WESTERN LIBERTY BANCORP - FORM 10-Q

Attached files

file	filename
EX-31.1 - EX-31.1 - WESTERN LIBERTY BANCORP	y91035exv31w1.htm
EX-31.2 - EX-31.2 - WESTERN LIBERTY BANCORP	y91035exv31w2.htm
EX-32.1 - EX-32.1 - WESTERN LIBERTY BANCORP	y91035exv32w1.htm
EX-32.2 - EX-32.2 - WESTERN LIBERTY BANCORP	y91035exv32w2.htm

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

Form 10-Q


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended March 31, 2011
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File Number: 001-33803

WESTERN LIBERTY BANCORP

(Exact name of registrant as specified in its charter)


Delaware		26-0469120
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No 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 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

Smaller reporting company þ

Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of May 5, 2011, the registrant had 15,088,023 shares of its common stock, par value $0.0001 per share, outstanding.

WESTERN LIBERTY BANCORP

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010 (unaudited)	3
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	(Removed and Reserved)	38
Item 5.	Other Information	38
Item 6.	Exhibits	38
Signatures		39
Exhibit 31.1		40
Exhibit 31.2		41
Exhibit 32.1		42
Exhibit 32.2		43
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION


ITEM 1.	*FINANCIAL STATEMENTS*

WESTERN LIBERTY BANCORP

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

($ in 000’s)


	March 31,			December 31,
	2011			2010

ASSETS
Cash and due from banks	$	8,749		$	11,675
Money market funds		52,206			52,206
Interest-bearing deposits in banks		29,488			39,346

Cash and cash equivalents		90,443			103,227
Certificates of deposits		16,784			26,889
Securities, available for sale		1,345			1,819
Securities, held to maturity (fair value of $3,745 and $5,287, respectively)		3,737			5,314
Loans, net of allowance ($1,290 and $36, respectively)		100,917			106,223
Premises and equipment, net		1,120			1,228
Other real estate owned, net		5,444			3,406
Goodwill		5,633			5,633
Other intangibles, net		744			768
Accrued interest receivable and other assets		2,624			3,039

Total assets	$	228,791		$	257,546


LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing demand	$	51,847		$	67,087
Interest bearing:		79,966			93,199

Total deposits		131,813			160,286
Contingent consideration		1,816			1,816
Accrued interest payable and other liabilities		1,604			1,615

Total liabilities		135,233			163,717

Stockholders’ Equity:
Preferred stock, $.0001 par value; 1,000,000 shares authorized; None issued or outstanding
Common stock, $.0001 par value; 100,000,000 shares authorized; 15,088,023 issued and outstanding		1			1
Additional paid-in capital		117,458			117,317
Accumulated deficit		(23,898	)		(23,489	)
Accumulated other comprehensive loss, net		(3	)		—

Total stockholders’ equity		93,558			93,829

Total liabilities and stockholders’ equity	$	228,791		$	257,546

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

WESTERN LIBERTY BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended March 31, 2011 and 2010
($ in 000’s except per share data)


							Service1st Bank
							Predecessor
							For the Three
	For the Three Months Ended						Months Ended
	March 31, 2011			March 31, 2010			March 31, 2010

Interest and dividend income:
Loans, including fees	$	3,782		$	—		$	1,972
Securities, taxable and other		66			2			235

Total interest and dividend income		3,848			2			2,207

Interest expense:
Deposits		112			—			417

Total interest expense		112			—			417

Net interest income		3,736			2			1,790
Provision for loan losses		1,364			—			1,518

Net interest income after provision for loan losses		2,372			2			272

Non-interest income:
Service charges		78			—			119
Other		43			—			31

Total non-interest income		121			—			150

Non-interest expense
Salaries and employee benefits		793			75			1,046
Occupancy, equipment and depreciation		374			—			428
Computer service charges		77			—			66
Federal deposit insurance		152			—			116
Legal and professional fees		936			855			655
Advertising and business development		20			—			28
Insurance		71			74			21
Telephone		26			—			24
Printing and supplies		142			105			8
Stock-based compensation		141			631			—
Provision for unfunded commitments		(133	)		—			(297	)
Other		303			16			144

Total non-interest expense		2,902			1,756			2,239

Net loss	$	(409	)	$	(1,754	)	$	(1,817	)

Comprehensive loss	$	(406	)	$	(1,754	)	$	(1,812	)

Basic loss per common share	$	(0.03	)	$	(0.16	)	$	(36.48	)

Diluted loss per common share	$	(0.03	)	$	(0.16	)	$	(36.48	)

Weighted average common shares outstanding — basic		15,088,023			10,959,169			49,811

Weighted average common shares outstanding — diluted		15,088,023			10,959,169			49,811

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

WESTERN LIBERTY BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended March 31, 2011 and 2010
($ in 000’s)


							Service1st Bank
							Predecessor
							For the Three
	For the Three Months Ended						Months Ended
	March 31, 2011			March 31, 2010			March 31, 2010

Cash flow from operating activities
Net (loss) income	$	(409	)	$	(1,754	)	$	(1,817	)
Adjustments to reconcile net (loss) income to net cash used in operating activities
Stock-based compensation		141			631			131
Accretion of loan discount, net		(2,248	)		—			—
Amortization of core deposit intangible		24			—			—
Provision of loan losses		1,364			—			1,518
Depreciation of premises and equipment		108			—			135
Amortization of securities premiums/discounts, net		81			—			5
Changes in operating assets and liabilities
Accrued interest receivable and other assets		415			1			94
Accrued expenses and other liabilities		(11	)		(370	)		(383	)

Net cash used in operating activities		(535	)		(1,492	)		(317	)

Cash flow from investing activities
Purchases of certificates of deposit		—			—			(20,147	)
Proceeds from maturities of certificates of deposit		10,105			—			5,145
Purchases of securities available for sale		—			—			(1,000	)
Proceeds from maturities of securities available for sale		—			—			2,500
Proceeds from principal paydowns of securities available for sale		452			—			—
Proceeds from maturities of securities held to maturity		1,500			—			2,009
Proceeds from principal payments of securities held to maturity		15			—			—
Purchase of premises and equipment		—			—			(56	)
Proceeds from loan sale		2,975			—			—
Net decrease in loans		1,177			—			4,071

Net cash provided by (used in) investing activities		16,224			—			(7,478	)

Cash flow from financing activities
Net increase (decrease) in deposits		(28,473	)		—			311

Net cash provided by (used in) financing activities		(28,473	)		—			311

Net decrease in cash and equivalents		(12,784	)		(1,492	)		(7,484	)
Cash and cash equivalents, beginning of period		103,227			87,969			49,633

Cash and cash equivalents, end of period	$	90,443		$	86,477		$	42,149

Supplemental disclosures of cash flow information:
Cash payments for: Interest paid to depositors	$	107			—		$	447

Supplemental schedule of non-cash investing activities: Loans transferred to other real estate owned	$	2,038			—		$	—

The accompany notes are an integral part of these unaudited condensed consolidated financial statements.

Western Liberty Bancorp

Notes to Unaudited Condensed Consolidated Financial Statements


Note 1.	NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of business

Western Liberty Bancorp (WLBC) became a bank holding company on October 28, 2010 with consummation of the acquisition of Service1st Bank of Nevada. 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, acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Our stockholders approved 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. Our sole subsidiary is Service1st Bank of Nevada. We currently conduct no business activities other than acting as the holding company of Service1st Bank.

Service1st Bank of Nevada (Service1st) is a community bank which commenced operations as a financial institution on January 16, 2007. Service1st 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 in and around the greater Las Vegas area. Banking services provided include basic commercial and consumer depository services, commercial working capital and equipment loans, commercial real estate (both owner occupied and non-owner occupied) loans, construction loans, and unsecured personal and business loans. Service1st relies primarily on locally generated deposits to fund its lending activities. Service 1st has two branches located in Las Vegas, Nevada, which accept deposits and grant loans to customers. Substantially all of our business is generated in the Nevada market. Service1st is under the supervision of and subject to regulation and examination by the Nevada FID and the FDIC.

Basis of Presentation

The accounting and reporting policies of the Company conform to generally accepted accounting principles in the United States of America. All significant intercompany balances and transactions have been eliminated in consolidation. Our financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. We have evaluated all subsequent events through the date the financial statements were issued.

Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The interim operating results are not necessarily indicative, of operating results for the year. For further information, refer to the consolidated financial statements and notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2010.

Predecessors

Since the Company’s operations prior to the acquisition of Service1st were insignificant relative to that of Service1st, management believes that Service1st is the Company’s predecessor. Management has determined this based on an evaluation of the various facts and circumstances, including, but not limited to the life of Service1st, the operations of Service1st, the purchase price paid, and the fact that the operations on a prospective basis will be most similar to Service1st. Accordingly, the historical statement of operations for the three months ended March 31, 2010 and statement of cash flows for the three months ended March 31, 2010 of Service1st Bank have been presented.

Use of estimates in the preparation of financial statements

To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The purchase accounting adjustments, allowance for loan loss, fair value of financial instruments, and deferred tax assets are particularly subject to change.

Reclassifications

Certain amounts in the financial statements and related disclosures as of December 31, 2010 have been reclassified to conform to the current condensed presentation. These reclassification adjustments have no effect on net loss or stockholders’ equity as previously reported.

Loans

Loans are stated at the amount of unpaid principal, reduced by unearned net loan fees, a credit and yield mark, 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 collectability 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 incurred losses on existing loans that may become uncollectible, based on evaluation of the collectability of loans and prior credit loss experience of the Company 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 borrower’s ability to pay. Due to the credit concentration of the Company’s 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 Company’s allowance for loan losses, and may require the Company 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 general and specific components. The general component covers non-impaired loans and is based on historical loss experience of the Company and peer bank historical loss experience, adjusted for qualitative and environmental factors. 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.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Commercial and commercial real estate loans that are graded substandard are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such

as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent four years. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified:

1. Loans secured real estate construction, land development and other land loans

2. Commercial real estate

3. Residential real estate

4. Commercial and industrial

5. Consumer

These are generally the segments identified in regulatory reporting. Service 1st Bank primarily focuses on the small business market and, therefore, generates most of its loans in the area of commercial real estate and commercial and industrial loans. By segmenting into these categories, the bank is able to monitor the exposure to the related risks and observe compliance with regulatory guidance and limitations.

The Company, as a result of its purchase of Service1st Bank of Nevada on October 28, 2010, acquired a portfolio of loans, some of which have shown evidence of credit deterioration since origination. These purchased loans are recorded at fair value and there is no carryover of the seller’s allowance for loan losses. After acquisition, losses will be recognized by an increase in the allowance for loan losses. It is important that consideration to loss experience be blended with the significant discounts to properly reflect the carrying value of the legacy loan portfolio. In the current process, a general component of the allowance for loan losses is being recorded for new loan originations that were determined based on historical experience and management’s judgment.

Purchased loans with credit impairment are accounted for individually or aggregated into pools of loans based on common risk characteristics such as credit score, loan type, and date of origination. The Company estimates the amount and timing of expected cash flows for each purchased loan or pool, and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan or pool (accretable yield). The excess of the loan’s or pool’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

Over the life of the loan or pool, expected future cash flows continue to be estimated. 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 respectively as interest income.

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 management’s opinion, the borrower may be unable to make payments as they become due.

The Company 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 fees, fair value adjustments on purchased non-impaired loans, commitment fees and certain direct loan origination costs are deferred and the net amount amortized as an adjustment to the related loan’s yield. The Company is generally amortizing these amounts over the contractual life of the loan. Commitment fees, based upon a percentage of a customer’s unused line of credit, and fees related to standby letters of credit are recognized over the commitment period.

Other real estate acquired through foreclosure

Assets acquired through or in-lieu-of foreclosures are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.

Goodwill and other intangible assets

Goodwill resulting from a business combination after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquired company, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. The Company has selected October 31st as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet. WLBC acquired Service1st Bank of Nevada on October 28, 2010 which resulted in goodwill of $5.6 million being recorded.

Other intangible assets consist of a core deposit intangible which is amortized on an accelerated method over the estimated useful life of 10 years.

Stock compensation plans

The Company has the Service1st Bank of Nevada 2007 Stock Option Plan. Compensation cost is recognized for stock options and restricted stock awards issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. The Company 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.

Fair value measurement

For assets and liabilities recorded at fair value, it is the Company’s 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 Company utilizes fair value measurements to determine fair value disclosures and certain assets recorded at fair value on a recurring and nonrecurring basis. See note 3.

Fair values of financial instruments

The Company 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 Company’s 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 Company could have realized in a sales transaction as of March 31, 2011. The estimated fair value amounts as of March 31, 2011 have been measured as of that date and have been updated for purposes of these financial statements. As such, the estimated fair values of these financial statements subsequent to the reporting date may be different than the amounts reported as of March 31, 2011.

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 re-price frequently and that have experienced no significant change in credit risk, fair values are based on carrying values. Variable rate loans comprise approximately 63% of the loan portfolio as of March 31, 2011. 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 re-pricing 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 Company is a member of the FHLB system and maintains an investment in capital stock of the FHLB of San Francisco in 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 Company’s 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.

Due to the Company’s historical net losses, all of the Company’s stock-based awards are considered anti-dilutive, and accordingly, basic and diluted loss per share is the same. As of March 31, 2011, approximately 490,000 stock based instruments were issued and outstanding. For further information, refer to the consolidated financial statements and notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2010.

Recent accounting pronouncements

In January 2010, the FASB issued ASU 2010-06, Improving Disclosure about Fair Value Measurements. This standard requires new disclosures on the amount and reason for transfers in and out of Level 1 and Level 2 recurring fair value measurements. The standard also requires disclosure of activities (i.e., on a gross basis), including purchases, sales, issuances, and settlements, in the reconciliation of Level 3 fair value recurring measurements. The standard regarding Level 1 and Level 2 fair value measurements and clarification of existing disclosures are effective for periods beginning after December 15, 2009. The disclosures about the reconciliation of information in Level 3 recurring fair value measurements are required for periods beginning after December 15, 2010. Adoption of the applicable portions of this standard on January 1, 2011 did not have a significant impact on our quarterly disclosures.

Adoption of New Accounting Standards

In April 2011, the FASB amended existing guidance for assisting a creditor in determining whether a restructuring is a troubled debt restructuring. The amendments clarify the guidance for a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. With regard to determining whether a concession has been granted, the ASU clarifies that creditors are precluded from using the effective interest method to determine whether a concession has been granted. In the absence of using the effective interest method, a creditor must now focus on other considerations such as the value of the underlying collateral, evaluation of other collateral or guarantees, the debtor’s ability to access other funds at market rates, interest rate increases and whether the restructuring results in a delay in payment that is insignificant. This guidance is effective for interim and annual reporting periods beginning after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. For purposes of

measuring impairment on newly identified troubled debt restructurings, the amendments should be applied prospectively for the first interim or annual period beginning on or after June 15, 2011. Early adoption is permitted. The provisions of this update are not expected to have a material impact on the Company’s financial position; results of operations or cash flows.


Note 2.	BUSINESS COMBINATION

On October 28, 2010, the Company acquired 100% of the outstanding common shares of Service1st Bank of Nevada in exchange for approximately 2.4 million shares of common stock. Under the terms of the acquisition, Service1st Bank common shareholders received 47.5975 shares of the Company’s common stock in exchange for each share of Service1st Bank common stock. In addition, the Service1st Bank shareholders are eligible to receive additional common shares equal to twenty percent of Service1st Bank’s tangible capital at August 31, 2010, if the price of the Company’s common stock exceeds $12.75 per share for 30 days during the subsequent two year period. The Company also injected $25 million of cash into its subsidiary bank. With the acquisition, the Company became a bank holding company with its sole operating bank located in Southern Nevada.

The transaction was recorded as an acquisition under the current accounting rules and as a result the balance sheet of Service1st was revalued to fair value as of the acquisition date. Any purchase price in excess of net assets acquired is recorded as goodwill. Based on a purchase price of $17.1 million and the $16.4 million fair value of net assets acquired, the transaction resulted in $5.6 million of goodwill.

