Western Liberty Bancorp (WLBC) 10-K/A 2011 FY Annual report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-33803

WESTERN LIBERTY BANCORP

(Exact name of registrant as specified in its charter)

Delaware	26-0469120
(State of incorporation)	(I.R.S. Employer Identification No.)
8363 W. Sunset Road, Suite 350 Las Vegas, Nevada	89113
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code:

(702) 966-7400

Securities registered pursuant to section 12(b) of the Act:

Common Stock, $0.0001 Par Value Per Share

Securities registered pursuant to section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  þ

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  ¨

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 (§ 223.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	þ

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $7,243,258 aggregate market value based on the closing price of $3.02 on June 30, 2011. Shares held as of June 30, 2011 by directors, executive officers, and owners of 10% or more of the registrant’s common equity are excluded from the calculation of aggregate market value of common equity held by non-affiliates, but the exclusion of their shares is not and shall not be deemed to be an admission that these holders are or were affiliates.

As of February 29, 2012, there were 13,466,536 shares of common stock outstanding of the registrant.

Explanatory Note

The amendment to Western Liberty Bancorp’s Annual Report on Form 10-K (the “Form 10-K”) for the period ended December 31, 2011, originally filed with the Securities and Exchange Commission on March 14, 2012, is to correct clerical errors and to eliminate internal editorial references that were mistakenly retained in the originally filed document.

In addition, the auditor’s consent was added as Exhibit 23.1, and a statement discussing supervisory restrictions for Western Liberty Bancorp with the Federal Reserve Bank of San Francisco was added to the risk factor captioned “we are subject to supervisory restrictions” on page 26.

No other changes have been made to the Form 10-K.

WESTERN LIBERTY BANCORP

FORM 10-K

TABLE OF CONTENTS

		Page
PART I
Item 1	Business		1
Item 1A	Risk Factors		18
Item 1B	Unresolved Staff Comments		28
Item 2	Properties		28
Item 3	Legal Proceedings		28
Item 4	Safety Disclosures		28
PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		29
Item 6	Selected Financial Data		31
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
Item 7A	Quantitative and Qualitative Disclosures About Market Risk		74
Item 8	Financial Statements and Supplementary Data		74
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		74
Item 9A	Controls and Procedures		74
Item 9B	Other Information		75
PART III
Item 10	Directors, Executive Officers and Corporate Governance		76
Item 11	Executive Compensation		77
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		77
Item 13	Certain Relationships and Related Transactions and Director Independence		78
Item 14	Principal Accountant Fees and Services		78
PART IV
Item 15	Exhibits and Financial Statement Schedules		79
Signatures			157

PART I

Item 1—Business

Western Liberty Bancorp

Western Liberty Bancorp (“WLBC,” “the Company”, “us,” “we” or “our”) became a bank holding company on October 28, 2010 with consummation of its acquisition of Service1st Bank of Nevada, a Nevada-chartered non-member bank (“Service1st Bank” or “Service1st”). Western Liberty Bancorp owns two subsidiaries: Service1st Bank of Nevada and Las Vegas Sunset Properties, and we currently conduct no business activities other than acting as the holding company of Service1st and Las Vegas Sunset Properties.

Service1st Bank of Nevada

Established on January 16, 2007, Service1st operates as a community bank and provides a full range of deposit, lending and other banking services to locally owned business, professional firms, individuals and other customers from its headquarters and two retail banking facilities located in the greater Las Vegas area. Services provided include basic commercial and consumer depository services, commercial working capital and equipment loans, commercial real estate loans and other traditional commercial banking services. Service1st relies primarily on locally generated deposits to fund its lending activities. Substantially all of our business is generated in the Nevada market.

Las Vegas Sunset Properties

Las Vegas Sunset Properties was established in 2011 for the purpose of owning and managing nonperforming and sub performing assets of Service1st Bank. Foreclosed real estate (“OREO”) was transferred from Service1st to Las Vegas Sunset Properties on December 28, 2011. Loan asset transfers were completed on January 11, 2012. Transferring OREO and problem assets out of the bank and to a separate subsidiary is of immediate benefit to the bank, but we believe that it also promotes efficient and cost-effective management of problem assets and the ultimate resolution of those assets.

Market Area and Competition

The United States economy entered into a recession in late 2007, which has been deeply felt in the greater Las Vegas area and in its critical tourism and gaming industries. High unemployment rates, declining real property values, declining home sales, low consumer and business confidence levels, and increasing vacancy and foreclosure rates for commercial and residential property have had a dramatically adverse impact on the Las Vegas economy. Further deterioration in the performance of the economy or real estate values in Service1st’s primary market areas could have an adverse impact on collectability and an adverse effect on profitability.

Service1st’s target market primarily consists of small business banking opportunities, private banking clientele, commercial lending, and commercial real estate opportunities. The banking and financial services industries in our market area remain highly competitive despite the recent economic downturn. Many of our competitors are much larger in total assets and capitalization, have greater access to capital markets, and offer a broader range of financial services than we can offer. This increasingly competitive environment is primarily a result of changes in regulation that made mergers and geographic expansion easier; changes in technology and product delivery systems, such as ATM networks and web-based tools; the accelerating pace of consolidation among financial services providers; and the flight of deposit customers to perceived increased safety. The competitive environment is also significantly impacted by federal and state legislation that makes it easier for non-bank financial institutions to compete with us. We compete for loans, deposits and customers with other commercial banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, and other non-bank financial services providers. Competition for deposit and loan products remains strong from both

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banking and non-banking firms, and this competition directly affects the rates of those products and the terms on which they are offered to consumers. Consumers in our market areas continue to have numerous choices to serve their financial needs. Competition for deposits has increased markedly, with many bank customers turning to deposit accounts at the largest, most-well capitalized financial institutions. These large institutions have greater access to capital markets and offer a broader range of financial services than we offer. Technological innovation continues to contribute to greater competition in domestic and international financial services markets. Many customers now expect a choice of several delivery systems and channels, including telephone, mail, home computer and ATMs. Mergers between financial institutions have placed additional pressure on banks to consolidate their operations, reduce expenses and increase revenues to remain competitive. In addition, competition has intensified because federal and state interstate banking laws permit banking organizations to expand geographically with fewer restrictions than in the past. These laws allow banks to merge with other banks across state lines, enabling banks to establish or expand banking operations in our market.

Lending Activities

Service1st provides a variety of financial services, including commercial real estate loans, commercial and industrial loans, construction and land development loans and, to a lesser extent, consumer loans. Service1st’s principal lending categories are:

Commercial real estate loans—The majority of Service1st’s lending activity consists of loans for the acquisition or refinance of commercial real estate. Service1st has a commercial real estate portfolio comprised of loans on professional offices, industrial facilities, retail centers and other commercial properties.

Construction, land development, and other land loans—Construction loans include loans for the construction of owner-occupied buildings, investment properties (including residential development construction), commercial development, and other properties. Service1st analyzes each construction project in the loan underwriting process to determine whether the type of property, location, construction costs, and contingency funds are appropriate and adequate.

Commercial and industrial loans—Service1st focuses its commercial lending on small- to medium-size businesses located in or serving the Las Vegas community. Service1st considers “small businesses” to include commercial, professional and retail businesses. Service1st’s commercial and industrial loan products include:

• working capital loans and lines of credit,

• business term loans, and

• inventory and accounts receivable financing.

Residential real estate loans—Although residential mortgage lending is not a significant part of Service1st’s lending business, it has made some loans secured by 1-4 single-family residential properties.

Consumer loans—Service1st also originates consumer loans from time to time, such as home equity loans and lines of credit, to satisfy customer demand and to respond to community needs. Consumer loans are not a significant part of Service1st’s loan portfolio.

Credit Policies and Administration

Loan and credit administration policies adopted by Service1st’s board of directors establish underwriting criteria, concentration limits, and loan authorization limits, as well as the procedures to administer loans, monitor credit risk, and subject loans to appropriate grading and evaluation for impairment. Loan originations are subject to a process that includes the credit evaluation of borrowers, established lending limits, analysis of collateral and procedures for continual monitoring and identification of credit deterioration. Loan officers are required to monitor their individual credit relationships in order to report suspected risks and potential downgrades as early as possible.

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For real-estate secured loans, appraisals are ordered from outside appraisers at a loan’s inception or renewal, or for commercial real estate loans upon the occurrence of any event causing a “criticized” or “classified” grade to be assigned to the credit. The frequency for obtaining updated appraisals for these adversely graded credits is every six months exist. Appraisals may reflect the collateral’s “as-is”, “as-stabilized,” or “as-developed” values, depending upon the loan type and collateral. Raw land generally is appraised at its “as-is” value. Income producing property may be appraised at its “as-stabilized” value, which takes into account the anticipated cash flow of the property based upon expected occupancy rates and other factors. The collateral securing construction loans may be appraised at its “as-completed” value, which approximates the post-construction value of the collateralized property assuming that such property is developed. “as-completed” values on construction loans often exceed the immediate sales value and may include anticipated zoning changes and successful development by the purchaser. If a loan goes into default before development of a project, the market value of the property may be substantially less than the “as-completed” appraised value. As a result, there may be less security than anticipated at the time the loan was originally made. If there is less security and a default occurs, Service1st may not recover the outstanding balance of the loan.

Service1st’s loan approval procedures are executed through a tiered loan limit authorization process. Each loan officer’s individual lending limit is set by board of directors. All debt due from the borrower (including unfunded commitments and guaranties) and the borrower’s related entities is aggregated when determining whether a proposed new loan is within the authority of an individual. Each senior vice president/senior lender may unilaterally approve real-estate secured loans of up to $750,000, other secured loans of up to $500,000, and unsecured loans of up to $375,000. Credit applications exceeding a senior vice president/senior lender authority are submitted for approval by Service1st’s Chief Executive Officer, or Chief Credit Officer, each of whom may unilaterally approve real estate-secured loans of up to $1,500,000, other secured loans of up to $1,250,000, and unsecured loans of up to $1,000,000, with higher limits for joint approvals by more than one of the executive officers or senior vice presidents. All credit relationships of $5 million or more are approved by Service1st’s Board of Directors Loan and Investment Committee. The Loan and Investment Committee is responsible for establishing and providing supervision and oversight over Service1st’s credit and investment policies and administration. Credits granted as an exception to loan policy are required to be justified and duly noted in the loan presentation or file memo, as appropriate, and approved or ratified by the necessary approval authority level. Exceptions to real estate lending policies are disclosed to Service1st’s Board of Directors Loan and Investment Committee on a quarterly basis.

All insider loans must be approved in advance by a majority of the board without the vote of the interested director. It is the policy of Service1st that directors not be present when their loan is presented at a board meeting for discussion and approval. Service1st believes that its entire insider loans were made on terms substantially similar to those offered to unaffiliated individuals. As of December 31, 2011, the aggregate amount of all loans committed to Service1st’s executive officers, directors, and greater than 10% stockholders and their respective affiliates was approximately $1.1 million. Based on commitments these loans represent 1.5% of the Bank’s total gross loans

The allowance for loan losses reflects Service1st’s evaluation of the probable losses in its loan portfolio. Service1st implemented use of the Allowance for Loan and Lease Losses Quantifier (ALLL^Q) model prepared by PCBB Capital Markets, LLC for calculating the allowance for loan losses. The allowance for loan losses is maintained at a level that represents Service1st management’s best estimate of losses in the loan portfolio at the balance sheet date, losses that are both probable and reasonably estimable. The evaluation is inherently subjective and depends on estimates and projections of factors that will have a material impact but that are subject to significant changes, including estimates and projections of the amount and timing of future cash flows expected to be received on impaired loans. The allowance for loan losses is reviewed by Service1st’s management and adjusted quarterly. Factors that influence management’s determination concerning the adequacy of the allowance for loan losses include:

• general economic and business conditions affecting key lending areas,

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• credit quality trends, including trends in nonperforming loans expected to result from existing conditions,

• collateral values,

• loan volumes and concentrations,

• age of the loan portfolio,

• specific industry conditions within portfolio segments,

• the allowance for loan losses at peer institutions, and

• duration of the current business cycle.

To measure asset quality, Service1st grades each loan on a scale of 1 to 10, the designation representing the highest quality loans with the least risk. Loans graded 1 through 6 are considered satisfactory. Consistent with the grading systems used by Federal banking regulators, the other four grades are 7 (special mention), 8 (substandard), 9 (doubtful), and 10 (loss). All loans are assigned a credit risk grade at the time they are made, and each originating loan officer reviews the credit with his or her immediate supervisor quarterly to determine whether a change in the credit risk grade is warranted. The Credit Committee also has the responsibility of reviewing loan grades. In addition, the grading of Service1st’s loan portfolio is reviewed at least annually by an external, independent loan review firm.

The size of the allowance for loan losses is significantly influenced by the results of loan reviews performed both by bank personnel and by third parties engaged by the bank to supplement the bank’s internal loan review process. The loan review process is integral to identifying loans with credit quality that has weakened over time and to evaluating the risk characteristics of the entire loan portfolio. The loan grading system used by Service1st also plays a role in setting the level of the allowance. Service1st’s management will also take into account updated collateral appraisals. Because there are factors that cannot be practically assigned to individual loan categories, such as the current volatility of the national and global economy, the assessment also includes an unallocated component. Finally, the Federal Deposit Insurance Corporation (the “FDIC”) and the Nevada Financial Institutions Division (the “Nevada FID”) perform regular examinations of Nevada-chartered nonmember banks such as Service1st. In the examination process, the FDIC and the Nevada FID consider the adequacy of a bank’s loan loss allowance and frequently use their authority to insist upon an increase in a bank’s allowance for loan losses.

Deposits products and other banking services

Service1st offers a variety of traditional demand, savings and time deposit accounts to individuals, professionals and businesses within the Nevada region, including checking accounts, interest-bearing checking accounts, traditional savings accounts, money market accounts, and time deposits, including Certificates of Deposit over/under $100,000 and our Freedom CD, a flexible, liquid certificate of deposit product that permits customers to deposit or withdraw funds, subject to certain restrictions, without penalty before the end of the CD term. Service1st’s deposit base is primarily generated from the Nevada area. Competition for these deposits in Service1st’s market is strong. Service1st seeks to structure its deposit products to be competitive with the rates, fees, and features offered by other local institutions, but with an emphasis on customer service and relationship-based pricing. The weighted average cost of Service1st’s interest-bearing deposits was 0.64%, and 0.75% for the year ended December 31, 2011 and 2010, respectively.

In addition to traditional commercial banking activities, Service1st provides other financial and related services to its customers, including online banking, direct deposits, direct debit and electronic bill payment, wire transfers, lock box services, merchant-related services such as point of sale payment processing, courier service, safe deposit boxes, cash management services such as account reconciliation, collections, and sweep accounts, corporate and consumer credit cards, night depository, cashier’s checks, and notary services.

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Investment Activities

Service1st’s investment policy dictates that investment decisions be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets, and consistency with Service1st’s interest rate risk management policies. Service1st’s Chief Financial Officer is responsible for making security portfolio decisions in accordance with established policies. The Chief Financial Officer has the authority to purchase and sell securities within specified guidelines established by the investment policy.

Service1st’s investment policy allows for investment in:

• cash and cash equivalents, which consists of cash and amounts due from banks, federal funds sold and certificates of deposits with original maturities of three months or less,

• longer term investment securities issued by companies rated “A” or better,

• securities backed by the full faith and credit of the U.S. government, including U.S. government agency securities,

• direct obligations of Ginnie Mae,

• mortgage-backed securities or collateralized mortgage obligations issued by a government-sponsored enterprise such as Fannie Mae, Freddie Mac, or Ginnie Mae, and mandatory purchases of equity securities from the Federal Home Loan Bank.

Service1st does not plan to purchase collateralized debt obligations, adjustable rate preferred securities, or private label collateralized mortgage obligations. The bank’s policies also govern the use of derivatives, allowing Service1st to prudently use derivatives as a risk management tool to reduce its overall exposure to interest rate risk, and not for speculative purposes.

As of December 31, 2011 Service1st also held $574,400 of Federal Home Loan Bank of San Francisco stock, which is a restricted security. Federal Home Loan Bank (“FHLB”) stock represents an equity interest in the FHLB of San Francisco, but the stock does not have a readily determinable market value. The stock can be sold at its par value only and solely to the FHLB or to another member institution. Member institutions are required to maintain a minimum stock investment in the FHLB, based on total assets, total mortgages, and total mortgage-backed securities. Service1st’s minimum investment in FHLB stock at December 31, 2011 was approximately $574,400 and $658,400 for December 31, 2010.

Employees

We have approximately 43 full-time equivalent, non-union employees at December 31, 2011.

Supervision and Regulation

The following summary of Federal and state laws governing the supervision and regulation of bank holding companies and banks is not comprehensive. The summary is qualified in its entirety by reference to applicable statutes and regulations.

Holding companies

Bank holding companies are subject to extensive regulation, supervision, and examination by the Federal Reserve, acting principally through its local Federal Reserve Bank. A bank holding company must serve as a source of financial and managerial strength for its subsidiary banks and must not conduct its operations in an unsafe or unsound manner. The Federal Reserve Board (the “Federal Reserve”) requires bank holding companies to maintain capital at or above certain prescribed levels. It is the Federal Reserve’s policy that a bank holding company should provide capital to its subsidiary banks during periods of financial stress or adversity and

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maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting subsidiary banks. Bank holding companies may also be required to give written notice to and receive approval from the Federal Reserve before purchasing or redeeming common stock or other equity securities.

Under Bank Holding Company Act section 5(e), the Federal Reserve may require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary if the Federal Reserve determines that the activity or control constitutes a serious risk to the financial safety, soundness, or stability of a subsidiary bank. Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 addition of the prompt corrective action provisions to the Federal Deposit Insurance Act, section 38(f)(2)(I) of the Federal Deposit Insurance Act now provides that a federal bank regulatory authority may require a bank holding company to divest itself of an undercapitalized bank subsidiary if the agency determines that divestiture will improve the bank’s financial condition and prospects.

A bank holding company must obtain Federal Reserve approval to:

• acquire ownership or control of any voting shares of another bank or bank holding company, if after the acquisition the acquiring company would own or control more than 5% of the shares of the other bank or bank holding company (unless the acquiring company already owns or controls a majority of the shares),

• acquire all or substantially all of the assets of another bank, or

• merge or consolidate with another bank holding company.

The Federal Reserve will not approve an acquisition, merger, or consolidation that would have a substantially anticompetitive result unless the anticompetitive effects of the proposed transaction are clearly outweighed by a greater public interest in satisfying the convenience and needs of the community to be served. The Federal Reserve also considers capital adequacy and other financial and managerial factors in its review of acquisitions and mergers, as well as the parties’ performance under the Community Reinvestment Act of 1977.

