatory Guidance
|
|
Regulatory Guidance
|
|
|
Actual
|
|
for Adequately Capitalized
|
|
for Well-Capitalized
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Total Capital (to Risk Weighted Assets)
|
|
$
|
26,493,000
|
|
|
|
17.6
|
%
|
|
$
|
12,061,000
|
|
|
|
8.0
|
%
|
|
$
|
15,077,000
|
|
|
|
10.0
|
%
|
Tier 1 Capital (to Risk Weighted Assets)
|
|
|
24,542,000
|
|
|
|
16.3
|
%
|
|
|
6,031,000
|
|
|
|
4.0
|
%
|
|
|
9,046,000
|
|
|
|
6.0
|
%
|
Tier 1 Capital (to Average Assets)
|
|
|
24,542,000
|
|
|
|
11.0
|
%
|
|
|
8,961,000
|
|
|
|
4.0
|
%
|
|
|
11,202,000
|
|
|
|
5.0
|
%
|
|
|
Note 8.
|
Fair
Value of Financial Instruments
|
The estimated fair value of the Banks financial
instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
December 31, 2009
|
|
|
Carrying
|
|
|
|
Carrying
|
|
|
|
|
Amount
|
|
Fair Value
|
|
Amount
|
|
Fair Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
12,585,357
|
|
|
$
|
12,585,000
|
|
|
$
|
13,686,456
|
|
|
$
|
13,686,000
|
|
Interest bearing deposits in banks
|
|
|
15,239,755
|
|
|
|
15,240,000
|
|
|
|
35,946,806
|
|
|
|
35,947,000
|
|
Certificates of deposit
|
|
|
32,173,600
|
|
|
|
32,174,000
|
|
|
|
9,313,000
|
|
|
|
9,313,000
|
|
Restricted Stock
|
|
|
658,400
|
|
|
|
658,000
|
|
|
|
486,700
|
|
|
|
487,000
|
|
Securities available for sale
|
|
|
3,899,100
|
|
|
|
3,899,000
|
|
|
|
7,433,591
|
|
|
|
7,434,000
|
|
Securities held to maturity
|
|
|
7,583,373
|
|
|
|
7,859,000
|
|
|
|
10,201,396
|
|
|
|
10,677,000
|
|
Loans, net
|
|
|
113,834,161
|
|
|
|
111,625,000
|
|
|
|
130,562,660
|
|
|
|
127,148,000
|
|
Accrued interest receivable
|
|
|
530,717
|
|
|
|
531,000
|
|
|
|
528,608
|
|
|
|
529,000
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
171,875,166
|
|
|
|
171,875,000
|
|
|
|
185,320,108
|
|
|
|
185,320,000
|
|
Accrued interest payable
|
|
|
49,314
|
|
|
|
49,000
|
|
|
|
138,554
|
|
|
|
139,000
|
|
F-17
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
Fair
Value of Commitments
The estimated fair value of the standby letters of credit at
September 30, 2010 and December 31, 2009 is
insignificant. Loan commitments on which the committed interest
rate is less than the current market rate are also insignificant
at September 30, 2010 and December 31, 2009.
Interest
Rate Risk
The Bank assumes interest rate risk (the risk to the Banks
earnings and capital from changes in interest rate levels) as a
result of its normal operations. As a result, the fair values of
the Banks financial instruments as well as its future net
interest income will change when interest rate levels change and
that change may be either favorable or unfavorable to the Bank.
|
|
Note 9.
|
Regulatory
Matters
|
On September 1, 2010,
Service1st,
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 previous MOU.
Under the Consent Order,
Service1st
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
Servicest,
(ii) maintain a Tier I leverage ratio at or above 8.5%
(as of September 30, 2010,
Service1sts
Tier I leverage ratio as at 9.23%) and a total risk-based
capital ratio at or above 12% (as of September 30, 2010,
Service1sts
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
Service1sts
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
Service1sts
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 FDICs 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
Service1sts
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. When the FDIC
and the Nevada FID later determined that this deposit, a NOW
account held at the bank by a non-depository Nevada trust
company as custodian of its customers self-directed IRA
accounts, is a brokered deposit, the FDIC and the Nevada FID
gave the bank until December 31, 2010 to terminate the
deposit relationship. Because the bank had sufficient liquidity
when the deposit relationship was terminated in December,
termination of the deposit relationship did not have a material
adverse effect on the bank.
|
|
Note 10.
|
Subsequent
Events
|
Service1st
Acquisition
On October 28, 2010, Western Liberty Bancorp (WLBC)
consummated its acquisition (the Acquisition) of
Service1st Bank
of Nevada, a Nevada-chartered non-member bank
(Service1st)
pursuant to a Merger Agreement (the Merger
Agreement), dated as of November 6, 2009, as amended
by a First Amendment to the Merger Agreement, dated as of
June 21, 2010 (Amendment No. 1 and,
together with the Merger Agreement, the Amended Merger
Agreement), each among WL-S1 Interim Bank, a Nevada
corporation and wholly-owned subsidiary of WLBC
(Acquisition Sub),
Service1st and
Curtis W. Anderson, as representative of the former stockholders
of
Service1st.
Pursuant to the Amended Merger Agreement, Acquisition Sub
F-18
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
merged with and into
Service1st,
with
Service1st being
the surviving entity and becoming WLBCs wholly-owned
subsidiary. WLBC previously received the requisite approvals of
certain bank regulatory authorities to complete the Acquisition
to become a bank holding company.
The former stockholders of
Service1st received
approximately 2,370,878 shares of Common Stock in exchange
for all of the outstanding shares of capital stock of
Service1st
(the Base Acquisition Consideration). In addition,
the holders of
Service1sts
outstanding options and warrants now hold options and warrants
of similar tenor to purchase up to 289,808 shares of Common
Stock.
In addition to the Base Acquisition Consideration, each of the
former stockholders of
Service1st may
be entitled to receive additional consideration (the
Contingent Acquisition Consideration), payable in
Common Stock, if at any time within the first two years after
the consummation of the Acquisition, 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
Service1st at
the close of business on the last day of the calendar month
immediately before the calendar month in which the final
regulatory approval necessary for the completion of the
Acquisition was obtained. The total number of shares of our
common stock issuable to the former
Service1st 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.
At the close of business on October 28, 2010, WLBC was a
new Nevada bank holding company by consummating the acquisition
of
Service1st and
conducting operations through
Service1st.
In conjunction with the transaction, WLBC infused
$25 million of capital onto the balance sheet of
Service1st.
On October 29, 2010, the common shares of WLBC began
trading on the Nasdaq Global Market, under the ticker symbol
WLBC.
F-19
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Service1st
Bank of Nevada
We have audited the accompanying balance sheets of
Service1st Bank
of Nevada (a Nevada corporation) as of December 31, 2009
and 2008, and the related statements of operations,
stockholders equity and comprehensive loss, and cash flows
for the period ended December 31, 2009, December 31,
2008 and January 16, 2007, date of inception, to
December 31, 2007. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of
Service1st Bank
of Nevada as of December 31, 2009 and 2008, and the results
of its operations and its cash flows for the period ended
December 31, 2009, December 31, 2008 and
January 16, 2007, date of inception, to December 31,
2007, in conformity with accounting principles generally
accepted in the United States of America.
Albuquerque, New Mexico
February 8, 2010
F-20
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Cash and due from banks
|
|
$
|
13,686,456
|
|
|
$
|
2,996,696
|
|
Federal funds sold
|
|
|
|
|
|
|
6,990,000
|
|
Interest-bearing deposits in banks
|
|
|
35,946,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
49,633,262
|
|
|
|
9,986,696
|
|
Certificates of deposits
|
|
|
9,313,000
|
|
|
|
|
|
Securities, available for sale
|
|
|
7,433,591
|
|
|
|
|
|
Securities, held to maturity (estimated fair value 2009:
$10,676,582 and 2008: $11,932,025)
|
|
|
10,201,396
|
|
|
|
11,739,995
|
|
Loans, net of allowance for loan losses 2009: $6,403,794 and
2008: $2,882,882
|
|
|
130,562,660
|
|
|
|
134,333,491
|
|
Premises and equipment, net
|
|
|
1,633,724
|
|
|
|
2,262,491
|
|
Accrued interest receivable
|
|
|
528,608
|
|
|
|
430,471
|
|
Other assets
|
|
|
2,453,770
|
|
|
|
740,442
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
211,760,011
|
|
|
$
|
159,493,586
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest bearing demand
|
|
$
|
56,463,145
|
|
|
$
|
21,578,356
|
|
Interest bearing:
|
|
|
|
|
|
|
|
|
Demand
|
|
|
25,094,322
|
|
|
|
8,888,458
|
|
Savings and money market
|
|
|
43,208,602
|
|
|
|
44,832,598
|
|
Time, $100,000 or more
|
|
|
54,316,415
|
|
|
|
30,005,697
|
|
Other time
|
|
|
6,237,624
|
|
|
|
4,585,906
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
185,320,108
|
|
|
|
109,891,015
|
|
Accrued interest payable and other liabilities
|
|
|
1,921,129
|
|
|
|
1,354,363
|
|
Repurchase sweep agreements
|
|
|
|
|
|
|
5,932,554
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
187,241,237
|
|
|
|
117,177,932
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Common stock, par value: $.01; shares authorized: 25,000,000;
shares issued: 50,811; and shares outstanding 2009: 50,811 less
1,000 shares held in treasury and 2008: 50,811
|
|
|
508
|
|
|
|
508
|
|
Additional paid-in capital
|
|
|
52,008,958
|
|
|
|
51,630,250
|
|
Accumulated deficit
|
|
|
(26,692,642
|
)
|
|
|
(9,315,104
|
)
|
Accumulated other comprehensive loss, net
|
|
|
(23,050
|
)
|
|
|
|
|
Less cost of treasury stock, 1,000 shares
|
|
|
(775,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
24,518,774
|
|
|
|
42,315,654
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
211,760,011
|
|
|
$
|
159,493,586
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-21
SERVICE1ST
BANK OF NEVADA
YEARS ENDED DECEMBER 31, 2009, 2008 AND PERIOD
JANUARY 16, 2007,
DATE OF INCEPTION, TO DECEMBER 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Interest and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
8,201,681
|
|
|
$
|
7,836,763
|
|
|
$
|
3,579,630
|
|
Securities, taxable
|
|
|
646,000
|
|
|
|
355,218
|
|
|
|
150,574
|
|
Federal funds sold and other
|
|
|
195,547
|
|
|
|
305,462
|
|
|
|
2,640,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income
|
|
|
9,043,228
|
|
|
|
8,497,443
|
|
|
|
6,370,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
2,663,069
|
|
|
|
1,962,594
|
|
|
|
1,572,865
|
|
Repurchase sweep agreements
|
|
|
12,870
|
|
|
|
59,507
|
|
|
|
40,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
2,675,939
|
|
|
|
2,022,101
|
|
|
|
1,612,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
6,367,289
|
|
|
|
6,475,342
|
|
|
|
4,757,422
|
|
Provision for loan losses
|
|
|
15,665,626
|
|
|
|
3,669,569
|
|
|
|
938,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest (loss) income after provision for loan losses
|
|
|
(9,298,337
|
)
|
|
|
2,805,773
|
|
|
|
3,819,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges
|
|
|
327,659
|
|
|
|
196,072
|
|
|
|
13,250
|
|
Loan and late fees
|
|
|
97,911
|
|
|
|
98,513
|
|
|
|
106,295
|
|
Gain on sale of securities
|
|
|
17,285
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
71,213
|
|
|
|
45,553
|
|
|
|
43,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
514,068
|
|
|
|
340,138
|
|
|
|
163,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
3,875,100
|
|
|
|
5,029,448
|
|
|
|
3,632,284
|
|
Occupancy, equipment and depreciation
|
|
|
1,673,428
|
|
|
|
1,663,812
|
|
|
|
1,119,451
|
|
Computer service charges
|
|
|
327,813
|
|
|
|
312,612
|
|
|
|
170,431
|
|
Professional fees
|
|
|
1,026,342
|
|
|
|
255,680
|
|
|
|
322,718
|
|
Advertising and business development
|
|
|
87,521
|
|
|
|
156,636
|
|
|
|
421,819
|
|
Insurance
|
|
|
499,609
|
|
|
|
145,375
|
|
|
|
91,622
|
|
Telephone
|
|
|
100,599
|
|
|
|
104,435
|
|
|
|
76,307
|
|
Stationery and supplies
|
|
|
32,116
|
|
|
|
44,828
|
|
|
|
106,791
|
|
Director fees
|
|
|
44,451
|
|
|
|
22,943
|
|
|
|
147,000
|
|
Organization costs
|
|
|
|
|
|
|
|
|
|
|
1,238,298
|
|
Stock warrants
|
|
|
|
|
|
|
|
|
|
|
213,228
|
|
Loss on disposition of equipment
|
|
|
3,220
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
923,070
|
|
|
|
526,869
|
|
|
|
640,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,593,269
|
|
|
|
8,262,638
|
|
|
|
8,180,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(17,377,538
|
)
|
|
$
|
(5,116,727
|
)
|
|
$
|
(4,198,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(342.86
|
)
|
|
$
|
(100.70
|
)
|
|
$
|
(83.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-22
SERVICE1ST
BANK OF NEVADA
YEARS ENDED DECEMBER 31, 2009, 2008 AND PERIOD
JANUARY 16, 2007,
DATE OF INCEPTION, TO DECEMBER 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Common Stock (Issued)
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Accumulated Other
|
|
|
Treasury Stock
|
|
|
|
|
|
|
Loss
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Deficit
|
|
|
Comprehensive Loss
|
|
|
Shares
|
|
|
Amount
|
|
|
Total
|
|
|
Balance, January 16, 2007, date of inception
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Sale of common stock, net of stock issuance costs of $42,646
|
|
|
|
|
|
|
50,811
|
|
|
|
508
|
|
|
|
50,767,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,768,354
|
|
Stock warrants and stock option expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
439,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
439,227
|
|
Net loss
|
|
$
|
(4,198,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,198,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,198,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
|
|
|
|
50,811
|
|
|
|
508
|
|
|
|
51,207,073
|
|
|
|
(4,198,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,009,204
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
423,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
423,177
|
|
Net loss
|
|
$
|
(5,116,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,116,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,116,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
|
|
|
|
50,811
|
|
|
|
508
|
|
|
|
51,630,250
|
|
|
|
(9,315,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,315,654
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378,708
|
|
Treasury stock transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
(775,000
|
)
|
|
|
(775,000
|
)
|
Net loss
|
|
$
|
(17,377,538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,377,538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,377,538
|
)
|
Unrealized loss on securities available for sale, net of taxes
|
|
|
(23,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,050
|
)
|
|
|
|
|
|
|
|
|
|
|
(23,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
(17,400,588
|
)
|
|
|
50,811
|
|
|
$
|
508
|
|
|
$
|
52,008,958
|
|
|
$
|
(26,692,642
|
)
|
|
$
|
(23,050
|
)
|
|
|
1,000
|
|
|
$
|
(775,000
|
)
|
|
$
|
24,518,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-23
SERVICE1ST
BANK OF NEVADA
YEARS ENDED DECEMBER 31, 2009, 2008 AND PERIOD
JANUARY 16, 2007,
DATE OF INCEPTION, TO DECEMBER 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(17,377,538
|
)
|
|
$
|
(5,116,727
|
)
|
|
$
|
(4,198,377
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of premises and equipment
|
|
|
633,168
|
|
|
|
597,571
|
|
|
|
361,599
|
|
Amortization of securities premiums/discounts, net
|
|
|
27,245
|
|
|
|
7,441
|
|
|
|
14,523
|
|
Provision for loan losses
|
|
|
15,665,626
|
|
|
|
3,669,569
|
|
|
|
938,126
|
|
Stock warrants and stock option expense
|
|
|
378,708
|
|
|
|
423,177
|
|
|
|
439,227
|
|
Loss on disposition of equipment
|
|
|
3,220
|
|
|
|
|
|
|
|
|
|
Gain on sale securities
|
|
|
(17,285
|
)
|
|
|
|
|
|
|
|
|
Increase in accrued interest receivable
|
|
|
(98,137
|
)
|
|
|
(48,431
|
)
|
|
|
(382,040
|
)
|
Increase in other assets
|
|
|
(1,707,602
|
)
|
|
|
(392,428
|
)
|
|
|
(338,303
|
)
|
Increase (decrease) in accrued interest payable and other
liabilities
|
|
|
566,766
|
|
|
|
(13,716
|
)
|
|
|
734,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(1,925,829
|
)
|
|
|
(873,544
|
)
|
|
|
(2,430,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of certificates of deposit
|
|
|
(31,105,500
|
)
|
|
|
|
|
|
|
|
|
Proceeds from certificates of deposit
|
|
|
21,792,500
|
|
|
|
|
|
|
|
|
|
Purchases of securities available for sale
|
|
|
(14,693,067
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sales of securities available for sale
|
|
|
6,994,119
|
|
|
|
|
|
|
|
|
|
Proceeds from principal paydowns of securities available for sale
|
|
|
203,922
|
|
|
|
|
|
|
|
|
|
Purchase of securities held to maturity
|
|
|
(6,035,441
|
)
|
|
|
(10,810,275
|
)
|
|
|
(7,350,909
|
)
|
Proceeds from maturities of securities held to maturity
|
|
|
7,097,851
|
|
|
|
6,171,299
|
|
|
|
218,215
|
|
Proceeds from sales of securities held to maturity
|
|
|
498,888
|
|
|
|
|
|
|
|
|
|
Purchase of premises and equipment
|
|
|
(7,621
|
)
|
|
|
(141,338
|
)
|
|
|
(2,446,609
|
)
|
Net increase in loans
|
|
|
(12,669,795
|
)
|
|
|
(49,453,091
|
)
|
|
|
(89,488,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(27,924,144
|
)
|
|
|
(54,233,405
|
)
|
|
|
(99,067,398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
75,429,093
|
|
|
|
28,554,139
|
|
|
|
81,336,876
|
|
Net (repayments) proceeds from repurchase sweep agreements
|
|
|
(5,932,554
|
)
|
|
|
4,361,999
|
|
|
|
1,570,555
|
|
Proceeds from sale of common stock, net
|
|
|
|
|
|
|
|
|
|
|
50,768,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
69,496,539
|
|
|
|
32,916,138
|
|
|
|
133,675,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
39,646,566
|
|
|
|
(22,190,811
|
)
|
|
|
32,177,507
|
|
Cash and cash equivalents, beginning
|
|
|
9,986,696
|
|
|
|
32,177,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, ending
|
|
$
|
49,633,262
|
|
|
$
|
9,986,696
|
|
|
$
|
32,177,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid on deposits and repurchase sweep agreements
|
|
$
|
2,662,313
|
|
|
$
|
1,958,906
|
|
|
$
|
1,551,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash operating and investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal paydowns on SBA loan pool securities reclassified to
other assets
|
|
$
|
5,726
|
|
|
$
|
5,209
|
|
|
$
|
4,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increases to premises and equipment funded by tenant allowances
|
|
$
|
|
|
|
$
|
292,632
|
|
|
$
|
341,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock received in settlement of an impaired loan
|
|
$
|
775,000
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-24
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS
December 31, 2009
|
|
Note 1.
|
Nature of
Business and Summary of Significant Accounting
Policies
|
Nature
of business
Service1st Bank
of Nevada (the Bank) was formed on November 3,
2006 and commenced operations as a financial institution on
January 16, 2007 when a state charter was received from the
Nevada Financial Institutions Division (NFID) and federal
deposit insurance was granted by the Federal Deposit Insurance
Corporation (FDIC). The Bank is under the supervision of and
subject to regulation and examination by the NFID and the FDIC.
The Bank has two branches located in Las Vegas, Nevada, which
accept deposits and grant loans to customers. The Banks
loan portfolio contains primarily commercial and real estate
loans concentrated in Nevada. Segment information is not
presented since all of the Banks results are attributed to
Service1st
Bank of Nevada.
Subsequent events have been evaluated for potential recognition
and disclosure through February 8, 2010, the date the financial
statements were issued.
The accounting and reporting policies of the Bank conform to
accounting principles generally accepted in the United States of
America and general practice in the banking industry. A summary
of the significant accounting policies used by the Bank is as
follows:
Use
of estimates in the preparation of financial
statements
The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results may differ from those estimates. A
material estimate that is particularly susceptible to
significant change in the near term relates to the determination
of the allowance for loan losses.
Cash
and cash equivalents
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks (including cash
items in process of clearing), federal funds sold, and interest
bearing deposits in banks with original maturities of
90 days or less. Cash flows from loans originated by the
Bank and deposits are reported net.
The Bank is required to maintain balances in cash or on deposit
with the Federal Reserve Bank. The total of those reserve
balances was approximately $3,018,000 and $250,000 as of
December 31, 2009 and 2008, respectively.
Certificates
of deposit
The Bank invests in institutional certificates of deposits in
addition to selling overnight federal funds. The Banks
certificates of deposit do not exceed the FDIC insured limit at
any one institution. The terms of the Banks certificates
of deposit do not exceed one year.
Securities
Securities classified as available for sale are debt securities
the Bank intends to hold for an indefinite period of time, but
not necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various
factors, including significant movements in interest rates,
changes in the maturity mix of the Banks assets and
liabilities, liquidity needs, regulatory capital considerations
and other similar
F-25
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
factors. Securities available for sale are reported at fair
value with unrealized gains or losses reported as other
comprehensive income (loss). Realized gains or losses,
determined on the basis of the cost of specific securities sold,
are included in earnings.
Securities classified as held to maturity are those debt
securities the Bank has both the intent and ability to hold to
maturity regardless of changes in market conditions, liquidity
needs, or general economic conditions. These securities are
carried at amortized cost, adjusted for amortization of premium
and accretion of discount computed by the interest method over
the contractual lives. The sale of a security within three
months of its maturity date or after at least 85% of the
principal outstanding has been collected is considered a
maturity for purposes of classification and disclosure. Purchase
premiums and discounts are generally recognized in interest
income using the effective yield method over the term of the
securities.
Management evaluates securities for
other-than-temporary
impairment (OTTI) at least on a quarterly basis, and more
frequently when economic or market conditions warrant such
evaluation. Consideration is given to (1) the length of
time and the extent to which the fair value has been less than
cost, (2) the financial condition and near term prospects
of the issuer including an evaluation of credit ratings,
(3) the impact of changes in market interest rates,
4) the intent of the Bank to sell a security, and
5) whether it is more likely than not the Bank will have to
sell the security before recovery of its cost basis.
If the Bank intends to sell an impaired security, the Bank
records an
other-than-temporary
loss in an amount equal to the entire difference between fair
value and amortized cost. If a security is determined to be
other-than-temporarily
impaired, but the Bank does not intend to sell the security,
only the credit portion of the estimated loss is recognized in
earnings, with the other portion of the loss recognized in other
comprehensive income.
Loans
Loans are stated at the amount of unpaid principal, reduced by
unearned net loan fees and allowance for loan losses.
The allowance for loan losses is established through a provision
for loan losses charged to expense. Loans are charged against
the allowance for loan losses when management believes that
collectibility of the principal is unlikely. Subsequent
recoveries, if any, are credited to the allowance.
The allowance is an amount that management believes will be
adequate to absorb probable losses on existing loans that may
become uncollectible, based on evaluation of the collectability
of loans and prior credit loss experience of the Bank and peer
bank historical loss experience. This evaluation also takes into
consideration such factors as changes in the nature and volume
of the loan portfolio, overall portfolio quality, specific
problem credits, peer bank information, and current economic
conditions that may affect the borrowers ability to pay.
Due to the credit concentration of the Banks loan
portfolio in real estate secured loans, the value of collateral
is heavily dependent on real estate values in Southern Nevada.
This evaluation is inherently subjective and future adjustments
to the allowance may be necessary if there are significant
changes in economic or other conditions. In addition, the FDIC
and state banking regulatory agencies, as an integral part of
their examination processes, periodically review the Banks
allowance for loan losses, and may require the Bank to make
additions to the allowance based on their judgment about
information available to them at the time of their examinations.
The allowance consists of specific and general components. The
specific component relates to loans that are classified as
impaired. For such loans, an allowance is established when the
discounted cash flows (or collateral value or observable market
price) of the impaired loan is lower than the carrying value of
that loan. The general component covers non-impaired loans and
is based on historical loss experience of the Bank and peer bank
historical loss experience, adjusted for qualitative and
environmental factors.
F-26
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
A loan is impaired when it is probable the Bank will be unable
to collect all contractual principal and interest payments due
in accordance with the original terms of the loan agreement.
Impaired loans are measured based on the present value of
expected future cash flows discounted at the loans
effective interest rate or, as a practical expedient, at the
loans observable market price or the fair value of the
collateral if the loan is collateral dependent. The amount of
impairment, if any, and any subsequent changes are included in
the allowance for loan losses.
Interest
and fees on loans
Interest on loans is recognized over the terms of the loans and
is calculated using the effective interest method. The accrual
of interest on impaired loans is discontinued when, in
managements opinion, the borrower may be unable to make
payments as they become due.
The Bank determines a loan to be delinquent when payments have
not been made according to contractual terms, typically
evidenced by nonpayment of a monthly installment by the due
date. The accrual of interest on loans is discontinued at the
time the loan is 90 days delinquent unless the credit is
well secured and in the process of collection.
All interest accrued but not collected for loans that are placed
on nonaccrual status or charged off is reversed against interest
income. The interest on these loans is accounted for on the
cash-basis or cost-recovery method, until qualifying for return
to accrual. Loans are returned to accrual status when all the
principal and interest amounts contractually due are brought
current and future payments are reasonably assured.