The most significant fair value adjustment resulting from the application of purchase accounting adjustment for this acquisition was made to loans. As of the acquisition date, the gross loan portfolio at Service1st Bank was approximately $125.4 million with a related Allowance for Loan and Lease Losses (“ALLL”) of approximately $9.4 million. The valuation of the loan portfolio resulted in a discount of approximately $15.8 million at October 28, 2010 which was subsequently adjusted to approximately $15.1 million based on additional information after the measurement date, but before the adjustments were considered final. This discount consists of two components; credit discount and yield discount. Loans purchased with credit impairments are loans with credit deterioration since origination and it is probable that not all contractually required principal and interest payments would be collected. The performing loan portfolio was approximately $89.9 million and was discounted by $49,000 for yield and $3.6 million for credit discounts. The remaining $35.6 million of loans were identified as loans with purchased credit impairment (PCI) and those loans had a discount of $576,000 for yield and $10.9 million for credit discounts. The discounts on performing loans are recognized by a “level yield” method over the remaining life of the loans or loan pools. The loans identified as containing purchase credit impairment are treated somewhat differently. The discount associated with yield is accreted as yield discount and the credit discount is not accreted but is left on the books to reduce the current carrying value of the applicable loans.

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 SEC. The Warrant Restructuring Letter Agreement served as the consent and approval of each of the Consenting Warrant Holders to amend and restate the Warrant Agreement. Pursuant to the Warrant Restructuring Letter Agreement, the Warrant Agreement 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 WLBC’s common stock, par value $0.0001 (“Common Stock”), which shall occur concurrently with the consummation of the Acquisition (the “Automatic Exercise Date”). 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 holder’s Warrants into full shares of Common Stock were cancelled on the Automatic Exercise Date. As of September 23, 2010,

there were 48,067,758 Warrants outstanding, each exercisable for one share of Common Stock, which were converted into approximately 1,502,088 shares of Common Stock on the Automatic Exercise Date. As a result of the foregoing, there were no Warrants outstanding after the Automatic Exercise Date. 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 or an aggregate payment of $2.9 million.

On October 28, 2010, the 900 Bank Stock Warrants were converted to 42,834 WLBC stock warrants with an exercise price of $21.01 per stock warrant and all were exercisable at that time. The exercise price was determined in accordance with the Merger Agreement, dated November 6, 2009. The exercise price is calculated by the common stock exchange ratio of 47.5975. Each Service1st stock warrant had an exercise price of $1,000.00. The $1,000.00 is divided by the exchange ratio to create the equivalent exercise price for the Company’s stock warrant ($1,000.00 divided by 47.5975 equals $21.01). As of March 31, 2011, the aggregate intrinsic value of outstanding and vested stock warrants is $0.


Note 3.	FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company 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 Company 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 bond’s terms and conditions, among other things.

Fair Value Measurements at March 31, 2011

Quoted Prices in

Active Markets for

Significant Other

Significant

($ in 000’s)

Identical Assets

Observable Inputs

Unobservable Inputs

Description

Total

(Level 1)

(Level 2)

(Level 3)

Securities available for sale

Collateralized Mortgage Obligation Securities-commercial

1,345

—

1,345

—

There were no transfers between Levels during 2011.

Fair Value Measurements at December 31, 2010

For the Three Months Ended March 31, 2011

Quoted Prices in

Active Markets for

Significant Other

Significant

($ in 000’s)

Identical Assets

Observable Inputs

Unobservable Inputs

Description

Total

(Level 1)

(Level 2)

(Level 3)

Securities available for sale

Collateralized Mortgage Obligation Securities-commercial

1,819

—

1,819

—

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 at March 31, 2011
			Quoted Prices in
			Active Markets for		Significant Other		Significant
($ in 000’s)			Identical Assets		Observable Inputs		Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)

Impaired loans
Commercial real estate	$	1,218		—		—	$	1,218
Other real estate owned		5,444		—		—		5,444

	$	6,662	$	—	$	—	$	6,662


	Fair Value Measurements at December 31, 2010
			Quoted Prices in
			Active Markets for		Significant Other		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)

Impaired loans
Construction, land development and other land	$	3,220		—		—	$	3,220
Commercial real estate		1,648		—		—		1,648
Residential real estate		2,900		—		—		2,900
Commercial and Industrial		3,670		—		—		3,670
Other real estate owned		3,406		—		—		3,406

	$	14,844	$	—	$	—	$	14,844

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.

Other real estate owned

Other real estate owned consists of properties acquired as a result of, or in-lieu-of, foreclosure. Properties classified as other real estate owned are initially reported at the fair value determined by independent appraisals using appraised value, less cost to sell. Such properties are generally re-appraised every six months. There is risk for subsequent volatility. Costs relating to the development or improvement of the assets are capitalized and costs relating to holding the assets are charged to expense. When significant adjustments were based on unobservable inputs, such as when a current appraised value is not available or 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. As of March 31, 2011, there was no valuation allowance for the above reported assets.

Fair value of financial instruments

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows:


	March 31, 2011				December 31, 2010
($ in 000’s)	Carrying Amount		Fair Value		Carrying Amount		Fair Value

Financial Assets:
Cash and cash equivalents	$	90,443	$	90,443	$	103,227	$	103,227
Certificates of deposits		16,784		16,784		26,889		26,889
Securities available for sale		1,345		1,345		1,819		1,819
Securities held to maturity		3,737		3,745		5,314		5,287
Loans, net		100,917		100,340		106,223		106,223
Accrued interest receivable		417		417		447		447
Financial Liabilities:
Deposits	$	131,813	$	131,813	$	160,286	$	160,286
Accrued interest payable		38		38		35		35

Loan Commitments

The estimated fair value of the standby letters of credit at March 31, 2011 and December 31, 2010 is insignificant. Loan commitments on which the committed interest rate is less than the current market rate are also insignificant at March 31, 2011 and December 31, 2010.


Note 4.	SECURITIES

Carrying amounts and fair values of investment securities at March 31, 2011 and December 31, 2010 are summarized as follows:


	March 31, 2011
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
Securities Available for Sale	Cost		Gains		Losses			Value

Collateralized Mortgage Obligation Securities-commercial	$	1,348	$	—	$	(3	)	$	1,345

	$	1,348	$	—	$	(3	)	$	1,345


			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
Securities Held to Maturity	Cost		Gains		Losses		Value

Corporate Debt Securities	$	3,101	$	5	$	—	$	3,106
Small Business Administration Loan Pools		636		3		—		639

	$	3,737	$	8	$	—	$	3,745


	December 31, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Securities Available for Sale	Cost		Gains		Losses		Value

Collateralized Mortgage Obligation Securities-commercial	$	1,819	$	—	$	—	$	1,819

	$	1,819	$	—	$	—	$	1,819


			Gross		Gross
	Amortized		Unrecognized		Unrecognized			Fair
Securities Held to Maturity	Cost		Gains		Losses			Value

Corporate Debt Securities	$	4,663	$	—	$	(27	)	$	4,636
Small Business Administration Loan Pools		651		—		—			651

	$	5,314	$	—	$	(27	)	$	5,287

There have been no sales of securities or gross realized gains or losses in any of the periods presented.

As of March 31, 2011 and December 31, 2010, securities of $3.1 and $4.7 million, respectively were pledged for various purposes as required or permitted by law.

Information pertaining to securities with gross losses at March 31, 2011 and December 31, 2010, aggregated by investment category and length of time that individual securities have been in continuous loss position follows:


	March 31, 2011
	Less Than Twelve Months					Over Twelve Months
	Gross					Gross
	Unrealized			Fair		Unrealized		Fair
	(Losses)			Value		(Losses)		Value

Securities Available for Sale
Collateralized Mortgage Obligation
Securities — commercial		(3	)		1,345		—		—

	$	(3	)	$	1,345	$	—	$	—

Securities Held to Maturity
Corporate Debt Securities		—			—		—		—
Small Business Administration Loan Pools		—			—		—		—

	$	—		$	—	$	—	$	—


	December 31, 2010
	Less Than Twelve Months					Over Twelve Months
	Gross					Gross
	Unrealized			Fair		Unrealized		Fair
	(Losses)			Value		(Losses)		Value

Securities Available for Sale
Collateralized Mortgage Obligation
Securities — commercial		—			—		—		—

	$	—		$	—	$	—	$	—

Securities Held to Maturity
Corporate Debt Securities		(27	)		4,636		—		—
Small Business Administration Loan Pools		—			—		—		—

	$	(27	)	$	4,636	$	—	$	—

As of March 31, 2011 and December 31, 2010, six and three debt securities, respectively, have unrealized losses with aggregate degradation less than one percent for both periods from the Company’s carrying value. These unrealized losses, totaling $3,000 and $27,000, respectively, relate primarily to fluctuations in the current interest rate environment and other factors, but do not presently represent realized losses. As of March 31, 2011 and December 31, 2010 there are no securities that have been determined to be other-than-temporarily-impaired (OTTI).