With certain exceptions, the Bank Holding Company Act prohibits a bank holding company from acquiring or retaining ownership or control of more than 5% of the outstanding voting shares of any company that is not a bank or bank holding company or from engaging in activities other than banking, managing or controlling banks, or providing services for holding company subsidiaries. The principal exceptions to these prohibitions involve non-bank activities identified by statute, by Federal Reserve regulation, or by Federal Reserve order as activities so closely related to the business of banking or of managing or controlling banks as to be a proper incident thereto, including securities brokerage services, investment advisory services, fiduciary services, and management advisory and data processing services, among others. A bank holding company that also qualifies as and elects to become a “financial holding company” may engage in a broader range of activities that are financial in nature (and complementary to such activities), specifically non-bank activities identified by the Gramm-Leach-Bliley Act of 1999 or by Federal Reserve and Treasury regulation as financial in nature or incidental to a financial activity. Activities that are defined as financial in nature include securities underwriting, dealing, and market making, sponsoring mutual funds and investment companies, engaging in insurance underwriting and agency activities, and making merchant banking investments in non-financial companies. To become and remain a financial holding company, a bank holding company and its subsidiary banks must be well capitalized, well managed, and, except in limited circumstances, have at least a satisfactory rating under the Community Reinvestment Act. If, after becoming a financial holding company and undertaking activities not permissible for a bank holding company, the company fails to satisfy the standards for financial holding company status, the company must enter into an agreement with the Federal Reserve to comply with all applicable capital and management requirements. If the company does not return to compliance within 180 days, the Federal Reserve may order the company to divest its subsidiary bank or banks or the company may discontinue the activities that are permissible solely for a financial holding company.

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The Bank Holding Company Act, the Change in Bank Control Act of 1978, and the Federal Reserve’s Regulation Y require that advance notice be given to the Federal Reserve or that affirmative approval of the Federal Reserve be obtained to acquire control of a bank or bank holding company, with limited exceptions. The Federal Reserve may act during the advance notice period to prevent the acquisition of control. Subject to guidance issued by the Federal Reserve in September 2008, control is conclusively presumed to exist if a person or entity acquires 25% or more of any class of voting stock of a bank holding company or insured depository institution. Control is presumed to exist if a person or entity acquires 10% or more but less than 25% of the voting stock and either the issuer has a class of securities registered under section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”), as we do, or no other person or entity will own, control, or hold the power to vote a greater percentage of voting stock immediately after the transaction. In its September 2008 guidance, the Federal Reserve stated that generally it will be able to conclude that an investor does not have a controlling influence over a bank or bank holding company if the investor does not own more than 15% of the voting power and 33% of the total equity of the bank or bank holding company, including nonvoting equity securities. The investor may, however, be required to make passivity commitments to the Federal Reserve, promising to refrain from taking various actions that might constitute exercise of a controlling influence. Under prior Federal Reserve guidance, a board seat was generally not permitted for an investment of 10% or more of the equity or voting power. But under the September 2008 guidance, the Federal Reserve may permit a non-controlling investor to have a board seat.

We are also subject to examination by and may be required to file reports with the Nevada FID under sections 666.065et seq. of the Nevada Revised Statutes. We would have to obtain the approval of the Nevada Commissioner of Financial Institutions to acquire another bank, and any transfer of control of a Nevada bank holding company would have to be approved in advance by the Nevada Commissioner.

Banks

Service1st is chartered by the State of Nevada and is therefore subject to regulation, supervision, and examination not only by the FDIC but also by the Nevada FID. Federal and state statutes governing the business of banking and insurance of bank deposits as well as implementing regulations promulgated by the Federal and state banking regulatory agencies cover most aspects of bank operations, including capital requirements, reserve requirements against deposits, reserves for possible loan losses and other contingencies, dividends and other distributions to stockholders, customers’ interests in deposit accounts, payment of interest on certain deposits, permissible activities and investments, securities that a bank may issue and borrowings that a bank may incur, rate of growth, number and location of branch offices, and acquisition and merger activity with other financial institutions. In addition to minimum capital requirements, Federal law imposes other safety and soundness standards having to do with such things as internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, and compensation and benefits.

If, as a result of examination the FDIC determines that a bank’s financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of the bank’s operations are unsatisfactory, or that the bank or its management is in violation of any law or regulation, the FDIC may take a number of remedial actions. Federal bank regulatory agencies make regular use of their authority to bring enforcement actions against banks and bank holding companies for unsafe or unsound practices in the conduct of their businesses and for violations of any law, rule or regulation, any condition imposed in writing by the appropriate federal banking regulatory authority or any written agreement with the authority. Possible enforcement actions include appointment of a conservator or receiver, issuance of a cease-and-desist order that could be judicially enforced, termination of a bank’s deposit insurance, imposition of civil money penalties, issuance of directives to increase capital, issuance of formal and informal agreements, including memoranda of understanding, issuance of removal and prohibition orders against institution-affiliated parties, and enforcement of such actions through injunctions or restraining orders. In addition, a bank holding company’s inability to serve as a source of strength for its subsidiary banks could serve as an additional basis for a regulatory action against the bank holding company. Under Nevada Revised Statutes section 661.085, if the stockholders’ equity of a Nevada-chartered bank becomes

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impaired, the Nevada Commissioner must require the bank to make the impairment good within three months. If the impairment is not made good, the Nevada Commissioner may take possession of the bank and liquidate it.

Capital: Regulatory capital guidelines

A bank’s capital hedges its risk exposure, absorbing losses that can be predicted as well as losses that cannot be predicted. According to the Federal Financial Institutions Examination Council’s explanation of the capital component of the Uniform Financial Institutions Rating System, commonly known as the “CAMELS” rating system, a rating system employed by the Federal bank regulatory agencies, a financial institution must “maintain capital commensurate with the nature and extent of risks to the institution and the ability of management to identify, measure, monitor, and control these risks. The effect of credit, market, and other risks on the institution’s financial condition should be considered when evaluating the adequacy of capital.” The minimum ratio of total capital to risk-weighted assets is 8.0%, of which at least 4.0% must consist of so-called Tier 1 capital. The minimum Tier 1 leverage ratio—Tier 1 capital to average assets—is 3.0% for the highest rated institutions and at least 4.0% for all others. These ratios are absolute minimums. In practice, banks are expected to operate with more than the absolute minimum capital. As of December 31, 2011, Service1st’s total risk-based capital ratio was 29.7%, its Tier 1 risk-based capital ratio was 28.4%, and its Tier 1 equity to average assets ratio was 14.4%. The FDIC may establish greater minimum capital requirements for specific institutions, as discussed below. A bank that does not achieve and maintain the required capital levels may be issued a capital directive by the FDIC to ensure the maintenance of required capital levels. The Federal Reserve imposes substantially similar capital requirements on bank holding companies as well.

Tier 1 capital consists of common stock, retained earnings, non-cumulative perpetual preferred stock, trust preferred securities up to a certain limit, and minority interests in certain subsidiaries, less most other intangible assets. Tier 2 capital consists of preferred stock not qualifying as Tier 1 capital, limited amounts of subordinated debt, other qualifying term debt, a limited amount of the allowance for loan and lease losses, and certain other instruments that have some characteristics of equity. To determine risk-weighted assets, the nominal dollar amounts of assets on the balance sheet and credit-equivalent amounts of off-balance-sheet items are multiplied by one of several risk adjustment percentages ranging from 0.0% for assets considered to have low credit risk, such as cash and certain U.S. government securities, to 100.0% for assets with relatively higher credit risk, such as business loans, and a 200% risk-weight for selected investments that are rated below investment grade or, if not rated, that are equivalent to investments rated below investment grade. A banking organization’s risk-based capital ratios are obtained by dividing its Tier 1 capital and total qualifying capital (Tier 1 capital and a limited amount of Tier 2 capital) by its total risk-adjusted assets.

During the application process for the Acquisition we made a written commitment to the FDIC that we will maintain the Tier 1 leverage capital ratio of Service1st at 10% or greater. This commitment will not expire before October of 2013.

Prompt corrective action

To resolve the problems of undercapitalized institutions and to prevent a recurrence of the banking crisis of the late 1980s and early 1990s, the Federal Deposit Insurance Corporation Improvement Act of 1991 established a system known as “prompt corrective action.” Under the prompt corrective action provisions and implementing regulations, every institution is classified into one of five categories, depending on its total risk-based capital ratio, its Tier 1 risk-based capital ratio, its leverage ratio, and subjective factors. The categories are “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” To be considered well capitalized for purposes of the prompt corrective action rules, a bank must maintain total risk-based capital of 10.0% or greater, Tier 1 risk-based capital of 6.0% or greater, and leverage capital of 5.0% or greater. An institution with a capital level that might qualify for well-capitalized or adequately capitalized status may nevertheless be treated as though it were in the next lower capital category if its primary federal banking supervisory authority determines that an unsafe or unsound condition or practice warrants that treatment.

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A financial institution’s operations can be significantly affected by its capital classification under the prompt corrective action rules. For example, an institution that is not well capitalized generally is prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market without advance regulatory approval, which can have an adverse effect on the bank’s liquidity. At each successively lower capital category, an insured depository institution is subject to additional restrictions. Undercapitalized institutions are required to take specified actions to increase their capital or otherwise decrease the risks to the federal deposit insurance funds. A bank holding company must guarantee that a subsidiary bank that adopts a capital restoration plan will satisfy its plan obligations. Any capital loans made by a bank holding company to a subsidiary bank are subordinated to the claims of depositors in the bank and to certain other indebtedness of the subsidiary bank. If bankruptcy of a bank holding company occurs, any commitment by the bank holding company to a Federal banking regulatory agency to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and would be entitled to priority of payment. Bank regulatory agencies generally are required to appoint a receiver or conservator shortly after an institution becomes critically undercapitalized.

Deposit insurance

Bank deposits are insured by the FDIC to applicable limits through the Deposit Insurance Fund. Insured banks must pay deposit insurance premiums assessed semiannually and paid quarterly. The insurance premium amount is based upon a risk classification system established by the FDIC. Banks with higher levels of capital and a low degree of supervisory concern are assessed premiums at a lower rate than banks with lower levels of capital or a higher degree of supervisory concern. We anticipate that assessment rates will continue to increase for the foreseeable future because of the significant cost of bank failures, because of the relatively large number of troubled banks, and because of the requirement of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act that the FDIC increase its insurance fund reserves to no less than $1.35 for each $100 of insured deposits. Effective as of April 1, 2011, the FDIC changed its assessment base from total domestic deposits to average total assets minus average tangible equity, as required in the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The $100,000 basic deposit insurance limit in place for many years was increased temporarily to $250,000 by the Emergency Economic Stabilization Act of 2008, which became law on October 3, 2008. On July 21, 2010, section 335 of the Dodd-Frank Act made the $250,000 insurance limit permanent.

Dividends and distributions

We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings for future growth and do not anticipate paying any cash dividends for the foreseeable future. Any determination in the future to pay dividends will be at the discretion of our board of directors and will depend on our earnings, financial condition, results of operations, business prospects, capital requirements, regulatory restrictions, contractual restrictions and other factors that the board of directors may deem relevant.

A bank holding company’s ability to pay dividends is subject to Federal Reserve supervisory authority, taking into account the bank holding company’s capital position, its ability to satisfy its financial obligations as they come due, and its capacity to act as a source of financial strength to its subsidiaries. In addition, Federal Reserve policy discourages the payment of dividends by a bank holding company if the dividends are not supported by current operating earnings. Federal Reserve and FDIC policy statements provide that banks should generally pay dividends solely out of current operating earnings. A bank may not pay a dividend if the bank is undercapitalized or if payment would cause the bank to become undercapitalized.

A bank holding company may not purchase or redeem its equity securities without advance written approval of the Federal Reserve under Federal Reserve Rule 225.4(b) if the purchase or redemption combined with all other purchases and redemptions by the bank holding company during the preceding 12 months equals or

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exceeds 10% of the bank holding company’s consolidated net worth. However, advance approval is not necessary if the bank holding company is well managed, not the subject of any unresolved supervisory issues, and both before and immediately after the purchase or redemption is well capitalized. We repurchased shares in the third and fourth quarters of 2011, under a 5% stock repurchase program announced on August 18, 2011 and a 7% stock repurchase program announced on December 6, 2011. Although we would remain well capitalized after additional stock repurchases, written approval of the Federal Reserve under Rule 225.4(b) would be necessary in order for us to initiate an additional stock repurchase program.

Under sections 661.235 and 661.240 of the Nevada Revised Statutes, a Nevada-chartered bank, such as Service1st, whose deposits are insured by the FDIC may not make distributions (including dividends) to or for the benefit of its stockholders if the distributions would reduce the bank’s stockholders’ equity below the bank’s initial stockholders’ equity. Pursuant to Nevada Revised Statutes section 78.288(2), which applies to Nevada corporations generally, including Service1st, a corporation may not make distributions (including dividends) to or for the benefit of its stockholders if, after giving effect to the distribution, the corporation would be unable to pay its debts as they become due in the usual course of business, or the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed to satisfy the preferential rights (if any) upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution (unless the corporation’s articles of incorporation override this latter limitation, which Service1st’s articles do not). Relying on 12 U.S.C. 1818(b), the FDIC may restrict a bank’s ability to pay a dividend if the FDIC has reasonable cause to believe that the dividend would constitute an unsafe and unsound practice. A bank’s ability to pay dividends may be affected also by the FDIC’s capital maintenance requirements and prompt corrective action rules.

Transactions with affiliates

Transactions by a bank with an affiliate, including a holding company, are subject to restrictions imposed by Federal Reserve Act sections 23A and 23B and implementing regulations, which are intended to protect banks from abuse in financial transactions with affiliates, preventing federally insured deposits from being diverted to support the activities of unregulated entities engaged in nonbanking businesses. Affiliate-transaction limits could impair our ability to obtain funds from our bank subsidiary for our cash needs, including funds for payment of dividends, interest, and operational expenses. Affiliate transactions include but are not limited to extensions of credit to affiliates, investments in securities issued by affiliates, the use of affiliates’ securities as collateral for loans to any borrower, and purchase of affiliate assets. Generally, section 23A and section 23B of the Federal Reserve Act:

• limit the extent to which a bank or its subsidiaries may lend to or engage in various other kinds of transactions with any one affiliate to an amount equal to 10% of the institution’s capital and surplus, limiting the aggregate of covered transactions with all affiliates to 20% of capital and surplus,

• impose strict collateral requirements on loans or extensions of credit by a bank to an affiliate,

• impose restrictions on investments by a subsidiary bank in the stock or securities of its holding company,

• impose restrictions on the use of a holding company’s stock as collateral for loans by the subsidiary bank, and

• require that affiliate transactions be on terms substantially the same as those provided to a non-affiliate.

Loans to insiders

Service1st’s authority to extend credit to insiders—meaning executive officers, directors and greater than 10% stockholders—or to entities those persons control, is subject to section 22(g) and section 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve. Among other things, these laws require insider

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loans to be made on terms substantially similar to those offered to unaffiliated individuals, place limits on the amount of loans a bank may make to insiders based in part on the bank’s capital position, and require that specified approval procedures be adhered to by the bank. Loans to an individual insider may not exceed the Federal legal limit on loans to any one borrower, which in general terms is 15% of capital but can be higher in some circumstances. The aggregate of all loans to all insiders may not exceed the bank’s unimpaired capital and surplus. Insider loans exceeding the greater of 5% of capital or $25,000 must be approved in advance by a majority of the board, with any interested director not participating in such voting by the board. Executive officers may borrow in unlimited amounts to finance their children’s education or to finance the purchase or improvement of their residence, but they may borrow no more than $100,000 for most other purposes. Loans to executive officers exceeding $100,000 may be allowed if the loan is fully secured by government securities or a segregated deposit account. A violation of these restrictions could result in the assessment of substantial civil monetary penalties, the imposition of a cease-and-desist order or other regulatory sanctions.

Loans to one borrower

Under section 662.145 of the Nevada Revised Statutes, a Nevada-chartered bank’s outstanding loans to one person generally may not exceed 25% of the bank’s Tier 1 capital plus allowance for loan losses. Loans by a bank to parties that have certain relationships with a particular borrower and certain investments by a bank in the securities of a particular borrower may be aggregated with the bank’s loans to that borrower for purposes of applying this 25% limit.

Guidance concerning commercial real estate lending

In December 2006, the FDIC and other Federal banking agencies issued final guidance on sound risk management practices for concentrations in commercial real estate lending, including acquisition and development lending, construction lending, and other land loans, which recent experience in Nevada and elsewhere has shown can be particularly high-risk lending. According to a 2009 FDIC publication, a majority of the community banks that became problem banks or failed in 2008 had similar risk profiles: the banks often had extremely high concentrations, relative to their capital, in residential acquisition, development, and construction lending, loan underwriting and credit administration functions at these institutions typically were criticized by examiners, and many of the institutions had exhibited rapid asset growth funded with brokered deposits.

The guidance does not establish rigid limits on commercial real estate lending but does create a much sharper supervisory focus on the risk management practices of banks with concentrations in commercial real estate lending. According to the guidance, an institution that has experienced rapid growth in commercial real estate lending, has notable exposure to a specific type of commercial real estate, or is approaching or exceeds the following supervisory criteria may be identified for further supervisory analysis of the level and nature of its commercial real estate concentration risk:

• total reported loans for construction, land development, and other land represent 100% or more of the institution’s total capital, or

• total commercial real estate loans represent 300% or more of the institution’s total capital and the outstanding balance of the institution’s commercial real estate loan portfolio has increased by 50% or more during the prior 36 months.

These measures are intended merely to enable the banking agencies to identify institutions that could have an excessive commercial real estate lending concentration, potentially requiring close supervision to ensure that the institutions have sound risk management practices in place.

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Guidance concerning subprime lending

In 2007 the FDIC and other Federal banking agencies issued final guidance on subprime mortgage lending to address issues relating to certain subprime mortgages, especially adjustable-rate mortgage products that can cause payment shock. The subprime guidance identified prudent safety and soundness and consumer protection standards that the regulators expect banks and financial institutions to follow to ensure borrowers obtain loans they can afford to repay.