Loan origination and commitment fees and certain direct loan
origination costs are deferred and the net amount amortized as
an adjustment to the related loans yield. The Bank is
generally amortizing these amounts over the contractual life of
the loan. Commitment fees, based upon a percentage of a
customers unused line of credit, and fees related to
standby letters of credit are recognized over the commitment
period.
Transfers
of financial assets
Transfers of financial assets are accounted for as sales, when
control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the
assets have been isolated from the Bank, (2) the transferee
obtains the right (free of conditions that constrain it from
taking advantage of that right) to pledge or exchange the
transferred assets, and (3) the Bank does not maintain
effective control over the transferred assets through an
agreement to repurchase them before their maturity. The Banks
transfers of financial assets consist solely of loan
participations.
Advertising
costs
Advertising costs are expensed as incurred.
Premises
and equipment
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed
principally by the straight-line method over the estimated
useful lives of the assets. Improvements to leased property are
amortized over the lesser of the term of the lease or life of
the improvements. Depreciation and amortization is computed
using the following estimated lives:
|
|
|
|
|
|
|
Years
|
|
Furniture and fixtures
|
|
|
7 - 10
|
|
Equipment and vehicles
|
|
|
3 - 5
|
|
Leasehold improvements
|
|
|
5 - 10
|
|
F-27
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
Organization
and start-up
costs
Organization and
start-up
costs are charged to expense as they are incurred. Organization
and start-up
costs charged to expense during the period ended
December 31, 2007 were approximately $1,238,000.
Other
Assets
Other assets are comprised primarily of Federal Home Loan Bank
(FHLB) stock and prepaid expenses.
Prepaid assets are amortized over the terms of the agreements.
As of December 31, 2009 the Bank prepaid approximately
$1.4 million, or approximately 3 years, of its FDIC
insurance premiums which will be amortized through 2012.
The Bank, as a member of the FHLB system, is required to
maintain an investment in capital stock of the FHLB of an amount
pursuant to the agreement with the FHLB. These investments are
recorded at cost since no ready market exists for them, and they
have no quoted market value. As of December 31, 2009 and
2008, the Banks investment in the FHLB was $487,000 and
$411,000, respectively, and is included in other assets.
The Bank views its investment in the FHLB stock as a long-term
investment. Accordingly, when evaluating FHLB stock for
impairment, the value is determined based on the ultimate
recovery of the par value rather than recognizing temporary
declines in values. The determination of whether a decline
affects the ultimate recovery is influenced by criteria such as:
(1) the significance of the decline in net assets of the
FHLBs as compared to the capital stock amount and length of time
a decline has persisted; (2) impact of legislative and
regulatory changes on the FHLB; and (3) the liquidity
position of the FHLB. The FHLB of San Franciscos
capital ratios exceeded the required ratios as of
September 30, 2009 and the Bank does not believe that its
investment in the FHLB is impaired as of this date. However,
this estimate could change in the near term as a result of any
of the following events: (1) significant OTTI losses are
incurred on their mortgage-backed securities (MBS) causing a
significant decline in their regulatory capital status;
(2) the economic losses resulting from credit deterioration
on the MBS increases significantly; and (3) capital
preservation strategies being utilized by the FHLB become
ineffective.
Income
taxes
Deferred taxes are provided on an asset and liability method
whereby deferred tax assets are recognized for deductible
temporary differences and tax credit carryforwards and deferred
tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for
the effect of changes in tax laws and rates on the date of
enactment.
Stock
compensation plans
The Bank has the 2007 Stock Option Plan, which is described more
fully in Note 9. The Bank records the fair value of stock
compensation granted to employees and directors as expense over
the vesting period. The cost of the award is based on the
grant-date fair value.
Off-balance
sheet instruments
In the ordinary course of business, the Bank has entered into
off-balance sheet financing instruments consisting of
commitments to extend credit and standby letters of credit. Such
financial instruments are recorded in the financial statements
when they are funded.
F-28
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
Comprehensive
loss
Accounting principles generally require that recognized revenue,
expenses, gains and losses be included in net income. Although
certain changes in assets and liabilities, such as unrealized
gains and losses on available for sale securities, are reported
as a separate component of the equity section of the balance
sheet, such items, along with net loss, are components of
comprehensive loss. Gains and losses on available for sale
securities are reclassified to net loss as the gains or losses
are realized upon sale of the securities. OTTI impairment
charges are reclassified to net income at the time of the charge.
Fair
value measurement
For assets and liabilities recorded at fair value, it is the
Banks policy to maximize the use of observable inputs and
minimize the use of unobservable inputs when developing fair
value measurements. Fair value measurements for assets and
liabilities, where there exists limited or no observable market
data and, therefore, are based primarily upon estimates, are
often calculated based on the economic and competitive
environment, the characteristics of the asset or liability and
other factors. Therefore, the results cannot be determined with
precision and may not be realized in an actual sale or immediate
settlement of the asset or liability. Additionally, there may be
inherent weaknesses in any calculation technique, and changes in
the underlying assumptions used, including discount rates and
estimates of future cash flows, could significantly affect the
results of current or future values. The Bank utilizes fair
value measurements to determine fair value disclosures and
certain assets recorded at fair value on a recurring and
nonrecurring basis. See Notes 2 and 14.
Fair
values of financial instruments
The Bank discloses fair value information about financial
instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value.
Management uses its best judgment in estimating the fair value
of the Banks financial instruments. However, there are
inherent weaknesses in any estimation technique. Therefore, for
substantially all financial instruments, the fair value
estimates presented herein are not necessarily indicative of the
amounts the Bank could have realized in a sales transaction as
of December 31, 2009 and 2008. The estimated fair value
amounts as of December 31, 2009 and 2008 have been measured
as of that date and have not been reevaluated or updated for
purposes of these financial statements subsequent to that date.
As such, the estimated fair values of these financial statements
subsequent to the reporting date may be different than the
amounts reported as of December 31, 2009 and 2008.
The information in Note 14 should not be interpreted as an
estimate of the fair value of the entire Bank since a fair value
calculation is only required for a limited portion of the
Banks assets. Due to the wide range of valuation
techniques and the degree of subjectivity used in making the
estimate, comparisons between the Banks disclosures and
those of other companies or banks may not be meaningful.
Certificates
of deposit
The carrying amounts reported in the balance sheet for
certificates of deposit approximate their fair value as the
terms on the certificates of deposits do not exceed one year.
Securities
Fair values for securities are based on quoted market prices
where available or on quoted market prices for similar
securities in the absence of quoted prices on the specific
security.
F-29
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
Loans
For variable rate loans that reprice frequently and that have
experienced no significant change in credit risk, fair values
are based on carrying values. Variable rate loans comprise
approximately 73% and 69% of the loan portfolio as of
December 31, 2009 and 2008, respectively. Fair value for
all other loans is estimated based on discounted cash flows
using interest rates currently being offered for loans with
similar terms to borrowers with similar credit quality.
Prepayments prior to the repricing date are not expected to be
significant. Loans are expected to be held to maturity and any
unrealized gains or losses are not expected to be realized.
Impaired
loans
The fair value of an impaired loan is estimated using one of
several methods, including collateral value, market value of
similar debt, enterprise value, liquidation value, and
discounted cash flows. Those impaired loans not requiring an
allowance for probable losses represent loans for which the fair
value of the expected repayments or collateral exceeds the
recorded investment in such loans.
Accrued
interest receivable and payable
The carrying amounts reported in the balance sheet for accrued
interest receivable and payable approximate their fair value.
Restricted
stock
The Bank is a member of the FHLB system and maintains an
investment in capital stock of the FHLB of an amount pursuant to
the agreement with the FHLB. This investment is carried at cost
since no ready market exists, and there is no quoted market
value.
Deposit
liabilities
The fair value disclosed for demand and savings deposits is by
definition equal to the amount payable on demand at their
reporting date (carrying amount). The carrying amount for
variable-rate deposit accounts approximates their fair value.
Due to the short-term maturities of fixed-rate certificates of
deposit, their carrying amount approximates their fair value.
Early withdrawals of fixed-rate certificates of deposit are not
expected to be significant.
Repurchase
sweep agreements
The recorded value of repurchase agreements approximates fair
value due to the short-term nature of the borrowings.
Off-balance
sheet instruments
Fair values for the Banks off-balance sheet instruments,
lending commitments and standby letters of credit, are based on
quoted fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and
the counterparties credit standing.
Loss
per share
Diluted earnings per share is based on the weighted average
outstanding common shares (excluding treasury shares, if any)
during each year, including common stock equivalents. Basic
earnings per share is based on the weighted average outstanding
common shares during the year.
F-30
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
Basic and diluted loss per share, based on the weighted average
outstanding shares, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception to
|
|
|
|
Year Ended December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stock
|
|
$
|
(17,377,538
|
)
|
|
$
|
(5,116,727
|
)
|
|
$
|
(4,198,377
|
)
|
Weighted average common shares outstanding
|
|
|
50,683
|
|
|
|
50,811
|
|
|
|
50,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
$
|
(342.86
|
)
|
|
$
|
(100.70
|
)
|
|
$
|
(83.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to the Banks historical net losses, all of the
Banks stock based awards are considered anti-dilutive, and
accordingly, basic and diluted loss per share is the same.
Reclassifications
Certain amounts in the financial statements and related
disclosures as of December 31, 2008 and 2007 and for the
year ended December 31, 2008 and inception
(January 16, 2007) through December 31, 2007 have
been reclassified to conform to the current presentation.
Certain gross loan amounts have been reclassified in Note 4
to meet the banking regulatory classification guidance. In
addition, certain gross deferred tax items in Note 6 as of
December 31, 2008 have been reclassified. These
reclassification adjustments have no effect on net loss or
stockholders equity as previously reported.
Recent
accounting pronouncements
In June 2009, the Financial Accounting Standards Board (FASB)
issued revised guidance for accounting for the transfers of
financial assets. The guidance removes the concept of a
qualifying special-purpose entity (QSPE). This guidance also
clarifies the requirements for isolation and limitations on
portions of financial assets eligible for sale accounting. This
guidance is effective for fiscal years beginning after
November 15, 2009. The Bank will adopt this guidance on
January 1, 2010. The adoption of this guidance is not
expected to have a material impact on the Banks financial
position, results of operations, or cash flows.
In August 2009, the FASB issued guidance clarifying the
measurement of liabilities at fair value in the absence of
observable market information. This guidance is effective for
the Bank beginning January 1, 2010. The guidance is not
expected to have a material impact on the Banks financial
position, results of operations, or cash flows.
In December 2007, the FASB issued guidance establishing
principles and requirements for how an acquirer in a business
combination: (a) recognizes and measures in its financial
statements identifiable assets acquired, liabilities assumed,
and any noncontrolling interest in the acquiree;
(b) recognizes and measures goodwill acquired in a business
combination or a gain from a bargain purchase; and
(c) determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial
effects of a business combination. This guidance is effective
for business combinations for which the acquisition date is on
or after the beginning of the first annual reporting period
beginning on or after December 15, 2008; therefore this
guidance will be applied for the contemplated business
combination disclosed in Note 16. The Bank is currently
evaluating the provisions of this guidance and the expected
impact on its financial position, results of operations, or cash
flows.
New authoritative accounting guidance relating to investments in
debt and equity securities (i) changes existing guidance
for determining whether an impairment is other than temporary to
debt securities and (ii) replaces the existing requirement
that an entitys management assert it has both the intent
and ability to hold an impaired security until recovery with a
requirement that management assert (a) it does not have the
F-31
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
intent to sell the security, and (b) it is more likely than
not it will not have to sell the security before recovery of its
cost basis. Under this guidance, declines in the fair value of
held-to-maturity
and
available-for-sale
securities below their cost that are deemed to be other than
temporary are reflected in earnings as realized losses to the
extent the impairment is related to credit losses. The amount of
the impairment related to other factors is recognized in other
comprehensive income. The Bank adopted this guidance in 2009.
The adoption did not have an impact on the Banks financial
statements, results of operations, or cash flows.
|
|
Note 2.
|
Fair
Value Accounting
|
The Bank uses a fair value hierarchy that prioritizes inputs to
valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1
measurements) and the lowest priority to unobservable inputs
(level 3 measurements). The three levels of the fair value
hierarchy are described below:
Level 1 Unadjusted quoted prices in
active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities;
Level 2 Quoted prices for similar
instruments in active markets, quoted prices for identical or
similar instruments in markets that are not active, or
model-based valuation techniques where all significant
assumptions are observable, either directly or indirectly, in
the market;
Level 3 Valuation is generated from
model-based techniques where all significant assumptions are not
observable, either directly or indirectly, in the market. These
unobservable assumptions reflect our own estimates of
assumptions that market participants would use in pricing the
asset or liability. Valuation techniques may include use of
matrix pricing, discounted cash flow models and similar
techniques.
Fair
value on a recurring basis
Financial assets measured at fair value on a recurring basis
include the following:
Securities available for sale. Securities
reported as available for sale are reported at fair value
utilizing Level 2 inputs. For these securities the Bank
obtains fair value measurements from an independent pricing
service. The fair value measurements consider observable data
that may include dealer quotes, market spreads, cash flows, the
U.S. Treasure yield curve, live trading levels, trade
execution data, market consensus prepayment speeds, credit
information, and the bonds terms and conditions, among
other things.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009:
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
$
|
7,433,591
|
|
|
|
|
|
|
$
|
7,433,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value on a nonrecurring basis
Certain assets are measured at fair value on a nonrecurring
basis; that is, the instruments are not measured at fair value
on an ongoing basis, but are subject to fair value adjustments
in certain circumstances (for
F-32
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
example, when there is evidence of impairment). The following
table presents such assets carried on the balance sheet by
caption and by level within the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31,
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Impaired loans 2009
|
|
$
|
6,958,595
|
|
|
|
|
|
|
|
|
|
|
$
|
6,958,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans 2008
|
|
$
|
3,434,182
|
|
|
|
|
|
|
|
|
|
|
$
|
3,434,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans. The specific reserves for
collateral dependent impaired loans are based on the fair value
of the collateral less estimated costs to sell. The fair value
of collateral is determined based on third-party appraisals. In
some cases, adjustments are made to the appraised values due to
various factors, including age of the appraisal, age of
comparables included in the appraisal, and known changes in the
market and in the collateral. Accordingly, the resulting fair
value measurement has been categorized as a Level 3
measurement.
Carrying amounts and fair values of investment securities as of
December 31, 2009 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
Securities Available for Sale
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
U.S. Agencies
|
|
$
|
5,247,459
|
|
|
$
|
|
|
|
$
|
(18,533
|
)
|
|
$
|
5,228,926
|
|
Collateralized Mortgage Obligation Securities
|
|
|
2,209,182
|
|
|
|
|
|
|
|
(4,517
|
)
|
|
|
2,204,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,456,641
|
|
|
$
|
|
|
|
$
|
(23,050
|
)
|
|
$
|
7,433,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
Securities Held to Maturity
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
U.S. Agencies
|
|
$
|
996,876
|
|
|
$
|
3,434
|
|
|
$
|
|
|
|
$
|
1,000,310
|
|
Corporate Debt Securities
|
|
|
8,390,055
|
|
|
|
476,570
|
|
|
|
|
|
|
|
8,866,625
|
|
Small Business Administration Loan Pools
|
|
|
814,465
|
|
|
|
74
|
|
|
|
(4,892
|
)
|
|
|
809,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,201,396
|
|
|
$
|
480,078
|
|
|
$
|
(4,892
|
)
|
|
$
|
10,676,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amounts and fair values of investment securities as of
December 31, 2008 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
Securities Held to Maturity
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
U.S. Agencies
|
|
$
|
6,009,413
|
|
|
$
|
73,727
|
|
|
$
|
|
|
|
$
|
6,083,140
|
|
Corporate Debt Securities
|
|
|
4,805,202
|
|
|
|
138,907
|
|
|
|
|
|
|
|
4,944,109
|
|
Small Business Administration Loan Pools
|
|
|
925,380
|
|
|
|
|
|
|
|
(20,604
|
)
|
|
|
904,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,739,995
|
|
|
$
|
212,634
|
|
|
$
|
(20,604
|
)
|
|
$
|
11,932,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2009, the Bank had net
realized gains on the sale of securities of approximately
$17,000. Of this gain, $14,000 related to a sale of a security
with a carrying value of
F-33
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
approximately $479,000 that was classified as
held-to-maturity
(HTM). Management sold this HTM security as a result of a
decline in the issuers creditworthiness. Specifically,
their credit rating declined to below investment grade. There
were no realized losses in 2009, 2008, and 2007.
Securities with carrying amounts of approximately $9,387,000 and
$6,009,000 as of December 31, 2009 and 2008, respectively,
were pledged for various purposes as required or permitted by
law.
Information pertaining to securities with gross losses at
December 31, 2009 and 2008, aggregated by investment
category and length of time that individual securities have been
in a continuous loss position follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
Less than Twelve Months
|
|
|
Over Twelve Months
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
(Losses)
|
|
|
Fair Value
|
|
|
(Losses)
|
|
|
Fair Value
|
|
|
Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agencies
|
|
$
|
(18,533
|
)
|
|
$
|
5,228,926
|
|
|
$
|
|
|
|
$
|
|
|
Collateralized Mortgage Obligations Securities
|
|
|
(4,517
|
)
|
|
|
2,204,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(23,050
|
)
|
|
$
|
7,433,591
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agencies
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Corporate Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Administration Loan Pools
|
|
|
|
|
|
|
|
|
|
|
(4,892
|
)
|
|
|
764,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(4,892
|
)
|
|
$
|
764,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
Less than Twelve Months
|
|
|
Over Twelve Months
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
(Losses)
|
|
|
Fair Value
|
|
|
(Losses)
|
|
|
Fair Value
|
|
|
Securities Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agencies
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Corporate Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Administration Loan Pools
|
|
|
(7,716
|
)
|
|
|
456,963
|
|
|
|
(12,888
|
)
|
|
|
447,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(7,716
|
)
|
|
$
|
456,963
|
|
|
$
|
(12,888
|
)
|
|
$
|
447,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, 22 debt securities have unrealized
losses with aggregate degradation of less than 0.4% from the
Banks amortized costs basis. These unrealized losses
totaling approximately $28,000 related primarily to fluctuations
in the current interest rate environment and other factors, but
do not presently represent realized losses. As of
December 31, 2009, there are no securities that have been
determined to be OTTI.
F-34
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
The amortized cost and fair value of securities as of
December 31, 2009 by contractual maturities are shown
below. The maturities of small business administration loan
pools may differ from their contractual maturities because the
loans underlying the securities may be repaid without any
penalties; therefore, these securities are listed separately in
the maturity summary.
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
|
|
|
$
|
|
|
Due after one year through five years
|
|
|
7,456,641
|
|
|
|
7,433,591
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,456,641
|
|
|
$
|
7,433,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Securities held to maturity
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
4,010,865
|
|
|
$
|
4,098,125
|
|
Due after one year through five years
|
|
|
5,376,066
|
|
|
|
5,768,810
|
|
Small Business Administration Loan Pools
|
|
|
814,465
|
|
|
|
809,647
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,201,396
|
|
|
$
|
10,676,582
|
|
|
|
|
|
|
|
|
|
|
The components of the Banks loan portfolio as of December
31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Construction, land development, and other land loans
|
|
$
|
20,279,335
|
|
|
$
|
38,608,136
|
|
Commercial real estate
|
|
|
68,522,872
|
|
|
|
41,113,533
|
|
Residential real estate
|
|
|
1,366,804
|
|
|
|
483,398
|
|
Commercial and industrial
|
|
|
46,470,075
|
|
|
|
56,555,874
|
|
Consumer
|
|
|
341,969
|
|
|
|
522,283
|
|
Less: net deferred loan fees
|
|
|
(14,601
|
)
|
|
|
(66,851
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
136,966,454
|
|
|
|
137,216,373
|
|
Less: allowance for loan losses
|
|
|
(6,403,794
|
)
|
|
|
(2,882,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
130,562,660
|
|
|
$
|
134,333,491
|
|
|
|
|
|
|
|
|
|
|
Information about impaired and non-accrual loans as of and for
the periods ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Impaired loans without a valuation allowance
|
|
$
|
6,528,035
|
|
|
$
|
7,379,510
|
|
Impaired loans with a valuation allowance
|
|
$
|
2,828,160
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
9,356,195
|
|
|
$
|
7,379,510
|
|
|
|
|
|
|
|
|
|
|
Related allowance for loan losses on impaired loans
|
|
$
|
840,660
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual loans
|
|
$
|
7,799,255
|
|
|
$
|
3,434,182
|
|
|
|
|
|
|
|
|
|
|
Loans past due 90 days or more and still accruing
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
F-35
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Average balance during the year on impaired loans
|
|
$
|
14,938,982
|
|
|
$
|
2,001,398
|
|
|
$
|
32,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized on impaired loans
|
|
$
|
103,197
|
|
|
$
|
|
|
|
$
|
1,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized on cash basis
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, primarily all of the Banks
impaired loans are real estate secured loans. As of
December 31, 2009, approximately $6.5 million of the
Banks impaired loans do not have any specific valuation
allowance. However, impaired loans as of December 31, 2009
are net of partial charge-offs of approximately
$7.2 million recorded during the year ended
December 31, 2009. The Bank experienced significant
declines in current valuations for real estate supporting its
loan collateral in 2009. If real estate values continue to
decline and as updated appraisals are received, the Bank may
have to increase its allowance for loan losses appropriately.
At December 31, 2009 and 2008, the Bank was not committed
to lend additional funds on these impaired loans.
Changes in the allowance for loan losses for the periods ended
December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance, beginning
|
|
$
|
2,882,882
|
|
|
$
|
922,138
|
|
|
$
|
|
|
Provisions charged to operating expense
|
|
|
15,665,626
|
|
|
|
3,669,569
|
|
|
|
938,126
|
|
Recoveries of amounts charged off
|
|
|
9,099
|
|
|
|
2,641
|
|
|
|
|
|
Less amounts charged off
|
|
|
(12,153,813
|
)
|
|
|
(1,711,466
|
)
|
|
|
(15,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, ending
|
|
$
|
6,403,794
|
|
|
$
|
2,882,882
|
|
|
$
|
922,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5.
|
Premises
and Equipment
|
The major classes of premises and equipment and the total
accumulated depreciation and amortization as of December 31 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Leasehold improvements
|
|
$
|
1,732,905
|
|
|
$
|
1,732,905
|
|
Equipment
|
|
|
812,957
|
|
|
|
819,209
|
|
Furniture and fixtures
|
|
|
612,306
|
|
|
|
610,025
|
|
Vehicles
|
|
|
55,900
|
|
|
|
55,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,214,068
|
|
|
|
3,218,039
|
|
Less: accumulated depreciation and amortization
|
|
|
(1,580,344
|
)
|
|
|
(955,548
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,633,724
|
|
|
$
|
2,262,491
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the periods ended December 31,
2009, 2008, and 2007 was approximately $633,000, $598,000, and
$362,000, respectively.
|
|
Note 6.
|
Income
Tax Matters
|
The Bank files income tax returns in the U.S. federal
jurisdiction. ASC 740, Income taxes, was amended to
clarify the accounting and disclosure for uncertain tax
positions as defined. The Bank is subject to the provisions of
this updated guidance effective as of January 1, 2009, and
has analyzed filing positions in all of the federal and state
jurisdictions where it is required to file income tax returns,
as well as all open tax years in these jurisdictions. The Bank
identified its federal tax return as major tax
jurisdictions, as defined. The periods subject to examination
for the Banks federal tax return are 2007 and 2008. The
Bank believes that its
F-36
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
income tax filing positions and deductions will be sustained on
audit and does not anticipate any adjustments that will result
in a material change to its financial position. Therefore, no
reserves for uncertain income tax positions have been recorded
pursuant to applicable guidance. In addition, the Bank did not
record a cumulative effect adjustment related to the adoption of
this amended guidance.
The Bank may from time to time be assessed interest or penalties
by tax jurisdictions, although the Bank has had no such
assessments historically. The Banks policy is to include
interest and penalties related to income taxes as a component of
income tax expense.
The cumulative tax effects of the primary temporary differences
as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
7,453,000
|
|
|
$
|
1,500,000
|
|
Organization costs
|
|
|
337,000
|
|
|
|
365,000
|
|
Allowance for loan losses and unfunded commitments
|
|
|
675,000
|
|
|
|
945,000
|
|
Stock warrants and stock options
|
|
|
242,000
|
|
|
|
199,000
|
|
Accrued expenses
|
|
|
303,000
|
|
|
|
250,000
|
|
Other
|
|
|
89,000
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,099,000
|
|
|
|
3,263,000
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Prepaid loan fees
|
|
|
(109,000
|
)
|
|
|
(86,000
|
)
|
Premises and equipment
|
|
|
|
|
|
|
(7,000
|
)
|
Deferred loan costs
|
|
|
(114,000
|
)
|
|
|
(115,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
8,876,000
|
|
|
|
3,055,000
|
|
Valuation allowance
|
|
|
(8,876,000
|
)
|
|
|
(3,055,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, a valuation allowance for
the entire net deferred tax asset is considered necessary as the
Bank has determined that it is not more likely than not that the
deferred tax assets will be realized. Due to the Bank incurring
operating losses, no provision for income taxes has been
recorded for the periods ended December 31, 2009, 2008, and
2007. Federal operating loss carryforwards totals approximately
$21,900,000 and begin to expire in 2027.