The amortized cost and fair value of securities as of March 31, 2011 by contractual maturities are shown below. The maturities of small business administration loan pools differ from their contractual maturities because the loans underlying the securities may be repaid without penalties; therefore, these securities are listed separately in the maturity summary.


	Amortized Cost		Fair Value

Securities available for sale
Due in one year or less	$	964	$	961
Due after one year through five years		384		384

	$	1,348	$	1,345


	Amortized Cost		Fair Value

Securities held to maturity
Due in one year or less	$	1,549	$	1,552
Due after one year through five years		1,552		1,554
Small Business Administration loan pools		636		639

	$	3,737	$	3,745


Note 5.	LOANS

Loans at March 31, 2011 and December 31, 2010 were as follows:


	March 31,			December 31,
($ in 000’s)	2011			2010

Construction, land development and other land	$	4,619		$	5,923
Commercial real estate		53,416			54,975
Residential real estate		3,980			9,247
Commercial and industrial		40,041			35,946
Consumer		131			131
Plus: net deferred loan costs		20			37

		102,207			106,259
Less: allowance for loan losses		(1,290	)		(36	)

	$	100,917		$	106,223

Activity in the allowance for loan losses was as follows:


									Construction,
									Land
			Commercial		Residential				Development,
($ in 000’s)	Commercial		Real Estate		Real Estate		Consumer		Other Land			Total

Beginning balance, December 31, 2010	$	36		—		—		—		—		$	36
Provision for loan losses		512		421		136		1		294			1,364
Recoveries		—		4		—		—		—			4
Loan charge-offs		—		—		—		—		(114	)		(114	)

Balance, March 31, 2011	$	548	$	425	$	136	$	1	$	180		$	1,290

The allocation of the allowance for loan losses by loan type is presented below:


	March 31, 2011
($ in 000’s)	Amount		% of loans

Allowance for Loan and Lease Losses: Loans Secured by Real Estate
Construction, land development and other land	$	180		4.51	%
Commercial real estate		425		52.22	%
Residential real estate (including multi-family)		136		3.89	%

Total loans secured by real estate		741		60.62	%
Commercial and industrial		548		39.25	%
Consumer		1		0.13	%

Total allowance for loan losses		1,290		100.00	%

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2011 and December 31, 2010:


									Construction,
									Land
			Commercial		Residential				Development,
($ in 000’s)	Commercial		Real Estate		Real Estate		Consumer		Other Land		Total

March 31, 2011
Allowance for loan losses:
Ending allowance balance attributed to loans:
Individually evaluated for impairment	$	3	$	274	$	—	$	—	$	—	$	277
Collectively evaluated for impairment		394		74		136		1		180		785
Acquired with deteriorated credit quality		151		77		—		—		—		228

Total ending allowance balance	$	548	$	425	$	136	$	1	$	180	$	1,290

Loans:
Loans individually evaluated for impairment	$	45	$	1,148	$	—	$	—	$	—	$	1,193
Loans collectively evaluated for impairment		37,102		47,783		3,976		133		2,143		91,137
Loans acquired with deteriorated credit quality		2,970		4,437		—		—		2,470		9,877

Total ending loans balance	$	40,117	$	53,368	$	3,976	$	133	$	4,613	$	102,207


December 31, 2010
Allowance for loan losses:
Ending allowance balance attributed to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		36		—		—		—		—		36
Acquired with deteriorated credit quality		—		—		—		—		—		—

Total ending allowance balance	$	36	$	—	$	—	$	—	$	—	$	36

Loans:
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment		30,917		50,449		3,988		133		1,006		86,493
Loans acquired with deteriorated credit quality		5,421		4,458		5,257		—		4,630		19,766

Total ending loans balance	$	36,338	$	54,907	$	9,245	$	133	$	5,636	$	106,259

Impaired loan details as of March 31, 2011 and December 31, 2010 are as follows:


	March 31, 2011
						Percent of								Percent of
	Impaired					Total			Reserve					Total
($ in 000’s)	Balance		%			Loans			Balance		%			Allowance

Construction, land development and other land loans	$	1,060		20.16	%		1.04	%		—		—			—
Commercial real estate		2,793		53.11	%		2.73	%		351		69.50	%		27.21	%
Residential real estate (1-4 family)		—		—			—			—		—			—
Commercial and industrial		1,406		26.73	%		1.38	%		154		30.50	%		11.94	%
Consumer		—		—			—			—		—			—

Total impaired loans	$	5,259		100.00	%		5.15	%	$	505		100.00	%		39.15	%


	December 31, 2010
						Percent of								Percent of
	Impaired					Total			Reserve					Total
($ in 000’s)	Balance		%			Loans			Balance		%			Allowance

Construction, land development and other land loans	$	3,220		28.15	%		3.03	%		—		—			—
Commercial real estate		1,648		14.41	%		1.55	%		—		—			—
Residential real estate (1-4 family)		2,900		25.35	%		2.73	%		—		—			—
Commercial and industrial		3,670		32.09	%		3.46	%		—		—			—
Consumer		—		—			—			—		—			—

Total impaired loans	$	11,438		100.00	%		10.77	%		—		—			—

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2011 and December 31, 2010, respectively:


	March 31, 2011
			Over 90 days
($ in 000’s)	Nonaccrual		and accruing

Construction, land development and other land	$	428	$	308
Commercial real estate		2,371		—
Residential real estate		—		—
Commercial and industrial		1,406		152
Consumer		—		—

Total	$	4,205	$	460


	December 31, 2010
			Over 90 days
($ in 000’s)	Nonaccrual		and accruing

Construction, land development and other land	$	2,632	$	—
Commercial real estate		1,224		—
Residential real estate		2,900		—
Commercial and industrial		3,670		—
Consumer		—		—

Total	$	10,426	$	—

The following tables present the aging of the recorded investment in past due loans as of March 31, 2011 and December 31, 2010, respectively:


	March 31, 2011
($ in 000’s)	30 to 89 days		Over 90 days		Total Past Due

Construction, land development and other land	$	850	$	308	$	1,158
Commercial real estate		466		—		466
Residential real estate		—		—		—
Commercial and industrial		60		1,255		1,315
Consumer		—		—		—

Total	$	1,376	$	1,563	$	2,939


	December 31, 2010
($ in 000’s)	30 to 89 days		Over 90 days		Total Past Due

Construction, land development and other land	$	—	$	2,518	$	2,518
Commercial real estate		—		1,003		1,003
Residential real estate		—		2,900		2,900
Commercial and industrial		3,108		38		3,146
Consumer		—		—		—

Total	$	3,108	$	6,459	$	9,567

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. The Company uses the following definitions for risk ratings:

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 Service1st’s credit position at some future date. Special Mention assets pose an elevated level of concern, but their weakness does not yet justify a Substandard classification. Loans in this category are usually performing as agreed, although there may be minor non-compliance with financial or technical covenants.

Substandard

Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful

Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.