Guidance concerning newly organized banks

The FDIC issued supervisory guidance on August 28, 2009 extending from three years to seven the period in which newly organized institutions are subject to enhanced supervision. The FDIC extended the period of enhanced supervision beyond three years because banks in their first seven years of operation were over-represented among banks that failed in 2008 and 2009. Service1st commenced operations in January, 2007. The expansion of the supervisory period includes subjecting young banks to higher capital requirements and more frequent examinations over seven years. A bank subject to the expanded supervisory period is not permitted to deviate materially from the bank’s approved business plan without first obtaining the FDIC’s approval. As a condition to obtaining FDIC approval of the Acquisition, we agreed to give the FDIC notice at least 60 days in advance for any major deviation from the business plan that we submitted to the FDIC during the acquisition application process and not to deviate from the business plan unless we receive written non-objection from the FDIC. We also assured the FDIC in writing during the application process that we will not seek to expand by acquisition until Service1st is restored to a satisfactory condition. Until that occurs, any growth on Service1st’s part must be the result of organic growth in the bank’s existing business. This commitment will not expire before October of 2013.

Interstate banking and branching

Section 613 of the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in July 2010 amends the interstate branching provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. These expandedde novo branching authority amendments will authorize a state or national bank to open ade novobranch in another state if the law of the state where the branch is to be located would permit a state bank chartered by that state to open the branch. Under prior law, an out-of-state bank could open ade novobranch in another state only if the particular state permitted out-of-state banks to establish ade novobranch. In section 607, the Dodd-Frank Act also increases the approval threshold for interstate bank acquisitions, requiring that a bank holding company be well capitalized and well managed as a condition to approval of an interstate bank acquisition, rather than being merely adequately capitalized and adequately managed, and that an acquiring bank be and remain well capitalized and well managed as a condition to approval of an interstate bank merger.

Consumer protection laws and regulations

Service1st is subject to regular examination by the FDIC to ensure compliance with statutes and regulations applicable to the bank’s business, including consumer protection statutes and implementing regulations, some of which are discussed below. Violations of any of these laws may result in fines, reimbursements, and other related penalties.

Community Reinvestment Act

The Community Reinvestment Act of 1977 is intended to encourage insured depository institutions to satisfy the credit needs of their communities, within the limits of safe and sound lending. The Community Reinvestment Act does not establish specific lending requirements or programs for financial institutions, nor does the Community Reinvestment Act limit an institution’s discretion to develop the types of products and services management believes are best suited to the bank’s particular community. The Act requires that bank

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regulatory agencies conduct regular Community Reinvestment Act examinations and provide written evaluations of institutions’ Community Reinvestment Act performance. The Act also requires that an institution’s Community Reinvestment Act performance rating be made public. Community Reinvestment Act performance evaluations are based on a four-tiered rating system: Outstanding, Satisfactory, Needs to Improve and Substantial Noncompliance. Community Reinvestment Act performance evaluations are used principally in the evaluation of regulatory applications submitted by an institution. Performance evaluations are considered in evaluating applications for such things as mergers, acquisitions, and applications to open branches. According to its CRA Performance Evaluation dated March 18, 2009, Service1st was rated Satisfactory.

Equal Credit Opportunity Act

The Equal Credit Opportunity Act generally prohibits discrimination in any credit transaction, whether for consumer or business purposes, on the basis of race, color, religion, national origin, sex, marital status, age (except in limited circumstances), receipt of income from public assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act.

Truth in Lending Act

The Truth in Lending Act is designed to ensure that credit terms are disclosed in a meaningful way so that consumers may compare credit terms more readily and knowledgeably. As a result of the Truth in Lending Act, all creditors must use the same credit terminology to express rates and payments, including the annual percentage rate, the finance charge, the amount financed, the total of payments and the payment schedule, among other things.

Fair Housing Act

The Fair Housing Act makes it unlawful for any lender to discriminate in its housing-related lending activities against any person because of race, color, religion, national origin, sex, handicap, or familial status. A number of lending practices have been held by the courts to be illegal under the Fair Housing Act, including some practices that are not specifically mentioned in the Federal Housing Act.

Home Mortgage Disclosure Act

The Home Mortgage Disclosure Act arose out of public concern over credit shortages in certain urban neighborhoods. The Home Mortgage Disclosure Act requires financial institutions to collect data that enable regulatory agencies to determine whether the financial institutions are serving the housing credit needs of the neighborhoods and communities in which they are located. The Home Mortgage Disclosure Act also requires the collection and disclosure of data about applicant and borrower characteristics as a way to identify possible discriminatory lending patterns. The vast amount of information that financial institutions collect and disclose concerning applicants and borrowers receives attention not only from state and Federal banking supervisory authorities but also from community-oriented organizations and the general public.

Real Estate Settlement Procedures Act

The Real Estate Settlement Procedures Act requires that lenders provide borrowers with disclosures regarding the nature and cost of real estate settlements. The Real Estate Settlement Procedures Act also prohibits abusive practices that increase borrowers’ costs, such as kickbacks and fee-splitting without providing settlement services.

Privacy

Under the Gramm-Leach-Bliley Act, all financial institutions are required to establish policies and procedures to restrict the sharing of non-public customer data with non-affiliated parties and to protect customer

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data from unauthorized access. In addition, the Fair Credit Reporting Act of 1971 includes many provisions concerning national credit reporting standards and permits consumers to opt out of information-sharing for marketing purposes among affiliated companies.

Predatory lending

What is commonly referred to as predatory typically involves one or more of the following elements:

• making unaffordable loans based on a borrower’s assets rather than the consumer’s ability to repay an obligation,

• inducing a consumer to refinance a loan repeatedly in order to charge high points and fees each time the loan is refinanced, or loan flipping, and

• engaging in fraud or deception to conceal the true nature of the loan obligation from an unsuspecting or unsophisticated consumer.

The Home Ownership and Equity Protection Act of 1994 and implementing regulations adopted by the Federal Reserve require specified disclosures and extend additional protection to consumers in closed-end consumer credit transactions, such as home repairs or renovation, that are secured by a mortgage on the borrower’s primary residence. The disclosures and protections are applicable to “high cost” transactions with any of the following features -

• interest rates for first lien mortgage loans more than eight percentage points above the yield on U.S. Treasury securities having a comparable maturity,

• interest rates for subordinate lien mortgage loans more than 10 percentage points above the yield on U.S. Treasury securities having a comparable maturity, or

• total points and fees paid in the credit transaction exceed the greater of either 8% of the loan amount or a specified dollar amount that is inflation-adjusted each year.

The Home Ownership and Equity Protection Act prohibits or restricts numerous credit practices, including loan flipping by the same lender or loan servicer within a year of the residential mortgage loan being refinanced. Lenders are presumed to have violated the law unless they document that the borrower has the ability to repay. Lenders that violate the rules face cancellation of loans and penalties equal to the finance charges paid. The Home Ownership and Equity Protection Act also governs so-called “reverse mortgages.” In January 2008, the Federal Reserve issued final rules under the Home Ownership and Equity Protection Act to address practices in the subprime mortgage market before the onset of the Great Recession. The rules require disclosures and additional protections or prohibitions on certain practices connected with “higher-priced mortgages,” which the rules define as closed-end mortgage loans that are secured by a consumer’s principal dwelling and that have an annual percentage rate that exceeds the average prime offer rates for a comparable transaction published by the Federal Reserve Board by at least 1.5 percentage points for first-lien loans, or 3.5 percentage points for subordinate-lien loans. The Federal Reserve derives average prime offer rates from the Freddie Mac Primary Mortgage Market Survey^®. For higher-priced mortgage loans, the final rules:

• Prohibit creditors from extending credit without regard to a consumer’s ability to repay from sources other than the collateral itself,

• Require creditors to verify income and assets relied upon to determine repayment ability,

• Prohibit prepayment penalties except under certain conditions, and

• Require creditors to establish escrow accounts for taxes and insurance in the case of first-lien higher-priced mortgage loans, but permit creditors to allow borrowers to cancel escrows 12 months after loan consummation.

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Corporate governance and accounting legislation

The Sarbanes-Oxley Act of 2002 was adopted to enhance corporate responsibility, increase penalties for accounting and auditing improprieties at publicly traded companies, and protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The Sarbanes-Oxley Act of 2002 applies generally to all companies that file or are required to file periodic reports with the Securities and Exchange Commission (the “SEC”) under the Exchange Act, including WLBC. Under the Sarbanes-Oxley Act, the SEC and securities exchanges adopted extensive additional disclosure, corporate governance and other related rules. Among its many provisions, the Sarbanes-Oxley Act subjects bonuses issued to top executives to disgorgement if a subsequent restatement of a company’s financial statements was due to corporate misconduct, prohibits an officer or director from misleading or coercing an auditor, prohibits insider trades during pension fund “blackout periods,” imposes new criminal penalties for fraud and other wrongful acts, and extends the period during which securities fraud lawsuits can be brought against a company or its officers.

Anti-money laundering and anti-terrorism legislation

The Bank Secrecy Act of 1970 requires financial institutions to maintain records and report transactions to prevent the financial institutions from being used to hide money derived from criminal activity and tax evasion. The Bank Secrecy Act establishes (a) record keeping requirements to assist government enforcement agencies with tracing financial transactions and flow of funds, (b) reporting requirements for Suspicious Activity Reports and Currency Transaction Reports to assist government enforcement agencies with detecting patterns of criminal activity, (c) enforcement provisions authorizing criminal and civil penalties for illegal activities and violations of the Bank Secrecy Act and its implementing regulations, and (d) safe harbor provisions that protect financial institutions from civil liability for their cooperative efforts.

Title III of the USA PATRIOT Act of 2001 added anti-terrorist financing provisions to the requirements of the Bank Secrecy Act and its implementing regulations. Among other things, the USA PATRIOT Act requires all financial institutions, including subsidiary banks and non-banking affiliates, to institute and maintain a risk-based anti-money laundering compliance program that includes a customer identification program, provides for information sharing with law enforcement and between certain financial institutions by means of an exemption from the privacy provisions of the Gramm-Leach-Bliley Act, prohibits U.S. banks and broker-dealers from maintaining accounts with foreign “shell” banks, establishes due diligence and enhanced due diligence requirements for certain foreign correspondent banking and foreign private banking accounts, and imposes additional record keeping requirements for certain correspondent banking arrangements. The USA PATRIOT Act also grants broad authority to the Secretary of the Treasury to take actions to combat money laundering. Federal bank regulators are required to evaluate the effectiveness of a financial institution’s efforts to combat money laundering when evaluating an application submitted by the financial institution.

The Treasury’s Office of Foreign Asset Control administers and enforces economic and trade sanctions against targeted foreign countries, entities, and individuals based on U.S. foreign policy and national security goals. As a result, financial institutions must scrutinize transactions to ensure that they do not represent obligations of or ownership interests in entities owned or controlled by sanctioned targets.

Monetary policy

The earnings of financial institutions are affected by the policies of regulatory authorities, including monetary policy of the Federal Reserve. An important function of the Federal Reserve is regulation of aggregate national credit and money supply. The Federal Reserve accomplishes these goals with measures such as open market transactions in securities, establishment of the discount rate on bank borrowings, and changes in reserve requirements against bank deposits. These methods are used in varying combinations to influence overall growth and distribution of financial institutions’ loans, investments and deposits, and they also affect interest rates charged on loans or paid on deposits. Monetary policy is influenced by many factors, including inflation,

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unemployment, short-term and long-term changes in the international trade balance, and fiscal policies of the United States government. Federal Reserve monetary policy has had and will continue to have a significant effect on the operating results of financial institutions.

Developments affecting management and corporate governance

In June of 2010, the Federal banking agencies jointly published their final Guidance on Sound Incentive Compensation Policies. The goal is to enable financial organizations to manage the safety and soundness risks of incentive compensation arrangements and to assist banks and bank holding companies with identification of improperly-structured compensation arrangements. To ensure that incentive compensation arrangements do not encourage employees to take excessive risks that undermine safety and soundness, the incentive compensation guidance sets forth these key principles:

• incentive compensation arrangements should provide employees incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose the organization to imprudent risk,

• these arrangements should be compatible with effective controls and risk management, and

• these arrangements should be supported by strong corporate governance, including active and effective oversight by the board of directors.

To implement the interagency guidance, a financial organization must regularly review incentive compensation arrangements for all executive and non-executive employees who, either individually or as part of a group, have the ability to expose the organization to material amounts of risk, as well as to review the risk-management, control, and corporate governance processes related to these arrangements. The organization must immediately address any identified deficiencies in compensation arrangements or processes that are inconsistent with safety and soundness and must ensure that incentive compensation arrangements are consistent with the principles discussed in the guidance.

In addition to numerous provisions that affect the business of banks and bank holding companies, the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act includes in Title IX a number of provisions affecting corporate governance and executive compensation, for example the requirements that stockholders be given the opportunity to consider and vote upon executive compensation disclosed in a company’s annual meeting proxy statement, that a company’s compensation committee be comprised entirely of independent directors and that the committee have stated minimum authorities, that annual meeting proxy statements disclose the ratio of CEO compensation to the median compensation of all other employees, that company policy provide for recovery of excess incentive compensation after an accounting restatement, and that stockholders have the ability to designate director nominees for inclusion in a company’s annual meeting proxy statement. Section 956 also provides for adoption of incentive compensation guidelines jointly by the Federal banking agencies and the SEC, the National Credit Union Administration, and the Federal Housing Finance Agency.

Finally, during the application process for the acquisition of Service1st, we made a written commitment to the FDIC that we will make no change in the directors or executive management of Service1st unless we first receive the FDIC’s non-objection to the proposed change. This commitment will not expire before October of 2013.

Recent initiatives

Enacted on October 3, 2008, the Emergency Economic Stabilization Act of 2008 created the Troubled Asset Relief Program (“TARP”), giving the U.S. Treasury Department authority to purchase and insure certain types of troubled assets. One component of TARP is a generally available capital access program known as the Capital

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Purchase Program under which a financial institution may issue preferred shares and warrants to purchase shares of its common stock to the Treasury. The goal of the Capital Purchase Program was to help stabilize the financial system as a whole and ensure the availability of credit necessary for the country’s economic recovery. Service1st is not a participant in the Capital Purchase Program. Enacted on February 17, 2009, the American Recovery and Reinvestment Act of 2009 includes numerous economic stimulus provisions and makes more restrictive the executive compensation limits applicable to Capital Purchase Program participants.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act became law. The Dodd-Frank Act is a landmark financial reform bill, changing the current bank regulatory structure and affecting the lending, investment, trading, and operating activities of financial institutions and holding companies. Implementation of the Dodd-Frank Act will require new mandatory and discretionary rulemakings by numerous Federal regulatory agencies. The Dodd-Frank Act includes the following provisions:

• section 111 establishes a new Financial Stability Oversight Counsel to monitor systemic financial risks. The Board of Governors of the Federal Reserve is given extensive new authorities to impose strict controls on large bank holding companies with total consolidated assets equal to or in excess of $50 billion and systemically significant non-bank financial companies to limit the risk they might pose for the economy and to other large interconnected companies. The Dodd-Frank Act also grants to the Treasury Department, FDIC and the FRB broad new powers to seize, close and wind-down “too big to fail” financial institutions (including non-bank institutions) in an orderly fashion.

• Title X establishes a new independent Federal regulatory body within the Federal Reserve System that is dedicated exclusively to consumer protection. Known as the Bureau of Consumer Financial Protection, this new regulatory body will assume responsibility for most consumer protection laws, with rulemaking, supervisory, examination, and enforcement authority. It will also be in charge of setting appropriate consumer banking fees and caps. According to Dodd-Frank Act section 1025, the new regulatory body has examination and enforcement authority over banks with more than $10 billion in assets, but section 1026 makes clear that banks with assets of $10 billion or less will continue to be examined by their bank regulators for consumer law compliance. In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the Consumer Financial Protection Bureau. Although our bank does not currently offer many of these consumer products or services, compliance with any such new regulations would increase our cost of operations and, as a result, could limit our ability to expand into these products and services,

• section 171 restricts the amount of trust preferred securities that may be considered Tier 1 capital. For depository institution holding companies with total assets of less than $15 billion, trust preferred securities issued before May 19, 2010 may continue to be included in Tier 1 capital, but future issuances of trust preferred securities will no longer be eligible for treatment as Tier 1 capital, and

• under section 334 the FDIC’s minimum reserve ratio is to be increased from 1.15% to 1.35%, with the goal of attaining that 1.35% level by September 30, 2020; however, financial institutions with assets of less than $10 billion, including Service1st, are to be exempt from the cost of the increase. FDIC insurance coverage of up to $250,000 for deposit accounts is made permanent by section 335, section 343 extends until January 1, 2013 unlimited FDIC insurance for non-interest-bearing demand deposit accounts, more commonly known as checking accounts, and section 627 repeals the longstanding prohibition against financial institutions paying interest on checking accounts.

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• Section 331 changes the way deposit insurance premiums are calculated by the FDIC as well. Section 331provides that the assessment base is the difference between total assets and tangible equity. In other words the assessment base now takes account of all liabilities, not merely deposit liabilities. This change is likely to have a greater impact on large banks, which tend to rely on a variety of funding sources, than on smaller community banks, which tend to rely primarily on deposit funding:

• the Office of the Comptroller of the Currency’s ability to preempt state consumer protection laws is constrained by section 1044, and because of section 1042 state attorneys general have greater authority to enforce state consumer protection laws against national banks and their operating subsidiaries,

• section 619 embodies the so-called “Volcker rule,” prohibiting a banking entity from engaging in proprietary trading or from sponsoring or investing in a hedge fund or private equity fund, and

• imposing a 5% risk retention requirement on securitizers of asset-backed securities, section 941 could have an impact on financial institutions that originate mortgages for sale into the secondary market. Like other provisions of the Dodd-Frank Act, the scope and impact of section 941 will be determined by future rulemaking.

We are evaluating the potential impact of the Dodd-Frank Act on our business, financial condition, results of operations, and prospects. The Dodd-Frank Act could affect the profitability of community banking, require changes in the business practices of community banking organizations, lead to more stringent capital and liquidity requirements, and otherwise adversely affect the community banking business. However, because much of the Dodd-Frank Act will be phased in over time and will not become effective until Federal agency rulemaking initiatives are completed, we cannot predict with confidence precisely how the Dodd-Frank Act will affect community banking organizations. We are confident, however, that short- and long-term compliance costs for all financial organizations, both large and small, will be greater because of the Dodd-Frank Act.

Item 1A—Risk Factors

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

The global and U.S. economies and the local economies in the Nevada market, where substantially all of our loan portfolio was originated, experienced a steep decline beginning in 2007, which continued throughout 2011. The financial markets and the financial services industry in particular suffered unprecedented disruption, causing many financial institutions to fail or require government intervention to avoid failure. These conditions were largely the result of the erosion of the U.S. and global credit markets, including a significant and rapid deterioration of the mortgage lending and related real estate markets. We give you no assurance that economic conditions that have adversely affected the financial services industry and the capital, credit, and real estate markets generally, will improve in the near term.