For the years ended December 31, 2009, 2008, and 2007 the
components of income tax benefit consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
5,821,000
|
|
|
|
1,656,000
|
|
|
|
1,399,000
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,821,000
|
|
|
|
1,656,000
|
|
|
|
1,399,000
|
|
Less valuation allowance
|
|
|
(5,821,000
|
)
|
|
|
(1,656,000
|
)
|
|
|
(1,399,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
The reasons for the differences between the statutory federal
income tax rate of 35% and the effective tax rates are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Computed expected tax (benefit)
|
|
$
|
(6,082,000
|
)
|
|
$
|
(1,790,000
|
)
|
|
$
|
(1,469,000
|
)
|
Nondeductible expenses
|
|
|
100,000
|
|
|
|
111,000
|
|
|
|
26,000
|
|
Other
|
|
|
161,000
|
|
|
|
23,000
|
|
|
|
44,000
|
|
Deferred tax asset valuation allowance
|
|
|
5,821,000
|
|
|
|
1,656,000
|
|
|
|
1,399,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal Revenue Code section 382 places a limitation on
the amount of taxable income that can be offset by net operating
loss carry forwards after a change in control (generally greater
than 50% change in ownership) of a loss corporation.
Accordingly, utilization of net operating loss carry forwards
may be subject to an annual limitation regarding their
utilization against future taxable income upon change in control.
|
|
Note 7.
|
Deposits
and Repurchase Sweep Agreements
|
As of December 31, 2009 and 2008, all time deposits are
scheduled to mature within one year.
The Bank maintained demand deposit accounts for a related party
title company with total balances of approximately $51,000 and
$5,497,000 or 0.03% and 5% of the Banks total deposit
balance as of December 31, 2009 and 2008, respectively. The
Bank had two depositors with combined deposit balances totaling
approximately $31,404,000 or 17% of the Banks total
deposit balances as of December 31, 2009.
Overnight repurchase agreements with customers at
December 31, 2009 and 2008 was approximately $0 and
$5,933,000, respectively. This product was discontinued in the
4th
quarter of 2009.
|
|
Note 8.
|
Commitments
and Contingencies
|
Contingencies
In the normal course of business, the Bank is involved in
various legal proceedings. In the opinion of management, any
liability resulting from such proceedings would not have a
material adverse effect on the financial statements.
Financial
instruments with off-balance sheet risk
The Bank is party to financial instruments with off-balance
sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit and standby letters of
credit. They involve, to varying degrees, elements of credit
risk in excess of amounts recognized in the balance sheet.
The Banks exposure to credit loss in the event of
nonperformance by the other parties to the financial instrument
for these commitments is represented by the contractual amounts
of those instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance sheet instruments.
F-38
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
A summary of the contract amount of the Banks exposure to
off-balance sheet risk as of December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Commitments to extend credit
|
|
$
|
25,035,246
|
|
|
$
|
32,001,173
|
|
Standby letters of credit
|
|
|
1,408,150
|
|
|
|
151,971
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,443,396
|
|
|
$
|
32,153,144
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank
evaluates each customers creditworthiness on a
case-by-case
basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on managements
credit evaluation of the party. Collateral held varies, but may
include accounts receivable, inventory, property and equipment,
residential real estate, undeveloped and developed land, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support public
and private borrowing arrangements. The credit risk involved in
issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Collateral
held varies as specified above and is required as the Bank deems
necessary. Essentially all letters of credit issued have
expiration dates within one year.
The total liability for financial instruments with off-balance
sheet risk as of December 31, 2009 and 2008 is
approximately $819,000 and $321,000, respectively.
Lease
commitments
The Bank leases premises and equipment under noncancelable
operating leases expiring through 2013. Generally, these leases
contain
5-year
renewal options. The following is a schedule of future minimum
rental payments under these leases as of December 31, 2009:
|
|
|
|
|
2010
|
|
$
|
889,123
|
|
2011
|
|
|
910,433
|
|
2012
|
|
|
741,742
|
|
2013
|
|
|
562,903
|
|
|
|
|
|
|
|
|
$
|
3,104,201
|
|
|
|
|
|
|
Rent expense of approximately $740,000, $720,000, and $560,000
is included in occupancy expense for the periods ended
December 31, 2009, 2008, and 2007, respectively.
Concentrations
The Bank grants commercial, construction, real estate, and
consumer loans to customers. The Banks business is
concentrated in Nevada, and the loan portfolio includes
significant credit exposure to the commercial real estate
industry of this area. As of December 31, 2009, commercial
real estate loans represent 55% of total loans. Owner occupied
commercial real estate loans represent 41% of commercial real
estate loans. As of December 31, 2009 and 2008, real estate
related loans accounted for approximately 66% and 58%,
respectively, of total loans.
F-39
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
The Banks policy for requiring collateral is to obtain
collateral whenever it is available or desirable, depending upon
the degree of risk the Bank is willing to take.
Lines
of credit
The Bank has lines of credit available from the FHLB and the
FRB. Borrowing capacity is determined based on collateral
pledged, generally consisting of securities and loans, at the
time of the borrowing. As of December 31, 2009, the Bank
had available credit with the FHLB and FRB of approximately
$15,784,000 and $7,471,000, respectively. As of
December 31, 2009 and 2008, the Bank has no outstanding
borrowings under these agreements.
During April 2007, the stockholders of the Bank approved the
2007 Stock Option Plan (the Plan). The Plan gives the Board of
Directors the authority to grant up to 10,000 stock options.
Stock awards available to grant as of December 31, 2009 are
3,966. The maximum contractual term for options granted under
the Plan is 10 years. Generally, stock options granted have
vesting period of 3 to 5 years. The fair value of shares at
the date of grant is determined by the Board of Directors. The
fair value of each stock award is estimated on the date of grant
using the Black-Scholes Option Valuation Model that uses the
assumptions noted in the following table. The expected
volatility is based on the historical volatility of the stock of
a similar bank that has traded at least as long as the expected
life of the Banks stock-based awards. The Bank estimates
the life of the awards by calculating the average of the vesting
period and the contractual life. The risk-free rate for periods
within the contractual life of the awards is based on the
U.S. Treasury yield for debt instruments with maturities
similar to the expected life of the awards. The dividends rate
assumption of zero is based on managements intention not
to pay dividends for the foreseeable future.
A summary of the assumptions used in calculating the fair value
of awards during the year ended December 31, 2009 are as
follows:
|
|
|
|
|
|
|
January 14 Stock
|
|
|
Option Grants
|
|
Expected life in years
|
|
|
7.5
|
|
Risk-free interest rate
|
|
|
1.72%
|
|
Dividends rate
|
|
|
0.00%
|
|
Volatility
|
|
|
80.20%
|
|
Fair value per award
|
|
|
$745.03
|
|
A summary of the assumptions used in calculating the fair value
of awards during the year ended December 31, 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
April 17 Stock
|
|
August 11 Stock
|
|
|
Option Grants
|
|
Option Grants
|
|
Expected life in years
|
|
|
7.5
|
|
|
|
7.5
|
|
Risk-free interest rate
|
|
|
3.27%
|
|
|
|
3.57%
|
|
Dividends rate
|
|
|
0.00%
|
|
|
|
0.00%
|
|
Volatility
|
|
|
35.54%
|
|
|
|
44.21%
|
|
Fair value per award
|
|
|
$450.61
|
|
|
|
$527.04
|
|
F-40
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
A summary of the assumptions used in calculating the fair value
of awards during the period ended December 31, 2007 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 20
|
|
|
|
|
June 12 Stock
|
|
Stock Option
|
|
|
Stock Warrants
|
|
Option Grants
|
|
Grants
|
|
Expected life in years
|
|
|
3.0
|
|
|
|
8.0
|
|
|
|
6.0
|
|
Risk-free interest rate
|
|
|
4.85%
|
|
|
|
5.21%
|
|
|
|
3.57%
|
|
Dividends rate
|
|
|
0.00%
|
|
|
|
0.00%
|
|
|
|
0.00%
|
|
Volatility
|
|
|
30.00%
|
|
|
|
30.00%
|
|
|
|
32.00%
|
|
Fair value per award
|
|
$
|
236.92
|
|
|
$
|
465.38
|
|
|
$
|
351.58
|
|
During the period ended December 31, 2007, 900 stock
warrants were granted with an exercise price of $1,000 per share
and were vested immediately. During the period ended
December 31, 2007, 4,683 stock options were granted with an
exercise price of $1,000 per share and 973 of these options were
forfeited during the same period.
A summary of stock award activity as of December 31, 2009
and changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Warrants
|
|
|
Stock Options
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Outstanding, January 1, 2009
|
|
|
900
|
|
|
$
|
1,000
|
|
|
|
6,381
|
|
|
$
|
1,000
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
76
|
|
|
|
1,000
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(64
|
)
|
|
|
1,000
|
|
|
|
(423
|
)
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2009
|
|
|
836
|
|
|
$
|
1,000
|
|
|
|
6,034
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of period
|
|
|
836
|
|
|
$
|
1,000
|
|
|
|
1,634
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of stock award activity as of December 31, 2008
and changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Warrants
|
|
|
Stock Options
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Outstanding, January 1, 2008
|
|
|
900
|
|
|
$
|
1,000
|
|
|
|
3,710
|
|
|
$
|
1,000
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
3,842
|
|
|
|
1,000
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
|
|
|
|
|
|
|
|
(1,171
|
)
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2008
|
|
|
900
|
|
|
$
|
1,000
|
|
|
|
6,381
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of period
|
|
|
900
|
|
|
$
|
1,000
|
|
|
|
576
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, the weighted average
remaining contractual terms of outstanding stock warrants are
approximately 2.0 and 3.0 years, respectively. The weighted
average contractual terms of vested stock warrants are 2.0 and
3.0, respectively. As of December 31, 2009 and 2008, the
aggregate intrinsic value of outstanding and vested stock
warrants is $0 and $0, respectively.
F-41
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
As of December 31, 2009 and 2008, the weighted average
remaining contractual terms of outstanding stock options are 7.5
and 8.5 years, respectively. The weighted average
contractual terms of vested stock options are 7.2 and 8.7,
respectively. As of December 31, 2009 and 2008, the
aggregate intrinsic value of outstanding and vested stock
options is $0 and $0, respectively.
For stock options granted under the Plan as of December 31,
2009 and 2008, there is approximately $1,674,000 and $2,250,000,
respectively, of total unrecognized compensation cost related to
non-vested stock award compensation. That cost is expected to be
recognized over a weighted average period of 2.8 and
3.7 years, respectively.
Stock based compensation expense is based on awards that are
ultimately expected to vest and therefore has been reduced for
estimated forfeitures. The Bank estimates forfeitures using
historical data based upon the groups identified by management.
Stock- based compensation expense was approximately $379,000,
$423,000, and $439,000 for the periods ended December 31,
2009, 2008, and 2007, respectively.
|
|
Note 10.
|
Regulatory
Capital
|
The Bank is subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the
Banks financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that
involve qualitative measures of their assets, liabilities, and
certain off-balance sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts
and ratios (set forth in the following table) of total and
Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital to
average assets (as defined). Management believes, as of
December 31, 2009 and 2008, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 2009, the most recent notification from
the Federal Deposit Insurance Corporation categorized the Bank
as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since the
notification that management believes have changed the
Banks category. The actual capital amounts and ratios for
the Bank as of December 31, 2009 and 2008 are presented in
the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
For Capital
|
|
To be
|
|
|
Actual
|
|
Adequacy Purposes
|
|
Well Capitalized
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Total Capital (to Risk Weighted Assets)
|
|
$
|
26,493,000
|
|
|
|
17.6
|
%
|
|
$
|
12,061,440
|
|
|
|
8.0
|
%
|
|
$
|
15,076,800
|
|
|
|
10.0
|
%
|
Tier 1 Capital (to Risk Weighted Assets)
|
|
|
24,542,000
|
|
|
|
16.3
|
%
|
|
|
6,030,720
|
|
|
|
4.0
|
%
|
|
|
9,046,080
|
|
|
|
6.0
|
%
|
Tier 1 Capital (to Average Assets)
|
|
|
24,542,000
|
|
|
|
11.0
|
%
|
|
|
8,961,320
|
|
|
|
4.0
|
%
|
|
|
11,201,650
|
|
|
|
5.0
|
%
|
F-42
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
As a de novo, the Bank is required to maintain a Tier 1
capital leverage ratio of not less than 8.00% during its first
seven years of operations. The Banks capital ratios at
December 31, 2009 and 2008, relative to the ratios required
of well capitalized banks under the prompt
corrective action regime put in place by federal banking
regulators are presented above (for 2009) and below (for
2008).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
For Capital
|
|
To Be
|
|
|
Actual
|
|
Adequacy Purposes
|
|
Well Capitalized
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Total Capital (to Risk Weighted Assets)
|
|
$
|
44,207,000
|
|
|
|
29.5
|
%
|
|
$
|
12,020,800
|
|
|
|
8.0
|
%
|
|
$
|
15,026,000
|
|
|
|
10.0
|
%
|
Tier 1 Capital (to Risk Weighted Assets)
|
|
|
42,316,000
|
|
|
|
28.2
|
%
|
|
|
6,010,400
|
|
|
|
4.0
|
%
|
|
|
9,015,600
|
|
|
|
6.0
|
%
|
Tier 1 Capital (to Average Assets)
|
|
|
42,316,000
|
|
|
|
25.8
|
%
|
|
|
6,564,640
|
|
|
|
4.0
|
%
|
|
|
8,205,800
|
|
|
|
5.0
|
%
|
Additionally, State of Nevada banking regulations restrict
distribution of the net assets of the Bank because such
regulations require the sum of the Banks
stockholders equity and reserve for loan losses to be at
least 6% of the average total daily deposit liabilities for the
preceding 60 days. As a result of these regulations,
approximately $11,208,000 and $6,765,000 of the Banks
stockholders equity is restricted as of December 31,
2009 and 2008, respectively.
In May of 2009, the Bank entered into a Memorandum of
Understanding (MOU), with the FDIC and the Nevada Financial
Institutions Division. Pursuant to the MOU, the Bank 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. Management has fully complied with the terms of the
MOU. Since mid-2009, the Bank had been required (1) 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 (2) 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).
|
|
Note 11.
|
Employee
Benefit Plan
|
The Bank has a qualified 401(k) employee benefit plan for all
eligible employees. Participants under 50 years of age are
able to defer up to $16,500 of their annual compensation, while
participants 50 years of age and over are able to defer up
to $22,000 of their annual compensation. Under the terms of the
plan, the Bank may not make matching contributions.
F-43
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
|
|
Note 12.
|
Transactions
with Related Parties
|
Principal stockholders of the Bank and officers and directors,
including their families and companies of which they are
principal owners, are considered to be related parties. These
related parties were loan customers of, and had other
transactions with, the Bank in the ordinary course of business.
In managements opinion, these loans and transactions are
on the same terms as those for comparable loans and transactions
with unrelated parties. The aggregate activity in such loans for
the years ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance, beginning
|
|
$
|
14,788,046
|
|
|
$
|
11,180,000
|
|
New loans
|
|
|
770,189
|
|
|
|
4,691,257
|
|
Repayments
|
|
|
(2,468,485
|
)
|
|
|
(1,083,211
|
)
|
Other Changes
|
|
|
(6,463,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, ending
|
|
$
|
6,626,150
|
|
|
$
|
14,788,046
|
|
|
|
|
|
|
|
|
|
|
The Bank had approximately $6,464,000 in outstanding balances
with a related party as of December 31, 2008. The related
party resigned his position with the Bank during 2009. As a
result, this credit has been removed from the outstanding
balance and is reflected in Other Changes in the
above related party table.
None of these loans were past due, on nonaccrual, or
restructured at December 31, 2009, to provide a reduction
or deferral of interest or principal because of deterioration in
the financial position of the borrower.
Total loan commitments outstanding with related parties total
approximately $1,392,000 and $441,000 as of December 31,
2009 and 2008, respectively.
|
|
Note 13.
|
Stockholders
Equity
|
The Bank is authorized to issue only one class of stock, which
is designated as Common Stock. The total number of shares the
Bank is authorized to issue is 25,000,000, and the par value of
each share is one penny ($0.01).
Initial
offering
In January 2007, the Bank completed a private placement offering
of Common Stock (the Initial Private Placement Offering).
Proceeds from the offering, net of stock issuance costs of
approximately $43,000, were approximately $50,768,000, which
were used to pay organization, pre-opening, and other expenses
related to the filing of regulatory applications, leasing of
office space, the retention of key officers, and preparing to
commence business as a financial institution.
Treasury
Stock
In September 2009, the Bank received 1,000 shares of the
Banks own stock in settlement of an impaired loan. The
outstanding loan balance at the time of receipt of the stock was
approximately $988,000 of which approximately $213,000 was
charged to the allowance for loan and lease loss and the balance
was satisfied with receipt of the stock. The stock was recorded
at $775,000 based on the Banks estimated fair value of the
Banks common stock at that time.
F-44
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
|
|
Note 14.
|
Fair
Value of Financial Instruments
|
The estimated fair value of the Banks financial statements
as of December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
Carrying
|
|
|
|
Carrying
|
|
|
|
|
Amount
|
|
Fair Value
|
|
Amount
|
|
Fair Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
13,686,456
|
|
|
$
|
13,686,000
|
|
|
$
|
2,996,696
|
|
|
$
|
2,997,000
|
|
Federal funds sold and other
|
|
|
|
|
|
|
|
|
|
|
6,990,000
|
|
|
|
6,990,000
|
|
Interest bearing deposits in banks
|
|
|
35,946,806
|
|
|
|
35,947,000
|
|
|
|
|
|
|
|
|
|
Certificates of deposits
|
|
|
9,313,000
|
|
|
|
9,313,000
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
|
486,700
|
|
|
|
487,000
|
|
|
|
410,700
|
|
|
|
411,000
|
|
Securities available for sale
|
|
|
7,433,591
|
|
|
|
7,434,000
|
|
|
|
|
|
|
|
|
|
Securities held to maturity
|
|
|
10,201,396
|
|
|
|
10,677,000
|
|
|
|
11,739,995
|
|
|
|
11,932,000
|
|
Loans, net
|
|
|
130,562,660
|
|
|
|
127,148,000
|
|
|
|
134,333,491
|
|
|
|
133,209,000
|
|
Accrued interest receivable
|
|
|
528,608
|
|
|
|
529,000
|
|
|
|
430,471
|
|
|
|
430,000
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
185,320,108
|
|
|
|
185,320,000
|
|
|
|
109,891,015
|
|
|
|
109,891,000
|
|
Accrued interest payable
|
|
|
138,554
|
|
|
|
139,000
|
|
|
|
124,928
|
|
|
|
125,000
|
|
Repurchase sweep agreements
|
|
|
|
|
|
|
|
|
|
|
5,932,554
|
|
|
|
5,933,000
|
|
Fair
Value of Commitments
The estimated fair value of the standby letters of credit at
December 31, 2009 and 2008 is insignificant. Loan
commitments on which the committed interest rate is less than
the current market rate are also insignificant at
December 31, 2009 and 2008.
Interest
Rate Risk
The Bank assumes interest rate risk (the risk to the Banks
earnings and capital from changes in interest rate levels) as a
result of its normal operations. As a result, the fair values of
the Banks financial instruments as well as its future net
interest income will change when interest rate levels change and
that change may be either favorable or unfavorable to the Bank.
|
|
Note 15.
|
Quarterly
Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
First
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In thousands)
|
|
|
Interest and dividend income
|
|
$
|
2,200
|
|
|
$
|
2,237
|
|
|
$
|
2,296
|
|
|
$
|
2,310
|
|
|
$
|
2,120
|
|
|
$
|
2,305
|
|
|
$
|
2,080
|
|
|
$
|
1,992
|
|
Interest expense
|
|
|
558
|
|
|
|
752
|
|
|
|
738
|
|
|
|
628
|
|
|
|
589
|
|
|
|
511
|
|
|
|
469
|
|
|
|
453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
1,642
|
|
|
|
1,485
|
|
|
|
1,558
|
|
|
|
1,682
|
|
|
|
1,531
|
|
|
|
1,794
|
|
|
|
1,611
|
|
|
|
1,539
|
|
Provision for loan loss
|
|
|
11,274
|
|
|
|
3,428
|
|
|
|
365
|
|
|
|
598
|
|
|
|
3,029
|
|
|
|
(105
|
)
|
|
|
167
|
|
|
|
578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
(9,632
|
)
|
|
|
(1,943
|
)
|
|
|
1,193
|
|
|
|
1,084
|
|
|
|
(1,498
|
)
|
|
|
1,899
|
|
|
|
1,444
|
|
|
|
961
|
|
Noninterest income
|
|
|
222
|
|
|
|
127
|
|
|
|
86
|
|
|
|
79
|
|
|
|
171
|
|
|
|
71
|
|
|
|
60
|
|
|
|
38
|
|
Noninterest expenses
|
|
|
2,943
|
|
|
|
1,990
|
|
|
|
1,826
|
|
|
|
1,834
|
|
|
|
1,931
|
|
|
|
2,246
|
|
|
|
1,910
|
|
|
|
2,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(12,353
|
)
|
|
$
|
(3,806
|
)
|
|
$
|
(547
|
)
|
|
$
|
(671
|
)
|
|
$
|
(3,258
|
)
|
|
$
|
(276
|
)
|
|
$
|
(406
|
)
|
|
$
|
(1,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(243.74
|
)
|
|
$
|
(75.09
|
)
|
|
$
|
(10.79
|
)
|
|
$
|
(13.24
|
)
|
|
$
|
(64.12
|
)
|
|
$
|
(5.43
|
)
|
|
$
|
(7.99
|
)
|
|
$
|
(23.16
|
)
|
F-45
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
On November 6, 2009, Western Liberty Bancorp, a Delaware
corporation (WLBC), entered into a Merger Agreement
(the Merger Agreement) with WL-S1 Interim Bank, a
Nevada corporation (Merger Sub),
Service1st Bank
of Nevada,
(Service1st)
and Curtis W. Anderson, as representative of the stockholders of
Service1st,
which provides for the merger (the Merger) of Merger
Sub with and into
Service1st,
with
Service1st being
the surviving entity and becoming WLBCs wholly-owned
subsidiary.
As a result of the Merger, all of the outstanding shares of
Service1st common
stock will be cancelled and automatically converted into the
right of the holders of
Service1st common
stock to receive shares of WLBC common stock. The base merger
consideration shall be the greater of (a) $35 million
and (b) the agreed upon tangible book value of
Service1st on
the last day of the calendar month immediately preceding the
month in which all the regulatory approvals for the consummation
of the Merger have been received (the Valuation
Date), less the sum of (x) a portion of
Service1sts
transaction expenses (y) $1 million and (z) the
amount, if any, by which $29,166,667 exceeds the agreed upon
tangible book value of
Service1st as
of the Valuation Date (the Base Merger
Consideration). Furthermore, on or prior to the second
anniversary of the consummation of the Merger (the Closing
Date), if the closing price of the common stock of WLBC
exceeds $12.75 per share for 30 consecutive trading days, then
an additional earn out provision of 20.0% of the
agreed upon tangible book value of
Service1st at
the close of business on the Valuation Date would be added to
the purchase price; provided, however, that if the agreed upon
tangible book value of
Service1st as
of the Valuation Date is less than $35 million, then the
earn out provision shall be equal to 120% of the
agreed upon tangible book value of the Bank as of the Valuation
Date minus $35 million (if the result is positive) (the
Contingent Merger Consideration). The number of
shares to be issued to the stockholders of
Service1st as
of the Closing Date will be determined by dividing (a) the
Base Merger Consideration by (b) the product of
(x) the number of outstanding shares of
Service1st common
stock as of the Closing Date and (y) the average closing
price of WLBCs common stock for the five trading days
immediately prior to and after the date on which all regulatory
approvals for the Merger have been received (subject to certain
adjustments as set forth in the Merger Agreement) (the
Exchange Ratio). The number of additional shares to
be issued to the former stockholders of
Service1st as
of the date any earn out consideration is due will be determined
by dividing (a) the Contingent Merger Consideration by
(b) the product of (x) the number of outstanding
shares of
Service1st common
stock as of the Closing Date and (y) the average of the
closing price of WLBCs common stock for the first 30
consecutive trading days on which the closing price of
WLBCs common stock shall have been more than $12.75.
Additionally, all outstanding
Service1st options
and warrants shall be cancelled and substituted with options and
warrants of similar tenor to purchase additional shares of WLBC
common stock in amounts equal to the product of (a) the
number of shares of
Service1st common
stock that would be issuable upon exercise of such option or
warrant immediately prior to the Closing Date and (b) the
Exchange Ratio. The per share exercise price for the warrants
and options will be equal to the quotient determined by dividing
(x) the per share exercise price for such option or warrant
immediately prior to the Closing Date by (y) the Exchange
Ratio. The shares of those
Service1st stockholders
who do not exercise their dissenters rights under Nevada
law will be cancelled and extinguished and exchanged for each
stockholders pro rata portion of the overall merger
consideration.
The Merger is subject to approvals from the Federal Reserve
Board, the Federal Deposit Insurance Corporation and the Nevada
Division of Financial Institutions. As a corporation not
currently subject to bank supervisory regulation, WLBCs
applications to become a bank holding company for a Nevada-based
community bank is subject to statutory approval processes
maintained by several federal and state bank regulatory agencies.