As of March 31, 2011 and December 31, 2010, respectively, the risk category, which relate to credit quality indicators, of loans by class of loans, including accrual and non-accrual loans, (net of deferred fees and costs) is as follows:


	March 31, 2011
($ in 000’s)	Pass		Special Mention		Substandard		Doubtful		Total

Construction, land development and other land	$	1,727	$	—	$	2,886	$	—	$	4,613
Commercial real estate		44,511		2,807		6,050		—		53,368
Residential real estate		1,032		—		2,944		—		3,976
Commercial and industrial		34,496		375		4,303		943		40,117
Consumer		133		—		—		—		133

Total	$	81,899	$	3,182	$	16,183	$	943	$	102,207


	December 31, 2010
($ in 000’s)	Pass		Special Mention		Substandard		Doubtful		Total

Construction, land development and other land	$	1,006	$	—	$	4,630	$	—	$	5,636
Commercial real estate		47,643		2,806		4,296		162		54,907
Residential real estate		3,988		—		5,257		—		9,245
Commercial and industrial		30,677		240		4,483		938		36,338
Consumer		133		—		—		—		133

Total	$	83,447	$	3,046	$	18,666	$	1,100	$	106,259

Purchased Loans

The Company has purchased loans, for which there was, at acquisition, evidence of credit quality deterioration since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows:


($ in 000’s)	March 31, 2011		December 31, 2010

Construction, land development and other land	$	2,470	$	4,630
Commercial real estate		4,437		4,458
Residential real estate		—		5,257
Commercial and industrial		2,970		5,421

Balance December 31, 2010	$	9,877	$	19,766

As previously discussed, the October 28, 2010 transaction to acquire Service1st Bank was accounted for as a business combination which resulted in application of fair value accounting to the subsidiary’s balance sheet. The total discount to the loan portfolio was approximately $15.1 million at the acquisition date. The loan portfolio was segregated into performing loans and non-performing loans or purchased loans with credit impairment.

The performing loans totaled approximately $89.9 million and were marked with a credit discount of $3.6 million and approximately $49,000 of yield discount. In accordance with current accounting pronouncements, the discounts on performing loans are being recognized on a method that approximates a level yield over the expected life of the loan. During the first quarter, approximately $552,000 of discount was accreted on these loans.

The loans identified as purchased with credit impairments were approximately $35.6 million as of the acquisition date. A credit discount of approximately $10.9 million was recorded and an additional $576,000 of yield discount was also recorded. The yield discount is being recognized on a method that approximates a

level yield over the expected life of the loan. The Company does not accrete the credit discount into income until such time as the loan is removed from the bank. The only exception would be on a case-by-case basis when a material event that significantly improves the quality of the loan and reduces the risk to the bank such that management believes it would be prudent to start recognizing some of the discount is documented. The credit discount represents approximately 30% of the transaction date value of the credit impaired loans. During the first quarter of 2011, as a result of various loan payoffs, and loan activities, a portion of the credit discount was recognized in earnings.

The following table reflects the discount changes in the purchased credit impaired loan portfolio for the period indicated:


($ in 000’s)	Yield Discount			Credit Discount

Balance, December 31, 2010	$	539		$	9,317
Accreted to income		(147	)		(1,549	)
Other changes, net		—			(91	)

Balance, March 31, 2011	$	392		$	7,677

Management does not establish general reserves against purchased credit impaired loans. In the event that deterioration in the credit is identified subsequent to the date of the discount, additional specific reserves will be created. As of March 31, 2011, reserves in the amount of $228,000 were added relating to the October 28, 2010 purchased credit impaired loan portfolio.


Note 6.	GOODWILL AND INTANGIBLES

The excess of the cost of an acquisition over the fair value of the net assets acquired consists of goodwill, and core deposit intangibles. Under ASC Topic 350, goodwill is subject to at least annual assessments for impairment by applying a fair value-based test. The Company reviews goodwill and other intangible assets to determine potential impairment annually, or more frequently if events and circumstances indicate that the asset might be impaired, by comparing the carrying value of the asset with the anticipated future cash flows.

The Company has established October 31 as the date it will use for the annual assessment. The first annual testing for goodwill impairment will occur at October 31, 2011. The carrying value of goodwill at March 31, 2011 is $5,633. No impairment losses were recognized as of March 31, 2011.

The Company has other intangible assets which consist of a core deposit intangible that had, as of March 31, 2011, a remaining average amortization period of approximately ten years.

The following table presents the changes in the carrying amount of the core deposit intangible, gross carrying amount, accumulated amortization, and net book value as of March 31, 2011:


	March 31,
($ in 000’s)	2011

Balance at beginning of period	$	768
Amortization expense		(24	)

Balance at end of period	$	744

Gross carrying amount	$	784
Accumulated amortization		(40	)

Net book value	$	744


Note 7.	OTHER REAL ESTATE ACQUIRED THROUGH FORECLOSURE

The following table presents the changes in other real estate acquired through foreclosure:


	Three Months Ended
($ in 000’s)	March 31, 2011

Balance, beginning of period	$	3,406
Additions		2,038
Dispositions		—
Valuation adjustments in the period		—

Balance, end of period	$	5,444

During the period, two properties were transferred into other real estate owned. As of March 31, 2011, Service1st Bank has five parcels of property.


Note 8.	DEPOSITS

The composition of deposits is as follows:


	March 31,		December 31,
($ in 000’s)	2011		2010

Demand deposits, non-interest bearing	$	51,847	$	67,087
NOW and money market accounts		39,721		56,509
Savings deposits		1,031		1,273
Time certificates, $100 or more		33,335		30,498
Other time certificates		5,879		4,919

Total	$	131,813	$	160,286


Note 9.	STOCK-BASED COMPENSATION

The Company has two share-based compensation programs. A restricted stock program granted to the Company’s Chief Executive Officer and Chief Financial Officer and the related stock options associated with Service1st Bank’s 2007 Stock Option Plan have been fully discussed in the Company’s 2010 Form 10-K. No grants were made during the first quarter of 2011. Total compensation cost that has been charged against income for those programs was approximately $141,000 for the period ended March 31, 2011. There has been no income tax benefit recorded because of the offset in the deferred tax asset valuation allowance. As of March 31, 2011 the aggregate intrinsic value of outstanding and vested stock options is $0.


Note 10.	REGULATORY MATTERS

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes as of March 31, 2011, the Company and Bank met all capital adequacy requirements to which they are subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If the Bank is only adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At March 31, 2011, the most recent regulatory notifications categorized the Bank as adequately capitalized under the regulatory framework for prompt corrective action. This determination is mandated when an institution becomes party to a formal regulatory

action. The Bank cannot be considered well capitalized until the Consent Order is removed. There are no conditions or events since that notification that management believes have changed the institution’s category.

Actual capital levels and minimum required levels from March 31, 2011 and December 31, 2010 were as follows:


	March 31, 2011
											To Be Well Capitalized
						Minimum Required for					Under Prompt Corrective					Minimum Required Under
	Actual					Capital Adequacy Purposes					Action Regulations					Regulatory Agreements
($ in millions)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio

Total capital (to risk-weighted assets)
Consolidated	$	88.6		71.7	%	$	9.9		8.0	%		N/A		N/A			N/A		N/A
Service1st Bank	$	38.1		33.7	%	$	9.0		8.0	%	$	11.3		10.0	%	$	13.5		12.0	%
Tier 1 capital (to risk-weighted assets)
Consolidated	$	87.2		70.6	%	$	4.9		4.0	%		N/A		N/A			N/A		N/A
Service1st Bank	$	36.7		32.5	%	$	4.5		4.0	%	$	6.8		6.0	%	$	—		N/A
Tier 1 capital (to average assets)
Consolidated	$	87.2		33.0	%	$	10.6		4.0	%		N/A		N/A			N/A		N/A
Service1st Bank	$	36.7		21.8	%	$	6.7		4.0	%	$	8.4		5.0	%	$	16.9		10.0	%


	December 31, 2010
											To Be Well Capitalized
						Minimum Required for					Under Prompt Corrective					Minimum Required Under
	Actual					Capital Adequacy Purposes					Action Regulations					Regulatory Agreements
($ in millions)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio

Total capital (to risk-weighted assets)
Consolidated	$	87.8		68.8	%	$	10.2		8.0	%		N/A		N/A			N/A		N/A
Service1st Bank	$	36.3		31.0	%	$	9.4		8.0	%	$	11.7		10.0	%	$	14.1		12.0	%
Tier 1 capital (to risk-weighted assets)
Consolidated	$	87.4		68.4	%	$	5.1		4.0	%		N/A		N/A			N/A		N/A
Service1st Bank	$	35.9		30.6	%	$	4.7		4.0	%	$	7.0		6.0	%	$	—		N/A
Tier 1 capital (to average assets)
Consolidated	$	87.4		30.5	%	$	11.5		4.0	%		N/A		N/A			N/A		N/A
Service1st Bank	$	35.9		18.1	%	$	7.9		4.0	%	$	9.9		5.0	%	$	19.8		10.0	%

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 FID to the issuance of a Consent Order. The Consent Order supersedes a Memorandum of Understanding entered into by Service1st with the FDIC and Nevada FID 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 ratio at or above 8.5% and a total risk-based capital ratio at or above 12%; (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 Service1st’s risk exposure to adversely classified assets; (vi) not extend any additional credit to any borrower whose loan has been classified as “loss”; (vii) not extend any additional credit to any borrower whose loan has been classified as “substantial” or “Doubtful” without prior approval from Service1st’s board of directors or loan committee; (viii) formulate and implement a plan to reduce risk exposure to its concentration in commercial real estate loans in conformance with Appendix A of Part 365 of the FDIC’s Rules and Regulations; (ix) formulate and implement a plan to address profitability; and (x) not accept brokered deposits (which includes deposits paying interest rates significantly higher than prevailing rates in Service1st’s market area) and reduce its reliance on existing brokered deposits, if any.