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

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

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While generally containing lower risk than unsecured loans, commercial real estate and construction loans generally involve a high degree of credit risk. Such loans also generally involve larger individual loan balances. In addition, real estate construction loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because many real estate construction borrowers’ ability to repay their loans is dependent on successful development of their properties, as well as the factors affecting residential real estate borrowers. Risk of loss on a construction loan depends largely upon whether the initial estimate of the property’s value at completion of construction equals or exceeds the cost of property construction (including interest), the ability of the borrowers to stabilize leasing or rental income to qualify for permanent financing and the availability of permanent take-out financing, itself a market we believe that is largely non-existent at present. During the construction phase, a number of factors can result in delays and cost overruns. Construction and commercial real estate loans also involve greater risk because they may not be fully amortizing over the loan period, but have a balloon payment due at maturity. A borrower’s ability to make a balloon payment may depend on the borrower being able to refinance the loan, timely sell the underlying property or liquidate other assets.

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

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

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

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

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

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

An event or state of affairs that adversely affects the gaming or tourism industry adversely impacts the Las Vegas economy generally. Gaming and tourism revenue is particularly vulnerable to fluctuations in the economy. Virtually any development or event that dissuades travel or spending related to gaming and tourism adversely affects the Las Vegas economy. The Las Vegas economy is more susceptible than the economies of many other cities to such issues as higher gasoline and other fuel prices, increased airfares, unemployment levels, recession, rising interest rates, and other economic conditions, whether domestic or foreign. Gaming and tourism are also

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susceptible to political conditions or events, such as military hostilities and acts of terrorism, whether domestic or foreign. In addition, Las Vegas competes with other areas of the country and other parts of the world for gaming revenue, and it is possible that the expansion of gaming operations in other states, such as California, and other countries would significantly reduce gaming revenue in the Las Vegas area.

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

The financial services industry and the securities markets have been materially adversely affected by significant declines in values of almost all asset classes and by extreme lack of liquidity in the capital and credit markets. Financial institutions specifically have been subject to increased volatility and an overall loss in investor confidence. Financial institutions are interrelated as a result of trading, clearing, counterparty, investment, or other relationships, including loan participations, derivatives, and hedging transactions and investments in securities or loans originated or issued by financial institutions or supported by the loans they originate. Many of these transactions expose a financial institution to credit or investment risk arising out of default by the counterparty. In addition, a bank’s credit risk may be exacerbated if the collateral the bank holds cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or other exposure. These circumstances could lead to impairments or write-downs in a bank’s securities portfolio and periodic gains or losses on other investments under mark-to-market accounting treatment. We could incur additional losses to our securities portfolio in the future as a result of these issues. These types of losses could have a material adverse effect on our business, financial condition or results of operation. Furthermore, if we are unable to ascertain the credit quality of certain potential counterparties, we may not pursue otherwise attractive opportunities and we may be unable to effectively grow our business.

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

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

Depletion of the FDIC’s Deposit Insurance Fund could lead the FDIC to impose additional assessments on the banking industry.

Depletion of the FDIC’s Deposit Insurance Fund could lead the FDIC to impose additional assessments on the banking industry. In such case, our profitability would be reduced by any special assessments from the FDIC to replenish the Deposit Insurance Fund. Please see the discussion in the section entitled“Supervision and Regulation—Deposit Insurance.”

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

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

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

We are subject to extensive regulation, supervision, and legislation that governs almost all aspects of our operations. See the section entitled“Supervision and Regulation.”The laws and regulations applicable to the banking industry could change at any time and are primarily intended for the protection of customers, depositors, and the deposit insurance funds, not stockholders. Changes in these laws or in applicable accounting principles could make it more difficult and expensive for us to comply with laws, regulations, or accounting principles and could affect the way we conduct business.

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

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

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

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

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

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

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

Material breaches in security of Service1st’s systems may have a significant effect on Service1st’s business.

Service1st collects, processes and stores sensitive consumer data by utilizing computer systems and telecommunications networks operated by both Service1st and third party service providers. Service1st has

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security, backup and recovery systems in place, as well as a business continuity plan to ensure the system will not be inoperable. Service1st also has security to prevent unauthorized access to the system. In addition, Service1st requires its third party service providers to maintain similar controls. However, Service1st cannot be certain that the measure will be successful. A security breach in the system and loss of confidential information could result in losing the customers’ confidence and thus the loss of their business as well as additional significant costs for privacy monitoring activities.

Service1st’s necessary dependence upon automated systems to record and process its transaction volume poses the risk that technical system flaws or employee errors, tampering or manipulation of those systems will result in losses and may be difficult to detect. Service1st may also be subject to disruptions of its operating systems arising from events that are beyond its control (for example, computer viruses or electrical or telecommunications outages). Service1st is further exposed to the risk that its third party service providers may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors as Service1st). These disruptions may interfere with service to Service1st’s customers and result in a financial loss or liability.

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

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

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

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

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

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

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Service1st Bank of Nevada, Western Liberty agreed during the first three years of operation that Service1st Bank would not make any major deviation or material change to the business plan submitted as part of WLBC’s application to acquire Service1st Bank of Nevada. See the Risk Factor disclosure captioned“Bank regulatory restrictions with the FDIC and the Nevada Financial Institutions Division are likely to limit growth and inhibit development of banking products that were not in the business plan approved by bank regulators at the time WLBC was approved to acquire Service1st Bank of Nevada.”

The historical financial information included in this Form 10-K is not necessarily indicative of our future performance.

The historical financial information included in this Form 10-K is not necessarily indicative of future financial position, results of operations and cash flows. The results of future periods may be different as a result of, among other things, the pace of growth of our business in the future, which is likely to differ from the historical growth reflected in the financial information presented herein.

Service1st has experienced significant losses since it began operations in January of 2007. There is no assurance that it will become profitable.

Service1st commenced operations as a commercial bank on January 16, 2007, with initial capital of $50.0 million. Since inception, Service1st has not been profitable. To some extent, the lack of profitability is attributable to the start-up nature of its business; time is required to build assets sufficient to generate enough interest income to cover operating expenses. However, in addition to the customary challenges of building profitability for a start-up bank, Service1st has experienced deterioration in the quality of its loan portfolio.

In order for Service1st to become profitable, we believe that we will need to attract a larger amount of deposits and a larger portfolio of loans than Service1st currently has. We must avoid further deterioration in Service1st’s loan portfolio and increase the amount of its performing loans so that the combination of Service1st’s net interest income and non-interest income, after deduction of its provision for loan losses, exceeds Service1st’s non-interest expense. The source of the majority of Service1st’s loan losses can be traced primarily to real estate loans that were reliant on continuation of a growing and prosperous economic environment. Beginning in early to mid-2008, increased emphasis on underwriting standards and risk selection was introduced, which effectively discontinued the making of construction, land development, other land loans and any other loans in which the primary source of repayment was subject to greater risk than our current standards would require (such as repayment from proceeds from sales, rentals, leases or refinancing, including permanent take out financing) or based upon projections, unless such loans were accompanied by additional financial support from the borrowers or guarantors. Service1st’s future profitability may also be dependent on numerous other factors, including the success of the Nevada economy and favorable government regulation. The Nevada economy has experienced a significant decline in recent years due to the current economic climate. This economy, in which substantially all of Service1st’s loans have been made, continues to exhibit weakness, and there can be no assurance that further material losses will not be experienced in the portfolio. Continued deterioration of the national and/or local economies, adverse government regulation or our inability to grow our business could affect our ability to become profitable. If this happens, there continues to be a risk that we will not operate on a profitable basis in the near or long term, and Service1st may never become profitable.

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

Service1st suffers from a deterioration in the quality of its loan portfolio. The depressed economic conditions in Nevada which contributed to this deterioration are expected to continue in 2012. As of December 31, 2011, performing loans that are classified as potential problem loans were $10 million, or approximately 9.84% of total loans. See the discussion captioned “Potential Problem Loans”in“Management’s Discussion & Analysis of Financial Condition and Results of Operations.”

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

As of December 31, 2011, approximately 26.00% of Service1st’s loan portfolio consists of loans maturing within one year. As a result, we will either need to renew or replace these loans during the course of the year. There is no guarantee that these loans will be originated or renewed by borrowers on the same terms or at all, as demand for such loans may decrease. Furthermore, there is no guarantee that borrowers will qualify for new loans or that existing loans will be renewed by us on the same terms or at all, as collateral values may be insufficient or the borrowers’ cash flow maybe materially less than when the loan originated. This could result in a significant decline in the performance of our loan portfolio.

We rely upon independent appraisals to determine the value of the real estate which secures a significant portion of Service1st’s loans, and the values indicated by such appraisals may not be realizable if we are forced to foreclose upon such loans.

A significant portion of Service1st’s loan portfolio consists of loans secured by real estate. As of December 31, 2011, approximately 65.19% of Service1st’s loans were secured by real estate. We rely upon independent appraisers to estimate the value of the real estate which secures Service1st’s loans. Appraisals may reflect the estimated value of the collateral on an “as-is” basis, an “as-stabilized” basis or an “as-if-developed” basis, depending upon the loan type and collateral. Raw land generally is appraised at its “as-is” value. Income producing property may be appraised at its “as-stabilized” value, which takes into account the anticipated cash flow of the property based upon expected occupancy rates and other factors. The collateral securing construction loans may be appraised at its “as-if-developed” value, which approximates the post-construction value of the collateralized property assuming that such property is developed. “As-if-developed” values on construction loans often exceed the immediate sales value and may include anticipated zoning changes, and successful development by the purchaser.

Appraisals are only estimates of value and the independent appraisers may make mistakes of fact or judgment which adversely affect the reliability of their appraisal. In addition, events occurring after the initial appraisal may cause the value of the real estate to decrease. With respect to appraisals conducted on an “as-if-developed” basis, if a loan goes into default prior to development of a project, the market value of the property may be substantially less than the “as-if-developed” appraised value. As a result of any of these factors, there may be less security than anticipated at the time the loan was originally made. If there is less security and a default occurs, we may not recover the outstanding balance of the loan.

We currently are not permitted to expand by acquisition

During the application process for the acquisition of Service1st by WLBC, we made a number of commitments to the FDIC. We assured the FDIC in writing during the application process that we will not seek to expand by acquisition until Service1st is restored to a satisfactory condition. Until that occurs, any growth on Service1st’s part must be the result of organic growth in the bank’s existing business. Prior to the acquisition of Service1st, Western Liberty had announced an intended business strategy of using Service1st as the platform to grow through acquisition of failed banks. By committing to the FDIC that Western Liberty would only acquire Service1st with the immediate and near-term plans to restore Service1st to a safe and sound, and profitable, institution, growth through acquisition of failed banks was excluded from the application terms that the FDIC approved. Although these growth restrictions limit our opportunities currently, such restrictions typically would not survive a future acquisition, assuming the acquirer is a well-established banking organization considered by Federal and state bank regulatory agencies to be well capitalized and well managed.

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Bank regulatory restrictions with the FDIC and the Nevada Financial Institutions Division are likely to limit growth and inhibit development of banking products that were not in the business plan approved by bank regulators at the time Western Liberty Bancorp was approved to acquire Service1st Bank of Nevada.

As a condition to securing bank regulatory approval from the FDIC and the Nevada Financial Institutions Division to acquire Service1st Bank, we also agreed to seek advance approval both from the FDIC and the Nevada Financial Institutions Division for any major deviation from the Service1st Bank three year business plan that we submitted during the acquisition application process.

The Service1st Bank three year business plan approved by the FDIC and the Nevada Financial Institutions Division provides for modest loan growth funded by core deposits and Federal Home Loan Bank borrowing. Any growth in Service1st that occurs is expected to be the result of organic growth within the bank’s existing market and its existing business profile, without reliance on strategies such as acquisitions, branch additions, brokered deposits, above-market-rate deposit pricing, or significant expansion of the bank’s market or the bank’s product and service offerings. Service1st is and will remain primarily a business bank, with a target market of professionals and small and medium-sized businesses in southern Nevada principally and potentially elsewhere as well. Service1st has and will continue to have a significant concentration in commercial real estate lending, with significant construction and land development lending and commercial and industrial lending as well and, to a much lesser degree, consumer lending. To manage the risks of commercial real estate lending, we anticipate that an increasing percentage of Service1st commercial real estate lending concentration will come to be represented by owner-occupied properties and less so by non-owner-occupied commercial real estate investment properties. We believe the FDIC and the Nevada Financial Institutions Division are unlikely to agree to a major deviation or material change in our approved business plan unless the major deviation would reduce the risk profile o f the bank. As a result, we may not be able to implement new business initiatives, and our ability to grow may be inhibited.

In addition to the application approval condition that we would not make any material change in the approved three year business plan, Service1st Bank is subject to special supervisory conditions applicable to newly chartered (so called,“de novo”) banks for a probationary period of seven years. During such probationary period, we are required to operate within the parameters of a business plan submitted to the FDIC (an amended version of which was most recently submitted during application processing for the acquisition of Service1st), and to provide the FDIC 60 days’ advance notice of any proposed material change or material deviation from the business plan, before making any such change or deviation. During the seven-yearde novoperiod, we will remain on a 12-month risk management examination cycle. Consequently, we will be under a high degree of regulatory scrutiny, at least through January, 2014, and proposed new business initiatives not included in the business plan submitted to the FDIC will require prior FDIC approval.

As a commitment made to the FDIC during acquisition application processing, we also agreed to maintain the Tier 1 leverage capital ratio of Service1st at 10% or greater until October 28, 2013. We also agreed that for that same time period we will make no change in the directors or executive management of Service1st unless we first receive the FDIC’s non-objection to the proposed change. Since the October 28, 2010 acquisition of Service1st occurred WLBC has also become subject to the requirement to obtain non-objection from the Federal Reserve in advance in order to add a director to the board of WLBC or to make a change in executive management. Neither WLBC nor Service1st Bank may make changes in the board of directors or senior executives without first providing notice to its Federal bank regulatory agency—the Federal Reserve in the case of WLBC and the FDIC in the case of Service1st—and receiving written notice from those agencies that they do not object. Neither WLBC nor Service1st Bank may pay or agree to pay a severance benefit under an employment or severance agreement without first obtaining regulatory approval. These regulatory requirements could make it more difficult for us to retain and hire qualified senior management. The regulatory restrictions will remain in effect until modified or terminated by the regulators. The requirement for providing advance notice of and obtaining non-objection to changes in the board of directors or executive management of Service1st Bank will not terminate before October 28, 2013.

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We are subject to supervisory restrictions.

Under the terms of a September 2010 Consent Order of the FDIC and the Nevada FID Service1st agreed: (i) to assess the qualification of, and have retained qualified, senior management commensurate with the size and risk profile of Service1st; (ii) to maintain a Tier I leverage ratio at or above 8.5% and a total risk-based capital ratio at or above 12%; (iii) to continue to maintain an adequate allowance for loan and lease losses; (iv) not to 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 to extend additional credit to any borrower whose loan has been charged-off or classified “loss”; (vii) not to 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) to 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) to formulate and implement a plan to address profitability; and (x) not to 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. Although the FDIC and the Nevada FID terminated the Consent Order effective October 31, 2011, as we disclosed in a Form 8-K Current Report filed with the SEC on November 10, 2011, as a condition to termination of the Consent Order Service1st entered into an informal understanding with the FDIC and the Nevada FID that Service1st will, among other things, maintain its Tier 1 leverage ratio at no less than 8.5% and update the bank’s business plan to address goals for achieving profitability and reduction of total adversely classified assets.

At the end of March 2012, the Company entered into an informal understanding with the Federal Reserve Bank of San Francisco. Among other things, the Company agreed that it will not repurchase stock without advance written approval of the Federal Reserve Bank. In addition, WLBC must give written notice at least 30 days in advance to the Federal Reserve Bank in order to appoint a new director or a new senior executive officer or to change the responsibilities of a senior executive officer. In practice the Federal Reserve Bank’s review period is typically longer than 30 days and can be as long as 60 to 90 days or more. During this period for Federal Reserve Bank review of the proposed appointment or change, the Federal Reserve Bank could act to prohibit the proposed appointment or change in responsibilities.

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

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

• changes in our perceived ability to increase our assets and deposits;

• changes in financial estimates by analysts;

• announcements by us or our competitors of significant contracts, acquisitions or capital commitments;

• fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

• general economic conditions;

• changes in market valuations of similar companies;

• terrorist acts;

• changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;

• future sales of our Common Stock;

• regulatory developments in the United States, foreign countries or both;

• litigation involving us, our subsidiaries or our general industry; and

• additions or departures of key personnel.

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The trading volume of the Company’s common stock is limited.

The Company’s common stock trades on Nasdaq under the symbol “WLBC” and trading volume is modest. The limited trading market for the common stock may lead to exaggerated fluctuations in market prices and possible market inefficiencies, as compared to a more actively traded stock. It may also make it more difficult to dispose of the common stock at expected prices, especially for holders seeking to dispose of a large number of such stock.

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

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

We have approximately 43 full-time equivalent, non-union employees. We seek to employ adequate staffing commensurate with levels of banking activities and customer service requirements for a community bank.

Our success depends in part on our ability to retain key customers, and to hire and retain management and employees and successfully manage the broader organization. Competition for qualified individuals may be intense and key individuals may depart. Accordingly, no assurance can be given that we will be able to attract and retain key customers, management or employees, which could result in disruption to our business and negatively impact our operations and financial condition.

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

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

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

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

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

Service1st is a member of the FHLB of San Francisco, which is one of the twelve regional banks comprising the FHLB System. The FHLB provides credit for member financial institutions. The 12 FHLBs obtain their funding primarily through issuance of consolidated obligations of the FHLB System. The U.S. government does not guarantee these obligations, and each of the 12 FHLBs is jointly and severally liable for repayment of the debt of the other FHLBs. Therefore, our investment in the equity stock of the FHLB of San Francisco could be adversely affected by the operations of the other FHLBs. Certain FHLBs, including the FHLB of San Francisco, have experienced lower earnings from time to time and have paid out lower dividends to their members. If an FHLB’s capital drops below 4% of its assets, restrictions on the redemption or repurchase of member banks’ FHLB stock are imposed by law. If FHLBs are restricted from redeeming or repurchasing member banks’ FHLB stock due to adverse financial conditions affecting either individual FHLBs or the FHLB system as a whole, member banks may be required to recognize an impairment charge on their FHLB equity stock investments. Future problems at the FHLBs could have an impact on the collateral necessary to secure borrowings and limit the borrowings extended to member banks, as well as require additional capital contributions by member banks. If this occurs, our short-term liquidity needs could be adversely affected. If we are restricted from using FHLB advances due to weakness in the FHLB System or weakness at the FHLB of San Francisco, we may be forced to find alternative funding sources. These alternative funding sources may include seeking lines of credit with third party banks or the Federal Reserve Bank of San Francisco, borrowing under repurchase agreement lines, increasing deposit rates to attract additional funds, accessing brokered deposits, or selling certain investment securities categorized as available-for-sale in order to maintain adequate levels of liquidity.