The Merger Agreement may be terminated at any time, but not
later than the Closing Date, by either WLBC or
Service1st if
the Closing Date shall not have occurred on or before
September 30, 2010 for any
F-46
SERVICE1ST
BANK OF NEVADA
NOTES TO
FINANCIAL STATEMENTS (Continued)
reason, provided that the failure to consummate the Merger by
such date was not due to such partys breach of any of its
representations, warranties, covenants or other agreements under
the Merger Agreement.
WLBC has agreed, subject to the approval of its stockholders, to
cause the size of its board of directors to be increased to
eight directors, and to cause the appointment of three
individuals designated by
Service1st to
serve as directors as of the Closing Date. In addition, WLBC has
agreed to make a capital contribution of $15 million to
Service1st on
the Closing Date. The Merger Agreement also contains customary
representations, warranties and covenants made by the respective
parties thereto.
As an inducement to WLBC and as a condition to WLBCs
entering into the Merger Agreement, certain stockholders of
Service1st (the
Stockholders) entered into an Amended and Restated
Voting Agreement with WLBC, dated January 28, 2010 (the
Voting Agreement), whereby the Stockholders agreed
to vote all of the shares of
Service1st common
stock currently beneficially owned by them or acquired by them
after such date in favor of approval of the Merger. The Voting
Agreement contains restrictions limiting the ability of the
Stockholders to sell or otherwise transfer the shares of
Service1st beneficially
owned by them. As of January 28, 2010, the Stockholders
owned an aggregate of approximately 12,364 shares of
Service1st common
stock. The Voting Agreement terminates upon the earliest to
occur of (i) the date of the effectiveness of the Merger
and (ii) the date of the termination of the Merger
Agreement in accordance with its terms.
The Merger is expected to be consummated upon the fulfillment of
certain conditions, including (a) obtaining all necessary
approvals from governmental agencies and other third parties
that are required for the consummation of the transactions
contemplated by the Merger Agreement, (b) the preparation
and filing by WLBC and
Service1st of
a registration statement (which shall contain a prospectus) to
register, under the Securities Act of 1933, as amended, the
common shares of WLBC that will constitute the consideration for
the Merger, (c) the receipt of the affirmative vote of
Service1sts
stockholders and WLBCs stockholders to adopt the Merger
Agreement and (d) other customary closing conditions. There
is no guarantee if and when all of the conditions precedent to
the consummation of the Merger will be satisfied.
F-47
WESTERN
LIBERTY BANCORP
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
84,317,971
|
|
|
$
|
87,969,242
|
|
Prepaid expenses
|
|
|
551,360
|
|
|
|
551,198
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
84,869,331
|
|
|
$
|
88,520,440
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Liabilities
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
379,031
|
|
|
$
|
628,493
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 1,000,000 shares
authorized; None issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 100,000,000 shares
authorized; 10,959,169 issued and outstanding
|
|
|
1,096
|
|
|
|
1,096
|
|
Additional paid-in capital
|
|
|
103,142,784
|
|
|
|
103,730,471
|
|
Accumulated deficit
|
|
|
(18,653,580
|
)
|
|
|
(15,839,620
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
84,490,300
|
|
|
|
87,891,947
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
84,869,331
|
|
|
$
|
88,520,440
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
financial statements.
F-48
WESTERN
LIBERTY BANCORP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
1,237,192
|
|
|
|
4,969,837
|
|
|
|
3,406,752
|
|
|
|
8,267,056
|
|
Stock based compensation
|
|
|
(1,850,000
|
)
|
|
|
93,750
|
|
|
|
(587,687
|
)
|
|
|
281,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from operations
|
|
|
612,808
|
|
|
|
(5,063,587
|
)
|
|
|
(2,819,065
|
)
|
|
|
(8,548,305
|
)
|
Interest income
|
|
|
1,493
|
|
|
|
5,925
|
|
|
|
5,105
|
|
|
|
87,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
614,301
|
|
|
$
|
(5,057,662
|
)
|
|
$
|
(2,813,960
|
)
|
|
$
|
(8,461,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
614,301
|
|
|
$
|
(5,057,662
|
)
|
|
$
|
(2,813,960
|
)
|
|
$
|
(8,461,196
|
)
|
Deferred interest on investments held in trust relating to
common shares subject to possible conversion
|
|
|
|
|
|
|
(95,847
|
)
|
|
|
|
|
|
|
(95,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
614,301
|
|
|
$
|
(5,153,509
|
)
|
|
$
|
(2,813,960
|
)
|
|
$
|
(8,557,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares subject to possible
conversion outstanding
|
|
|
|
|
|
|
9,584,654
|
|
|
|
|
|
|
|
9,584,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share common shares subject to possible conversion
|
|
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
basic
|
|
|
10,959,169
|
|
|
|
39,936,064
|
|
|
|
10,959,169
|
|
|
|
39,936,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding diluted
|
|
|
59,226,927
|
|
|
|
39,936,064
|
|
|
|
10,959,169
|
|
|
|
39,936,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share
|
|
$
|
0.06
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share
|
|
$
|
0.01
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
financial statements.
F-49
WESTERN
LIBERTY BANCORP
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
(Unaudited)
|
|
|
Balance at December 31, 2009
|
|
|
10,959,169
|
|
|
$
|
1,096
|
|
|
$
|
103,730,471
|
|
|
$
|
(15,839,620
|
)
|
|
$
|
87,891,947
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
(587,687
|
)
|
|
|
|
|
|
|
(587,687
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,813,960
|
)
|
|
|
(2,813,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010
|
|
|
10,959,169
|
|
|
$
|
1,096
|
|
|
$
|
103,142,784
|
|
|
$
|
(18,653,580
|
)
|
|
$
|
84,490,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
financial statements.
F-50
WESTERN
LIBERTY BANCORP
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,813,960
|
)
|
|
$
|
(8,461,196
|
)
|
Adjustments to reconcile net loss to net cash and cash
equivalents used in operating activities
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
(587,687
|
)
|
|
|
281,249
|
|
Interest earned on cash held in trust
|
|
|
|
|
|
|
(84,589
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(162
|
)
|
|
|
225,450
|
|
Accrued expenses
|
|
|
(249,462
|
)
|
|
|
6,638,996
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(3,651,271
|
)
|
|
|
(1,400,090
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and equivalents
|
|
|
(3,651,271
|
)
|
|
|
(1,400,090
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
87,969,242
|
|
|
|
1,445,882
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
84,317,971
|
|
|
$
|
45,792
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
financial statements.
F-51
WESTERN
LIBERTY BANCORP
NOTES TO
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1 Interim
Financial Information
These unaudited condensed financial statements as of
September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009, have been prepared in
accordance with accounting principles generally accepted in the
United States for interim financial information and with the
instructions to
Form 10-Q.
Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the interim period
presented are not necessarily indicative of the results to be
expected for any other interim period or for the full year.
These interim unaudited financial statements should be read in
conjunction with the financial statements for the year ended
December 31, 2009, which are included in Western Liberty
Bancorps Annual Report on
Form 10-K
filed with the Securities and Exchange Commission (the
SEC).
Note 2 Organization
and Business Operations
General
Western Liberty Bancorp (WLBC, the
Company, us or we) was
formerly known as Global Consumer Acquisition Corp.
and was 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. On October 7, 2009, our
stockholders, at a special meeting of the stockholders (the
Special Meeting), approved our initial acquisition
of 1st Commerce Bank, a Nevada-chartered non-member bank
(such acquisition was subsequently terminated by mutual
agreement of the parties), along with certain amendments to our
Amended and Restated Certificate of Incorporation removing
certain provisions specific to special purpose acquisition
companies, changing our name to Western Liberty
Bancorp and authorizing the distribution and termination
of our trust account. Effective October 7, 2009, the
Company began its business operations and exited its development
stage.
Stockholder
Approval to Become Western Liberty Bancorp
On October 7, 2009, WLBCs stockholders approved
certain proposals to amend its Amended and Restated Certificate
of Incorporation (the COI Amendments) and its
existing Investment Management Trust Agreement and the
acquisition of 1st Commerce Bank at the Special Meeting.
Amendment
to Trust Agreement
At the Special Meeting, WLBCs stockholders authorized WLBC
and Continental Stock Transfer & Trust Company,
as trustee (the Trustee) to distribute and terminate
WLBCs trust account pursuant to an Amendment No. 1 to
the Investment Management Trust Agreement, dated
October 7, 2009 (the Trust Agreement
Amendment). The Trust Agreement Amendment amends the
Trust Agreement, which provided that the Trustee could only
liquidate the trust account upon the consummation of WLBCs
initial business combination or on November 27, 2009.
COI
Amendments
The COI Amendments were also approved at the Special Meeting.
The COI Amendments amended WLBCs Amended and Restated
Certificate of Incorporation as follows:
|
|
|
|
|
amended the definition of Business Combination to
remove the requirement that WLBCs initial acquisition of
one or more assets or operating businesses needed to have a fair
market value of at least
|
F-52
WESTERN
LIBERTY BANCORP
NOTES TO
CONDENSED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
80% of WLBCs net assets held in trust (net of taxes and
amounts disbursed for working capital purposes and excluding the
amount held in the trust account representing a portion of the
underwriters discount) at the time of acquisition;
|
|
|
|
|
|
removed the prohibition on the consummation of a business
combination if holders of an aggregate of 30% or more in
interest of the shares of WLBCs common stock issued in its
initial public offering (Public Shares) exercised
their conversion rights;
|
|
|
|
removed the requirement that only holders of Public Shares who
voted against WLBCs initial business combination could
covert their Public Shares into cash;
|
|
|
|
changed WLBCs name from Global Consumer Acquisition
Corp. to Western Liberty Bancorp;
|
|
|
|
changed WLBCs corporate existence to perpetual, so WLBC
would not be required to liquidate on November 27, 2009;
|
|
|
|
deleted the provision in the Certificate of Incorporation that
provided that in the event a business combination was not
consummated prior to November 27, 2009, WLBCs
corporate purpose would automatically have been limited to
effecting and implementing WLBCs dissolution and
liquidation and that WLBCs powers would be limited to
those set forth in Section 278 of the Delaware General
Corporation Law and as otherwise may be necessary to implement
the limited purpose; and
|
|
|
|
deleted the following restrictions only applicable to special
purpose acquisition companies:
|
|
|
|
|
|
the requirement that a business combination be submitted to
WLBCs stockholders for approval and authorized by the vote
of a majority of the Public Shares cast at a meeting of
stockholders to approve such business combination;
|
|
|
|
the procedures for exercising conversion rights;
|
|
|
|
the provision for when funds may be disbursed from WLBCs
trust account established in connection with its initial public
offering;
|
|
|
|
the provision that no other business combination could be
consummated until WLBC initial business combination is
consummated; and
|
|
|
|
the provision that holders of Public Shares would be entitled to
receive distributions from WLBCs trust account only in the
event of WLBCs liquidation or by demanding conversion.
|
Service1st
Acquisition
On October 28, 2010, WLBC consummated its acquisition (the
Acquisition) of
Service1st
Bank of Nevada, a Nevada-chartered non-member bank
(Service1st)
pursuant to a Merger Agreement (the Merger
Agreement), dated as of November 6, 2009, as amended
by a First Amendment to the Merger Agreement, dated as of
June 21, 2010 (Amendment No. 1 and,
together with the Merger Agreement, the Amended Merger
Agreement), each among WL-S1 Interim Bank, a Nevada
corporation and wholly-owned subsidiary of WLBC
(Acquisition Sub),
Service1st
and Curtis W. Anderson, as representative of the former
stockholders of
Service1st.
Pursuant to the Amended Merger Agreement, Acquisition Sub merged
with and into
Service1st,
with
Service1st
being the surviving entity and becoming WLBCs wholly-owned
subsidiary. WLBC previously received the requisite approvals of
certain bank regulatory authorities to complete the Acquisition
to become a bank holding company.
The former stockholders of
Service1st
received approximately 2,370,878 shares of Common Stock in
exchange for all of the outstanding shares of capital stock of
Service1st
(the Base Acquisition Consideration). In addition,
the holders of
Service1sts
outstanding options and warrants now hold options and warrants
of similar tenor to purchase up to 289,808 shares of Common
Stock.
F-53
WESTERN
LIBERTY BANCORP
NOTES TO
CONDENSED FINANCIAL
STATEMENTS (Continued)
In addition to the Base Acquisition Consideration, each of the
former stockholders of
Service1st
may be entitled to receive additional consideration (the
Contingent Acquisition Consideration), payable in
Common Stock, if at any time within the first two years after
the consummation of the Acquisition, 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
Service1st
at the close of business on the last day of the calendar month
immediately before the calendar month in which the final
regulatory approval necessary for the completion of the
Acquisition was obtained. The total number of shares of our
common stock issuable to the former
Service1st
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.
At the close of business on October 28, 2010, WLBC was a
new Nevada financial institution bank holding company by
consummating the acquisition of
Service1st
and conducting operations through
Service1st.
In conjunction with the transaction, WLBC infused
$25 million of capital onto the balance sheet of
Service1st.
On October 29, 2010, the common shares of WLBC began
trading on the Nasdaq Global Market, under the ticker symbol
WLBC.
Notice of
Delisting or Failure to Satisfy a Continued Listing Rule or
Standard; Transfer of Listing
On October 20, 2009, WLBC received notice from the staff of
the NYSE Amex (the Exchange) indicating that the
Exchange believes that WLBC no longer complied with the
Exchanges continued listing standards due to the
amendments to the Certificate of Incorporation approved at
WLBCs stockholder meeting on October 7, 2009 and an
insufficient number of public shareholders of WLBCs common
stock, as set forth in Section 1003(c) of the
Exchanges Company Guide, and that its securities were,
therefore, subject to being delisted from the Exchange. The
Company appealed this determination and was granted the right to
a hearing before a committee of the NYSE Amex on
February 11, 2010. On February 17, 2010, the Listed
Qualification Panel of the NYSE Amexs Committee on
Securities (the Panel) affirmed the determination by
the staff (the Staff) of the Exchange to delist the
securities of WLBC from the Exchange. In the Panels notice
to WLBC, it advised WLBC that the Exchange expected to suspend
trading in WLBCs securities as soon as practicable. On
February 22, 2010, the Staff advised WLBC that the Exchange
would be suspending WLBCs securities from trading,
effective at the open of business on Thursday, February 25,
2010. In the interim, WLBC filed an application with the
Financial Industry Regulation Authority (FINRA)
to allow its securities to quote on the Over the Counter
Bulletin Board (the OTCBB). Trading in
WLBCs securities was suspended at the open of business on
Thursday, February 25, 2010. Concurrently, however,
WLBCs securities were cleared for quotation on the OTCBB,
effective at the open of business on Thursday, February 25,
2010. WLBC expects to be listed on a national exchange upon
closing of the previously announced
Service1st
Bank of Nevada acquisition. As previously noted, WLBC common
stock began trading on the Nasdaq Global Market, under the
ticker symbol WLBC, on October 29, 2010.
Warrant
Restructuring
In order to assist WLBC in gaining the requisite approval of
certain bank regulatory authorities in connection with the
Acquisition, on September 23, 2010, WLBC entered into a
Letter Agreement (the Warrant Restructuring Letter
Agreement) with certain warrant holders who represented to
WLBC that they collectively hold at least a majority of its
outstanding warrants (the Consenting Warrant
Holders) confirming the basis and terms upon which the
parties have agreed to amend the Amended and restated Warrant
Agreement, dated as of July 20, 2009, as amended by the
Amendment No. 1, dated as of October 9, 2009, each
between WLBC and Continental Stock Transfer & Trust
Company, as warrant agent (the Warrant Agent) (as
amended, the Warrant Agreement), previously filed
with the Securities and Exchange Commission (the
SEC). The Warrant Restructuring Letter Agreement
serves as the consent and approval of each of the Consenting
Warrant Holders to amend and restate the Warrant Agreement.
F-54
WESTERN
LIBERTY BANCORP
NOTES TO
CONDENSED FINANCIAL
STATEMENTS (Continued)
Pursuant to the Warrant Restructuring Letter Agreement, the
Warrant Agreement shall be amended where applicable to provide
for the automatic exercise of all of the outstanding warrants of
WLBC (the Warrants) into one thirty-second (1/32) of
one share of WLBCs common stock, par value $0.0001
(Common Stock), which shall occur concurrently with
the consummation of the Acquisition (the Automatic
Exercise Date, or October 28, 2010). Any Warrants
that would entitle a holder of such Warrants to a fractional
share of Common Stock after taking into account the automatic
exercise of the remainder of such holders Warrants into
full shares of Common Stock shall be cancelled on the Automatic
Exercise Date. As of October 27, 2010, there were
48,067,758 Warrants outstanding, each exercisable for one share
of Common Stock, which were automatically converted into
1,502,117 shares of Common Stock on October 28, 2010.
As a result of the foregoing, there are no Warrants outstanding
after October 28, 2010. WLBC also paid a consent fee to the
holders of Warrants in an amount equal to $0.06 per Warrant on
the Automatic Exercise Date, regardless of whether such holders
were party to the Warrant Restructuring Letter Agreement, for a
total of $2,844,065.
WLBC has agreed to file a registration statement with the SEC
for the registration under the Securities Exchange Act of 1933,
as amended, of the shares of Common Stock issuable upon exercise
of the Warrants. If such registration statement is not filed
within 30 days of the Automatic Exercise Date, WLBC shall
make a payment to each holder of Common Stock issued upon
exercise of the Warrants in an amount equal to $0.12 per share
of Common Stock issuable upon exercise of the Warrants held by
such holder. WLBC further agreed to make an additional payment
in an amount equal to $0.18 per share of Common Stock issuable
upon exercise of the Warrants held by such holder if the
registration statement has not been declared effective by the
SEC within 180 days of the Automatic Exercise Date.
WLBC filed a Schedule 14C Information Statement on
October 7, 2010, in connection with the warrant
restructuring. The activities necessary to complete the Warrant
Restructuring were commenced by WLBC in conjunction with the
closing of the Acquisition on October 28, 2010.
Note 3 Significant
Accounting Policies
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(U.S. GAAP) requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements
and the reported amounts of expenses during the reporting
period. Actual results could differ from those estimates.
Cash
and Cash Equivalents
WLBC considers all highly liquid investments purchased with an
original maturity of three months or less to be cash
equivalents. Cash equivalents are carried at cost, which
approximates fair value.
At September 30, 2010, financial instruments that
potentially expose WLBC to credit risk consisted of cash and
cash equivalents. WLBC maintains its cash balances in various
financial institutions. The Federal Deposit Insurance
Corporation insures balances in bank accounts up to $250,000 and
the Securities Investor Protection Corporation insures balances
up to $500,000 in brokerage accounts. WLBC has not experienced
losses on these accounts and management believes WLBC is not
exposed to significant risks on such accounts.
As of September 30, 2010, approximately $84,004,833 of the
Companys cash and cash equivalents were invested in the
Federated U.S. Treasury Cash Reserve Fund (UTIXX) and the
Goldman Sachs Financial Square Funds Treasury
Instruments Fund (FTIXX). Both funds, under normal
circumstances, invests their assets exclusively in obligations
of the U.S. Treasury, including Treasury bills, bonds and
notes and other obligations issued or guaranteed by the
U.S. Treasury.
F-55
WESTERN
LIBERTY BANCORP
NOTES TO
CONDENSED FINANCIAL
STATEMENTS (Continued)
Income
(loss) Per Common Share
Basic income (loss) per common share is computed by dividing net
income (loss) applicable to common stockholders by the weighted
average number of common shares for the period. Diluted income
(loss) per share reflects the potential dilution that could
occur if derivative securities were to be exercised or converted
and would otherwise result in the issuance of common stock.
For the nine months ended September 30, 2010 and the three
and nine months ended September 30, 2009, potentially
dilutive securities are excluded from the computation of fully
diluted earnings per share as their effects are anti-dilutive.
The following table depicts the detailed computation of basic
and diluted earnings per share for the respective periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Month Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
614,301
|
|
|
$
|
(5,153,509
|
)
|
|
$
|
(2,813,960
|
)
|
|
$
|
(8,557,043
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
10,959,169
|
|
|
|
39,936,064
|
|
|
|
10,959,169
|
|
|
|
39,936,064
|
|
Dilutive effects of warrants and Restricted Stock Units
|
|
|
48,267,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, assuming dilution
|
|
|
59,226,927
|
|
|
|
39,936,064
|
|
|
|
10,959,169
|
|
|
|
39,936,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2010 and
2009, the Company had potentially dilutive securities in the
form of 48,067,758 warrants, including 8,500,000 sponsors
warrants issued in a private placement, 7,618,908 warrants from
shares restructured into warrants and 31,948,850 warrants issued
as part of the units in our initial public offering. In
addition, for the three and nine months ended September 30,
2010, the Company also had potentially dilutive securities in
the form of 200,000 restricted stock units granted to certain
members of our board of directors and our president, as
discussed further below under Restricted Stock. The
Company uses the treasury stock method to calculate
potential dilutive shares, as if they were redeemed for common
stock at the beginning of the period.
The statements of operations for the three and nine months ended
September 30, 2009 includes a presentation of income (loss)
per common share subject to possible redemption in a manner
similar to the two class method of income (loss) per common
share. Basic and diluted income per common share amount for the
maximum number of common shares subject to possible redemption
is calculated by dividing the net interest attributable to
common shares subject to redemption by the weighted average
number of common shares subject to possible redemption. Basic
and diluted income per share amount for the common shares
outstanding not subject to possible redemption is calculated by
dividing the net income exclusive of the net interest income
attributable to common shares subject to redemption by the
weighted average number of common shares not subject to possible
redemption.
F-56
WESTERN
LIBERTY BANCORP
NOTES TO
CONDENSED FINANCIAL
STATEMENTS (Continued)
Note 4 Stockholders
Equity
Preferred
Stock
WLBC is authorized to issue 1,000,000 shares of blank check
preferred stock with such designations, voting and other rights
and preferences as may be determined from time to time by the
board of directors of WLBC (the Board of Directors).
Common
Stock
On October 7, 2009, 21,357,987 shares of common stock
were redeemed and 7,618,908 shares of common stock were
restructured into warrants as a result of the shareholder
meeting (See Note 1).
At September 30, 2010 and December 31, 2009, there
were 48,267,758 shares of common stock reserved for
issuance upon exercise of WLBCs outstanding options and
warrants.
Restricted
Stock
Pursuant to letter agreements dated December 23, 2008
between WLBC and each of its independent directors, Richard A.C.
Coles, Michael B. Frankel and Mark Schulhof, and a letter
agreement dated as of April 28, 2009 between WLBC and
Daniel B. Silvers, WLBCs President, WLBC granted each
independent director and Mr. Silvers 50,000 restricted
stock units with respect to shares of WLBCs common stock,
subject to certain terms and conditions. WLBC incurred
compensation expense equal to the grant date fair value of the
restricted stock units. Based upon the market price of WLBC
common shares at grant date, WLBC determined that the grant date
fair value of the restricted stock units was $9.25 per unit,
$1,850,000 in the aggregate. WLBC recorded compensation expense
of $1,850,000 over the estimated vesting period of
266 days. WLBC estimated the vesting period as the number
of days from the grant date to the estimated closing date of the
business combination. On completion of the acquisition of
Service1st,
the requirements of the aforementioned letter agreements were
not satisfied, so that the restricted stock units did not, and
now cannot, vest according to their terms. Management made this
determination on September 30, 2010 upon receipt of the
final approval from the applicable regulatory agencies. As a
result of this determination, WLBC reversed the stock
compensation expense ($1,850,000) previously recorded for the
200,000 restricted stock units described above.
WLBC also provided a one-time grant of restricted stock equal to
$250,000 divided by the closing price of WLBCs common
stock on the closing date of the Acquisition to George A.
Rosenbaum Jr., WLBCs Chief Financial Officer, for his
future services. In addition, WLBC also issued restricted stock
with respect to shares of our common stock to William E. Martin,
who became a member of our board of directors and serves as our
Chief Executive Officer and as Chief Executive Officer of
Service1st.
Mr. Martin was issued restricted shares of WLBC common
stock equal to $1.0 million divided by the closing price of
our common stock on the closing date of the Acquisition in
consideration for his future services. Mr. Rosenbaum and
Mr. Martin were granted 38,820 and 155,280 shares of
restricted stock, respectively, on October 28, 2010,
vesting over a five year term. Annual expense associated with
these grants is estimated to be approximately $250,000 per year,
for the five year term.
On October 28, 2010, WLBC and each of Jason N. Ader, Daniel
B. Silvers, Andrew P. Nelson, Michael Tew and Laura
Conover-Ferchak entered into Letter Agreements (the Letter
Agreements), pursuant to which each of the foregoing
individuals received a grant of restricted stock units of WLBC
(the 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, WLBCs 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
F-57
WESTERN
LIBERTY BANCORP
NOTES TO
CONDENSED FINANCIAL
STATEMENTS (Continued)
and shall be settled for one share of common stock, par value
$0.0001, of WLBC on the earlier to occur of (i) a Change of
Control Event (as such term is defined in the Letter Agreements)
and (ii) October 28, 2013 (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. Any stock 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 shares of Common Stock had been issued, provided
that such dividends shall be paid on the Settlement Date. These
grants were recorded as of October 28, 2010 and resulted in
recording expenses of approximately $1,288,000.
Furthermore, in consideration of their substantial service to
and support of WLBC during the period in which WLBC 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 of Directors of WLBC,
Richard A.C. Coles, a current member of the Board of Directors
and Mark Schulhof, a former member of the Board of Directors.