During the application process for acquisition of Service1st by WLBC, we made a commitment to the FDIC 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 FID terminates.


Note 11.	LEGAL CONTINGENCIES

In the ordinary course of our business, we are party to various legal actions, which we believe are incidental to the operation of our business. Although the ultimate outcome and amount of liability, if any, with respect to these legal actions to which we are currently a party, cannot presently be ascertained with certainty, in the opinion of management, based upon information currently available to use, any resulting liability is not likely to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.


ITEM 2.	*MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS*

You should read the following discussion and analysis in conjunction with unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q and our combined and consolidated financial statements and related notes thereto included in or incorporated into Part II, Item 8 of our Annual Report on Form 10-K and the Risk Factors included in Part I, Item 1A of our Annual Report on Form 10-K , as well as other cautionary statements and risks described elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K .

References to “us”, “we”, “our” or “WLBC” refer to Western Liberty Bancorp. The following discussion and analysis of WLBC’s financial condition and results of operations should be read in conjunction with the condensed financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Forward-Looking Statements

All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the Securities and Exchange Commission. We wish to caution you not to place undue reliance on these forward-looking statements, which speak only as of the date made. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.

Overview

Business of WLBC: WLBC became a bank holding company on October 28, 2010 with consummation of the acquisition of Service1st Bank. Our sole subsidiary is Service1st. We currently conduct no business activities other than acting as the holding company of Service1st.

As a bank holding company, operating from its headquarters and two retail banking locations in the greater Las Vegas area, WLBC 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 March 31, 2011, loans secured by real estate constituted 60.69% of WLBC’s loan portfolio. This ratio is calculated by adding together loans secured by real estate at March 31, 2011 (construction, land development and other land loans of $4.6 million, commercial real estate loans of $53.4 million and residential real estate loans of $4.0 million, which total $62.0 million of loans secured by real estate) and dividing this balance by gross loans of $102.2 million at March 31, 2011. WLBC relies on locally-generated deposits to provide WLBC with funds for making loans. The majority of its business is generated in the Nevada market.

WLBC 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 professional, administrative, and occupancy expenses. Net interest income is the difference between interest income on interest-earning assets, such as loans and securities, and 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.

WLBC 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. WLBC may also generate income from time to time from the sale of investment securities. The fees collected by WLBC are found in non-interest income.

Summary of Results of Operations and Financial Condition

This section of Management’s Discussion and Analysis does not contain a comparative format for first quarter 2011 and 2010. As discussed in Note 1 in the “Notes to Unaudited Condensed Consolidated Financial Statements,” herein the Company deemed its prior operations as insignificant relative to those of Service 1st. Therefore, we believe such information is not meaningful by way of comparison, and as such it is omitted.

Results of Operations for the Three Months Ended March 31, 2011

For the three months ended March 31, 2011, we had a net loss of $409,000 or $0.03 per common share. Our revenue was derived from interest income of $3.8 million and non-interest income of $121,000. Loan interest income comprised 98.28% of the $3.8 million. Our expenses for the three months ended March 31, 2011 are comprised of $2.9 million in non-interest expense, $1.4 million of loan loss provision expense and $112,000 of interest expense. Non-interest expense is primarily comprised of $935,000 in legal and accounting fees related to SEC filings during the first quarter, $793,000 in salaries and employee benefits due to financial institutions being people intensive business, and $374,000 in occupancy expense as the company’s locations are leased. Provision expense totaled $1.4 million for the quarter due to deterioration of the loan portfolio. Interest expense of $112,000 is primarily attributed to interest paid to customers on interest-bearing deposits.

The following tables set forth WLBC’s 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 period ended March 31, 2011.


	For the Three Months
	Ended March 31, 2011
				Interest
	Average			Income/
($ in 000’s)	Balance			Expense		Yield
	unaudited

INTEREST EARNING ASSETS:
Securities, taxable and other	$	97,992		$	67		0.27	%
Portfolio loans(1)		105,618			3,782		14.52	%


Total interest-earnings assets/interest income		203,610			3,849		7.67	%
NON-INTEREST EARNING ASSETS:
Cash and due from banks		8,427
Allowance for loan losses		(83	)
Other assets		14,298

Total assets	$	226,252


LIABILITIES AND STOCKHOLDERS’ EQUITY INTEREST-BEARING LIABILITIES:
Interest checking	$	10,140			7		0.28	%
Money Markets		24,825			33		0.54	%
Savings		1,177			1		0.34	%
Time deposits under $100,000		5,244			11		0.85	%
Time deposits $100,00 and over		31,587			58		0.74	%
Short-term borrowings		3,667			2		0.22	%


Total interest-bearing liabilities/interest expense		76,640			112		0.59	%
Non-interest-bearing demand deposits		53,308
Accrued interest on deposits and other liabilities		2,641

Total liabilities		132,589
Stockholders’ equity		93,663

Total liabilities and stockholders’ equity	$	226,252

Net interest income and interest rate spread(2)				$	3,737		7.08	%

Net interest margin(3)							7.44	%
Ratio of Average Interest-Earning Assets to Interest-Bearing Liabilities		266	%


(1)		Average balance includes nonaccrual loans of approximately $4,205 for 2011. Net loan costs of $20 are included in the yield computation for 2011.

(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.

Net interest income was $3.7 million which included approximately $2.2 million of loan discount accretion. The interest rate spread was 7.08% and net interest margin was 7.44% in the first quarter of 2011. During the first quarter of 2011, WLBC sought to closely manage the rates on its deposit base in order to increase its net interest income, interest rate spread and net interest margin. Deposits decreased $28.5 million as of March 31, 2011 from $160.3 million as of December 31, 2010 to $131.8 million as of March 31, 2011 primarily due to Service1st complying with its September 1, 2010 Consent Order and eliminating $23.5 million in interest-bearing deposits on January 4, 2011 that the FDIC deemed to be brokered deposits. Overall rates on

deposit accounts approximated 0.59% for the three months ended March 31, 2011 which resulted in interest expense totaling $112,000. WLBC decreased cash and cash equivalents during the first quarter of 2011 by $12.5 million and certificates of deposit held at other banks by $10.0 million and investment securities portfolio decreased by $2.1 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.)

Net interest income was positively impacted in the first quarter of 2011 by a reduction in interest expense. Interest-bearing transactional deposits decreased $17.0 million, from the $57.8 million as of December 31, 2010 to $40.8 million as of March 31, 2011 primarily due to $23.5 million of interest bearing deposits that the FDIC deemed to be brokered deposits being eliminated on January 4, 2011. The overall yield on interest bearing deposits was 0.61% as of March 31, 2011. In addition, WLBC continues to maintain a ratio of non-interest bearing deposit levels to total deposits of 40%; as of March 31, 2011 the ratio of non-interest bearing to total deposits was 39.33%.

The allowance for loan and lease losses continues to grow during the first full quarter of consolidated operations, as a result of further deterioration of problem loans in WLBC’s loan portfolio. The allowance stood at $1.3 million at March 31, 2011, or 1.26% of loans. The increase in the allowance during the first quarter of 2011 was primarily attributable to a provision for loan losses of $1.4 million plus $4,000 in recoveries less $114,000 in charge-offs.

Non-Interest Income

Non-interest income primarily consists of loan documentation and late fees, service charges on deposits, other fees such as wire, ATM fees, and gains on loans.