Our legal lending limit could be a competitive disadvantage.

Service1st’s legal lending limit is approximately $8 million as of December 31, 2011. Accordingly, the size of the loans which we can offer to potential clients is less than the size of loans our competitors with larger lending limits can offer. Our legal lending limit affects our ability to seek relationships with the area’s larger and more established businesses. Through our previous experience and relationships with a number of the region’s other financial institutions, we are generally able to accommodate loan amounts greater than our legal lending limit by selling participations in those loans to other banks, although we tend to retain a significant portion of the loans we originate. However, we cannot assure you of any success in attracting or retaining clients seeking larger loans or (taking into account the economic downturn and its effects on other financial institutions) that we can engage in participation transactions for those loans on terms favorable to us.

Item 1B—Unresolved Staff Comments

Not applicable.

Item 2—Properties

We operate from three leased locations. We maintain our principal executive offices at 8363 West Sunset Road, Suite 350, in Las Vegas, Nevada 89113. We also have two banking offices, one located at 8349 West Sunset Road Suite B, Las Vegas, Nevada 89113, and the other at 8965 South Eastern Avenue Suite 190, Las Vegas Nevada 89123.

Item 3—Legal Proceedings

From time to time Service1st Bank is involved in legal proceedings that are incidental to its business. In the opinion of management, no current legal proceedings are material to the business or financial condition of WLBC or Service1st Bank, either individually or in the aggregate.

Item 4—Mine Safety Disclosures

Not applicable.

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PART II

Item 5—Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market information—Our common stock is listed on the Nasdaq Global Market (“Nasdaq”), trading under the symbol “WLBC.” Our outstanding securities listed on Nasdaq consist solely of shares of common stock. The following table sets forth for each quarter in the years ended December 31, 2011 and 2010 the high and low sales price of our common stock.

	Common stock
	High		Low
2011
First quarter		6.44		3.52
Second quarter		5.00		2.50
Third quarter		3.30		2.43
Fourth quarter		2.95		2.18

	Common stock
	High		Low
2010
First quarter		8.04		6.18
Second quarter		9.00		5.75
Third quarter		7.80		4.80
Fourth quarter		7.80		4.80

Our common stock has been listed on the Nasdaq since October 29, 2010, trading immediately prior to that on the Over-the-Counter (OTC) Bulletin Board, an electronic stock listing service provided by the Nasdaq Stock Market, Inc. Our common stock was listed on the New York Stock Exchange AMEX until approximately February 25, 2010. The figures in the table above are the high and low prices as reported on Nasdaq, the OTC Bulletin Board, or the New York Stock Exchange Amex during the applicable time periods. As a result of Acquisition, our only publicly traded security is our common stock.

Holders of Common Equity

On December 31, 2011 there were approximately 83 holders of record of our common stock. That figure does not include beneficial owners.

Dividends

We have never paid cash dividends on our common stock and we do not intend to pay cash dividends for the foreseeable future. The payment of dividends will depend on our revenues and earnings, if any, capital requirements, and general financial condition. The payment of dividends will be within the discretion of our board of directors. The board currently intends to retain any earnings for use in our business operations. Service1st Bank’s ability to pay dividends to us is subject to bank regulatory restrictions. In addition, because of an informal understanding that Service1st Bank has with the FDIC and with the Nevada FID, Service1st Bank cannot pay cash dividends unless it first obtains the written consent of the FDIC and the Commissioner of the Nevada FID.

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Issuer purchases of equity securities in the fourth quarter

Period	(a) Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
October 1—31, 2011		112,271		2.47		112,271	$	277,141
November 1—30, 2011		2,716		2.71		2,716	$	7,364
December 1—31, 2011		820,000		2.50		820,000	$	2,074,600

In satisfaction of WLBC’s tax withholding obligation relating to restricted stock awards that vested in the fourth quarter, WLBC withheld a total of 13,432 shares. Of an award of 155,279 shares of restricted stock made to CEO William E. Martin, 31,056 shares became vested on October 28, 2011. After withholding of 10,870 shares, 20,186 vested shares were issued to Mr. Martin. Of an award of 38,819 shares of restricted stock made to former CFO George A. Rosenbaum Jr., 7,764 shares became vested on October 28, 2011. The remaining 31,055 shares were forfeited because of Mr. Rosenbaum’s December 23, 2011 employment termination. After withholding of 2,562 shares from the 7,764 shares that vested, and after forfeiture of 2,601vested shares because of Mr. Rosenbaum’s December 23, 2011 termination, the net vested shares issued to Mr. Rosenbaum were 2,601 shares.

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Item 6—Selected Financial Data

SELECTED HISTORICAL FINANCIAL INFORMATION—WESTERN LIBERTY BANCORP (WLBC)

WLBC’s balance sheet data as of December 31, 2011 and 2010 and related statements of operations, changes in shareholders’ equity and cash flows for the years ended December 31 2011 and 2010 are derived from WLBC’s audited financial statements, which are included elsewhere in this Form 10-K.

Information for December 31, 2010 includes the two months of operations of Service1st and the related balances.

This information should be read together with WLBC’s audited financial statements and related notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—WLBC” and other financial information included elsewhere in this Form 10-K. The historical results included below and elsewhere in this Form 10-K are not indicative of the future performance of WLBC.

WESTERN LIBERTY BANCORP

SELECTED FINANCIAL DATA

	Years Ended December 31,
	2011			2010(3)
	($ in thousands except per share data)
Selected Results of Operations Data:
Interest income	$	9,513		$	1,530
Interest expense		484			115
Net interest income		9,029			1,415
Provision for loan losses		8,717			36
Net interest income after provision for loan losses		312			1,379
Non-interest income		2,407			108
Non-interest expense		16,947			9,137
Net Loss	$	(14,228	)	$	(7,650	)
Per Share data:
Net loss per common share	$	(0.96	)	$	(0.65	)
Book Value(5)	$	5.65		$	6.22
Selected Balance Sheet Data:
Total Assets	$	198,290		$	257,546
Cash and cash equivalents		89,353			103,227
Certificates of deposit(4)		—			26,889
Securities, available for sale		472
Securities, held to maturity		2,031			7,133
Gross loans, including net deferred loan fees		101,861			106,259
Allowance for loan losses		2,919			36
Deposits		121,226			160,286
Stockholders’ equity		76,041			93,829
Performance Ratios:
Net interest margin(1)		4.55	%		3.33	%
Efficiency ratio(2)		148.19	%		599.93	%
Return on average assets		(6.54	)%		(2.60	)%
Return on average equity		(16.19	)%		(5.89	)%

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	Years Ended December 31,
	2011			2010(3)
	($ in thousands except per share data)
Asset Quality:
Nonperforming loans(6)	$	24,054		$	10,426
Allowance for loan losses as a percentage of nonperforming loans(6)		12.14	%		0.35	%
Allowance for loan losses as a percentage of portfolio loans		2.87	%		0.03	%
Nonperforming loans as a percentage of total portfolio loans(6)		23.61	%		9.81	%
Nonperforming loans as a percentage of total assets(6)		12.13	%		4.05	%
Net charge-offs to average portfolio loans		5.66	%		0.00	%
Capital Ratios:
Average equity to average assets		40.42	%		44.11	%
Tier 1 equity to average assets		25.70	%		30.50	%
Tier 1 Risk-Based Capital ratio		70.37	%		68.40	%
Total Risk-Based Capital ratio		71.59	%		68.80	%

(1) Net interest margin represents net interest income as a percentage of average interest-earning assets.

(2) Efficiency ratio represents non-interest expenses as a percentage of the total of net interest income plus non-interest income.

(3) Service1st was acquired in 100% stock exchange on October 28, 2010. Thus, the 2010 data represents a full year for WLBC and a partial year (two months) for Service1st.

(4) Certificates of deposit issued by other banks with original maturities greater than three months.

(5) Book value is calculated by dividing total stockholder’s equity at December 31 by the number of shares outstanding as of December 31.

(6) Nonperforming loans includes PCI loans for which no contractual interest is being recorded.

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Item 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—WESTERN LIBERTY BANCORP

The following discussion and analysis should be read in conjunction with WLBC’s audited financial statements and notes to the financial statements included elsewhere in this Form 10-K. This discussion and analysis contains forward-looking statements that involve risk, uncertainties and assumptions. Certain risks, uncertainties and other factors, including but not limited to those set forth under “Cautionary Note Regarding Forward-Looking Statements” may cause actual results to differ materially from those projected in the forward-looking statements.

Overview

Predecessor Company. Because WLBC’s operations before the acquisition of Service1st were insignificant relative to those of Service1st, management believes that Service1st is WLBC’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, separate financial statements of Service1st as of October 28, 2010 and for the period January 1, 2010 through October 28, 2010 are included in this Form 10-K, along with a separate Management Discussion and Analysis. These items should be read in conjunction with the financial statements of the Company for the periods ended December 31, 2011 and 2010. The predecessor financials are not comparable because at acquisition on October 28, 2010 the assets and liabilities were fair valued and a new accounting basis was determined, different from the historical cost basis. In general, this change in basis affects interest income and expense because of the amortization of premiums and discounts to arrive at contractual amounts due.

Local economic conditions. The recession that began in late 2007 has had a very severe impact on the Las Vegas economy. Stagnant or declining property values, persistently high unemployment levels, low consumer and business confidence levels, and increasing vacancy and foreclosure rates for commercial and residential property have adversely affected the Las Vegas economy. We are optimistic that the rapid deterioration in most or all of the Las Vegas-area economic indicators since late 2007 has stopped and that it will eventually be reversed, but we believe that the recovery in the local economy will be very gradual. Given the current economic conditions in Nevada, Service1st has effectively stopped making commercial real estate loans and construction, land development and other land loans (except for contractually required disbursements under existing facilities) unless borrowers can provide strong financial support outside the project under development.

Stock repurchase program. We repurchased a total of 1,574,400 shares in the third and fourth quarters of 2011, under a 5% stock repurchase program announced on August 18, 2011 and a 7% stock repurchase program announced on December 6, 2011. A bank holding company may not purchase or redeem its equity securities without advance written approval of the Federal Reserve under Federal Reserve Rule 225.4(b) if the purchase or redemption combined with all other purchases and redemptions by the bank holding company during the preceding 12 months equals or exceeds 10% of the bank holding company’s consolidated net worth. However, advance approval is not necessary if the bank holding company is well managed, not the subject of any unresolved supervisory issues, and both before and immediately after the purchase or redemption is well capitalized. Although we would remain well capitalized after additional stock repurchases, written approval of the Federal Reserve under Rule 225.4(b) would be necessary in order for us to initiate an additional stock repurchase program.

Formation of asset resolution subsidiary. Las Vegas Sunset Properties was established in 2011 for the purpose of owning and managing nonperforming and subperforming assets of Service1st Bank. OREO properties were transferred from Service1st to Las Vegas Sunset Properties on December 28, 2011. Loan asset transfers were completed on January 11, 2012. Funded with cash contributions from WLBC, Las Vegas Sunset Properties paid fair value to Service1st for the assets. The purchase price was approximately $15.5 million, including

33

approximately $4.0 million for the OREO properties and $11.5 million for the loan assets. The assets were written down to fair value by Service1st and for that reason there was no resulting transaction gain or loss on the sale of the assets by Service1st to Las Vegas Sunset Properties.

Summary of Results of Operations and Financial Condition. Since formation at the beginning of 2007, Service1st has not been profitable. To some extent, the lack of profitability is attributable to the start-up nature of its business: time is required to build assets sufficient to generate enough interest income to cover operating expenses. However, in addition to the customary challenges of building profitability for a start-up bank, Service1st has experienced deterioration in the quality of its loan portfolio.

For the year ended December 31, 2010, WLBC recorded a net loss of $7.7 million or $0.65 per common share, as compared with a net loss of $14.2 million or $0.96 per common share in 2011. The $6.5 million increase in net loss for the year ended December 31, 2011, when compared to the year ended December 31, 2010, was the result of having twelve months of consolidated operations in 2011 compared to two months of consolidated operations in 2010 as well as a $5.6 million goodwill impairment charge taken in the 3^rd quarter of 2011, partially offset by the fair value adjustment of $1.8 million on the contingent consideration.

Critical Accounting Policies and Estimates Generally. WLBC’s significant accounting policies are described in Note 1 of its audited financial statements (which are included elsewhere in this Form 10-K), including information regarding recently issued accounting pronouncements, WLBC’s adoption of such policies and the related impact of their adoption. Certain of these policies, along with various estimates that WLBC is required to make in recording its financial transactions, are important to have a complete understanding of WLBC’s financial position. In addition, these estimates require WLBC to make complex and subjective judgments, many of which include matters with a high degree of uncertainty.

Critical Accounting Policies and Estimates: Allowance for Loan Losses. The ALLL was adjusted to zero in conjunction with the fair value accounting process. Therefore, the ALLL of $36,000 at December 31, 2010 only relates to those loans generated after the October 28, 2010 acquisition date. As of December 31, 2011, our allowance for loan and lease losses was $2.9 million. This allowance relates to new loan acquisitions since the acquisition date and additional credit deterioration in the portfolio acquired. Of the total loan portfolio, $26.5 million in loans have been made after the acquisition date of October 28, 2010.

The allowance for loan losses is an estimate of the credit risk in WLBC’s loan portfolio and appears on the balance sheet as a “contra asset” which reduces gross loans. The allowance is established (or once established, increased) by recording provision expense. Loans charged off on WLBC’s books reduce the allowance. Subsequent recoveries of charged off loans, if any, increase the allowance.

The allowance is an amount that WLBC’s 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. 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 WLBC’s loan portfolio in real estate-secured loans, future adjustments to the allowance may be necessary if there are significant changes in economic or other conditions. In addition, the FDIC and state banking regulatory agencies, as an integral part of their examination process, review WLBC’s allowance for loan losses, and may require WLBC to make additions to the allowance based on their judgment about information available to them at the time of their examinations. The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For such loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative and environmental factors.

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A loan is impaired when it is probable WLBC will be unable to collect all contractual principal and interest payments due in accordance with the original terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.

Critical Accounting Policies and Estimates: Investment Securities Portfolio. Securities classified as available for sale are equity securities and those debt securities WLBC intends to hold for an indefinite year of time, but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of WLBC’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar considerations. Securities available for sale are reported at fair value with unrealized gains or losses reported as other comprehensive income (loss), net of related deferred tax effect. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings.

Securities classified as held to maturity are those debt securities WLBC has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs, or general economic conditions. These securities are carried at amortized cost, adjusted for amortization of premium and accretion of discount computed by the interest method over the contractual lives. The sale of a security within three months of its maturity date or after at least 85% of the principal outstanding has been collected is considered a maturity for purposes of classification and disclosure. Purchase premiums and discounts are generally recognized in interest income using the effective-yield method over the term of the securities.

WLBC’s management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, including an evaluation of credit ratings, (3) the impact of changes in market interest rates, (4) the intent of WLBC to sell a security and (5) whether it is more likely than not WLBC will have to sell the security before recovery of its cost basis.

Critical Accounting Policies and Estimates: Stock-Based Compensation. WLBC awarded common stock, restricted stock, restricted stock units and assumed the Service1st stock options outstanding at October 28, 2010. This is described in Note 13 to WLBC’s audited financial statements for the year ended December 31, 2011, included elsewhere in this Form 10-K. WLBC records the fair value of stock compensation granted to employees and directors as expense over the vesting year(s). The cost of the award is based on the grant-date fair value. The compensation expense recognized was approximately $529,000 for the year ended December 31, 2011 and $1.8 million for the year ended December 31, 2010.

Critical Accounting Policies and Estimates: Income Taxes. Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment. As a result of the October 28, 2010 acquisition of Service1st Bank, WLBC’s net operating loss utilization will be subject to an annual limitation on the net operating loss against future taxable income. Internal Revenue Code section 382 places a limitation on the amount of taxable income that can be offset by net operating loss carry forwards after a change in control (generally greater than 50% change in ownership) of a loss corporation.

Critical Account Policies and Estimates:Acquisition of Service1st Bank of Nevada. The acquisition of Service1st Bank was recorded as a business combination under the current accounting rules and as a result the

35

balance sheet of Service1st was revalued to fair value as of the transaction date. This process is heavily reliant on measuring and estimating the fair values of all the assets and liabilities of the acquired entity. WLBC elected to obtain professional assistance in this activity. The Company hired a third-party vendor to assist Management in determining the fair value of the loan portfolio, the time deposits, and the contingent consideration potentially payable to the stockholders of Service1st Bank.

As of the acquisition date, the gross loan portfolio at Service1st Bank was approximately $125.4 million with a related ALLL of approximately $9.4 million. The valuation resulted in a discount of approximately $15.1 million at October 28, 2010. This discount consists of two components: credit discount and yield discount. The performing 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 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. The application of this process requires that the aggregate discount is first netted against the ALLL, reducing the ALLL to zero. Consequently, the first day after the transaction the loan portfolio was approximately $110 million with no ALLL. In addition, current accounting methodology only allows for the establishment of an ALLL to occur as the entity records new loans on the books or identifies subsequent credit deterioration on the original loans marked to fair value at acquisition date.

Since inception, Service1st had charged off approximately $17.8 million of loans through October 28, 2010. The remaining $125 million loan portfolio was further reduced by approximately $15 million in the fair value process as of the acquisition date.

The third-party vendor that assisted with the determination of the loan portfolio’s fair value also assisted with the valuation of the intangible asset known as the “core deposit intangible,” of “CDI.” The CDI is the result of a valuation study which attempts to associate a value for the customer’s deposit relationships based on the profitability of the deposits and how long they are expected to produce revenue to the entity. This intangible asset was valued at $784,000 for Service1st at October 28, 2010. The intangible asset is amortized on an accelerated basis using an estimated ten year life.

When we acquired Service1st we provided for a potential future benefit for the original Service1st stockholders, which was carried at fair value on our balance sheet as a contingent liability. Because of numerous negative factors in the local economy, our overall performance and our stock trading significantly below book value, we determined in the third quarter of 2011 that it was unlikely that our stock price will recover enough to trigger this benefit. Consequently, the fair value of this liability for contingent consideration was reversed to zero. We will continue to evaluate this liability until it expires in October of 2012, recording the appropriate fair value adjustment if necessary. This reduction on the liability side of the balance sheet generated a non-cash benefit of $1.8 million in non-interest income in the third quarter.