The issuances of Restricted Stock Units and Common Stock were
made in reliance upon an available exemption from registration
under the Securities Act. These grants were recorded as of
October 28, 2010 and resulted in recording expenses of
approximately $966,000.
Note 5 Transaction
Costs
For the three and nine months ended September 30, 2010,
WLBC incurred transaction costs relating to the proposed
business combination with
Service1st in
the amount of $944,482 and $2,524,974. Such transaction costs
were expensed as professional fees.
In addition, on October 28, 2010, in consideration of their
substantial service to and support of WLBC during the period in
which WLBC sought the requisite regulatory approval to become a
bank holding company in connection with the Acquisition, WLBC
made a one-time payment of $200,000, $450,000, $50,000 and
$50,000 to each of Jason N. Ader, Daniel B. Silvers, Michael B.
Frankel and Andrew Nelson, respectively.
Note 6 Commitments
and Contingencies
There is no material litigation currently pending against WLBC
or any members of its management team in their capacity as such.
Note 7 Indemnifications
WLBC has entered into agreements with its officers and directors
to provide contractual indemnification in addition to the
indemnification provided in its amended and restated certificate
of incorporation. WLBC believes that these provisions and
agreements are necessary to attract qualified officers and
directors. WLBCs bylaws also will permit it to secure
insurance on behalf of any officer, director or employee for any
liability arising out of his or her actions, regardless of
whether Delaware law would permit indemnification. WLBC has
purchased a policy of directors and officers
liability insurance that insures WLBCs directors and
officers against the cost of defense, settlement or payment of a
judgment in some circumstances and insures WLBC against its
obligations to indemnify the directors and officers.
Note 8 Unaudited
Pro Forma Condensed Combined Financial Data
As previously discussed on October 28, 2010, WLBC
consummated its transaction with
Service1st.
The pro forma condensed combined financial statements reflect
the accounting for the transaction under the
F-58
WESTERN
LIBERTY BANCORP
NOTES TO
CONDENSED FINANCIAL
STATEMENTS (Continued)
acquisition method, as such 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 using the balances as of the closing date,
October 28, 2010
The following is an estimate of the purchase price allocation
for
Service1st,
using September 30, 2010 and prior estimates of fair value
as (in thousands):
|
|
|
|
|
Fair value of WLBC common stock consideration exchanged with
Service1st
Bank common stock
|
|
$
|
15,268
|
|
Fair value of WLBC common stock contingent consideration
exchanged with
Service1st
Bank common stock
|
|
|
4,358
|
|
Allocated to:
|
|
|
|
|
Historical book value of
Service1st
Banks assets and liabilities
|
|
|
19,777
|
|
To adjust
Service1st
Banks assets and liabilities to fair value:
|
|
|
|
|
Securities, held to maturity
|
|
|
276
|
|
Loans
|
|
|
(5,064
|
)
|
Other Real Estate Owned
|
|
|
(300
|
)
|
Time Deposits
|
|
|
(184
|
)
|
Core Deposit Intangible
|
|
|
4,352
|
|
|
|
|
|
|
Total allocation of purchase price
|
|
|
18,857
|
|
|
|
|
|
|
Excess of purchase price over allocation to identifiable assets
and liabilities
|
|
$
|
769
|
|
|
|
|
|
|
The following 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.
F-59
WESTERN
LIBERTY BANCORP
Unaudited
Pro Forma Condensed Combined Balance Sheet
As of
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Combined
|
|
|
Pro Forma
|
|
|
Combined
|
|
|
|
WLBC
|
|
|
Service1st
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
84,318
|
|
|
$
|
27,825
|
|
|
$
|
112,143
|
|
|
$
|
(1,000
|
)H
|
|
$
|
108,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,884
|
)K
|
|
|
|
|
Certificates of deposit
|
|
|
|
|
|
|
32,174
|
|
|
|
32,174
|
|
|
|
|
|
|
|
32,174
|
|
Investment securities AFS
|
|
|
|
|
|
|
3,899
|
|
|
|
3,899
|
|
|
|
|
|
|
|
3,899
|
|
Investment securities HTM
|
|
|
|
|
|
|
7,584
|
|
|
|
7,584
|
|
|
|
276
|
D
|
|
|
7,860
|
|
Loans
|
|
|
|
|
|
|
120,855
|
|
|
|
120,855
|
|
|
|
(12,085
|
)D
|
|
|
108,770
|
|
Allowance for loan losses
|
|
|
|
|
|
|
(7,021
|
)
|
|
|
(7,021
|
)
|
|
|
7,021
|
D
|
|
|
|
|
Premises and equipment, net
|
|
|
|
|
|
|
1,321
|
|
|
|
1,321
|
|
|
|
|
|
|
|
1,321
|
|
Other real estate owned
|
|
|
|
|
|
|
3,019
|
|
|
|
3,019
|
|
|
|
(300
|
)E
|
|
|
2,719
|
|
Core deposit intangible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,352
|
C
|
|
|
4,352
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
769
|
A
|
|
|
769
|
|
Accrued interest receivable and other assets
|
|
|
551
|
|
|
|
3,534
|
|
|
|
4,085
|
|
|
|
|
|
|
|
4,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
84,869
|
|
|
$
|
193,190
|
|
|
$
|
278,059
|
|
|
$
|
(3,851
|
)
|
|
$
|
274,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
$
|
|
|
|
$
|
75,026
|
|
|
$
|
75,026
|
|
|
$
|
|
|
|
$
|
75,026
|
|
Interest bearing non-time deposits
|
|
|
|
|
|
|
60,076
|
|
|
|
60,076
|
|
|
|
|
|
|
|
60,076
|
|
Time Deposits
|
|
|
|
|
|
|
36,773
|
|
|
|
36,773
|
|
|
|
184
|
D
|
|
|
36,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
|
|
|
|
171,875
|
|
|
|
171,875
|
|
|
|
184
|
|
|
|
172,059
|
|
Accrued interest on deposits and other liabilities
|
|
|
379
|
|
|
|
1,538
|
|
|
|
1,917
|
|
|
|
4,358
|
J
|
|
|
6,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
379
|
|
|
|
173,413
|
|
|
|
173,792
|
|
|
|
4,542
|
|
|
|
178,334
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
(1
|
)B
|
|
|
1
|
|
Additional paid-in capital
|
|
|
103,143
|
|
|
|
52,616
|
|
|
|
155,759
|
|
|
|
(52,616
|
)B
|
|
|
117,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,442
|
G
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,626
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,358
|
)J
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,884
|
)K
|
|
|
|
|
Retained-earnings deficit
|
|
|
(18,654
|
)
|
|
|
(32,065
|
)
|
|
|
(50,719
|
)
|
|
|
32,065
|
B
|
|
|
(22,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,442
|
)G
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)H
|
|
|
|
|
Treasury stock
|
|
|
|
|
|
|
(775
|
)
|
|
|
(775
|
)
|
|
|
775
|
B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
84,490
|
|
|
|
19,777
|
|
|
|
104,267
|
|
|
|
(8,393
|
)
|
|
|
95,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
84,869
|
|
|
$
|
193,190
|
|
|
$
|
278,059
|
|
|
$
|
(3,851
|
)
|
|
$
|
274,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
F-60
WESTERN
LIBERTY BANCORP
Unaudited
Pro Forma Condensed Combined Statement of Operations
For the
Nine Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Combined
|
|
|
Pro Forma
|
|
|
Combined
|
|
|
|
WLBC
|
|
|
Service1st
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
Interest Income
|
|
$
|
5
|
|
|
$
|
6,116
|
|
|
$
|
6,121
|
|
|
$
|
(55
|
)D
|
|
$
|
6,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243
|
D
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
1,083
|
|
|
|
1,083
|
|
|
|
|
|
|
|
1,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
5
|
|
|
|
5,033
|
|
|
|
5,038
|
|
|
|
188
|
|
|
|
5,226
|
|
Provision for loan losses
|
|
|
|
|
|
|
3,938
|
|
|
|
3,938
|
|
|
|
|
|
|
|
3,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
5
|
|
|
|
1,095
|
|
|
|
1,100
|
|
|
|
188
|
|
|
|
1,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income
|
|
|
|
|
|
|
466
|
|
|
|
466
|
|
|
|
|
|
|
|
466
|
|
Noninterest expense
|
|
|
2,819
|
|
|
|
6,920
|
|
|
|
9,739
|
|
|
|
534
|
C
|
|
|
10,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188
|
G
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before federal income tax benefit
|
|
|
(2,814
|
)
|
|
|
(5,359
|
)
|
|
|
(8,173
|
)
|
|
|
(534
|
)
|
|
|
(8,707
|
)
|
Federal income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I
|
|
|
|
|
NET LOSS
|
|
$
|
(2,814
|
)
|
|
$
|
(5,359
|
)
|
|
$
|
(8,173
|
)
|
|
$
|
(534
|
)
|
|
$
|
(8,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) attributable to common stock
|
|
$
|
(2,814
|
)
|
|
$
|
(5,359
|
)
|
|
$
|
(8,173
|
)
|
|
$
|
(534
|
)
|
|
$
|
(8,707
|
)
|
Pro forma net loss per common share Basic
|
|
$
|
(0.26
|
)
|
|
$
|
(107.59
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.54
|
)
|
Pro forma net loss per common share Diluted(1)
|
|
$
|
(0.26
|
)
|
|
$
|
(107.59
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.54
|
)
|
Weighted Average Number of Share Outstanding
Basic(1)
|
|
|
10,959,169
|
|
|
|
49,811
|
|
|
|
|
|
|
|
|
|
|
|
16,007,936
|
|
Weighted Average Number of Share Outstanding
Diluted(1)
|
|
|
10,959,169
|
|
|
|
49,811
|
|
|
|
|
|
|
|
|
|
|
|
16,007,936
|
|
|
|
|
(1) |
|
When an entity has a net loss from continuing operations the
inclusion of potential common shares in the computation of
diluted per-share amounts is prohibited. Accordingly, we have
utilized the basic shares outstanding amount to calculate both
basic and diluted loss per share for all periods presented. This
pro forma presentation assumes the transaction occurred on
January 1, 2009. |
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
F-61
WESTERN
LIBERTY BANCORP
Unaudited
Pro Forma Condensed Combined Statement of Operations
For the Nine Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Combined
|
|
|
Pro Forma
|
|
|
Combined
|
|
|
|
WLBC
|
|
|
Service1st
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
Interest Income
|
|
$
|
87
|
|
|
$
|
6,751
|
|
|
$
|
6,838
|
|
|
$
|
(166
|
)D
|
|
$
|
6,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243
|
D
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
2,118
|
|
|
|
2,118
|
|
|
|
(138
|
)D
|
|
|
1,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
87
|
|
|
|
4,633
|
|
|
|
4,720
|
|
|
|
215
|
|
|
|
4,935
|
|
Provision for loan losses
|
|
|
|
|
|
|
4,391
|
|
|
|
4,391
|
|
|
|
|
|
|
|
4,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
87
|
|
|
|
242
|
|
|
|
329
|
|
|
|
215
|
|
|
|
544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income
|
|
|
|
|
|
|
385
|
|
|
|
385
|
|
|
|
|
|
|
|
385
|
|
Noninterest expense
|
|
|
8,548
|
|
|
|
5,651
|
|
|
|
14,199
|
|
|
|
593
|
C
|
|
|
17,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,442
|
G
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before federal income tax benefit
|
|
|
(8,461
|
)
|
|
|
(5,024
|
)
|
|
|
(13,485
|
)
|
|
|
(2,820
|
)
|
|
|
(16,305
|
)
|
Federal income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I
|
|
|
|
|
NET LOSS
|
|
$
|
(8,461
|
)
|
|
$
|
(5,024
|
)
|
|
$
|
(13,485
|
)
|
|
$
|
(2,820
|
)
|
|
$
|
(16,305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) attributable to common stock
|
|
$
|
(8,461
|
)
|
|
$
|
(5,024
|
)
|
|
$
|
(13,485
|
)
|
|
$
|
(2,820
|
)
|
|
$
|
(16,305
|
)
|
Pro forma net loss per common share Basic
|
|
$
|
(0.21
|
)
|
|
$
|
(98.92
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.36
|
)
|
Pro forma net loss per common share Diluted(1)
|
|
$
|
(0.21
|
)
|
|
$
|
(98.92
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.36
|
)
|
Weighted Average Number of Share Outstanding
Basic(1)
|
|
|
39,936,064
|
|
|
|
50,789
|
|
|
|
|
|
|
|
|
|
|
|
45,031,509
|
|
Weighted Average Number of Share Outstanding
Diluted(1)
|
|
|
39,936,064
|
|
|
|
50,789
|
|
|
|
|
|
|
|
|
|
|
|
45,031,509
|
|
DS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
When an entity has a net loss from continuing operations the
inclusion of potential common shares in the computation of
diluted per-share amounts is prohibited. Accordingly, we have
utilized the basic shares outstanding amount to calculate both
basic and diluted loss per share for all periods presented. This
pro forma presentation assumes the transaction occurred on
January 1, 2009. |
See accompanying notes to the unaudited pro forma condensed
combined financial statements.
F-62
|
|
|
A) |
|
WLBC issued 2,370,878 shares of common stock based on a
price of $8.00 per share to exchange for all of the shares of
Service1st
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
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
Service1st
as of the Valuation Date (as defined herein). Using the
September 30, 2010 tangible book value of
Service1st,
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 WLBCs 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
Service1st
Banks 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
Service1st
Bank. The preliminary fair value adjustment and related
amortization is as follows (in thousands): |
|
|
|
|
|
|
|
Core Deposit
|
|
|
Intangible
|
|
Fair Value Adjustment
|
|
$
|
4,352
|
|
Amortization Period
|
|
|
10 yrs
|
|
Amortization:
|
|
|
|
|
For the nine months ended September 30, 2010
|
|
$
|
534
|
|
For the nine months ended September 30, 2009
|
|
$
|
593
|
|
|
|
|
|
|
The core deposit intangible asset will be amortized using the
sum-of-the-years
digits method. |
F-63
|
|
|
D) |
|
Reflects the pro forma impact of the Purchase Accounting
Adjustments (PAA) on the assets and liabilities of
Service1st
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. A $974,000 fair value
adjustment was due to fixed rate loans related to the
acquisition. The fair value was based on discounted cash flows
using current market rates applied to the estimated life and
credit risk including consideration of widening credit spreads
for performing loans. This fair value adjustment will be
accreted to income over a weighted average life of
3.0 years. The preliminary fair value adjustment and
related amortization is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
|
|
|
|
|
Time
|
|
|
Investments
|
|
|
|
Loans
|
|
|
|
Deposits
|
|
|
|
|
($ in 000s)
|
|
|
|
|
|
Fair Value Adjustment
|
|
$
|
276
|
|
|
|
|
|
|
$
|
(974
|
)
|
|
|
|
|
|
$
|
184
|
|
Amortization Period
|
|
|
1.3 yrs
|
|
|
|
|
|
|
|
3.0 yrs
|
|
|
|
|
|
|
|
1.0 yr
|
|
Amortization (Accretion):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Method (level yield)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2010
|
|
$
|
(55
|
)
|
|
|
|
|
|
$
|
243
|
|
|
|
|
|
|
$
|
|
|
For the nine months ended September 30, 2009
|
|
|
(166
|
)
|
|
|
|
|
|
$
|
243
|
|
|
|
|
|
|
$
|
(138
|
)
|
|
|
|
|
|
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 sellers 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 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. |
|
|
|
|
|
|
|
September 30, 2010
|
|
|
Basic and diluted shares:
|
|
|
|
|
WLBC shares outstanding
|
|
|
10,959,169
|
|
Shares issued to exchange with
Service1ststockholders
|
|
|
2,370,878
|
|
Shares issued as Contingent Acquisition Consideration to
Service1ststockholders
|
|
|
341,804
|
|
Restricted stock units granted to directors, officers and
consultants
|
|
|
200,000
|
|
Restricted shares issued to CFO per employment agreement
|
|
|
38,820
|
|
Restricted shares issued to CEO per employment agreement
|
|
|
155,280
|
|
Common stock issued to a director and former directors
|
|
|
150,000
|
|
Common stock issued in conjunction with the warrant conversion
|
|
|
1,502,177
|
|
Common stock options and warrants exchanged with
Service1st
holders
|
|
|
289,808
|
|
|
|
|
|
|
|
|
|
16,007,936
|
|
|
|
|
|
|
F-64
|
|
|
G) |
|
Reflects the pro forma adjustment to Non-Interest Expense,
representing the Employment Contract the Company has entered
into with the CFO. As approved at the October 7, 2009
stockholder meeting, the CFO will receive a one-time grant of
restricted stock equal to $250,000, divided by the closing price
of our common stock on the Effective Date. In addition, the CEO
will receive a one-time grant of restricted stock equal to
$1,000,000, divided by the closing price of our common stock on
the Effective Date. The restricted stock will vest 20% on each
of the first, second, third, fourth and fifth anniversaries of
the Effective Date. The total grant consideration of $1,250,000
for the one-time grants of restricted stock is considered in
common stock outstanding based on the stock price of $6.44
resulting in 194,100 shares outstanding disclosed in
Note F. As previously discussed in Note 4 to the
Condensed Financial Statements (unaudited), the Company awarded
200,000 restricted stock units and 150,000 shares of common
stock to certain directors, officers, and consultants in
consideration of their substantial service to and in support of
WLBC during the period in which WLBC sought regulatory approval
to become a bank holding company. As a result of these awards,
for past services, the Company recorded stock compensation
expense of $2,254,000 as of October 28, 2010 based on the
closing stock price. The stock price is based on the
October 28, 2010 closing price. |
|
|
|
Our Board of Directors has approved the award of up to
1,500,000 shares of restricted stock in connection with the
Acquisition, which we expect to be awarded to certain members of
our management and our consultants, in connection with the
Acquisition. As soon as practicable after the closing of the
Acquisition, the Compensation Committee will meet to determine
which members of our management and our consultants will receive
equity grants and the allocation of such grants. As such, the
shares have not been included in the pro forma financial
statements. |
|
|
|
|
|
H) |
|
Reflects the estimated payment of $1.0 million of fees yet
to be incurred prior to the closing of the transaction. The fees
are non-recurring items directly attributable to the closing of
the transaction and are not expected to have a continuing impact
on operations and therefore are not included in the Unaudited
Pro Forma Statement of Operations. |
|
|
|
I) |
|
No tax provision or deferred taxes are reflected in the pro
forma acquisition adjustments due to the net operating losses
previously incurred by
Service1st
Bank and the uncertainty of realization of deferred taxes in
future periods. |
|
|
|
J) |
|
Reflects the maximum estimated amount for the contingent
consideration. The fair value of the contingent consideration
has not been determined as of this filing date. |
|
K) |
|
The conversion of the Companys warrants took place with
the transaction closing on October 28, 2010. The Company
paid a consent fee of $0.06, and one thirty-second (1/32) of one
share of WLBC common stock for each warrant. This resulted in
the issuance of 1,502,117 shares of common stock and
disbursement of $2,844,065. |
F-65
To the Board of Directors and Shareholders
Western Liberty Bancorp
New York, New York
We have audited the accompanying balance sheet of Western
Liberty Bancorp (formally known as Global Consumer Acquisition
Corp.) as of December 31, 2009, and the related statements
of operations, changes in stockholders equity, and cash
flows for the year then ended. These financial statements are
the responsibility of the Companys Management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. Our audit included consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Western Liberty Bancorp as of December 31, 2009, and the
results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally
accepted in the United States of America.
/s/ Crowe Horwath LLP
New York, New York
February 8, 2010
F-66
To the Board of Directors and Stockholders of
Western Liberty Bancorp
Report of
Independent Registered Public Accounting Firm
We have audited the accompanying balance sheet of Western
Liberty Bancorp (formerly known as Global Consumer Acquisition
Corp.) as of December 31, 2008 and the related statements
of operations, changes in stockholders equity and cash
flows for the year ended December 31, 2008 and the period
from June 28, 2007 (inception) to December 31, 2007.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. Our audits included consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Western Liberty Bancorp as of December 31, 2008 and the
results of its operations and its cash flows for year ended
December 31, 2008 and the period from June 28, 2007
(inception) to December 31, 2007, in conformity with
accounting principles generally accepted in the United States of
America.
New York, New York
March 16, 2009
F-67
WESTERN
LIBERTY BANCORP
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
87,969,242
|
|
|
$
|
1,445,882
|
|
Investments held in trust
|
|
|
|
|
|
|
316,692,141
|
|
Prepaid expenses
|
|
|
551,198
|
|
|
|
257,180
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88,520,440
|
|
|
$
|
318,395,203
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Liabilities
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
628,493
|
|
|
$
|
682,057
|
|
Deferred underwriters commission
|
|
|
|
|
|
|
9,584,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
628,493
|
|
|
|
10,266,712
|
|
|
|
|
|
|
|
|
|
|
Common stock, subject to possible conversion, 0 and
9,584,654 shares stated at conversion value,
respectively
|
|
|
|
|
|
|
94,983,921
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 1,000,000 shares
authorized; None issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 100,000,000 shares
authorized; 10,959,169 and 39,936,064 issued and outstanding,
respectively
|
|
|
1,096
|
|
|
|
3,036
|
|
Additional paid-in capital
|
|
|
103,730,471
|
|
|
|
214,082,720
|
|
Accumulated deficit
|
|
|
(15,839,620
|
)
|
|
|
(941,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
87,891,947
|
|
|
|
213,144,570
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88,520,440
|
|
|
$
|
318,395,203
|
|
|
|
|
|
|
|
|
|
|
F-68
WESTERN
LIBERTY BANCORP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
June 28, 2007
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
(Inception) to
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
14,168,517
|
|
|
|
2,619,043
|
|
|
|
73,606
|
|
Stock based compensation
|
|
|
868,938
|
|
|
|
4,624,952
|
|
|
|
284,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(15,037,455
|
)
|
|
|
(7,243,995
|
)
|
|
|
(357,620
|
)
|
Interest income
|
|
|
139,021
|
|
|
|
5,691,449
|
|
|
|
968,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(14,898,434
|
)
|
|
$
|
(1,552,546
|
)
|
|
$
|
611,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(14,898,434
|
)
|
|
$
|
(1,552,546
|
)
|
|
$
|
611,360
|
|
Deferred interest on investments held in trust relating to
common shares subject to possible conversion
|
|
$
|
(95,847
|
)
|
|
$
|
(445,564
|
)
|
|
$
|
(321,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(14,994,281
|
)
|
|
$
|
(1,998,110
|
)
|
|
$
|
290,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares subject to possible
conversion outstanding
|
|
|
|
|
|
|
9,584,654
|
|
|
|
9,584,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share common shares subject to possible conversion
|
|
|
|
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
basic
|
|
|
33,169,481
|
|
|
|
39,936,064
|
|
|
|
14,451,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
diluted
|
|
|
33,169,481
|
|
|
|
39,936,064
|
|
|
|
54,900,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share
|
|
$
|
(0.45
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share
|
|
$
|
(0.45
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-69
WESTERN
LIBERTY BANCORP
PERIOD FROM JUNE 28, 2007 (INCEPTION)
TO DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Earnings
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
(Deficit)
|
|
|
Total
|
|
|
Common shares issued at $0.001 per share
|
|
|
8,625,000
|
|
|
$
|
863
|
|
|
$
|
7,762
|
|
|
$
|
|
|
|
$
|
8,625
|
|
Sale of 31,948,850 units, net of underwriters
commissions and offering expenses (includes
9,584,654 shares subject to possible conversion)
|
|
|
31,948,850
|
|
|
|
3,195
|
|
|
|
295,649,528
|
|
|
|
|
|
|
|
295,652,723
|
|
Proceeds subject to possible conversion of 9,584,654 shares
|
|
|
|
|
|
|
(958
|
)
|
|
|
(94,216,190
|
)
|
|
|
|
|
|
|
(94,217,148
|
)
|
Proceeds from issuance of private placement warrants
|
|
|
|
|
|
|
|
|
|
|
8,500,000
|
|
|
|
|
|
|
|
8,500,000
|
|
Redemption of common shares at $0.001 per share
|
|
|
(637,786
|
)
|
|
|
(64
|
)
|
|
|
(574
|
)
|
|
|
|
|
|
|
(638
|
)
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
284,014
|
|
|
|
|
|
|
|
284,014
|
|
Deferred interest on investments held in trust relating to
common shares subject to possible conversion
|
|
|
|
|
|
|
|
|
|
|
(321,208
|
)
|
|
|
|
|
|
|
(321,208
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
611,360
|
|
|
|
611,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
39,936,064
|
|
|
|
3,036
|
|
|
|
209,903,332
|
|
|
|
611,360
|
|
|
|
210,517,728
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
4,624,952
|
|
|
|
|
|
|
|
4,624,952
|
|
Deferred interest on investments held in trust relating to
common shares subject to possible conversion
|
|
|
|
|
|
|
|
|
|
|
(445,564
|
)
|
|
|
|
|
|
|
(445,564
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,552,546
|
)
|
|
|
(1,552,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
39,936,064
|
|
|
|
3,036
|
|
|
|
214,082,720
|
|
|
|
(941,186
|
)
|
|
|
213,144,570
|
|
Exchange of common shares at $0.0001 per share
|
|
|
(7,618,908
|
)
|
|
|
(762
|
)
|
|
|
(6,095
|
)
|
|
|
|
|
|
|
(6,857
|
)
|
Redemption of common shares at $9.915 per share, net of
$94,983,921 previously reserved for
|
|
|
(21,357,987
|
)
|
|
|
(1,178
|
)
|
|
|
(116,779,342
|
)
|
|
|
|
|
|
|
(116,780,520
|
)
|
Settlement of deferred underwriters commission in connection
with the offering
|
|
|
|
|
|
|
|
|
|
|
5,564,250
|
|
|
|
|
|
|
|
5,564,250
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
868,938
|
|
|
|
|
|
|
|
868,938
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,898,434
|
)
|
|
|
(14,898,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
10,959,169
|
|
|
$
|
1,096
|
|
|
$
|
103,730,471
|
|
|
$
|
(15,839,620
|
)
|
|
$
|
87,891,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-70
WESTERN
LIBERTY BANCORP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
June 28, 2007
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
(Inception) to
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(14,898,434
|
)
|
|
$
|
(1,552,546
|
)
|
|
$
|
611,360
|
|
Adjustments to reconcile net (loss) income to net cash used
in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
868,938
|
|
|
|
4,624,952
|
|
|
|
284,014
|
|
Interest earned on cash held in trust
|
|
|
(86,382
|
)
|
|
|
(5,664,250
|
)
|
|
|
(968,931
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(294,018
|
)
|
|
|
|
|
|
|
(257,180
|
)
|
Accrued expenses
|
|
|
(53,564
|
)
|
|
|
355,338
|
|
|
|
326,719
|
|
Accrued offering costs
|
|
|
|
|
|
|
(498,775
|
)
|
|
|
498,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(14,463,460
|
)
|
|
|
(2,735,281
|
)
|
|
|
494,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash withdrawn from trust account for working capital
|
|
|
316,778,521
|
|
|
|
4,100,000
|
|
|
|
|
|
Cash placed in trust account
|
|
|
|
|
|
|
|
|
|
|
(314,158,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
316,778,521
|
|
|
|
4,100,000
|
|
|
|
(314,158,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of shares of common stock to initial
stockholders, net
|
|
|
|
|
|
|
|
|
|
|
7,987
|
|
Proceeds from sale of warrants in private placement
|
|
|
|
|
|
|
|
|
|
|
8,500,000
|
|
Proceeds from initial public offering
|
|
|
|
|
|
|
|
|
|
|
319,488,500
|
|
Payment of redemption of common shares
|
|
|
(211,764,441
|
)
|
|
|
|
|
|
|
|
|
Payment of underwriters discount and offering costs
|
|
|
(4,027,260
|
)
|
|
|
|
|
|
|
(14,251,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(215,791,701
|
)
|
|
|
|
|
|
|
313,745,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and equivalents
|
|
|
86,523,360
|
|
|
|
1,364,719
|
|
|
|
81,163
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,445,882
|
|
|
|
81,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
87,969,242
|
|
|
$
|
1,445,882
|
|
|
$
|
81,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred interest on investments held in trust relating to
common shares subject to possible conversion
|
|
$
|
95,847
|
|
|
$
|
445,564
|
|
|
$
|
321,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred underwriter commissions included in proceeds from
initial public offering
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,584,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-71
WESTERN
LIBERTY BANCORP
PERIOD FROM JUNE 28, 2007 (INCEPTION)
TO DECEMBER 31, 2009
|
|
1.
|
ORGANIZATION
AND BUSINESS OPERATIONS
|
On October 7, 2009, Global Consumer Acquisition
Corp.s stockholders approved the proposal to change its
name to Western Liberty Bancorp (WLBC, us or we).