	Three Months Ended
($ in thousands)	March 31, 2011		December 31, 2010		March 31, 2010

Service charge income	$	78	$	57	$	—
Other non-interest income		43		51		—

	$	121	$	108	$	—

Non-interest income increased from $108,000 for the period ended December 31, 2010 to $121,000 for the quarter ended March 31, 2011. The increase of $13,000 is primarily attributable to a $21,000 increase in service charge income due to a continuing effort by WLBC’s management to adhere to fee income policies, including limiting waivers of such fees. Prior to the acquisition of Servicelst, the Company had no non-interest income in any reporting period.

Non-Interest Expense

The following table sets forth the principal elements of non-interest expenses for the quarters ending March 31, 2011 and 2010.


	Three Months Ended
	March 31,		December 31,		March 31,
($ in thousands)	2011		2010		2010

Salaries and employee benefits	$	793	$	1,284	$	75
Occupancy, equipment and depreciation		374		269		—
Computer service charges		77		51		—
Federal deposit insurance		152		90		—
Professional fees		936		1,177		855
Advertising and business development		20		7		—
Insurance		71		600		74
Telephone		26		19		—
Stationary and supplies		142		41		105
Stock-based compensation		141		2,357		631
Other		170		480		16

	$	2,902	$	6,375	$	1,756

Non-interest expense totaled $2.9 million for the three months ended March 31, 2011. Total non-interest expense went from $1.8 million for the three months ended March 31, 2010 to $6.3 million for the three months ended December 31, 2010. Professional fees, which includes legal, accounting, and consultant expenses grew from $855,000 for the three months ended March 31, 2010, to $1.2 million for the three months ended December 31, 2010, and then slightly decreased to $936,000 for the three months ended March 31, 2011. These expenses were attributed to WLBC’s acquisition of Service1st as well as required SEC filings.

Stock-based compensation expense, which includes expenses associated with the issuance of restricted stock, stock options, and stock warrants, decreased from $631,000 for the three months ended March 31, 2010, to $141,000 for the three months ended March 31, 2011. Stock-based compensation expense increased to $2.4 million for the three months ended December 31, 2010 due to additional stock grants which took place in the fourth quarter of 2010.

Income Taxes

Due to WLBC incurring operating losses from inception, no provision for income taxes has been recorded since the inception of WLBC.

Supplemental Results of Operation Information for Predecessors

The following information represents a discussion and analysis of the results of operations of the Company’s predecessor for the three months ended March 31, 2010.

Service1st Bank of Nevada

Results of Operations

For the three months ended March 31, 2010, net loss was $1.8 million.

Net interest income was $1.8 million for the three months ended March 31, 2010. Net interest margin was 3.6%.

For the three months ended March 31, 2010, the Company recorded $1.5 million in additions to its provision for loan losses.

For the three months ended March 31, 2010, non-interest income was $150,000. Service charges on deposit accounts represented 79% of total non-interest income.

For the three months ended March 31, 2010, non-interest expenses were $2.2 million compared to $2.9 million for the period ending March 31, 2011. Salaries and employee benefits were $1 million and $748,000 respectively, or approximately 45% of all non-interest expenses for each quarter. Other overhead costs during the first quarter of 2010 included professional fees of $292,000, occupancy expense of $250,000, furniture, fixtures and equipment of $124,000, data processing expenses of $77,000, advertising and business development $20,000, and other expenses of $235,000.

No income tax expense was recorded for three months ended March 31, 2011 or 2010.

Financial Condition

Assets

Total assets stood at $228.8 million as of March 31, 2011, a decrease of $28.7 million, from $257.5 million as of December 31, 2010. The decrease was principally attributable to a $28.5 million decrease in deposits. WLBC eliminated $23.5 million on January 4, 2011 so that the Company is in compliance with its September 1, 2010 Consent Order in which the FDIC deemed a certain deposit to be brokered. As a result of deposits dropping $23.5 million, 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), decreased $12.8 million while certificate of deposits held at other banks decreased $10.1 million as the Company decided to allow maturing certificates of deposits held at other institutions for investment purposes, not to be reinvested.

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 $90.4 million at March 31, 2011 and $103.2 million at December 31, 2010. Cash and cash equivalents are managed based upon liquidity needs. The decrease of $12.8 in cash and cash equivalents reflects WLBC’s efforts to liquidate its investments in short term certificates of deposits as a result of the $23.5 million in interest-bearing deposits being wired out of the bank on January 4, 2011 so that the company is in compliance with its September 1, 2010 Consent Order where the FDIC deemed a depository relationship to be brokered.

Investment Securities and Certificates of Deposits held at other Banks

WLBC 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 WLBC; and (iv) they represent an alternative interest-earning use of funds when loan demand is weak or when deposits grow more rapidly than loans.

Certificates of deposits consist of investments of $250,000 or less, in bank CD’s throughout the United States of America. Certificates of deposit totaled $16.8 million at March 31, 2011 and $26.9 million at December 31, 2010. Certificates of deposits are managed based on liquidity needs. The $10.1 million decrease in certificates of deposits since year end is directly related to the $23.5 million in interest-bearing checking which was wired out of the bank on January 4, 2011 so that the Company would be in compliance with its September 1, 2010 Consent Order in which the FDIC deemed a certain depository account relationship to be brokered. As a result of the $23.5 million leaving, bank management decided not to reinvest these funds.

WLBC 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 WLBC has both the intent and ability

to hold until maturity, to be sold only in the event of concerns with an issuer’s credit worthiness, a change in tax law that eliminates their tax exempt status, or other infrequent situations as permitted by generally accepted accounting principles. Accounting guidance requires Available for Sale securities to be marked to estimated fair value with an offset, net of taxes, to accumulated other comprehensive income, a component of stockholders’ equity.

WLBC’s 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 March 31, 2011, investment securities totaled $5.1 million, a decrease of 28.75% or $2.0 million, compared with $7.1 million at December 31, 2010.

WLBC has not used interest rate swaps or other derivative instruments to hedge fixed rate loans or to otherwise mitigate interest rate risk.

Loans

Gross loans, net of deferred fees and the allowance for loan losses, decreased $5.3 million from $106.2 million as of December 31, 2011 to $100.9 million as of March 31, 2010, primarily as a result of $3.9 million in new loans less $5.9 million in payoffs and paydowns which are net of principal advances, $114,000 in charged off loans, $2.0 million in loans being reclassified to other real estate owned (OREO), and an increase in the allowance for loan losses of $1.3 million.

Residential real estate decreased $5.3 million, from $9.3 million as of December 31, 2010 to $4.0 million as of March 31, 2011 primarily due to the payoff of two large residential real estate loans, the first loan for $1.3 million, the second for $2.9 million.

Commercial real estate decreased $1.6 million, from $55.0 million as of December 31, 2010 to $53.4 million as of March 31, 2011 primarily due to the paydowns and one new loan for $361,000 in March 2011.

Construction, land development and other land loans decreased $1.3 million, from $5.9 million as of December 31, 2010 to $4.6 million as of March 31, 2011 primarily due to $2.0 million in loans being reclassified to OREO and $114,000 loan balance being charged off.

Commercial and industrial loans increased $4.0 million primarily due to the origination of twenty new loans totaling $3.6 million in the first quarter 2011.

The following table summarizes nonperforming assets by category including loans purchased with credit impairment with no contractual interest being reported.


	March 31,		December 31,
($ in thousands)	2011		2010

Nonaccrual loans:
Loans Secured by Real Estate
Construction, land development and other land loans	$	428	$	2,632
Commercial real estate		2,371		1,224
Residential real estate (1-4 family)		0		2,900

Total loans secured by real estate		2,799		6,756
Commercial and industrial		1,406		3,670
Consumer		0		0

Total nonaccrual loans		4,205		10,426
Past due (›90 days) loans and accruing interest:
Loans Secured by Real Estate Construction, land development and other land loans	$	308	$	0
Commercial real estate		0		0
Residential real estate (1-4 family)		0		0

Total loans secured by real estate		308		0
Commercial and industrial		152		0
Consumer		0		0

Total past due loans accruing interest		460		0

Total nonperforming loans(1)		4,665		10,426

Other real estate owned (OREO)		5,444		3,406

Total nonperforming assets	$	10,109	$	13,832

Non-Performing loans as a percentage of total portfolio loans		4.56%		9.81%
Non-Performing assets as a percentage of total assets		4.42%		5.37%
Allowance for loan losses as a percentage of nonperforming loans		27.65%		0.35%


(1)		There are no nonperforming restructured loans that have not already been presented in nonaccrual. Certain loans that have demonstrated compliance with the restructured loan terms for more than six months have been returned to performing status as a result of the sustained performance.