Critical Accounting Policies and Estimates: Goodwill Impairment. These estimates along with several other estimates were used to complete the fair value process for the balance sheet of Service1st and also to evaluate the fair value of future commitments and off-balance sheet items. Upon completion of these activities the adjustments are posted to the records of the new subsidiary. The difference between the fair value of the consideration paid for Service1st Bank versus the net asset values acquired is an unidentified intangible asset (goodwill) of approximately $5.6 million.

During the third quarter of 2011, management determined that there was an adverse change in the business climate. This was directly related to the adverse local economy persisting which is continuing to have a meaningful impact on the Bank’s operations, and although the acquisition of the Bank had been consummated

36

less than one year previously, management determined that it was more likely than not that the fair value of the reporting unit had fallen below its carrying amount. The primary indicator for this decision was the ongoing deterioration of borrowers who can no longer perform under the original terms of the loan agreements. These loans have typically required significant reserves or charge-offs based on appraised collateral values that may have declined 50-80% and since the inception of the loan. As a result a majority of the $8.7 million provision during the year related to these loans. The Company elected to obtain professional assistance in determining the fair value of the reporting unit and if necessary to assist in determining the fair values of all assets and liabilities, any core deposit intangibles and the fair value of the contingent consideration. We determined the fair value of our reporting unit and compared it to its carrying amount and determined that step two of the impairment test should be performed during the third quarter. The method for estimating the value of the reporting unit included a weighted average of the discounted cash flows method as well as the guideline change of control transactions method and public company method. The second step of the goodwill impairment test is performed to determine the amount of the goodwill impairment, if any. Step two required us to compute the implied fair value of the reporting unit goodwill and compare it against the actual carrying amount of the reporting unit goodwill. The implied fair value of the reporting unit goodwill was determined in the same manner that goodwill recognized in a business combination is determined. That is, the fair value of the reporting unit was allocated to all of the individual assets and liabilities of the reporting unit, including any unrecognized identifiable intangible assets, as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit determined in the first step was the price paid to acquire the reporting unit. The allocation process is only performed for purposes of testing goodwill for impairment, as the other assets and liabilities are not written up or down, nor is any additional unrecognized identifiable asset recorded as part of this process.

After this analysis, it was determined the implied fair value of the goodwill assigned to the reporting unit was less than the carrying value on the Company’s balance sheet, and the Company reduced the carrying value of goodwill to zero through an impairment charge to earnings. Such charge had no effect on the Company’s cash balances or liquidity. In addition, because goodwill is not included in the calculation of regulatory capital, the Company’s regulatory ratios were not affected by this non-cash expense.

Critical Accounting Policies and Estimates: OREO

Other real estate owned or other foreclosed assets acquired through loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. The adjustment at the time of foreclosure is recorded through the allowance for loan losses. Due to the subjective nature of establishing the fair value when the asset is acquired, the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate. If it is determined that fair value declines subsequent to foreclosure, the valuation allowance is adjusted through a charge to noninterest expense. Operating costs associated with the assets after acquisition are also recorded as noninterest expense. Gains and losses on the disposition of other real estate owned and foreclosed assets are netted and recognized in noninterest expense.

Results of Operations

The results of WLBC include twelve months of operations for 2011 and only two months of operations in 2010 for Service1st. This substantially impacts interest income, interest expense, provision for loan losses and various non interest income and expense items which were not applicable to WLBC prior to the Acquisition. The interest income line is also impacted by the accretion of discount on the loan portfolio which approximated $436,000 for 2010 and $3.6 million for 2011.

WLBC’s results of operations depend substantially on its ability to generate net interest income, which is the difference between the interest income on its interest-earning assets (primarily loans and investment securities) minus interest expense on its interest-bearing liabilities (primarily deposits). Revenue is also generated by non-interest income, consisting principally of account and other service fees. These sources of revenue are burdened by two categories of expense: first, the provision for loan losses, which consists of a charge

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against earnings in an amount that WLBC’s management judges necessary to maintain WLBC’s allowance for loan losses at a level deemed adequate to absorb probable incurred loan losses inherent in the loan portfolio; and second, non-interest expense, which consists primarily of operating expenses, such as compensation to employees.

The management of interest income and interest expense is fundamental to the performance of WLBC. Net interest income and interest expense on interest-bearing liabilities, such as deposits and other borrowings, is the largest component of WLBC’s net revenue. Net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the rates earned or paid on them. WLBC’s management closely monitors both total net interest income and the net interest margin (net interest income divided by average earning assets).

Net interest income and net interest margin are affected by several factors including (1) the level of, and the relationship between the dollar amount of interest earning assets and interest-bearing liabilities; and (2) the relationship between re-pricing or maturity of WLBC’s variable-rate and fixed-rate loans, securities, deposits and borrowings.

Variable rate loans constitute approximately 50.00% of WLBC’s portfolio for the year end December 31, 2011, which are indexed to the national prime rate. However, a majority of these prime-rate based loans are subject to “floors,” ranging from 5.5% to 8.5%. Currently the prime rate is under the applicable floor rate for substantially all of WLBC’s prime-rate based loans.

Movements in the national prime rate that increase the applicable loan rates above applicable floors have a direct impact on WLBC’s loan yield and interest income. The national prime rate remained at 3.25% throughout 2010 and 2011, as the Federal Reserve maintained the targeted federal funds rate steady. Based on economic forecasts generally available to the banking industry, WLBC currently believes it is reasonably possible that the targeted federal funds rate and the national prime rate will remain flat in the foreseeable future and increase in the long term; however, there can be no assurance to that effect or as to the timing or the magnitude of any increase should an increase occur, as changes in market interest rates are dependent upon a variety of factors that are beyond WLBC’s control.

WLBC, through its asset and liability policies and practices, seeks to maximize net interest income without exposing WLBC to an excessive level of interest rate risk. Interest rate risk is managed by monitoring the pricing, maturity and re-pricing options of all classes of interest-bearing assets and liabilities. See “Quantitative and Qualitative Disclosures About Market Risk” in this section for more information.

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The following table sets 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 years ended December 31, 2011, and 2010.

	Year Ended December 31, 2011								Year Ended December 31, 2010(4)
($ in thousands)	Average Balance			Interest Income/ Expense		Yield			Average Balance			Interest Income/ Expense		Yield
Interest Earning Assets:
Certificates of deposit	$	8,396		$	87		1.04	%		26,889		$	56		1.27	%
Money Market funds		30,196			2		0.01	%		76,804			8		0.06	%
Interest Bearing deposits		52,262			130		0.25	%		39,308			16		0.25	%
Investment securities		4,639			41		0.88	%		7,898			47		3.62	%
Portfolio loans(1)		103,077			9,253		8.98	%		107,275			1,403		7.96	%
Total interest-earnings assets/interest income		198,570			9,513		4.79	%		258,174			1,530		3.61	%
Noninterest Earning Assets:
Cash and due from banks		7,918								12,035
Allowance for loan losses		(1,955	)							(18	)
Other assets		12,916								13,243
Total assets	$	217,449							$	283,434
Liabilities and Stockholders’ Equity
Interest-Bearing Liabilities:
Demand deposits		8,016			24		0.30	%		31,275			43		0.84	%
Money markets		26,914			152		0.56	%		26,048			25		0.58	%
Savings		897			4		0.45	%		1,272			1		0.48	%
Time deposits under $100,000		6,497			56		0.86	%		4,910			7		0.87	%
Time deposits $100,00 and over		32,828			245		0.75	%		29,943			39		0.79	%
Short-term borrowings		904			3		0.33	%		—			—		0.00	%
Total interest-bearing liabilities/interest expense		76,056			484		0.64	%		93,448			115		0.75	%
Noninterest Bearing Liabilities:
Non-interest-bearing demand deposits		51,679								68,493
Accrued interest on deposits and other liabilities		1,818								2,221
Total liabilities		129,553								164,162
Stockholders’ equity(5)		87,896								87,704
Total liabilities and stockholders’ equity(6)		217,449							$	251,866
Net interest income and Interest rate spread(2)				$	9,029		4.15	%				$	1,415		2.86	%
Net interest margin(3)							4.55	%							3.33	%
Ratio of Average Interest-Earning Assets to Interest-Bearing Liabilities		261	%							276	%

(1) Average balances include nonaccrual loans of approximately $24.1 million and $10.4 million, for the years ended December 31, 2011 and 2010, respectively. Net loan (fees) or costs of $41,000 and $37,000, are included in the yield computation for the years ended December 31, 2011 and 2010, respectively.

(2) Net interest spread represents the average yield earned on interest earning assets less the average rate paid on interest bearing liabilities.

(3) Net interest margin represents net interest income as a percentage of average interest earning assets.

(4) Service1st was acquired by Western Liberty Bancorp on October 28, 2010, thus the 2010 data represents a full year for WLBC; and a partial year for Service1st, October 28, 2010 through December 31, 2010. Average balances are computed by taking the balance at each quarter end for WLBC, adding the four

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quarters together and dividing by four. Average balances for Service1st are computed by taking November and December 2010’s month end balance, adding them together and dividing by two. Interest income for 2010 represents a full year for WLBC and two months of income for Service1st.

(5) Stockholders equity was computed by taking WLBC’s balance for each quarter end, adding the four quarters together and dividing by four, to compute a yearly average. No balance for Service1st is included in the 2010 stockholder’s equity balance as the calculation combines four quarters of WLBC’s balances to compute an average, but is skewed when only the last two month’s of Service1st’s 2010 balances can be utilized, due to date of acquisition. Thus, the elimination of investment in subsidiary, which needs to occur in consolidation accounting, impacts the consolidated numbers.

(6) As a result of the assumption noted in note (5) above, Total Assets will not equal Total Liabilities plus Stockholder’s Equity for 2010.

The following Volume and Rate Variances table sets forth the dollar difference in interest earned and paid for each major category of interest-earning assets and interest-bearing liabilities for the noted years, and the amount of such change attributable to changes in average balances (volume) or changes in average interest rates. Volume variances are equal to the increase or decrease in the average balance times the prior year rate and rate variances are equal to the increase or decrease in the average rate times the prior year average balance. Variances attributable to both rate and volume changes are equal to the change in rate times the change in average balance and are allocated proportionately to the changes due to volume and changes due to rate.

	Years Ended December 31, 2011 Compared to 2010 Increase (Decrease) Due to Changes in:
($’s In thousands)	Average Volume			Average Rate			Net Increase (Decrease)
Interest income:
Certificates of deposit	$	(192	)	$	223		$	31
Money Market funds		(3	)		(3	)		(6	)
Interest bearing deposits		32			82			114
Investment securities		(29	)		23			(6	)
Portfolio loans		(377	)		8,227			7,850
Total increase (decrease) in interest income		(569	)		8,552			7,983
Interest expense:
Interest checking	$	(70	)	$	51		$	(19	)
Money markets		5			122			127
Savings		(2	)		5			3
Time deposits under $100,000		14			35			49
Time deposits $100,000 and over		22			184			206
Short-term borrowings		3			—			3
Total increase (decrease) in interest expense		(28	)		397			369
Net increase (decrease) in net interest income	$	(541	)	$	8,155		$	7,614

Comparison of 2011 with 2010

For the year ended December 31, 2011, average interest-earning assets were $198.6 million and average interest-bearing liabilities were $76.1 million, generating net interest income of $9.0 million which includes $3.6 million of accretion of discount on loans. For the year ended December 31, 2010, average interest-earning assets were $258.2 million and average interest-bearing liabilities were $93.4 million, generating net interest income of $1.4 million. Average balances of interest earning assets decreased by an average of $59.6 million, or 23.09%

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from $258.2 million for the year ended December 31, 2010 to $198.6 million for the year ended December 31, 2011, due to average money market funds decreased $46.6 million from $76.8 million for the year ended December 31, 2010 to $30.2 million for the year ended December 31, 2011, when WLBC transferred their funds from money market accounts earning 1 basis point to a non-interest bearing account with Service1st Bank where it would receive FDIC insurance coverage on 100% of its balance, plus the bank could invest those funds in an over-night account with the Federal Reserve Bank and earn 25 basis points on those monies. Average certificates of deposits decreased $18.5 million from $26.9 million for the year ended December 31, 2010 to $8.4 million for the year ended December 31, 2011, as the company made a decision to liquidate these investments. Average loan balances decreased $4.2 million from $107.3 million for the year ended December 31, 2010 to $103.1 million for the year ended December 31, 2011 due to loan paydowns, payoffs and charge-offs exceeding new loan originations.

Average securities decreased $3.3 million, from $7.9 million for the year ended December 31, 2010 to $4.6 million for the year ended December 31, 2011, as a result of securities maturing during the year with the expectation that these funds would be reinvested in new loan originations.

Interest income was positively impacted by the twelve months of operations in 2011 compared to only two months of operations in 2010. Interest income grew from $1.5 million for those two months ended December 31, 2010 to $9.5 million for the twelve months ended December 31, 2011. On average, loans yielded 8.98% for the year ended December 31, 2011.

The interest income on loans was positively impacted by the purchase accounting adjustments. The discount accretion for loans approximated $3.6 million for the year ended December 31, 2011 and $436,000 for the two month period in 2010, as a result of the short term nature of the loans, refinancing and prepayments.

For the year ended December 31, 2011, average interest-bearing liabilities were $76.1 million, generating interest expense of $484,000 in 2011, compared with $93.4 million in average interest-bearing liabilities generating interest expense for the two months ended December 31, 2010 of $115,000. WLBC’s average interest bearing liabilities at December 31, 2011 are as follows: interest checking accounts average $8.0 million, money market accounts average $26.9 million, savings average $897,000, time deposits under $100,000 average $6.5 million and time deposits $100,000 and over average $32.8 million.

Interest expense grew from $115,000 for the two months ended December 31, 2010 to $484,000 for the year ended December 31, 2011. Interest expense on time deposits over and under $100,000 contributed $301,000 to total interest expense, or 62.19% while money markets contributed $152,000 or 31.41% followed by interest bearing demand deposit checking accounts which contributed $24,000 or 4.96% of total interest expense. On average, interest earning deposits yielded 0.64% for the period ended December 31, 2011.

As a result WLBC’s interest rate spread (yield earned on average interest-earning assets less the average rate paid on interest-bearing liabilities) was 4.15% and its net interest margin was 4.55%, yielding a net interest income of $9.0 million for the year ended December 31, 2011.

Provision for Loan Losses

The provision for loan losses in each year is reflected as a charge against earnings in that year. The provision is equal to the amount required to maintain the allowance for loan losses at a level that, in WLBC’s judgment, is adequate to absorb probable incurred loan losses inherent in the loan portfolio. The amount of the provision for loan losses in any year is affected by reductions to the allowance in the year resulting from charged-off loans and increases to the allowance in the year as a result of recoveries from charged-off loans. In addition, changes in the size of the loan portfolio and the recognition of changes in current risk factors affect the amount of the provision.

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During 2011, WLBC continued to experience significant competitive pressures and challenging economic conditions in the markets in which it operates. The Las Vegas economy, as well as the national economy, has continued to show signs of significant weakness. Weakness in the residential market has expanded into the commercial real estate market, as builders and related industries downsize. These economic trends have adversely affected WLBC’s asset quality and increased charged-off loans. WLBC has responded by increasing provision expense to replenish and build the allowance for loan losses allocable to adversely affected segments of WLBC’s loan portfolio—in particular, commercial real estate loans and commercial and industrial loans. Continuation of these economic and real estate factors is likely to affect WLBC’s asset quality and overall performance during the coming year.

WLBC’s provision for loan losses of $8.7 million in 2011 was the result of further deterioration in the loan portfolio’s credit quality for the year ended December 31, 2011, compared with $36,000 for the year ended December 31, 2010. The provision for loan losses for 2010 is primarily attributable to new loan growth of $995,000.

Each quarter, management determines an estimate of the amount of allowance for loan and lease losses adequate to provide for losses inherent in the Bank’s loan portfolios. The provision for loan losses is determined by the net change in the allowance for loan and lease losses. The purchase accounting used for the acquisition had a substantial impact on provision for loan losses.

The accounting guidance requiring the Company to record all assets and liabilities at their fair value eliminated the ALLL for all loans as of the acquisition date because fair values estimated for the loans included an estimate of the contractual cash flows which were not expected to be collected, for which the ALLL was provided. In other words, if an estimate of uncollectible amounts is already considered in setting the fair value, a valuation allowance to adjust the carrying amount of the loans for an estimate of uncollectible cash flows is not needed. Consequently, provision expense would be necessary only for any credit deterioration occurring between the acquisition date and December 31, 2010 and for newly originated loans.

Second, there is additional accounting guidance within purchase accounting that relates to loans that evidenced credit deterioration at the time they were acquired. These loans are termed Purchase Credit-Impaired loans or (“PCI loans”). There are different accounting methods used both for recognizing interest income and for recognizing credit deterioration subsequent to the acquisition for PCI loans than are used for loans that were not credit impaired when acquired or are specifically excluded from the PCI classification.

For loans that are credit-impaired when acquired, in addition to determining their fair value, the Company must differentiate between contractual cash flows that are expected to be received and those that are not expected to be received. The excel of cash flows expected to be received compared to the fair value of the loan, the accretable yield that will be recognized through accretion as interest income over the term of the loan. The difference between the total contractual payments and the undiscounted amount of the expected cash flows is termed the “nonaccretable difference”. This amount is not recognized as an allowance for credit loss because it was already considered in determining the fair value of the loan. If the borrower pays as expected, or pays more than expected, then no allowance is needed for a PCI loan and there would be no provision expense. If the borrower pays less than expected, then it is assumed that further credit deterioration has occurred subsequent to the acquisition and an allowance must be provided through a charge to provision expense as well as a reduction in the amount of the accretable yield that will be recognized in subsequent periods.

Non-Interest Income

Non-interest income totaled $2.4 million for the year ended December 31, 2011 and $108,000 for the year ended December 31, 2010. The $2.3 million increase in non-interest income is primarily the result of a $1.8 million change in fair value of the contingent consideration liability being reversed which resulted in non-interest income. On October 28, 2010, WLBC recorded a liability to compensate Service 1^st Bank shareholders additional

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common shares equal to twenty percent of Service 1^st Bank’s tangible capital at August 31, 2010, if the price of the Company’s common stock exceeds $12.75 for a set number of days. Since WLBC’s stock price has decreased, the potential for that future benefit to the original shareholders of Service1st Bank has greatly diminished. During the evaluation of the fair value of the contingent consideration, management determined the probability of achieving the triggering event was zero and reversed all of the contingent consideration liability.

Non-Interest Expense

The following table sets for the principal elements of non-interest expenses for 2011, 2010.