All references to Global Consumer Acquisition Corp. have been
changed to Western Liberty Bancorp.
General
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. On October 7,
2009, our stockholders approved our initial acquisition of
1st Commerce Bank, a Nevada-chartered non-member bank
(1st Commerce Bank) (such acquisition was
subsequently terminated by mutual agreement of the parties),
along with certain amendments to our Amended and Restated
Certificate of Incorporation removing certain provisions
specific to special purpose acquisition companies, changing our
name to Western Liberty Bancorp and authorizing the
distribution and termination of our trust account. Effective
October 7, 2009, the Company began its business operations
and exited its development stage.
The registration statement for WLBCs initial public
offering (the Offering) was declared effective on
November 20, 2007. WLBC consummated the Offering on
November 21, 2007 and received net proceeds of $305,658,960
therefrom and $8,500,000 from the private placement sale of
Founders Warrants (Note 3). Substantially all of the net
proceeds of the Offering were intended to be generally applied
toward consummating a business combination. WLBCs
management had complete discretion in identifying and selecting
the target business. There was no assurance that WLBC would be
able to successfully effect a business combination. Management
agreed that 98.3% or $314,158,960 ($316,776,730 at
September 30, 2009 including accrued interest) of the gross
proceeds from the Offering would be held in a trust account
(Trust Account) until the earlier of
(i) the completion of a business combination and
(ii) liquidation of WLBC. The placing of funds in the
Trust Account did not necessarily protect those funds from
third party claims against WLBC. Although WLBC sought to have
all vendors, prospective target businesses or other entities it
engages execute agreements with WLBC waiving any right in or to
any monies held in the Trust Account, there was no
guarantee that they would execute such agreements. The remaining
unrestricted interest earned of $45,792 not held in the
Trust Account was used to pay for business, legal and
accounting due diligence on prospective acquisitions, and
initial and continuing general and administrative expenses.
WLBC, after signing a definitive agreement for the acquisition
of a target business, was required to submit such transaction
for stockholder approval, and could proceed with the initial
business combination only if a majority of the shares of common
stock voted by the public stockholders (the Public
Stockholders) voted in favor of the business combination.
All of WLBCs founding stockholders agreed to vote all
their shares of common stock owned by them prior to the Offering
in accordance with the majority of shares of common stock held
by public stockholders who voted at a meeting with respect to a
business combination and any shares of common stock acquired by
them in or after the Offering in favor of a business
combination. After consummation of a business combination, these
voting safeguards would no longer be applicable.
With respect to a business combination that is approved and
consummated, WLBC would redeem the common stock of its Public
Stockholders who elected to have their shares of common stock
converted into cash. The per share conversion price equaled the
amount in the Trust Account, calculated as of two business
days prior to the consummation of the proposed business
combination, less any remaining tax liabilities relating to
interest income, divided by the number of shares of common stock
held by Public Stockholders at the consummation of the Offering.
Public Stockholders who would have converted their stock into
their share of the Trust Account would have retained their
warrants.
F-72
WESTERN
LIBERTY BANCORP
NOTES TO
FINANCIAL STATEMENTS (Continued)
1st
Commerce Merger Agreement
On July 13, 2009, WLBC entered into a Merger Agreement (the
1st Commerce Merger Agreement) with WL Interim
Bank, a Nevada corporation (1st Commerce Merger
Sub), 1st Commerce Bank, Capitol Development Bancorp
Limited V, a Michigan corporation, and Capitol Bancorp
Limited, a Michigan corporation, which provided for the merger
of 1st Commerce Merger Sub with and into 1st Commerce
Bank, with 1st Commerce Bank being the surviving entity and
becoming our wholly-owned subsidiary. However, on
November 12, 2009, the parties to the 1st Commerce
Merger Agreement entered into a letter agreement (the
Letter Agreement) confirming the mutual termination
of the 1st Commerce Merger Agreement in accordance with the
terms specified therein. Pursuant to the Letter Agreement, the
parties agreed to make certain reimbursements which amounted to
$25,000 for transaction-related expenses. No party shall have
any further obligation or liability of any nature whatsoever
under the 1st Commerce Merger Agreement, other than with
respect to the confidentiality and public announcement
provisions therein.
Warrant
and Private Shares Restructuring
On July 20, 2009, WLBC entered into a Letter Agreement (the
Warrant Restructuring Letter Agreement) with
warrantholders who have represented to WLBC that they
collectively hold at least a majority of its outstanding
warrants (the Consenting Warrantholders) confirming
the basis and terms upon which the parties agreed to amend the
Warrant Agreement, dated as of November 27, 2007 (the
Original Warrant Agreement), between WLBC and
Continental Stock Transfer & Trust Company, as
warrant agent (the Warrant Agent), previously filed
with the SEC on November 13, 2007. The terms of the Amended
and Restated Warrant Agreement include (i) a new strike
price of $12.50 per share of our common stock, par value
$0.0001, (ii) an expiration occurring on the earlier of
(x) seven years from the consummation of the Acquisition or
another business combination or (y) the date fixed for
redemption of the warrants set forth in the original warrant
agreement, (iii) a redemption price of $0.01 per warrant,
provided that (x) all of the warrants are redeemed,
(y) the last sales price of the common stock has been equal
to or greater than $21.00 per share on each of 20 trading days
within any
30-day
trading period ending on the third business day prior to the
date on which notice of redemption is given and (z) there
is an effective registration statement in place with respect to
the common stock underlying the warrants, (iv) mandatory
downward adjustment of the strike price for each warrant to
reflect any cash dividends paid with respect to the outstanding
common stock, until such date as our publicly traded common
stock trades at $18.00 or more per share on each of 20 trading
days within any 30-trading-day period; and (v) in the event
an effective registration statement is not in place on the date
the warrants are set to expire, the warrants will remain
outstanding until 90 days after an effective registration
statement is filed. If we have not filed an effective
registration statement within 90 days after the expiration
date, the warrants shall become exercisable for cash
consideration.
On July 20, 2009, WLBC also entered into a Private
Shares Restructuring Agreement with its former sponsor,
Hayground Cove Asset Management LLC (Hayground
Cove), pursuant to which Hayground Cove, on behalf of
itself and the funds and accounts it manages and Private Shares
that Hayground Cove or its affiliates control, agreed to cancel
at least 90.0% of the outstanding Private Shares in exchange for
one warrant per Private Share cancelled, each warrant identical
in terms and conditions to WLBCs restructured outstanding
warrants (except as set forth in the Amended and Restated
Warrant Agreement defined below). The cancelled Private Shares
include all such Private Shares currently held by Hayground Cove
and its affiliates.
In connection with the foregoing, on July 20, 2009, WLBC
and the Warrant Agent entered into an Amended and Restated
Warrant Agreement (the Amended and Restated Warrant
Agreement) to effect the amendments to the Original
Warrant Agreement as agreed between WLBC and the Consenting
Warrantholders pursuant to the Warrant Restructuring Letter
Agreement. In addition, WLBC has received approval for listing
of the amended warrants by the New York Stock Exchange and
certifications from the applicable registered holders of such
warrants certifying the number of warrants held by the
consenting warrantholders. WLBC also
F-73
WESTERN
LIBERTY BANCORP
NOTES TO
FINANCIAL STATEMENTS (Continued)
filed and distributed a Schedule 14C Information Statement
in connection with the warrant restructuring on
September 17, 2009. The warrant restructuring and Private
Shares restructuring became effective on October 7, 2009
after the receipt of stockholder approval of the acquisition of
1st Commerce Bank and the COI Amendments.
Warrant
Letter Agreement with Sponsor
On August 13, 2009, WLBC entered into a Letter Agreement
with Hayground Cove, whereby Hayground Cove agreed that it and
its affiliates may only transfer any WLBC warrants they hold to
an unaffiliated third party transferee if: (i) the transfer
is part of a widespread public distribution of such warrants;
(ii) the transferee controls more than 50.0% of WLBCs
voting securities without any transfer from Hayground Cove or
any of its affiliates or (iii) the warrants transferred to
a transferee (or group of associated transferees) would not
constitute more than 2.0% of any class of WLBCs voting
securities.
Stockholder
Approval to Become Western Liberty Bancorp
On October 7, 2009, WLBCs stockholders approved
certain proposals to amend its Amended and Restated Certificate
of Incorporation (the COI Amendments) and its
existing Investment Management Trust Agreement and the
acquisition of 1st Commerce Bank at a special meeting of
its stockholders held on October 7, 2009 (the Special
Meeting).
Amendment
to Trust Agreement
At the Special Meeting, WLBCs stockholders authorized WLBC
and Continental Stock Transfer & Trust Company,
as trustee (the Trustee) to distribute and terminate
WLBCs trust account pursuant to an Amendment No. 1 to
the Investment Management Trust Agreement, dated
October 7, 2009 (the Trust Agreement
Amendment). The Trust Agreement Amendment amends the
Trust Agreement, which provided that the Trustee could only
liquidate the trust account upon the consummation of WLBCs
initial business combination or on November 27, 2009.
COI
Amendments
The COI Amendments were also approved at the Special Meeting.
The COI Amendments amended WLBCs Amended and Restated
Certificate of Incorporation as follows:
|
|
|
|
|
amended the definition of Business Combination to
remove the requirement that WLBCs initial acquisition of
one or more assets or operating businesses needed to have a fair
market value of at least 80.0% of WLBCs net assets held in
trust (net of taxes and amounts disbursed for working capital
purposes and excluding the amount held in the trust account
representing a portion of the underwriters discount) at
the time of acquisition;
|
|
|
|
removed the prohibition on the consummation of a business
combination if holders of an aggregate of 30.0% or more in
interest of the shares of WLBCs common stock issued in its
initial public offering (Public Shares) exercised
their conversion rights; and
|
|
|
|
removed the requirement that only holders of Public Shares who
voted against WLBCs initial business combination could
covert their Public Shares into cash.
|
|
|
|
changed WLBCs name from Global Consumer Acquisition
Corp. to Western Liberty Bancorp;
|
|
|
|
changed WLBCs corporate existence to perpetual, so WLBC
will not be required to liquidate on November 27, 2009;
|
F-74
WESTERN
LIBERTY BANCORP
NOTES TO
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
deleted the provision in the Certificate of Incorporation that
provided that in the event a business combination was not
consummated prior to November 27, 2009, WLBCs
corporate purpose would automatically have been limited to
effecting and implementing WLBCs dissolution and
liquidation and that WLBCs powers would be limited to
those set forth in Section 278 of the Delaware General
Corporation Law and as otherwise may be necessary to implement
the limited purpose; and
|
|
|
|
deleted the following restrictions only applicable to special
purpose acquisition companies:
|
|
|
|
|
|
the requirement that a business combination be submitted to
WLBCs stockholders for approval and authorized by the vote
of a majority of the Public Shares cast at a meeting of
stockholders to approve such business combination;
|
|
|
|
the procedures for exercising conversion rights;
|
|
|
|
the provision for when funds may be disbursed from WLBCs
trust account established in connection with its initial public
offering;
|
|
|
|
the provision that no other business combination could be
consummated until WLBC initial business combination is
consummated; and
|
|
|
|
the provision that holders of Public Shares would be entitled to
receive distributions from WLBCs trust account only in the
event of WLBCs liquidation or by demanding conversion.
|
Amendment
to Amended and Restated Warrant Agreement
On October 7, 2009, WLBC and the Warrant Agent entered into
an Amendment No. 1 (the Warrant Agreement
Amendment) to the Amended and Restated Warrant Agreement.
The Warrant Agreement Amendment (i) amends the definition
of Business Combination as set forth in the Warrant
Agreement to allow for the exercise of WLBCs warrants
immediately upon consummation of an initial business
combination, subject to certain requirements as set forth in the
Amended and Restated Warrant Agreement, and (ii) makes
certain technical amendments to the Insider Letters in
conformance with the COI Amendments and the Trust Agreement
Amendment.
Service1st
Merger Agreement
On November 6, 2009, WLBC, entered into a Merger Agreement
(the Merger Agreement) with WL-S1 Interim Bank, a
Nevada corporation (Merger Sub),
Service1st Bank
of Nevada, a Nevada-chartered non-member bank
(Service1st)
and Curtis W. Anderson, as representative of the former
stockholders of
Service1st,
which provides for the merger (the Merger) of Merger
Sub with and into
Service1st,
with
Service1st being
the surviving entity and becoming our wholly-owned subsidiary.
In connection with the Merger, WLBC intends to continue the
process to become a bank holding company, which will enable us
to participate in financial lines of business. WLBC banking
operations will be conducted through
Service1st,
which will be the surviving entity pursuant to the Merger
Agreement and will retain the
Service1st name.
Founded in 2007,
Service1st holds
a Nevada bank charter and will continue to operate following the
consummation of the Merger. As a result of the Merger, all of
the outstanding shares of
Service1st common
stock will be cancelled and automatically converted into the
right of the holders of
Service1st common
stock to receive shares of our common stock.
The Merger is expected to be consummated upon the fulfilment of
certain conditions, including (a) obtaining all necessary
approvals from governmental agencies and other third parties
that are required for the consummation of the transactions
contemplated by the Merger Agreement, (b) the preparation
and filing of a registration statement (which shall contain a
proxy statement/prospectus) to register, under the Securities
Act of 1933, as amended, the common shares of WLBC that will
constitute the Merger consideration, (c) the
F-75
WESTERN
LIBERTY BANCORP
NOTES TO
FINANCIAL STATEMENTS (Continued)
receipt of the affirmative vote of
Service1sts
stockholders the receipt of the affirmative vote of WLBCs
stockholders to adopt the Merger Agreement and (d) other
customary closing conditions. There is no guarantee when all of
the conditions precedent to the consummation of the Merger will
be satisfied.
As a result of the Merger, all of the outstanding shares of
Service1st common
stock will be cancelled and automatically converted into the
right of the holders of
Service1st common
stock to receive shares of WLBC common stock. The base merger
consideration shall be the greater of (a) $35 million
and (b) the agreed upon tangible book value of
Service1st on
the last day of the calendar month immediately preceding the
month in which the all regulatory approvals for the consummation
of the Merger have been received (the Valuation
Date), less the sum of (x) a portion of
Service1sts
transaction expenses (y) $1 million and (z) the
amount, if any, by which $29,166,667 exceeds the agreed upon
tangible book value of
Service1st as
of the Valuation Date (the Base Merger
Consideration). Furthermore, on or prior to the second
anniversary of the consummation of the Merger (the Closing
Date), if the closing price of the common stock of WLBC
exceeds $12.75 per share for 30 consecutive trading days, then
an additional earn out provision of 20.0% of the
agreed upon tangible book value of
Service1st at
the close of business on the Valuation Date would be added to
the purchase price; provided, however, that if the agreed upon
tangible book value of
Service1st as
of the Valuation Date is less than $35 million, then the
earn out provision shall be equal to 120% of the
agreed upon tangible book value of WLBC as of the Valuation Date
minus $35 million (if the result is positive) (the
Contingent Merger Consideration). The number of
shares to be issued to the stockholders of
Service1st as
of the Closing Date will be determined by dividing (a) the
Base Merger Consideration by (b) the product of
(x) the number of outstanding shares of
Service1st common
stock as of the Closing Date and (y) the average closing
price of WLBCs common stock for the five trading days
immediately prior to and after the date on which all regulatory
approvals for the Merger have been received (subject to certain
adjustments as set forth in the Merger Agreement) (the
Exchange Ratio). The number of additional shares to
be issued to the former stockholders of
Service1st as
of the date any earn out consideration is due will be determined
by dividing (a) the Contingent Merger Consideration by
(b) the product of (x) the number of outstanding
shares of
Service1st common
stock as of the Closing Date and (y) the average of the
closing price of WLBCs common stock for the first 30
consecutive trading days on which the closing price of
WLBCs common stock shall have been more than $12.75.
Additionally, all outstanding
Service1st options
and warrants shall be converted into options and warrants of
similar tenor to purchase additional shares of WLBC common stock
in amounts equal to the product of (a) the number of shares
of
Service1st common
stock that would be issuable upon exercise of such option or
warrant immediately prior to the Closing Date and (b) the
Exchange Ratio. The per share exercise price for the warrants
and options will be equal to the quotient determined by dividing
(x) the per share exercise price for such option or warrant
immediately prior to the Closing Date by (y) the Exchange
Ratio. The shares of those
Service1st stockholders
who do not exercise their dissenters rights under Nevada
law will be cancelled and extinguished and exchanged for each
stockholders pro rata portion of the overall merger
consideration. In addition, WLBC has agreed to make a capital
contribution of $15 million to
Service1st on
the Closing Date.
Employment
Agreement with William E. Martin
On February 8, 2010, WLBC entered into an amended and
restated employment agreement with William E. Martin (the
Martin Employment Agreement), who will become the
Chief Executive Officer of WLBC and WLBCs Nevada banking
operations. In addition, WLBC and its board of directors shall
take such action as is necessary to appoint or elect
Mr. Martin to WLBCs board of directors upon the
consummation of the Merger. Mr. Martin is currently the
Vice Chairman and Chief Executive Officer of
Service1st.
Pursuant to the terms of the Martin Employment Agreement,
Mr. Martins employment shall commence as of the
Closing Date, and continue for an initial term of three years
with one or more additional automatic one year renewal periods
thereafter. Mr. Martin will be entitled to a base salary of
not less than $325,000. In
F-76
WESTERN
LIBERTY BANCORP
NOTES TO
FINANCIAL STATEMENTS (Continued)
addition, Mr. Martin will receive a one-time grant of
restricted stock equal to $1 million divided by the closing
price of WLBCs common stock on the Closing Date. All
restricted stock will vest 20% on each of the first, second,
third, fourth and fifth anniversaries of the Closing Date,
subject to Mr. Martins continuous employment through
each vesting date. Such restricted stock shall be subject to
restrictions on transfer for a period of one year following each
vesting date. Mr. Martin is also eligible to receive
additional equity and other long-term incentive awards under any
equity-based incentive compensation plans adopted by WLBC for
which WLBCs 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 WLBCs board of directors.
Mr. Martin shall be entitled to employee benefits in
accordance with WLBCs employee benefits programs. In
addition, Mr. Martin shall be entitled to receive a
one-time payment equal to his prior years salary in the
event there is a change in control at WLBCs Nevada banking
operations and Mr. Martin remains the Chief Executive
Officer of such through the closing of the change in control.
The Martin Employment Agreement contains customary
representations, covenants and termination provisions.
Employment
Agreement with Richard Deglman
In connection with the Merger, on November 6, 2009, WLBC
entered into an employment agreement with Richard Deglman (the
Deglman Employment Agreement and, together with the
Martin Employment Agreement and the Gaynor Employment Agreement
(the Employment Agreements), who will become the
Chief Credit Officer of WLBCs Nevada banking operations
upon consummation of the Merger. Mr. Deglman is currently
the Chief Credit Officer of
Service1st.
Pursuant to the terms of the Deglman Employment Agreement,
Mr. Deglmans employment shall commence as of the
Closing Date, and continue for an initial term of three years
with one or more additional automatic one year renewal periods
thereafter. Mr. Deglman will be entitled to a base salary
of not less than $250,000. Mr. Deglman is eligible to
receive additional equity and other long-term incentive awards
under any equity-based incentive compensation plans adopted by
WLBC for which WLBCs 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 WLBCs board
of directors. Mr. Deglman shall be entitled to employee
benefits in accordance with WLBCs employee benefits
programs. In addition, Mr. Deglman shall be entitled to
receive a one-time payment equal to his prior years salary
in the event there is a change in control at WLBCs Nevada
banking operations and Mr. Deglman remains the Chief Credit
Officer of such through the closing of the change in control.
The Deglman Employment Agreement contains customary
representations, covenants and termination provisions.
Employment
Agreement with George Rosenbaum
On December 18, 2009, Western Liberty Bancorp
(WLB) entered into a second amended and restated
employment agreement with George A. Rosenbaum, Jr. (the
Second A&R Employment Agreement), pursuant to
which Mr. Rosenbaum became WLBCs Chief Financial
Officer. The Second A&R Employment Agreement also provides
that Mr. Rosenbaum will become the Executive Vice President
and Chief Financial Officer of WLBCs Nevada commercial
banking operations upon the consummation of the Merger.
Pursuant to the terms of the Second A&R Employment
Agreement, Mr. Rosenbaums employment shall commence
as of January 1, 2010 (the Effective Date) and
continue for an initial term of three years with one or more
additional automatic one year renewal periods.
Mr. Rosenbaum will be entitled to a base salary of not less
than $200,000. In addition, Mr. Rosenbaum will receive a
one time grant of restricted stock equal to $250,000 divided by
the closing price of WLBs common stock on the Effective
Date. The restricted stock will vest 20% on each of the first,
second, third, fourth and fifth anniversaries of the Effective
Date, subject to Mr. Rosenbaums continuous employment
through each vesting date. Such restricted stock shall be
subject to restrictions on transfer for a period of one year
following each vesting date. Within 10 days following the
Effective Date, Mr. Rosenbaum
F-77
WESTERN
LIBERTY BANCORP
NOTES TO
FINANCIAL STATEMENTS (Continued)
was entitled to receive 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. As of
January 1, 2010, Mr. Rosenbaum has received $67,000 as
a portion 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 board of directors of WLBC or its
Compensation Committee. Mr. Rosenbaum shall be entitled to
employee benefits in accordance with any employee benefits
programs and policies adopted by WLBC. In addition, the Second
A&R Employment Agreement contains customary
representations, covenants and termination provisions.
Voting
Agreement
On January 28 2010, certain stockholders of
Service1st (the
Stockholders) entered into an Amended and Restated
Voting Agreement with WLBC (the Voting Agreement),
whereby the Stockholders agreed to vote all of the shares of
Service1st common
stock currently beneficially owned by them or acquired by them
after such date in favor of approval of the approval of the
Merger. The Voting Agreement contains restrictions limiting the
ability of the Stockholders to sell or otherwise transfer the
shares of
Service1st beneficially
owned by them. The Voting Agreement terminates upon the earliest
to occur of (i) the date of the effectiveness of the Merger
and (ii) the date of the termination of the Merger
Agreement in accordance with its terms.
|
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
|
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of
expenses during the reporting period. Actual results could
differ from those estimates.