OREO

Other real estate owned (OREO) increased $2.0 million from $3.4 million as of December 31, 2010 to $5.4 million as of March 31, 2011 when a $2.0 million construction, land and other land loan was moved to the classification of OREO as of February 28, 2011.

Deposits

WLBC’s deposit activities are based in Nevada and primarily generated from this local area. Deposits have historically been the primary source for funding asset growth. As of March 31, 2011 the company has no brokered deposits.

During the first quarter of 2011 the company sought to manage rates on its deposit base in order to increase its net interest income, interest rate spread and net interest margin. Deposits decreased $28.5 million or 17.77% as of March 31, 2011 from $160.3 million as of December 31, 2010 to $131.8 million as of March 31, 2011.

Interest-bearing transactional deposits decreased $17.0 million from $57.8 million as of December 31, 2010 to $40.8 million as of March 31, 2011 as a result of the company eliminating $23.5 million on January 4,

2011 in order for WLBC to remain in compliance with the Consent Order issued September 1, 2010 which deemed a certain depository account as a brokered deposit.

Non-interest bearing checking accounts decreased $15.2 million or 22.72% from $67.1 million as of December 31, 2010 to $51.8 million as of March 31, 2011 primarily due to escrowed funds being utilized for major construction projects during the first quarter of 2011.

Capital Resources

The current and projected capital position of WLBC and the impact of capital plans on long term strategies are reviewed regularly by management. WLBC’s capital position represents the level of capital available to support continuing operations and expansion.

WLBC is subject to certain regulatory capital requirements mandated by the FDIC and generally applicable to all banks in the United States. 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 WLBC or the subsidiary bank. 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. WLBC’s capital amounts and classifications are also subject to qualitative judgments by the FDIC about components, risk weightings and other factors. In accordance with Service1st’s 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 8.5%.

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 FID to the issuance of a Consent Order. The Consent Order supersedes a Memorandum of Understanding entered into by Service1st with the FDIC and Nevada FID 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 ratio at or above 8.5% (as of December 31, 2010, Service1st’s Tier I leverage ratio was at 18.1%) and a total risk-based capital ratio at or above 12% (as of December 31, 2010, Service1st’s total risk-based capital ratio was at 31.0%); (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 Service1st’s risk exposure to adversely classified assets; (vi) not extend additional credit to any borrower whose loan has been charged-off or classified “loss”; (vii) not extend any additional credit to any borrower whose loan has been classified as “substandard” or “doubtful” without prior approval from Service1st’s board of directors or loan committee; (viii) formulate and implement a plan to reduce risk exposure to its concentration in commercial real estate loans in conformance with Appendix A of Part 365 of the FDIC’s Rules and Regulations; (ix) formulate and implement a plan to address profitability; and (x) not accept brokered deposits (which includes deposits paying interest rates significantly higher than prevailing rates in Service1st’s market area) and reduce its reliance on existing brokered deposits, if any.

As of March 31, 2011, WLBC’s capital was $93.6 million, which WLBC 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 Service1st’s first seven years of operations. 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.

WLBC’s capital ratios at March 31, 2011 and December 31, 2010 respectively, relative to the ratios required of banks under the prompt corrective action regime or other requirements put in place by federal banking regulations, are as follows:


							“To Be Adequately
							Capitalized Under
							Regulatory
Capital Ratios:	WLBC			Service1st			Agreement”

March, 31, 2011
Tier 1 equity to average assets		33.0	%		21.8	%		10.0	%
Tier 1 risk-based capital ratio		70.6	%		32.5	%		6.0	%
Total risk-based capital ratio		71.7	%		33.7	%		12.0	%
December 31, 2010
Tier 1 equity to average assets		30.5	%		18.1	%		10.0	%
Tier 1 risk-based capital ratio		68.4	%		30.6	%		6.0	%
Total risk-based capital ratio		68.8	%		31.0	%		12.0	%

Liquidity and Asset/Liability Management

Liquidity management refers to WLBC’s 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 WLBC’s liquidity position. Lines of credit with the regional Federal Reserve Bank and FHLB, 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. WLBC assesses the likelihood of projected funding requirements by reviewing current and forecasted economic conditions and individual client funding needs.

WLBC’s sources of liquidity consist 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 Pacific Coast Bankers’ Bank, Federal Reserve Bank of San Francisco and FHLB of San Francisco. For the period ended March 31, 2011, WLBC had approximately $90.4 million in cash and cash equivalents, approximately $16.8 million in certificates of deposits at other financial institutions, with maturities of one year or less. In addition, WLBC had $2.0 million in unpledged security investments, of which $1.3 million is classified as available for sale, while the remaining $636,000 is classified as held to maturity. WLBC also has a $2.6 million collateralized line of credit with the Federal Reserve Bank of San Francisco and a $17.9 million collateralized line of credit with the Federal Home Loan Bank of San Francisco. In addition, an unsecured “Fed Funds” facility with Pacific Coast Bankers’ Bank in the amount of $5.0 million was established in March 2011. As of March 31, 2011, all of the lines 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. WLBC 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.

WLBC’s 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, Service1st Bank’s Asset/Liability Management Committee oversees Service1st Bank’s 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 WLBC’s liquidity.

Commitments and Contingencies

The Company is a party to credit-related 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 letters of credit. To varying degrees, these instruments involve elements of credit and interest rate risk in excess of the amount recognized in the state of financial position.


	March 31,		December 31,
($ in 000’s)	2011		2010

Commitments to extend credit	$	12,520	$	18,504
Standby commercial letters of credit	$	577	$	590

WLBC maintains an allowance for unfunded commitments, based on the level and quality of WLBC’s undisbursed loan funds, which comprises the majority of WLBC’s off-balance sheet risk. For the periods ended March 31, 2011 and March 31 2010, respectively, the allowance for unfunded commitments was approximately $239,000, and $372,000 respectively.

Application of Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements 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. On an on-going basis, management evaluates its estimates and judgments, including those related to allowances for loan losses, bad debts, investments, financing operations, contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which have formed the basis for making such judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual amounts and results could differ from the recorded estimates under different assumptions or conditions. A summary of critical accounting policies and estimates are listed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Company’s 2010 Annual Report Form 10-K for the fiscal year ended December 31, 2010. There have been no significant changes to the critical accounting policies listed in the Company’s 2010 Annual Report Form 10-K during 2011.


ITEM 3.	*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. There have been no material changes in market risk as of March 31, 2011 to the disclosures included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.


ITEM 4.	*CONTROLS AND PROCEDURES*

Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of our management (including our Chief Executive Officer and Chief Financial Officer), our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), were effective as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and (ii) accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially effect, our internal control over financial reporting.

PART II — OTHER INFORMATION


ITEM 1.	*LEGAL PROCEEDINGS*

None.


ITEM 1A.	*RISK FACTORS*

As of April 29, 2011, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC, except we may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.


ITEM 2.	*UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS*

None.


ITEM 3.	*DEFAULTS UPON SENIOR SECURITIES*

None.


ITEM 4.	*(REMOVED AND RESERVED)*


ITEM 5.	*OTHER INFORMATION*

None.


ITEM 6.	*EXHIBITS*

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.


Exhibit
Number			Description

	31	.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32	.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

WESTERN LIBERTY BANCORP

/s/ William E. Martin

Name: William E. Martin


	Title:	Chief Executive Officer

(Principal Executive Officer)

Date: May 6, 2011

WESTERN LIBERTY BANCORP

/s/ George A. Rosenbaum Jr.

Name: George A. Rosenbaum Jr.


	Title:	Chief Financial Officer

(Principal Accounting and Financial Officer)

Date: May 6, 2011

WESTERN LIBERTY BANCORP - FORM 10-Q - May 6, 2011

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