	Years Ended December 31,
($ In thousands)	2011			2010(1)
Non-interest expenses:
Salaries and employee benefits	$	3,242		$	1,461
Occupancy, equipment and depreciation		1,490			269
Computer service charges		294			51
Federal deposit insurance		524			90
Professional fees		2,634			3,851
Advertising and business development		97			7
Insurance		284			825
Telephone		81			19
Printing and supplies		283			314
Director fees		225			25
Stock based compensation		529			1,770
Provision for unfunded commitments		(257	)		—
Oreo property impairment		797			—
Goodwill Impairment		5,633			—
Other		1,091			455
Total non-interest expenses	$	16,947		$	9,137

(1) For the year January 1, 2010 through December 31, 2010 for WLBC and for the two months ended 2010 for Service1st.

During the third quarter of 2011, WLBC wrote-off $5.6 million in Goodwill. 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, or such time as an event occurs or circumstances change that would likely reduce the fair value of the reporting unit, as was the case during this quarter. 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. See Note 7,Goodwill and Intangibles.

Non-interest expense was $16.9 million for the year ended December 31, 2011, compared with $9.1 million for 2010. Salaries and employee benefits total $3.2 million, compared with $1.5 million for 2010. The $1.8 million increase in salaries and employee benefits expense is the result of WLBC acquiring Service1st on October 28, 2010 which employed 43 full time employees. Thus, 2011 reflects twelve months of salaries and benefits expense, where 2010 only reflects two months. Professional fees decreased $1.3 million, from

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$3.9 million for the year ended December 31, 2010 to $2.6 million for the year ended December 31, 2011. The $1.3 million decrease is largely due to the company managing down its costs associated with legal, audit and consulting fees in 2011. Occupancy expense increased $1.2 million from $269,000 for the two months ended December 31, 2010 to $1.5 million for the year ended December 31, 2011. The primary reason for this increase is due to 2010 only having two months of expense, while 2011 reflects a full year of expense. Provision for unfunded commitments decreased $257,000 in 2011. This decrease is the result of the company changing from a manual Allowance for loan and lease loss (ALLL) in first quarter 2011 to the Pacific Coast Bankers Bank (PCBB) model. As a result of this change, the provision for unfunded commitments was determined to be over reserved, which resulted in the reversal of $257,000 in expense in 2011.

Income Taxes

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

Financial Condition

Assets

Total assets stood at $198.3 million for the year ended December 31, 2011, a decrease of $59.2 million, or 23.01% from $257.5 million as of December 31, 2010. The decrease in total assets was principally attributable to a $39.1 million decrease in total deposits. Total deposits decreased from $160.3 million as of December 31, 2010 to $121.2 million as of December 31, 2011. Of the $39.1 million decrease, $25.0 million was attributed the bank closing an interest bearing account which contained deposits for Individual Retirement Account monies that the FDIC deemed to be brokered in fourth quarter 2010. As a result, the bank closed this account January 4, 2011. The remaining $14.1 is related to reductions in customer’s deposit balances. Non-interest bearing balances have decreased $16.6 million, from $67.1 million as of December 31, 2010 to $50.5 million as of December 31, 2011.

The company has bridged the $39.1 million decrease in total deposits by not re-investing any of the $26.9 million laddered maturities of Certificates of Deposit investments that have matured during 2011. As of December 31, 2010 the company had $26.9 million in certificates of deposits invested with only FDIC insured institutions. No single investment principal and interest exceeded $250,000 per financial institution. As of December 31, 2011 certificates of deposits invested at other FDIC insured institutions was zero. 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 $13.8 million from $103.2 million as of December 31, 2010 to $89.4 million as of December 31, 2011.

Further decreases were noted in securities available for sale which decreased $1.3 million from $1.8 million as of December 31, 2010 to $472,000 as of December 31, 2011. Securities held to maturity decreased $3.3 million from $5.3 million as of December 31, 2010 to $2.0 million as of December 31, 2011. Gross loans, including net deferred loan fees decreased $4.4 million, from $106.3 million as of December 31, 2011 to $101.9 million as of December 31, 2011.

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 $89.4 million for the year ended December 31, 2011 and $103.2 million at December 31, 2010. Cash and cash equivalents are managed based upon liquidity needs. The decrease reflected WLBC’s efforts to reduce its liquidity in reaction to the reductions in loan portfolio balances and growth. See “—Liquidity and Asset/Liability Management” in this section below for more information.

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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 balance increases or deposit balance decreases; (ii) they 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. Further, if and when WLBC becomes profitable, tax free investment securities can be a source of partially tax-exempt income.

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 accumulate 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. For the year ended December 31, 2011, investment securities totaled $2.5 million, compared with $7.1 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.

The tables below summarize WLBC’s investment portfolio for the year ended December 31, 2011. Securities are identified as available-for-sale or held to maturity. Unrealized gains or losses on available-for-sale securities are recorded as accumulated other comprehensive income in stockholders’ equity. Held-to-maturity securities are carried at cost, adjusted for amortization of premiums or accretion of discounts. Amortization of premiums or accretion of discounts on mortgage-backed securities is adjusted for estimated prepayments. Securities measured at fair value are reported at fair value, with unrealized gains and losses included in current earnings.

	For the Year Ended December 31, 2011
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Investments-Available for Sale
U.S. Government Agency Securities	$	250	$	3	$	—	$	253
Collateralized Mortgage Obligations-Commercial		217		2		—		219
Total	$	467	$	5	$	—	$	472

	For the Year Ended December 31, 2011
(Dollars in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Investments-Held to Maturity
Corporate debt securities	$	1,520	$	—	$	(1	)	$	1,519
SBA Loan Pools		511		5		—			516
Total	$	2,031	$	5	$	(1	)	$	2,035

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	For the Year Ended December 31, 2010
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Investments-Available for Sale
U.S. Government Agency Securities	$	—	$	—	$	—	$	—
Collateralized Mortgage Obligations-Commercial		1,819		—		—		1,819
Total	$	1,819	$	—	$	—	$	1,819

	For the Year Ended December 31, 2010
(Dollars in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Investments-Held to Maturity
Corporate debt securities	$	4,663	$	0	$	(27	)	$	4,636
SBA Loan Pools		651		0		—			651
Total	$	5,314	$	0	$	(27	)	$	5,287

The table below summarizes the maturity dates and investment yields on WLBC’s investment portfolio for the year ended December 31, 2011 for securities identified as available for sale or held to maturity. These securities were acquired with the October 28, 2010 acquisition, and no such securities were owned prior to that date by the Company.

		For the Year Ended December 31, 2011
		Due Under 1 Year Amount/Yield				Due 1-5 Years Amount/Yield				Due 5-10 Years Amount/Yield				Due Over 10 Years Amount/Yield				Total Amount/Yield
Available for Sale
U.S. Government Agency Securities		$	—	0.00	%	$	253	2.05	%	$	—	0.00	%	$	—	0.00	%	$	253	2.05	%
Corporate Debt Securities		$	—	0.00	%		—	0.00	%		—	0.00	%		—	0.00	%		—	0.00	%
Collateralized Mortgage Obligations-Commercial			219	5.03	%		—	0.00	%		—	0.00	%		—	0.00	%		219	5.03	%
Small Business Administration Loan Pools			—	0.00	%		—	0.00	%		—	0.00	%		—	0.00	%		—	0.00	%
Total available for sale		$	219	5.03	%	$	253	2.05	%	$	—	0.00	%	$	—	0.00	%	$	472	3.43	%
Held to Maturity
U.S. Government Agency Securities		$	—	0.00	%	$	—	0.00	%	$	—	0.00	%	$	—	0.00	%	$	—	0.00	%
Corporate Debt Securities			1,520	1.33	%		—	0.00	%		—	0.00	%		—	0.00	%		1,520	1.33	%
Collateralized Mortgage Obligations-Commercial	��		—	0.00	%		—	0.00	%		—	0.00	%		—	0.00	%		—	0.00	%
Small Business Administration Loan Pools			7	4.67	%		—	0.00	%		142	2.31	%		362	2.39	%		511	2.40	%
Total held to maturity		$	1,527	1.35	%	$	—	0.00	%	$	142	2.31	%	$	362	2.39	%	$	2,031	1.60	%

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	For the Year Ended December 31, 2010
	Due Under 1 Year Amount/Yield				Due 1-5 Years Amount/Yield				Due 5- 10 Years Amount/Yield				Due Over 10 Years Amount/Yield				Total Amount/Yield
Available for Sale
U.S. Government Agency Securities	$	—	0.00	%	$	—	0.00	%	$	—	0.00	%	$	—	0.00	%	$	—	0.00	%
Corporate Debt Securities		—	0.00	%		—	0.00	%		—	0.00	%		—	0.00	%		—	0.00	%
Collateralized Mortgage Obligations-Commercial		1,417	2.55	%		402	2.69	%		—	0.00	%		—	0.00	%		1,819	2.58	%
Small Business Administration Loan Pools		—	0.00	%		—	0.00	%		—	0.00	%		—	0.00	%		—	0.00	%
Total available for sale	$	1,417	2.55	%	$	402	2.69	%	$	—	0.00	%	$	—	0.00	%	$	1,819	2.58	%
Held to Maturity
U.S. Government Agency Securities	$	—	0.00	%	$	—	0.00	%	$	—	0.00	%	$	—	0.00	%	$	—	0.00	%
Corporate Debt Securities		3,075	7.17	%		1,561	7.00	%		—	0.00	%		—	0.00	%		4,636	7.11	%
Collateralized Mortgage Obligations-Commercial		—	0.00	%		—	0.00	%		—	0.00	%		—	0.00	%		—	0.00	%
Small Business Administration Loan Pools		5	3.00	%		14	4.33	%		99	2.57	%		534	2.76	%		651	2.77	%
Total held to maturity	$	3,080	7.16	%	$	1,575	6.98	%	$	99	2.57	%	$	534	2.76	%	$	5,287	6.57	%

Loans

For the year ended December 31, 2011, substantially all of WLBC’s loan customers were located in Nevada.

The following table shows the composition of the loan portfolio in dollar amounts and in percentages, along with reconciliation to loans receivable, net.

($ in thousands)	December 31, 2011					December 31, 2010
Loans secured by real estate:
Construction, land development and other land loans	$	3,417		3.36	%	$	5,923		5.58	%
Commercial real estate		58,252		57.21	%		54,975		51.75	%
Residential		4,704		4.62	%		9,247		8.71	%
Total loans secured by real estate	$	66,373		65.19	%		70,145		66.04	%
Commercial and industrial		35,417		34.78	%		35,946		33.84	%
Consumer		30		0.03	%		131		0.12	%
Gross loans		101,820		100.00	%		106,222		100.00	%
Net deferred loan fees and costs		41					37
Gross loans, net of deferred fees and costs		101,861					106,259
Less: Allowance for loan losses		(2,919	)				(36	)
Net loans	$	98,942				$	106,223

Total gross loans, were $101.8 million for the year ended December 31, 2011, compared to $106.2 at December 31, 2010. Gross loans, net of deferred fees and costs the allowance for loan losses totaled $98.9 million for the year ended December 31, 2011, as a result of a $2.9 million increase in the allowance for loan losses.

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Commercial real estate loans balances were $58.3 million, or 57.21% of total loans for the year ended December 31, 2011, commercial and industrial loans totaled $35.4 million, or 34.78% of total loans, residential real estate loans were $4.7 million, or 4.62% of total loans while construction, land development and other land loans totaled $3.4 million, or 3.36% of total loans.

The following table presents maturity information for the loan portfolio at December 31, 2011. The table does not include prepayments or scheduled principal repayments. All loans are shown as maturing based on contractual maturities.

	For the Year Ended December 31, 2011
	Due Within One Year		Due 1-5 Years		Due Over Five  Years		Total
Loans secured by real estate:
Construction, land development and other land loans	$	2,624	$	793	$	—	$	3,417
Commercial real estate		2,784		27,760		27,708		58,252
Residential real estate (1 to 4 family)		1,005		3,566		133		4,704
Total real estate-secured loans	$	6,413	$	32,119	$	27,841	$	66,373
Loans not secured by real estate:
Commercial and industrial		20,155		9,409		5,853		35,417
Consumer		10		20		—		30
Loans, Gross		26,578		41,548		33,694		101,820
Interest rates:
Fixed	$	10,361	$	32,578	$	7,905	$	50,844
Variable		16,217		8,970		25,789		50,976
Loans, Gross	$	26,578	$	41,548	$	33,694	$	101,820

Concentrations

WLBC’s loan portfolio has a concentration of loans secured by real estate. For the year ended December 31, 2011, loans secured by real estate comprised 65.19% of total gross loans. Substantially all of these loans are secured by first liens. Approximately 28.37% of these real estate-secured loans are owner occupied for the year ended December 31, 2011. A loan is considered owner occupied if the borrower occupies at least fifty one percent of the collateral securing such loan. WLBC’s policy is to obtain collateral whenever it is available; depending upon the degree of risk WLBC is willing to accept. Repayment of loans is expected from the borrower’s cash flows or the sale proceeds of the collateral. Deterioration in the performance of the economy and real estate values in WLBC’s primary market areas has had, and is expected to continue to have, an adverse impact on collectability of outstanding loans.

Interest Reserves

Interest reserves are generally established at the time of the loan origination as an expense item in the budget for a construction and land development loan. WLBC’s practice is to monitor the construction, sales and/or leasing progress to determine the feasibility of ongoing construction and development projects. If at any time during the life of the loan the project is determined not to be viable, WLBC generally has the ability to discontinue the use of the interest reserve and take appropriate action to protect its collateral position via negotiation and/or legal action as deemed appropriate. For the year ended December 31, 2011, WLBC had no loans with an interest reserve.

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Nonperforming Assets

Nonperforming assets consist of:

(i) nonaccrual loans. In general, loans are placed on nonaccrual status when WLBC determines timely recognition of interest to be in doubt due to the borrower’s financial condition and collection efforts. WLBC generally discontinues accrual of interest when a loan is 90 days delinquent unless the loan is well secured and in the process of collection;

(ii) loans past due 90 days or more and still accruing interest. Loans past due 90 days or more and still accruing interest consist primarily of loans 90 days or more past their maturity date but not their interest due date;

(iii) restructured loans. Restructured loans have modified terms to reduce either principal or interest due to deterioration in the borrower’s financial condition; and

(iv) other real estate owned, or OREO. If a bank takes title to the borrower’s real property that serves as collateral for a defaulted loan, such property is referred to as other real estate owned (“OREO”).

The following table summarizes nonperforming assets by category including PCI loans with no contractual interest being reported. These figures represent loan values after the fair value process was completed at October 28, 2010, adjusted for any amortization or accretion for the two months, if applicable.

($’s in thousands)	For the Year Ended December 31,			For the Year Ended December 31,
	2011			2010
Nonaccrual loans:
Loans Secured by Real Estate
Construction, land development and other land loans	$	612		$	2,632
Commercial real estate		17,483			1,224
Residential real estate (1-4 family)		3,698			2,900
Total loans secured by real estate		21,793			6,756
Commercial and industrial		2,261			3,670
Consumer		—			0
Total nonaccrual loans	$	24,054			10,426
Past due (>90days) loans and accruing interest:
Loans Secured by Real Estate
Construction, land development and other land loans	$	—		$	—
Commercial real estate		—			—
Residential real estate (1-4 family)		—			—
Total loans secured by real estate		—			—
Commercial and industrial		—			—
Consumer		—			—
Total past due loans accruing interest		—			—
Total nonperforming loans	$	24,054		$	10,426
Other real estate owned (OREO)		4,008			3,406
Total nonperforming assets	$	28,062		$	13,832
Restructured loans (still on accrual)(1)	$	1,944		$	—
Total non-performing assets and restructured loans (still on accrual)	$	30,006		$	13,832
Non-Performing Loans as a percentage of total portfolio loans		23.61	%		9.81	%
Non-Performing loans as a percentage of total assets		12.13	%		4.05	%
Non-Performing assets as a percentage of total assets		14.15	%		5.37	%
Allowance for loan losses as a percentage of nonperforming loans		12.14	%		0.35	%

(1) For the year ended December 31, 2011, WLBC had approximately $1.9 million in loans classified as restructured loans still on accrual.

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For the year ended December 31, 2011, nonperforming loans totaled $24.1 million, or 23.61%, of total portfolio loans. Total nonperforming assets for the year ended December 31, 2011 were $28.1 million.

The largest category of nonperforming is commercial real estate loans of $17.5 million followed by residential real estate loans of $3.7 million, commercial and industrial loans of $2.3 million and construction, land development and other land loans of $612,000. With many real estate projects requiring an extended time to market, many of WLBC’s borrowers have exhausted their liquidity and stopped making payments, thereby requiring WLBC to place the loans on nonaccrual. Given the current economic conditions in Nevada, WLBC may selectively make commercial real estate loans and construction, land development and other land loans (except for contractually required disbursements under existing facilities) to borrowers with strong outside financial support.

Potential Problem Loans

WLBC classifies its loans consistent with federal banking regulations using a ten category grading system. The loans discussed in the following table have been recorded at the lower of cost or fair value as discussed in Note 5 of WLBC’s financial statements. The table presents information regarding potential problem loans, which are graded but still performing as of the dates indicated. These graded loans are referred to in applicable banking regulations as “Other Loans Especially Mentioned”, “Substandard”, “Doubtful”, and “Loss”.

	For the Year Ended December 31, 2011
	# of Loans		Loan Balance		%			Percent of Total  Loans
Construction, land development and other land loans		5	$	1,502		14.99	%		1.47	%
Commercial real estate		5		7,350		73.35	%		7.22	%
Residential real estate (1-4 family)		—		—		0.00	%		0.00	%
Commercial and industrial		11		1,168		11.66	%		1.15	%
Consumer		—		—		0.00	%		0.00	%
Total Loans		21	$	10,020		100.00	%		9.84	%

WLBC’s potential problem loans which are not considered nonperforming consisted of 21 loans and totaled approximately $10.0 million for the year ended December 31, 2011. Commercial real estate comprises approximately 73.35% of the total aggregate balance of potential problem loans for the year ended December 31, 2011. Construction, land development and other land loans comprise approximately 14.99% of the total balance of potential problem loans for the year ended December 31, 2011. Commercial and industrial loans comprise approximately 11.66% of the total aggregate balance of potential problem loans for the year ended December 31, 2011. Residential real estate loans comprise approximately 0.00% of the total balance of potential problem loans for the year ended December 31, 2011.

Impaired Loans

A loan is impaired when it is probable that WLBC will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Impaired loans have been recorded at the lower of cost or fair value as discussed in Note 5 of WLBC’s financial statements and are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are either included in the allowance for loan losses or charged off WLBC’s books, if deemed necessary.

The categories of nonaccrual loans and impaired loans overlap, although they are not coextensive. WLBC considers all circumstances regarding the loan and borrower on an individual basis when determining whether a loan is impaired such as the collateral value, reasons for the delay, payment record, the amount past due, and number of days past due.