Cash
and Cash Equivalents
WLBC considers all highly liquid investments purchased with an
original maturity of three months or less to be cash
equivalents. Cash equivalents are carried at cost, which
approximates fair value.
At December 31, 2009, financial instruments that
potentially expose WLBC to credit risk consist of cash and cash
equivalents. WLBC maintains its cash balances in various
financial institutions. The Federal Deposit Insurance
Corporation insures balances in bank accounts up to $250,000 and
the Securities Investor Protection Corporation insures balances
up to $500,000 in brokerage accounts. WLBC has not experienced
losses on these accounts and management believes WLBC is not
exposed to significant risks on such accounts.
Stock
based compensation
WLBC records compensation expense associated with stock based
compensation measured at the grant date based on the fair value
of the award and is recognized as expense over the service
period. The terms and vesting schedules for stock-based awards
vary by type of grant. Generally, the awards vest based on
time-based or performance-based conditions.
Income
Taxes
We comply with SFAS No. 109, Accounting for
Income Taxes, which requires an asset and liability
approach to financial accounting and reporting for income taxes.
Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of
assets and liabilities that will result in future taxable or
deductible amounts, based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount
expected to be realized.
F-78
WESTERN
LIBERTY BANCORP
NOTES TO
FINANCIAL STATEMENTS (Continued)
A tax position is recognized as a benefit only if it is
more likely than not that the tax position would be
sustained in a tax examination, with a tax examination being
presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the more
likely thank not test, no tax benefit is recorded.
Earnings
per Share
Basic earnings per common share (Basic EPS) is
computed by dividing the net income available to common
stockholders by the weighted-average number of shares
outstanding. Diluted earnings per common share (Diluted
EPS) are computed by dividing the net income available to
common stockholders by the weighted average number of common
shares and dilutive common share equivalents then outstanding.
The 7,987,214 shares of common stock issued to WLBCs
initial stockholders were issued for $0.001 per share, which is
considerably less than the Offering per share price. Such shares
have been assumed to be retroactively outstanding since
July 27, 2007, inception. As of July 20, 2009,
7,618,908 of those shares were restructured into warrants and
368,305 of those shares remain outstanding.
For the years ended December 31, 2009 and 2008, potentially
dilutive securities are excluded from the computation of fully
diluted earnings per share as their effects are anti-dilutive.
The following table sets forth the computation of basic and
diluted per share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
June 28, 2007
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
(Inception) to
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(14,994,281
|
)
|
|
$
|
(1,998,110
|
)
|
|
$
|
290,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
33,169,481
|
|
|
|
39,936,064
|
|
|
|
14,451,397
|
|
Dilutive effect of warrants and Restricted Stock Units
|
|
|
33,169,481
|
|
|
|
39,936,064
|
|
|
|
40,448,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, assuming dilution
|
|
|
33,169,481
|
|
|
|
39,936,064
|
|
|
|
54,900,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.45
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ending December 31, 2009 and 2008, 48,067,758
and 31,948,850 warrants have been excluded from the computation
of dilutive earnings per share as their exercise prices were
greater than the average market price per common share and their
effect is antidilutive.
Fair
Value of Financial Instruments
The Company measures fair value in accordance with generally
accepted accounting principles. Fair value measurements are
applied under other accounting pronouncements that require or
permit fair value measurements. The provisions are to be applied
prospectively as of the beginning of the fiscal year in which it
is initially adopted, with any transition adjustment recognized
as a cumulative-effect adjustment to the opening
F-79
WESTERN
LIBERTY BANCORP
NOTES TO
FINANCIAL STATEMENTS (Continued)
balance of retained earnings. The adoption of this standard had
no significant impact on the Companys financial statements.
Recently
Issued Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board
(FASB) issued the FASB Accounting Standards
Codification (the ASC). The ASC has become the
single source of non-governmental accounting principles
generally accepted in the United States (GAAP)
recognized by the FASB in the preparation of financial
statements. The ASC does not supersede the rules or regulations
of the Securities and Exchange Commission (SEC),
therefore, the rules and interpretive releases of the SEC
continue to be additional sources of GAAP for the Company. The
Company adopted the ASC as of June 30, 2009.
Effective June 30, 2009, the Company adopted a new
accounting standard issued by the FASB related to the disclosure
requirements of the fair value of financial instruments. This
standard expands the disclosure requirements of fair value
(including the methods and significant assumptions used to
estimate fair value) of certain financial instruments to interim
period financial statements that were previously only required
to be disclosed in financial statements for annual periods. In
accordance with this standard, the disclosure requirements have
been applied on a prospective basis and did not have a material
impact on the Companys financial statements.
Effective June 30, 2009, the Company adopted a newly issued
accounting standard related to accounting for and disclosure of
subsequent events in its financial statements. This standard
provides the authoritative guidance for subsequent events that
was previously addressed only in United States auditing
standards. This standard establishes general accounting for and
disclosure of events that occur after the balance sheet date but
before financial statements are issued or are available to be
issued and requires the Company to disclose the date through
which it has evaluated subsequent events and whether that was
the date the financial statements were issued or available to be
issued. This standard does not apply to subsequent events or
transactions that are within the scope of other applicable GAAP
that provide different guidance on the accounting treatment for
subsequent events or transactions. The adoption of this standard
did not have a material impact on the Companys financial
statements.
In August 2009, the FASB issued an amendment to the accounting
standards related to the measurement of liabilities that are
recognized or disclosed at fair value on a recurring basis. This
standard clarifies how a company should measure the fair value
of liabilities and that restrictions preventing the transfer of
a liability should not be considered as a factor in the
measurement of liabilities within the scope of this standard.
This standard is effective for the Company on October 1,
2009. The Company does not expect the impact of its adoption to
be material to its financial statements.
Management does not believe that any other recently issued, but
not yet effective, accounting pronouncements, if currently
adopted, would have a material effect on WLBCs financial
statements.
|
|
3.
|
INITIAL
PUBLIC OFFERING
|
On November 27, 2007, WLBC sold 31,948,850 Units, including
1,948,850 Units from the partial exercise of the
underwriters over-allotment option, at an Offering price
of $10.00 per Unit. Each Unit consists of one share of
WLBCs common stock, $.0001 par value, and one
Redeemable Common Stock Purchase Warrant (Warrant).
Each Warrant entitles the holder to purchase from WLBC one share
of common stock at an exercise price of $7.50 per share
commencing the later of the completion of a Business Combination
or November 27, 2009 and expiring November 27, 2012.
WLBC may redeem the Warrants at a price of $0.01 per Warrant
upon 30 days notice after the Warrants become exercisable,
but only in the event that the last sale price of the common
stock is at least $14.25 per share for any 20 trading days
within a 30 trading day period
F-80
WESTERN
LIBERTY BANCORP
NOTES TO
FINANCIAL STATEMENTS (Continued)
ending three business days prior to the date on which the notice
of redemption is given. The terms of the warrants were amended
on July 20, 2009, as described in Note 1.
WLBC agreed to pay the underwriters in the Offering an
underwriting commission of 7% of the gross proceeds of the
Offering. However, the underwriters agreed that approximately 3%
of the underwriting discount will not be payable unless and
until WLBC completes a Business Combination and have waived
their right to receive such payments upon WLBCs
liquidation if it is unable to complete a Business Combination.
As of December 31, 2009 WLBC paid $4,027,260 of the
deferred underwriters discount and has entered into mutual
releases with all of the underwriters. Pursuant to the
agreements, all obligations of WLBC to pay any fees
and/or
expenses to the underwriters were deemed fully satisfied.
On November 27, 2007, certain of the initial stockholders
purchased an aggregate of 8,500,000 warrants (the Private
Warrants) from WLBC in a private placement pursuant to the
exemption from registration contained in Section 4(2) of
the Securities of Act of 1933, as amended. The warrants were
sold for a total purchase price of $8,500,000, or $1.00 per
warrant. The private placement took place simultaneously with
the consummation of the Offering. Each warrant is exercisable to
one share of common stock. The exercise price on the warrants is
$7.50. The Private Warrants are also subject to a
lock-up
agreement with WLBCs underwriters and will not be
transferable before the consummation of a Business Combination.
The holders of the Private Warrants are also entitled, at any
time and from time to time, to exercise the Private Warrants on
a cashless basis at the discretion of the holder. The proceeds
from the sale of the Private Warrants have been deposited into
the trust account, subject to a trust agreement. The terms of
the warrants were amended on July 20, 2009, as described in
Note 1.
Based upon observable market prices, WLBC determined that the
grant date fair value of the Private Warrants was $1.10 per
warrant, $9,350,000 in the aggregate. The valuation was based on
all comparable initial public offerings by blank check companies
in 2007. WLBC recorded compensation expense of $850,000 over a
24 month service period in connection with the Private
Warrants, which is the amount equal to the grant date fair value
of the warrants minus the purchase price. WLBC estimated the
service period as the estimated time to complete a Business
Combination.
The holders of a majority of all of the Private Shares
(Note 6) and shares of common stock issuable upon
exercise of the Private Warrants will be entitled to make up to
two demands that WLBC register these securities pursuant to an
agreement signed in connection with the insider private
placement. Such holders may elect to exercise these registration
rights at any time after the date of the Offering. In addition,
these stockholders have certain piggy-back
registration rights with respect to registration statements WLBC
might file subsequent to the date of the Offering. WLBC will
bear the expenses incurred in connection with the filing of any
such registration statements.
|
|
4.
|
RELATED
PARTY TRANSACTIONS
|
Certain of WLBCs officers, directors and its Initial
Stockholders are also officers, directors, employees and
affiliated entities of Hayground Cove Asset Management LLC,
WLBCs sponsor.
Services
Agreement
WLBC agreed to pay Hayground Cove Asset Management LLC, $10,000
per month, plus
out-of-pocket
expenses not to exceed $10,000 per month, for office space and
services related to the administration of WLBCs
day-to-day
activities. This agreement was effective upon the consummation
of the Offering and terminated on August 31, 2009. WLBC
incurred $13,000 in connection with this agreement for the
period from June 28, 2007 (inception) to December 31,
2007, $120,000 for the year ended December 31, 2008 and
$80,000 for the year ended December 31, 2009.
F-81
WESTERN
LIBERTY BANCORP
NOTES TO
FINANCIAL STATEMENTS (Continued)
Payment
for Due Diligence Services
In October 2009, WLBC made a one-time payment of
$2,600,000 to Hayground Cove Asset Management LLC for due
diligence and other services related to various acquisition
opportunities and other activities since WLBCs inception.
Proceeds from the payment were disbursed by Hayground Cove Asset
Management LLC to certain of its employees, affiliates and
consultants (some of whom also serve as WLBCs officers
and/or
directors) that provided support to WLBC in connection with its
efforts in finding and pursuing potential transactions.
At December 31, 2009, WLBC had no federal income tax
expense or benefit but did have a federal tax net operating loss
carry-forward of approximately $13,335,848. The federal net
operating loss carry-forwards will begin to expire in 2027,
unless previously utilized. Pursuant to Internal Revenue Code
Sections 382 and 383, use of WLBCs net operating loss
carry-forwards may be limited if a cumulative change in
ownership of more than 50% occurs within a three-year period. No
assessment has been made as to whether such a change in
ownership has occurred.
Significant components of WLBCs net deferred tax assets at
December 31, 2009, 2008 and 2007 are shown below. A
valuation allowance of $5,215,000, $2,530,300 and $216,300 has
been established to offset the net deferred tax assets at
December 31, 2009, 2008 and 2007, respectively, as
realization of such assets is uncertain.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Noncurrent net operating loss carryforwards
|
|
$
|
4,550,000
|
|
|
$
|
98,100
|
|
|
$
|
14,700
|
|
Start-up
costs
|
|
|
175,000
|
|
|
|
770,200
|
|
|
|
105,000
|
|
Other noncurrent
|
|
|
490,000
|
|
|
|
1,662,000
|
|
|
|
96,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
5,215,000
|
|
|
|
2,530,300
|
|
|
|
216,300
|
|
Deferred tax asset valuation allowance
|
|
|
(5,215,000
|
)
|
|
|
(2,530,300
|
)
|
|
|
(216,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, 2008 and 2007 no provision for
state and local income has been made since WLBC was formed as a
vehicle to effect a Business Combination and as a result does
not conduct operations and is not engaged in a trade or business
in any state.
The Companys policy is to include interest and penalties
related to unrecognized tax benefits within the Companys
provision for (benefit from) income taxes. The Company
recognized no amounts for interest and penalties related to
unrecognized tax benefits in 2009 and 2008 and as of
December 31, 2009 and 2008, had no amounts accrued for
interest and penalties.
The Company is subject to U.S. federal income tax and tax
years since June 27, 2007 (inception) remain open and
subject to examination by the appropriate governmental agencies
in the U.S.
Preferred
Stock
WLBC is authorized to issue 1,000,000 shares of blank check
preferred stock with such designations, voting and other rights
and preferences as may be determined from time to time by the
Board of Directors.
F-82
WESTERN
LIBERTY BANCORP
NOTES TO
FINANCIAL STATEMENTS (Continued)
Common
Stock
WLBC issued 8,625,000 shares of common stock to the Initial
Stockholders for cash proceeds of $8,625 (the Private
Shares). In the event the 4,500,000 over-allotment Units
(Note 2) were not issued, the Initial Stockholders
would be required to redeem the Private Shares in an amount
sufficient to cause the amount of issued and outstanding Private
Shares to equal 20% of WLBCs aggregate amount of issued
and outstanding coming stock after giving effect to the issuance
of common stock in connection with the Offering. The
underwriters exercised 1,948,850 Units of the 4,500,000
over-allotment Units. The underwriters had 30 days from
November 27, 2007 to exercise their over-allotment option.
Therefore, as of December 27, 2007, 637,787 shares of
the Initial Stockholders Founder shares were redeemed.
On October 7, 2009, 21,357,987 shares of common stock
were redeemed and 7,618,908 shares of common stock were
restructured into warrants as a result of the shareholder
meeting (Note 1).
At December 31, 2008 and 2007, there were
40,448,339 shares of common stock reserved for issuance
upon exercise of WLBCs outstanding options and warrants.
At December 31, 2009, there were 48,267,758 shares of
common stock reserved for issuance upon exercise of WLBCs
outstanding options and warrants.
Restricted
Stock
Pursuant to Letter Agreements dated December 23, 2008
between WLBC and each of its independent directors, Richard A.C.
Coles, Michael B. Frankel and Mark Schulhof, and a letter
agreement dated as of April 28, 2009 between WLBC and
Daniel B. Silvers, WLBCs President, WLBC granted each
independent director and Mr. Silvers 50,000 restricted
stock units with respect to shares of WLBCs common stock,
subject to certain terms and conditions. The restricted stock
units shall fully vest on the closing date of a business
combination. Settlement of vested restricted stock units will
occur on the date that is 180 calendar days after the vesting
date. Restricted stock units will be settled by delivery of one
share of WLBCs common stock for each restricted stock unit
settled. WLBC will incur compensation expense equal to the grant
date fair value of the restricted stock units. Based upon the
market price of WLBC common shares at grant date, WLBC
determined that the grant date fair value of the restricted
stock units was $9.25 per unit, $1,850,000 in the aggregate.
WLBC will record compensation expense of $1,850,000 over an
estimated vesting period of 266 days. WLBC estimated the
vesting period as the estimated number of days from the grant
date to the estimated closing date of the business combination.
WLBC recorded $587,688 in compensation expense due to the
restricted stock units for the year ended December 31,
2009. $1,262,312 remains unamortized.
WLBC will also provide a one-time grant of restricted stock
equal to $250,000 divided by the closing price of WLBCs
common stock on the closing date of the Merger to George A.
Rosenbaum Jr., WLBCs Chief Financial Officer. In addition,
WLBC shall also issue restricted stock with respect to shares of
our common stock to William E. Martin, who will become a member
of our board of directors and serve as our Chief Executive
Officer and as Chief Executive Officer of
Service1st.
Mr. Martin will be issued restricted shares of WLBC common
stock in an amount equal to $1.0 million divided by the
closing price of our common stock on the closing date of the
Merger in consideration for their future services, subject to
the closing of the Acquisition and the approval of the
restricted stock proposal by our stockholders.
|
|
7.
|
FAIR
VALUE MEASUREMENTS
|
The Company defines fair value as the amount at which an asset
(or liability) could be bought (or incurred) or sold (or
settled) in a current transaction between willing parties that
is, other than a forced or liquidation sale. The fair value
estimates presented in the table below are based on information
available to the Company as of December 31, 2009 and 2008.
The accounting standard regarding fair value measurements
discusses valuation techniques, such as the market approach
(comparable market prices), the income approach (present value
of future income or cash
F-83
WESTERN
LIBERTY BANCORP
NOTES TO
FINANCIAL STATEMENTS (Continued)
flow), and the cost approach (cost to replace the service
capacity of an asset or replacement cost). The standard utilizes
a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels.
The following is a brief description of those three levels:
|
|
|
|
|
Level 1: Observable inputs such as quoted prices
(unadjusted) in active markets for identical assets or
liabilities.
|
|
|
|
Level 2: Inputs other than quoted prices that are
observable for the asset or liability, either directly or
indirectly. These include quoted prices for similar assets or
liabilities in active markets and quoted prices for identical or
similar assets or liabilities in markets that are not active.
|
|
|
|
Level 3: Unobservable inputs that reflect the
reporting entitys own assumptions.
|
The carrying value and fair value of the Companys
significant financial assets and liabilities and the necessary
disclosures for the periods are presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets at Fair Value as of December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
Fair Value
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in trust
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Cash and cash equivalents
|
|
|
87,969,242
|
|
|
|
87,969,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
87,969,242
|
|
|
$
|
87,969,242
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets at Fair Value as of December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
Fair Value
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in trust
|
|
$
|
316,692,141
|
|
|
$
|
|
|
|
$
|
316,692,141
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
316,692,141
|
|
|
$
|
|
|
|
$
|
316,692,141
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in Registered Money Market Funds
As of December 31, 2009, approximately $87,000,064 of the
Companys cash and cash equivalents were invested in the
Federated U.S. Treasury Cash Reserve Fund (UTIXX) and the
Goldman Sachs Financial Square Funds Treasury
Instruments Fund (FTIXX). Both funds, under normal
circumstances, invests their assets exclusively in obligations
of the U.S. Treasury, including Treasury bills, bonds and
notes and other obligations issued or guaranteed by the
U.S. Treasury.
The fair values of the Companys investments money market
funds are determined through market, observable and corroborated
sources.
The carrying amounts reflected in the balance sheets for other
current assets and accrued expenses approximate fair value due
to their short-term maturities.
Investments
Previously Held in Trust
Prior to the liquidation of the Trust Account on
October 7, 2009, the Companys investments held in
trust were invested in the Federated U.S. Treasury Cash
Reserve Fund. For the period January 1, 2009 to
January 15, 2009, the Companys investments held in
trust were invested in the JP Morgan U.S. Treasury Plus
Money
F-84
WESTERN
LIBERTY BANCORP
NOTES TO
FINANCIAL STATEMENTS (Continued)
Market Fund. The Company recognized interest income of $86,382
on these investments for the period from January 1, 2009 to
October 7, 2009.
|
|
8.
|
COMMITMENTS
AND CONTINGENCIES
|
There is no material litigation currently pending against WLBC
or any members of its management team in their capacity as such.
The Initial Stockholders have waived their right to receive
distributions with respect to their Private Shares upon
WLBCs liquidation.
Pursuant to an employment agreement effective August 1,
2007 between WLBC and its former CEO, WLBCs former CEO
obtained an option to purchase 475,000 shares of Private
Shares at a purchase price of $0.001 per share from WLBCs
sponsor and its affiliates, which option will vest on the date
(the Trigger Date) that is one year after the
closing of a qualifying Business Combination, but the vesting
will occur only if the appreciation of the per share price of
WLBCs common stock is either (i) greater than 1x the
Russell 2000 hurdle rate on the Trigger Date or
(ii) exceeds the Russell 2000 hurdle rate for 20
consecutive trading days after the Trigger Date. The Russell
hurdle rate means the Russell 2000 Index performance over the
period between the completion of the Offering and the Trigger
Date. The amount of the option was increased by the amount of
shares equal to 10,000 shares for each $10,000,000 of gross
proceeds from the exercise of the underwriters over-allotment
option. As a result the option was increased to
495,000 shares due to the exercise of 1,948,850 Units of
the underwriters over-allotment option.
WLBC determined that the fair value of the options on the date
of grant, November 27, 2007 was $4,573,597. The fair value
of the option is based on a Black-Scholes model using an
expected life of three years, stock price of $9.25 per share,
volatility of 33.7% and a risk-free interest rate of 4.98%.
However, because shares of WLBCs common stock did not have
a trading history, the volatility assumption is based on
information that was available to WLBC. WLBC believes that the
volatility estimate is a reasonable benchmark to use in
estimating the expected volatility of shares of WLBCs
common stock. In addition, WLBC believes a stock price of $9.25
per share is a fair assumption based on WLBCs observation
of market prices for comparable shares of common stock. This
assumption is based on all comparable initial public offerings
by blank check companies in 2007. The stock based compensation
expense will be recognized over the service period of
24 months. WLBC estimated the service period as the
estimated time to complete a business combination. However,
pursuant to a Settlement Agreement dated December 23, 2008,
the options were deemed to be fully vested as of the effective
date of the Settlement Agreement. As a result, the entire
remaining compensation expense was recognized by WLBC on
December 23, 2008. WLBC recognized $237,973 in stock based
compensation expense related to the options for the period from
June 28, 2007 (inception) to December 31, 2007,
$4,155,368 for the year ended December 31, 2008 and $0 for
the year ended December 31, 2009. The Company also, as
required under the terms of the Settlement Agreement, paid
$247,917 in compensation expenses related to a severance payment
to the former CEO during January 2009.
Indemnifications
WLBC has entered into agreements with its directors to provide
contractual indemnification in addition to the indemnification
provided in its amended and restated certificate of
incorporation. WLBC believes that these provisions and
agreements are necessary to attract qualified directors.
WLBCs bylaws also will permit it to secure insurance on
behalf of any officer, director or employee for any liability
arising out of his or her actions, regardless of whether
Delaware law would permit indemnification. WLBC has purchased a
policy of directors and officers liability insurance
that insures WLBCs directors and officers against the cost
of defense, settlement or payment of a judgment in some
circumstances and insures us against our obligations to
indemnify the directors and officers.
F-85
WESTERN
LIBERTY BANCORP
NOTES TO
FINANCIAL STATEMENTS (Continued)
The Company has evaluated subsequent events through
February 8, 2010, the date on which the financial
statements were issued.
|
|
10.
|
SUMMARIZED
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
|
WLBCs unaudited condensed quarterly financial information
is as follows for the year ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
$
|
(6,489,150
|
)
|
|
$
|
(5,063,587
|
)
|
|
$
|
(2,562,515
|
)
|
|
$
|
(922,203
|
)
|
Interest income
|
|
|
51,912
|
|
|
|
5,925
|
|
|
|
10,562
|
|
|
|
70,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income for the period
|
|
$
|
(6,437,238
|
)
|
|
$
|
(5,057,662
|
)
|
|
$
|
(2,551,953
|
)
|
|
$
|
(851,581
|
)
|
Weighted average number of common shares outstanding not subject
to possible redemption, basic
|
|
|
33,169,481
|
|
|
|
39,936,064
|
|
|
|
39,936,064
|
|
|
|
39,936,064
|
|
Weighted average number of common shares outstanding not subject
to possible redemption, diluted
|
|
|
75,444,175
|
|
|
|
39,936,064
|
|
|
|
39,936,064
|
|
|
|
80,384,913
|
|
Net (loss) income per common share not subject to possible
redemption, basic
|
|
$
|
(0.19
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
Net (loss) income per common share not subject to possible
redemption, diluted
|
|
|
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
$
|
(3,998,364
|
)
|
|
$
|
(1,176,160
|
)
|
|
$
|
(1,150,529
|
)
|
|
$
|
(918,942
|
)
|
Interest income
|
|
|
431,067
|
|
|
|
1,750,226
|
|
|
|
1,481,237
|
|
|
|
2,028,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income for the period
|
|
$
|
(3,567,297
|
)
|
|
$
|
574,066
|
|
|
$
|
330,708
|
|
|
$
|
1,109,977
|
|
Weighted average number of common shares outstanding not subject
to possible redemption, basic
|
|
|
39,936,063
|
|
|
|
39,936,063
|
|
|
|
39,936,063
|
|
|
|
39,936,063
|
|
Weighted average number of common shares outstanding not subject
to possible redemption, diluted
|
|
|
80,384,913
|
|
|
|
80,384,913
|
|
|
|
80,384,913
|
|
|
|
80,384,913
|
|
Net (loss) income per common share not subject to possible
redemption, basic
|
|
$
|
(0.09
|
)
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
$
|
0.03
|
|
Net (loss) income per common share not subject to possible
redemption, diluted
|
|
$
|
(0.09
|
)
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
F-86
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other
Expenses of Issuance and Distribution
|
The following table sets forth the costs and expenses to be
borne by WLBC in connection with the offerings described in this
Registration Statement. None of these expenses shall be borne by
any of the selling security holders.
|
|
|
|
|
Registration fee
|
|
$
|
663.57
|
|
Transfer agent and trustee fees and expenses
|
|
|
[*
|
]
|
Printing
|
|
|
[*
|
]
|
Accounting fees and expenses
|
|
|
[*
|
]
|
Legal fees and expenses
|
|
|
[*
|
]
|
Miscellaneous
|
|
|
[*
|
]
|
Total
|
|
$
|
[*
|
]
|
|
|
Item 14.
|
Indemnification
of Directors and Officers.
|
The Second Amended and Restated Certificate of Incorporation of
WLBC provides that all directors, officers, employees and agents
of the registrant shall be entitled to be indemnified by WLBC to
the fullest extent permitted by Section 145 of the Delaware
General Corporation Law. The Second Amended and Restated
Certificate of Incorporation also provides that expenses
incurred by an officer or director in defending any civil,
criminal, administrative, or investigative action, suit or
proceeding for which such officer or directly may be entitled to
indemnification shall be paid by the registrant in advance of
the final disposition of such action, suit or proceeding upon
receipt by the registrant of an undertaking by or on behalf of
such officer or director to repay such amount if it shall
ultimately be determined that he or she is not entitled to be
indemnified by the registrant under the Second Amended and
Restated Certificate of Incorporation.
Section 145 of the Delaware General Corporation Law
concerning indemnification of and advancement of expenses to
officers, directors, employees and agents is set forth below.
Section 145. Indemnification of officers, directors,
employees and agents; insurance.
(a) A corporation shall have power to indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason
of the fact that the person is or was a director, officer,
employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including
attorneys fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person
acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the persons
conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith
and in a manner which the person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had reasonable
cause to believe that the persons conduct was unlawful.
(b) A corporation shall have power to indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by
reason of the fact that the person is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses
(including
II-1
attorneys fees) actually and reasonably incurred by the
person in connection with the defense or settlement of such
action or suit if the person acted in good faith and in a manner
the person reasonably believed to be in or not opposed to the
best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
(c) To the extent that a present or former director or
officer of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred
to in subsections (a) and (b) of this section, or in
defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys fees)
actually and reasonably incurred by such person in connection
therewith.
(d) Any indemnification under subsections (a) and
(b) of this section (unless ordered by a court) shall be
made by the corporation only as authorized in the specific case
upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the
circumstances because the person has met the applicable standard
of conduct set forth in subsections (a) and (b) of
this section. Such determination shall be made, with respect to
a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who
are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors, even though less
than a quorum, or (3) if there are no such directors, or if
such directors so direct, by independent legal counsel in a
written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys fees) incurred by
an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may
be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including
attorneys fees) incurred by former directors and officers
or other employees and agents of the corporation or by persons
serving at the request of the corporation as directors,
officers, employees or agents of another corporation,
partnership, joint venture, trust or other enterprise may be so
paid upon such terms and conditions, if any, as the corporation
deems appropriate.
(f) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of
this section shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to
action in such persons official capacity and as to action
in another capacity while holding such office. A right to
indemnification or to advancement of expenses arising under a
provision of the certificate of incorporation or a bylaw shall
not be eliminated or impaired by an amendment to such provision
after the occurrence of the act or omission that is the subject
of the civil, criminal, administrative or investigative action,
suit or proceeding for which indemnification or advancement of
expenses is sought, unless the provision in effect at the time
of such act or omission explicitly authorizes such elimination
or impairment after such action or omission has occurred.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any
such capacity, or arising out of such persons status as
such, whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to the
corporation shall include, in addition to the resulting
corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors,
officers, and employees or agents, so that any person who is or
was a director, officer, employee or
II-2
agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the
same position under this section with respect to the resulting
or surviving corporation as such person would have with respect
to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to other
enterprises shall include employee benefit plans;
references to fines shall include any excise taxes
assessed on a person with respect to any employee benefit plan;
and references to serving at the request of the
corporation shall include any service as a director,
officer, employee or agent of the corporation which imposes
duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in
the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner
not opposed to the best interests of the corporation
as referred to in this section.
(j) The indemnification and advancement of expenses
provided by, or granted pursuant to, this section shall, unless
otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement
of expenses or indemnification brought under this section or
under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise. The Court of Chancery may
summarily determine a corporations obligation to advance
expenses (including attorneys fees).
Our bylaws also generally provide that we will indemnify our
current and former directors and officers and persons who, while
serving as a director or officer of WLBC, act or acted at our
request as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust,
employment benefit plan or other enterprise, against all
liability and loss suffered and expenses (including
attorneys fees) actually and reasonably incurred, to the
fullest extent permitted by the Delaware General Corporation
Law. Likewise, our bylaws provide that we will pay the expenses
(including attorneys fees) incurred by any such person in
defending any proceeding in advance of its final disposition,
provided that such payment will be made only upon the receipt of
an undertaking by such person to repay all amounts if it is
ultimately determined that such person is not entitled to
indemnification. Our bylaws further permit us to secure
insurance on behalf of any officer, director or employee for any
liability arising out of his or her actions, regardless of
whether Delaware law would permit indemnification. We have
purchased a policy of directors and officers
liability insurance that insures our directors and officers
against the cost of defense, settlement or payment of a judgment
in some circumstances and insures us against our obligations to
indemnify the directors and officers.
We are also party to agreements with our directors and officers
to provide contractual indemnification in addition to the
indemnification provided in WLBCs Second Amended and
Restated Certificate of Incorporation. We believe that these
provisions and agreements were necessary to attract qualified
directors and officers.
In addition, WLBC is a corporation organized under the laws of
the State of Delaware, and Section 102(b)(7) of the
Delaware General Corporation Law permits a corporation to
provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability
(i) for any breach of the directors duty of loyalty
to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases,
redemptions or other distributions or (iv) for any
transaction from which the director derived an improper personal
benefit. Our Second Amended and Restated Certificate of
Incorporation provides that our directors shall not be liable to
us or our stockholders, except to the extent such exemption from
liability or limitation thereof is not permitted under the
Delaware General Corporation Law.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to WLBCs directors,
officers, and controlling persons pursuant to the foregoing
provisions, or otherwise, WLBC has been advised that, in the
opinion of the SEC, such indemnification is against public
policy as expressed in the
II-3
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment of expenses incurred or paid by a director,
officer or controlling person in a successful defense of any
action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, WLBC will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to the court of appropriate jurisdiction the question
whether such indemnification by WLBC is against public policy as
expressed in the Securities Act and will be governed by the
final adjudication of such issue.
Paragraph B of Article Eighth of WLBCs Second
Amended and Restated Certificate of Incorporation provides:
The Corporation, to the full extent permitted by
Section 145 of the DGCL, as amended from time to time,
shall indemnify all persons whom it may indemnify pursuant
thereto. Expenses (including attorneys fees) incurred by
an officer or director in defending any civil, criminal,
administrative, or investigative action, suit or proceeding for
which such officer or director may be entitled to
indemnification hereunder shall be paid by the Corporation in
advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized hereby.
WLBCs bylaws further provide that any indemnification
shall be made by WLBC to the fullest extent permitted by law
only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable
standard of conduct set forth in such section. Such
determination shall be made: (i) by the board of directors
by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding; (ii) if
such quorum is not obtainable, or, even if obtainable a quorum
of disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by stockholders.
|
|
Item 15.
|
Recent
Sales of Unregistered Securities
|
On July 16, 2007, we issued an aggregate amount of
8,575,000 Private Shares, at a purchase price of $0.001 per
share, in private placement transactions. On August 1,
2007, we issued 25,000 Private Shares, at a purchase price of
$0.001 per share, in a private placement. On September 28,
2007, we issued 25,000 Private Shares, at a purchase price of
$0.001 per share, in a private placement. In total, prior to our
initial public offering we issued 8,625 Private Shares for an
aggregate amount of $8,625 in cash. Of those shares, 637,786
were redeemed because the underwriters did not fully exercise
their over-allotment option, resulting in a total of
7,987,214 shares outstanding after the redemption.
On August 1, 2007, our former Chief Executive Officer Scott
LaPorta, agreed to purchase 1,000,000 Private Warrants.
Mr. LaPorta purchased such Private Warrants from us
immediately prior to the consummation of our initial public
offering on November 27, 2007.
On October 19, 2007, Hayground Cove agreed to purchase
7,500,000 of our Private Warrants. Hayground Cove purchased such
Private Warrants from us immediately prior to the consummation
of our initial public offering on November 27, 2007.
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.
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 holders 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
II-4
under the Exchange Act during WLBCs 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
Service1st,
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. Martins and Rosenbaums respective and
continuous employment through each vesting date. Such Restricted
Stock shall be subject to restrictions on transfer for a period
of one year following each vesting date. See the section
entitled See the section entitled Executive Officer and
Director Compensation Employment
Agreements.
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,
WLBCs 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. Any stock 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 shares of Common Stock had been issued, provided
that such dividends shall be paid 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.
The sales of the above securities were deemed to be exempt from
the registration under the Securities Act of 1933 in reliance on
Section 3(a)(9) or Section 4(2) of the Securities Act,
as applicable. In addition, the future issuance of Common Stock
underlying the Restricted Stock Units and the
Service1st
Warrants will be similarly exempt. In any such transaction
pursuant to Section 4(2) of the Securities Act, such entity
represented its intention to acquire the securities for
investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were
affixed to the instruments representing such securities issued
in such transactions.
II-5
|
|
Item 16.
|
Exhibits
and Financial Statement Schedules
|
|
|
|
|
|
|
|
Description
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of November 6, 2009, by
and among Western Liberty Bancorp., WL-S1 Interim Bank,
Service1st
Bank of Nevada and Curtis W. Anderson, as Former
Stockholders Representative (incorporated by reference to
Exhibit 2.1 to the Current Report on
Form 8-K,
File No. 001-33803, filed by WLBC with the Securities and
Exchange Commission on November 9, 2009)
|
|
2
|
.2
|
|
First Amendment to the Agreement and Plan of Merger, dated as of
June 21, 2010, by and among Western Liberty Bancorp., WL-S1
Interim Bank,
Service1st
Bank of Nevada and Curtis W. Anderson, as Former
Stockholders Representative (incorporated by reference to
Exhibit 2.1 to the Current Report on Form 8-K, File No.
001-33803, filed by WLBC with the Securities and Exchange
Commission on June 24, 2010)
|
|
3
|
.1
|
|
Second Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.2 to the Current Report
on Form 8-K, File No. 001-33803, filed by WLBC with the
Securities and Exchange Commission on October 9, 2009)
|
|
3
|
.2
|
|
Amended and Restated By-laws (incorporated by reference to
Exhibit 3.2 to the Current Report on Form 8-K, File No.
001-33803, filed by WLBC with the Securities and Exchange
Commission on November 3, 2010)
|
|
4
|
.1
|
|
Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.7 to the Form S-3, filed by WLBC with the Securities
and Exchange Commission on November 16, 2009)
|
|
4
|
.2
|
|
Founders Shares Restructuring Agreement, dated as of July 20,
2009, between Global Consumer Acquisition Corp. and Hayground
Cove Asset Management LLC (incorporated by reference to
Exhibit 4.2 the Current Report on Form 8-K, File No.
001-33803, filed by WLBC with the Securities and Exchange
Commission on July 22, 2009)
|
|
4
|
.4
|
|
Letter Agreement, dated as of September 23, 2010, between
Western Liberty Bancorp and the signatories thereto
(incorporated by reference to Exhibit 4.1 the Current Report on
Form 8-K,
File No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
September 23, 2010)
|
|
4
|
.5
|
|
Second Amended and Restated Warrant Agreement, dated as of
September 27, 2010, between Western Liberty Bancorp and
Continental Stock Transfer &Trust Company (incorporated by
reference to Exhibit 4.1 the Current Report on Form 8-K, File
No. 001-33803, filed by WLBC with the Securities and Exchange
Commission on September 28, 2010)
|
|
5
|
.1
|
|
Opinion of Proskauer Rose LLP as to the validity of the shares
being registered*
|
|
10
|
.1
|
|
Form of Indemnification Agreement between WLBC and each of the
directors and officers of WLBC (incorporated by reference to
Exhibit 10.10 to Amendment No. 1 to the Form S-1, File No.
333-144799, filed by WLBC with the Securities and Exchange
Commission on September 6, 2007)
|
|
10
|
.2
|
|
Settlement Agreement and General Release, dated December 23,
2008, between WLBC and Scott LaPorta (incorporated by reference
to Exhibit 10.13 to Current Report on Form 8-K, File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
December 29, 2008)
|
|
10
|
.3
|
|
Director Resignation Agreement, dated December 23, 2008, between
WLBC, Robert M. Foresman, Carl H. Hahn, Philip A. Marineau and
Steven Westly (incorporated by reference to Exhibit 10.14 to
Current Report on Form 8-K, File No. 001-33803, filed by WLBC
with the Securities and Exchange Commission on December 29, 2008)
|
|
10
|
.4
|
|
Second Amended and Restated Sponsor Support Agreement, dated as
of August 13, 2009, by and between Global Consumer Acquisition
Corp. and Hayground Cove Asset Management LLC (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K,
File No. 001-33803, filed by WLBC with the Securities and
Exchange Commission on August 14, 2009)
|
|
10
|
.5
|
|
Employment Agreement, dated as of November 6, 2009, by and
between Western Liberty Bancorp and Richard Deglman
(incorporated by reference to Exhibit 10.4 to the Current Report
on Form 8-K, File No. 001-33803, filed by WLBC with the
Securities and Exchange Commission on November 9, 2009)
|
II-6
|
|
|
|
|
|
|
Description
|
|
|
10
|
.6
|
|
Second Amended and Restated Employment Agreement, dated as of
December 18, 2009, by and between Western Liberty Bancorp and
George A. Rosenbaum, Jr. (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K, File No.
001-33803, filed by WLBC with the Securities and Exchange
Commission on December 24, 2009)
|
|
10
|
.7
|
|
Letter Agreement, dated as of October 28, 2010, between Western
Liberty Bancorp and Jason N. Ader (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K, File No.
001-33803, filed by WLBC with the Securities and Exchange
Commission on November 3, 2010)
|
|
10
|
.8
|
|
Letter Agreement, dated as of October 28, 2010, between Western
Liberty Bancorp and Daniel B. Silvers (incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K, File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
November 3, 2010)
|
|
10
|
.9
|
|
Letter Agreement, dated as of October 28, 2010, between Western
Liberty Bancorp and Andrew P. Nelson (incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K, File No.
001-33803, filed by WLBC with the Securities and Exchange
Commission on November 3, 2010)
|
|
10
|
.10
|
|
Letter Agreement, dated as of October 28, 2010, between Western
Liberty Bancorp and Michael Tew (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K, File No.
001-33803, filed by WLBC with the Securities and Exchange
Commission on November 3, 2010)
|
|
10
|
.11
|
|
Letter Agreement, dated as of October 28, 2010, between Western
Liberty Bancorp and Laura Conover-Ferchak (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K,
File No. 001-33803, filed by WLBC with the Securities and
Exchange Commission on November 3, 2010)
|
|
10
|
.12
|
|
Expense Sharing Agreement, dated as of October 29, 2010, between
Western Liberty Bancorp and
Service1st
Bank of Nevada (incorporated by reference to Exhibit 10.1 to the
Current Report on
Form 8-K,
File No. 001-33803, filed by WLBC with the Securities and
Exchange Commission on November 3, 2010)
|
|
10
|
.13
|
|
Tax Allocation Agreement, dated as of October 29, 2010, between
Western Liberty Bancorp and
Service1st
Bank of Nevada (incorporated by reference to Exhibit 10.1 to the
Current Report on
Form 8-K,
File No. 001-33803, filed by WLBC with the Securities and
Exchange Commission on November 3, 2010)
|
|
10
|
.14
|
|
Amended and Restated Voting Agreement, dated as of January 28,
2010, by and among Western Liberty Bancorp and the Stockholders
Party Thereto (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K, File No. 001-33803, filed by WLBC
with the Securities and Exchange Commission on January 29, 2010)
|
|
10
|
.15
|
|
Amended and Restated Employment Agreement, dated as of February
8, 2010, by and between Western Liberty Bancorp and William E.
Martin (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K, File No. 001-33803, filed by WLBC with the
Securities and Exchange Commission on February 8, 2010)
|
|
23
|
.1
|
|
Consent of Crowe Horwath LLP*
|
|
23
|
.2
|
|
Consent of Hays & Company LLP*
|
|
23
|
.3
|
|
Consent of Grant Thornton LLP*
|
|
23
|
.4
|
|
Consent of Proskauer Rose LLP (included in Exhibit 5.1)
|
|
99
|
.1
|
|
Consent Order of Federal Deposit Insurance Corporation and the
Nevada Financial Institutions Division, dated as of
September 1, 2010, In the Matter of
Service1st
Bank of Nevada,
FDIC-10-512b*
|
II-7
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made of securities registered hereby, a post-effective
amendment to this registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the
Calculation of Registration Fee table in the
effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under
the Securities Act of 1933 to any purchaser:
(A) Each prospectus filed by the registrant pursuant to
Rule 424(b)(3) shall be deemed to be part of the
registration statement as of the date the filed prospectus was
deemed part of and included in the registration
statement; and
(B) Each prospectus required to be filed pursuant to
Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration
statement in reliance on Rule 430B relating to an offering
made pursuant to Rule 415(a)(1)(î), (vii), or
(x) for the purpose of providing the information required
by Section 10(a) of the Securities Act of 1933 shall be
deemed to be part of and included in the registration statement
as of the earlier of the date such form of prospectus is first
used after effectiveness or the date of the first contract of
sale of securities in the offering described in the prospectus.
As provided in Rule 430B, for liability purposes of the
issuer and any person that is at that date an underwriter, such
date shall be deemed to be a new effective date of the
registration statement relating to the securities in the
registration statement to which that prospectus relates, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof; provided,
however, that no statement made in a registration
statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as
to a purchaser with a time of contract of sale prior to such
effective date, supersede or modify any statement that was made
in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately
prior to such effective date.
(5) That, for the purpose of determining liability of the
registrant under the Securities Act of 1933 to any purchaser in
the initial distribution of the securities: The undersigned
registrant undertakes that in a primary offering of securities
of the undersigned registrant pursuant to this registration
statement,
II-8
regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or
sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to
the purchaser and will be considered to offer or sell such
securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering required to be
filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned registrant or used
or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus
relating to the offering containing material information about
the undersigned registrant or its securities provided by or on
behalf of the undersigned registrant; and
(iv) any other communication that is an offer in the
offering made by the undersigned registrant to the purchaser.
(b) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
WESTERN LIBERTY BANCORP
|
|
|
|
By:
|
/s/ William
E. Martin
|
Name: William E. Martin
|
|
|
|
Title:
|
Chief Executive Officer and Director
|
(Principal Executive Officer)
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Michael
B. Frankel
Michael
B. Frankel
|
|
Chairman
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Terrence
L. Wright
Terrence
L. Wright
|
|
Vice Chairman
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Jason
N. Ader
Jason
N. Ader
|
|
Director
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Richard
A.C. Coles
Richard
A.C. Coles
|
|
Director
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Robert
G. Goldstein
Robert
G. Goldstein
|
|
Director
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Curtis
W. Anderson, CPA
Curtis
W. Anderson, CPA
|
|
Director
|
|
March 30, 2011
|
|
|
|
|
|
/s/ William
E. Martin
William
E. Martin
|
|
Director and Chief Executive Officer
(Principal Executive Officer)
|
|
March 30, 2011
|
|
|
|
|
|
/s/ George
A. Rosenbaum, Jr.
George
A. Rosenbaum, Jr.
|
|
Chief Financial Officer
(Principal Accounting
and Financial Officer)
|
|
March 30, 2011
|
II-10
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of November 6, 2009,
by and among Western Liberty Bancorp., WL-S1 Interim Bank,
Service1st
Bank of Nevada and Curtis W. Anderson, as Former
Stockholders Representative (incorporated by reference to
Exhibit 2.1 to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
November 9, 2009)
|
|
2
|
.2
|
|
First Amendment to the Agreement and Plan of Merger, dated as of
June 21, 2010, by and among Western Liberty Bancorp., WL-S1
Interim Bank,
Service1st
Bank of Nevada and Curtis W. Anderson, as Former
Stockholders Representative (incorporated by reference to
Exhibit 2.1 to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
June 24, 2010)
|
|
3
|
.1
|
|
Second Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.2 to the Current
Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
October 9, 2009)
|
|
3
|
.2
|
|
Amended and Restated By-laws (incorporated by reference to
Exhibit 3.2 to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
November 3, 2010)
|
|
4
|
.1
|
|
Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.7 to the
Form S-3,
filed by WLBC with the Securities and Exchange Commission on
November 16, 2009)
|
|
4
|
.2
|
|
Founders Shares Restructuring Agreement, dated as of
July 20, 2009, between Global Consumer Acquisition Corp.
and Hayground Cove Asset Management LLC (incorporated by
reference to Exhibit 4.2 the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
July 22, 2009)
|
|
4
|
.4
|
|
Letter Agreement, dated as of September 23, 2010, between
Western Liberty Bancorp and the signatories thereto
(incorporated by reference to Exhibit 4.1 the Current
Report on
Form 8-K,
File No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
September 23, 2010)
|
|
4
|
.5
|
|
Second Amended and Restated Warrant Agreement, dated as of
September 27, 2010, between Western Liberty Bancorp and
Continental Stock Transfer &Trust Company
(incorporated by reference to Exhibit 4.1 the Current
Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
September 28, 2010)
|
|
5
|
.1
|
|
Opinion of Proskauer Rose LLP as to the validity of the shares
being registered*
|
|
10
|
.1
|
|
Form of Indemnification Agreement between WLBC and each of the
directors and officers of WLBC (incorporated by reference to
Exhibit 10.10 to Amendment No. 1 to the
Form S-1,
File No. 333-144799,
filed by WLBC with the Securities and Exchange Commission on
September 6, 2007)
|
|
10
|
.2
|
|
Settlement Agreement and General Release, dated
December 23, 2008, between WLBC and Scott LaPorta
(incorporated by reference to Exhibit 10.13 to Current
Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
December 29, 2008)
|
|
10
|
.3
|
|
Director Resignation Agreement, dated December 23, 2008,
between WLBC, Robert M. Foresman, Carl H. Hahn, Philip A.
Marineau and Steven Westly (incorporated by reference to
Exhibit 10.14 to Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
December 29, 2008)
|
|
10
|
.4
|
|
Second Amended and Restated Sponsor Support Agreement, dated as
of August 13, 2009, by and between Global Consumer
Acquisition Corp. and Hayground Cove Asset Management LLC
(incorporated by reference to Exhibit 10.1 to the Current
Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
August 14, 2009)
|
|
10
|
.5
|
|
Employment Agreement, dated as of November 6, 2009, by and
between Western Liberty Bancorp and Richard Deglman
(incorporated by reference to Exhibit 10.4 to the Current
Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
November 9, 2009)
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.6
|
|
Second Amended and Restated Employment Agreement, dated as of
December 18, 2009, by and between Western Liberty Bancorp
and George A. Rosenbaum, Jr. (incorporated by reference to
Exhibit 10.1 to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
December 24, 2009)
|
|
10
|
.7
|
|
Letter Agreement, dated as of October 28, 2010, between
Western Liberty Bancorp and Jason N. Ader (incorporated by
reference to Exhibit 10.1 to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
November 3, 2010)
|
|
10
|
.8
|
|
Letter Agreement, dated as of October 28, 2010, between
Western Liberty Bancorp and Daniel B. Silvers (incorporated by
reference to Exhibit 10.1 to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
November 3, 2010)
|
|
10
|
.9
|
|
Letter Agreement, dated as of October 28, 2010, between
Western Liberty Bancorp and Andrew P. Nelson (incorporated by
reference to Exhibit 10.1 to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
November 3, 2010)
|
|
10
|
.10
|
|
Letter Agreement, dated as of October 28, 2010, between
Western Liberty Bancorp and Michael Tew (incorporated by
reference to Exhibit 10.1 to the Current Report on
Form 8-K,
File No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
November 3, 2010)
|
|
10
|
.11
|
|
Letter Agreement, dated as of October 28, 2010, between
Western Liberty Bancorp and Laura Conover-Ferchak (incorporated
by reference to Exhibit 10.1 to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
November 3, 2010)
|
|
10
|
.12
|
|
Expense Sharing Agreement, dated as of October 29, 2010,
between Western Liberty Bancorp and
Service1st
Bank of Nevada (incorporated by reference to Exhibit 10.1
to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
November 3, 2010)
|
|
10
|
.13
|
|
Tax Allocation Agreement, dated as of October 29, 2010,
between Western Liberty Bancorp and
Service1st
Bank of Nevada (incorporated by reference to Exhibit 10.1
to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
November 3, 2010)
|
|
10
|
.14
|
|
Amended and Restated Voting Agreement, dated as of
January 28, 2010, by and among Western Liberty Bancorp and
the Stockholders Party Thereto (incorporated by reference to
Exhibit 10.1 to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
January 29, 2010)
|
|
10
|
.15
|
|
Amended and Restated Employment Agreement, dated as of
February 8, 2010, by and between Western Liberty Bancorp
and William E. Martin (incorporated by reference to
Exhibit 10.1 to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
February 8, 2010)
|
|
23
|
.1
|
|
Consent of Crowe Horwath LLP*
|
|
23
|
.2
|
|
Consent of Hays & Company LLP*
|
|
23
|
.3
|
|
Consent of Grant Thornton LLP*
|
|
23
|
.4
|
|
Consent of Proskauer Rose LLP (included in Exhibit 5.1)
|
|
99
|
.1
|
|
Consent Order of Federal Deposit Insurance Corporation and the
Nevada Financial Institutions Division, dated as of
September 1, 2010, In the Matter of
Service1st
Bank of Nevada,
FDIC-10-512b*
|