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At December 31, 2011, the aggregate total amount of loans classified as impaired, was $29.2 million. The total specific allowance for loan losses related to these loans was $335,000 for the year ended December 31, 2011. The increase in total impaired loans reflects the overall decline in economic conditions in Nevada.

At December 31, 2011, WLBC had approximately $23 million in loans classified as restructured loans. Six of the twenty-six loans were on accrual status as of December 31, 2011. The following is a summary of these loans:

• A $2.3 million commercial real estate loan, which was secured by a tavern/bar, was restructured in July 2010. The restructure deferred past due interest payments to the end of the note term and reduced principal and interest payments beginning in April 2011 for the next twelve months. At December 31, 2011, the book balance on this restructured loan was $1.1 million.

• The same principal/borrower on two related commercial real estate loans requested payment relief. The two loans were restructured in December 2011. The loans are secured by leased office buildings. The borrowing entities experienced diminished cash flows due to the loss of tenants and rent concession. In addition, the principals’ outside personal cash flow and liquidity had deteriorated. The restructures lowered the interest rates and reduced the principal and interest payments based upon a 30-year fully amortizing schedule. Both notes mature in three years. At December 31, 2011, the combined book balance was $3.9 million.

• A commercial real estate loan secured by an office building was restructured July 2011. Due to a lack of cash flow from the property, the borrower requested payment relief. The loan was restructured into two notes, reducing the rate and the principal and interest payments on a 25 year amortization, maturing in three years. Additional collateral was also taken to support one of the notes. At December 31, 2011, the book balance was $1.3 million.

• A commercial real estate loan, which is secured by an office building, was restructured July 2011. The borrower requested payment relief due to reductions in rental income resulting from vacancy and rent reductions to two tenants. In additional, the borrower’s business suffered a significant fiscal year loss which further impacted support for the loan. The loan was restructured with reduced interest rates, maturing in three years. The borrower pledged the cash value of a life insurance policy as additional collateral. At December 31, 2011, the book balance was $2.2 million.

• Two related loans with the same principal/borrower were restructured in August and September 2011. The loans consist of two residential real estate loans secured by multiple rented single family residences. The borrower requested payment relief following the loss of tenants and rent reductions in other properties which adversely impacted the borrower’s overall cash flow. The restructured loans reduced the interest rate, and amortized the principal and interest payments over 30 and 25 years, respectively, maturing in three years. At December 31, 2011, the combined book balance was $3.0 million.

• Two related loans with the same principal/borrower matured in October 2011, and the borrower requested a restructure as a result of deterioration of the borrower’s core business cash flow. Both loans are commercial and industrial loans consisting of one unsecured loan and one loan secured by business assets. After lengthy negotiations, the borrower agreed to pledge a free and clear single family residence along with second trust deed on a commercial office building securing a related commercial real estate loan. In exchange for the additional collateral another restructure was committed. It is expected that the restructured loans will be consummated in early January, 2012. At December 31, 2011, the combined book balance was $1.2 million.

• Four related loans to the same borrower were restructured in June 2010. The loans consist of two commercial and industrial loans totaling $650,000 that were related to the borrower’s medical practice and two real estate-secured loans totaling $5.4 million, consisting of a $3.2 million loan on the property in which the borrower’s medical office is located and a $2.2 million loan for the purchase of a medical

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office building for lease. The borrower had already defaulted on several single family residential properties, which demonstrated weakness and inability to service all of his obligations. Given the borrower’s financial deterioration, the loans, were restructured resulting in reduced interest rate and 30 year amortization of the two real estate loans all of which reduced the monthly payment. At December 31, 2011, the outstanding balance was $2.2 million.

• The remaining $7.1 million in loans classified as restructured loans consist of 13 loans with book balances ranging from $60,000 to $838,000. These loans were restructured between March 2010 and December 2011 due to the borrower deterioration and continued weak economic conditions in the marketplace.

The breakdown of total impaired loans, which have been recorded at fair value as discussed in Note 5 of WLBC’s financial statements, and the related specific reserves for the years ended December 31, 2011 and 2010 is as follows:

	For the Year Ended December 31, 2011
($ in thousands)	Impaired Balance			%			Percent of Total  Loans			Reserve Balance		%			Percent of Total Allowance
Construction, land development and other land loans	$	2,122			7.25	%		2.07	%	$	—		0.00	%		0.00	%
Commercial real estate		20,041			68.43	%		19.67	%		—		0.00	%		0.00	%
Residential real estate (1-4 family)		3,700			12.64	%		3.63	%		—		0.00	%		0.00	%
Commercial and industrial		3,419			11.68	%		3.36	%		335		100.00	%		11.48	%
Consumer		1			0.00	%		0.00	%		—		0.00	%		0.00	%
Total impaired loans	$	29,283	��		100.00	%		28.75	%	$	335		100.00	%		11.48	%

	For the Year Ended December 31, 2010
($ in thousands)	Impaired Balance		%			Percent of Total  Loans			Reserve Balance		%			Percent of  Total Allowance
Construction, land development and other land loans	$	3,220		28.15	%		3.03	%	$	—		0.00	%		0.00	%
Commercial real estate		1,648		14.41	%		1.55	%		—		0.00	%		0.00	%
Residential real estate (1-4 family)		2,900		25.35	%		2.73	%		—		0.00	%		0.00	%
Commercial and industrial		3,670		32.09	%		3.46	%		—		0.00	%		0.00	%
Consumer		—		0.00	%		0.00	%		—		0.00	%		0.00	%
Total impaired loans	$	11,438		100.00	%		10.77	%	$	—		0.00	%		0.00	%

The amount of interest income recognized on impaired loans was $ 1.5 million for 2011 and approximately $39,000 for the two months ended December 31, 2010.

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Allowance for Loan Losses

The following table presents the activity in WLBC’s allowance for loan losses for 2011 and 2010.

Analysis of loss experience by loan type

($’s in thousands)	For the Year  Ended December 31, 2011			For the Year  Ended December 31, 2010
Allowance for Loan and Lease Loss:
Balance at the beginning of the year	$	36		$	0
Provisions charged to operating expenses		8,717			36
Recoveries of loans previously charged off:
Construction, land development and other land loans		300			0
Commercial real estate		2			0
Residential real estate (1-4 family)		4			0
Commercial and industrial		268			0
Consumer		—			0
Total recoveries		574			0
Loans charged-off:
Construction, land development and other land loans		600			0
Commercial real estate		3,873			0
Residential (including multi-family)		0			0
Commercial and industrial		1,935			0
Consumer		0			0
Total charged-off		6,408			0
Net charge-offs		5,834			0
Balance at end of year	$	2,919		$	36
Net Charge-offs to average loans outstanding		5.66	%		0.00	%
Allowance for Loan Loss to outstanding loans		2.87	%		0.03	%

The accounting principles used by WLBC in maintaining the allowance for loan losses are discussed in the section entitled “Critical Accounting Policies—Allowance for Loan Losses.” The allowance is maintained at a level management believes to be adequate to absorb estimated future credit losses inherent in WLBC’s loan portfolio, based on evaluation of the collectability of the loans, prior credit loss experience, credit loss experience of other banks and other factors deemed relevant.

The allowance for loan losses is established through a provision for loan losses charged to operations and is increased by the collection of monies on loans previously charged off (recoveries) and reduced by loans that are charged off. Service1st’s board of directors reviews the adequacy of the allowance for loan losses on a monthly basis. The allowance of $2.9 million discussed in the table above is required based on continued deterioration in the loan portfolio credit quality. All loans at date of acquisition were recorded at fair value as discussed in Note 5 of WLBC’s financial statements. Thus, for the year ended December 31, 2011, WLBC had established an allowance of $2.9 million, after increasing the allowance by $8.7 million in provisions and recording $574,000 in recoveries and $6.4 million in charge-offs. The allowance for loan loss to outstanding loans is 2.87% for the year ended December 31, 2011.

WLBC’s methodology for the allowance for loan losses incorporates several quantitative and qualitative risk factors used to establish the appropriate allowance for loan loss at each reporting date. Service1st implemented use of the Allowance for Loan and Lease Losses Quantifier (ALLL^Q) model prepared by PCBB Capital Markets, LLC for calculating the allowance for loan losses. Quantitative factors include delinquency and

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charge-off trends, collateral values, the composition, volume and overall quality of the loan portfolio (including outstanding loan commitments), changes in nonperforming loans, concentrations and information about individual loans. Historical loss experience is an important quantitative factor for many banks, but thus far less so for WLBC, because it has been in operation fora limited time. Qualitative factors include the economic condition of WLBC’s operating markets. Specific changes in the risk factors are based on perceived risk of similar groups of loans classified by collateral type and purpose. Statistics on local trends and peers are also incorporated into the allowance. While WLBC management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary, if there are significant changes in economic or other conditions. In addition, the FDIC and the Nevada FID, as an integral part of their examination processes, review WLBC’s allowances for loan losses, and may require additions to WLBC’s allowance based on their judgment about information available to them at the time of their examinations. WLBC reviews the assumptions and formula used in determining the allowance and makes adjustments, if required to reflect the current risk profile of the portfolio.

When WLBC determines that it is unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement, the loan becomes impaired. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral, if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses or charged off WLBC’s books, if deemed necessary.

WLBC’s loan portfolio has a concentration of loans in commercial real-estate related loans and includes significant credit exposure to the commercial real estate industry. The specific reserves for collateral dependent impaired loans are based on the fair value of the collateral less estimated selling costs (including brokerage fees) and other miscellaneous costs that may be incurred to make the collateral more marketable (such as clean-up costs) and to cure past due amounts (such as delinquent property taxes). The fair value of collateral is determined based on third-party appraisals. In some cases, adjustments are made to the lendable values which may be less than the appraised values due to known changes in market conditions or known changes in the collateral.

WLBC’s management believes that the allowance for the year ended December 31, 2011 and the methodology utilized in deriving that level are adequate to absorb known and inherent risks in the loan portfolio. However, credit quality is affected by many factors beyond WLBC’s control, including local and national economies, and facts may exist which are not currently known to WLBC that adversely affect the likelihood of repayment of various loans in the loan portfolio and realization of collateral upon default. Accordingly, no assurance can be given that WLBC will not sustain loan losses materially in excess of the allowance for loan losses. In addition, the FDIC, as a major part of its examination process, reviews the allowance for loan losses and could require additional provisions to be made. The allowance is based on estimates, and actual losses may vary from the estimates. However, as the volume of the loan portfolio grows, additional provisions will be required to maintain the allowance at adequate levels. No assurance can be given that continuing adverse economic conditions or unforeseen events will not lead to increases in delinquent loans, the provision for loan losses and/or charge-offs.

The following table presents the allocation of WLBC’s allowance for loan losses by loan category and percentage of loans in each category to total loans as of the dates indicated.

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Allocation of the allowance and percentage of allowance by loan type. The allowance of $2.9 million discussed in the table below is required based on continued deterioration in the credit quality of the loan portfolio. All loans at date of acquisition were recorded at fair value as discussed in Note 5 of WLBC’s financial statements.

	For the Year Ended December 31, 2011					For the Year  Ended December 31, 2010
($’s in thousands)	Amount		% of loans			Amount		% of loans
Allowance for Loan and Lease Loss:
Loans Secured by Real Estate
Construction, land development and other land loans	$	208		3.36	%	$	0		5.58	%
Commercial real estate		422		57.21	%		0		51.75	%
Residential real estate (1-4 family)		19		4.62	%		0		8.71	%
Total loans secured by real estate		1,019		65.19	%		0		66.04	%
Commercial and industrial		2,270		34.78	%		36		33.84	%
Consumer		—		0.03	%		0		0.12	%
Total allowance for loan loss	$	2,919		100.00	%	$	36		100	%

Deferred Tax Asset

For the year ended December 31, 2011 and year ended December 31, 2010, a valuation allowance for the entire net deferred tax asset was considered necessary as WLBC determined it was not more likely than not that the deferred tax asset would be realized. Federal operating loss carry forwards begin to expire in 2027.

Internal Revenue Code Section 382 places a limitation on the amount of taxable income that can be offset by net operating loss carry forwards after a change in control (generally greater than 50% change in ownership) of a loss corporation. Accordingly, utilization of net operating loss carry forwards may be subject to an annual limitation regarding their utilization against future taxable income upon a change in control.

Deposits

WLBC’s activities are primarily based in Nevada and its deposit base is also primarily generated from this geographic region. Deposits have historically been the primary source for funding WLBC’s asset growth.

Deposits totaled $121.2 million at December 31, 2011, down from $160.3 million as of December 31, 2010 due to the acquisition of Service1st. The decrease in total assets was principally attributable to a $39.1 million decrease in total deposits. Of the $39.1 million decrease, $25.0 million was attributed the bank closing an interest bearing account which contained deposits for Individual Retirement Account monies that the FDIC deemed to be brokered in fourth quarter 2010. As a result, the bank closed this account January 4, 2011. The remaining $14.1 is related to reductions in customer’s deposit balances. Non-interest bearing balances have decreased $16.6 million, from $67.1 million as of December 31, 2010 to $50.5 million as of December 31, 2011.

The company has bridged the $39.1 million decrease in total deposits by not re-investing any of the $26.9 million laddered maturities of Certificates of Deposit investments that have matured during 2011. As of December 31, 2010 the company had $26.9 million in certificates of deposits invested with only FDIC insured institutions. No single investment principal and interest exceeded $250,000 per financial institution. As of December 31, 2011 certificates of deposits invested at other FDIC insured institutions was zero. In addition case and cash equivalents consisting of case and due from banks, federal funds sold and certificates of deposits with original maturities of three months or less, decreased $13,9 million from $103.2 million as of December 31, 2010 to $89.4 million as of December 31, 2011.

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Overall rates on interest-bearing deposit accounts were 0.64%, for the year ended December 31, 2011 however; the calculation for 2010 is 0.75%. This rates takes into consideration only two months of expense, due to the acquisition of Service1st on October 28, 2010. Interest expense totaled $484,000 for the year ended December 31, 2011.

At December 31, 2011, all time deposits are scheduled to mature in 2012 as the maximum term offered for time certificates is twelve months.

WLBC and Las Vegas Sunset Properties have deposits of $29.2 and $12.9 million, respectively on deposit with Service1st Bank of Nevada. These deposits are not included in the deposit schedule above as they are eliminated in consolidation.

The following table reflects the summary of deposit categories by dollar and percentage for the year ended December 31, 2011 and 2010:

	December 31, 2011					December 31, 2010
($’s in thousands)	Amount		% of Total			Amount		% of Total
Non-interest-bearing deposits	$	50,488		41.65	%	$	67,087		41.85	%
Interest-bearing deposits		5,977		4.93	%		31,837		19.86	%
Money Markets		31,329		25.84	%		24,672		15.39	%
Savings		735		0.61	%		1,273		0.79	%
Time deposits under $100,000		6,218		5.13	%		4,919		3.07	%
Time deposits $100,000 and over		26,479		21.84	%		30,498		19.03	%
Total Deposits	$	121,226		100.00	%	$	160,286		100.00	%

Certificates of deposits of $100,000 or more for the year ended December 31, 2011 and December 31, 2010 totaled $26.5 million and $30.5 million, respectively. These deposits are generally more rate sensitive than other deposits and are more likely to be withdrawn to obtain higher yields elsewhere, if available. Scheduled maturities of certificates of deposits in amounts of $100,000 or more at December 31, 2011 were as follows:

Certificates of Deposit Maturities > $100,000

($’s in thousands)	Amount
Three months or less	$	6,797
Over three months to six months		7,065
Over six months to twelve months		12,617
Over 12 months		—
Total	$	26,479

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.

Service1st is subject to certain regulatory capital requirements mandated by the FDIC and generally applicable to all banks in the United States. For more information, see the section entitled “Supervision and Regulation.” Failure to meet minimum capital requirements can result in restrictions on activities (including restrictions on the rates paid on deposits), and otherwise may cause federal or state bank regulators to initiate enforcement and/or other action. Under capital adequacy guidelines and the regulatory framework for prompt

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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. Service1st’s capital amounts and classifications are also subject to qualitative judgments by the FDIC about components, risk weightings and other factors. Service1st has an informal understanding with the FDIC and with the Nevada FID that Service1st will maintain its Tier 1 capital in such an amount to ensure that its leverage ratio equals or exceeds 8.5%.

WLBC’s and Service1st’s capital ratios at December 31, 2011, relative to the ratios required of “well-capitalized” banks under the prompt corrective action regime put in place by federal banking regulations, are as follows:

	2011
Capital Ratios (December 31, 2011):	WLBC			Service1st			“To Be  Well Capitalized Under Regulatory Agreement”
Tier 1 equity to average assets (leverage ratio)		25.70	%		14.4	%		5.00	%
Tier 1 risk-based capital ratio		70.37	%		28.4	%		6.00	%
Total risk-based capital ratio		71.59	%		29.7	%		10.00	%

	2010
Capital Ratios (December 31, 2010):	WLBC			Service1st			“To Be  Well Capitalized Under Regulatory Agreement”
Tier 1 equity to average assets (leverage ratio)		30.50	%		18.1	%		10.0	%
Tier 1 risk-based capital ratio		68.40	%		30.6	%		6.0	%
Total risk-based capital ratio		68.80	%		31.0	%		12.0	%

The acquisition of Service1st by WLBC was consummated at close of business on October 28, 2010. Per the Merger Agreement, WLBC injected an additional $25 million of capital into Service1st. 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 more. This commitment will not expire before October 28, 2013.

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 consists of cash and due from correspondent banks, overnight funds sold to correspondents and the Federal Reserve Bank, certificates of deposits at other financial institution (non-brokered), unpledged security investments and lines of credit with the Federal Reserve Bank of San Francisco and FHLB of San Francisco. For the year ended December 31, 2010, WLBC had approximately $89.4 million in cash and cash equivalents, $983,000 in unpledged security investments, of which $472,000 million is classified as available for sale, while the remaining $511,000 is classified as held to maturity. WLBC also has a $1.4 million collateralized line of credit with the Federal Reserve Bank of San Francisco and a $16.2 million collateralized line of credit with the Federal Home Loan Bank of San Francisco and a $5 million uncollateralized line of credit with Pacific Coast Bankers Bank. Both the $1.4 million line of credit with the Federal Reserve of San Francisco and the $16.2 million line of credit with the Federal Home Loan Bank have a zero balance.

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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.

Off-Balance Sheet Arrangements

In the normal course of business, WLBC is a party to financial instruments with off-balance-sheet risk. These financial instruments include commitments to extend credit and letters of credit. To varying degrees, these instruments involve elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position.

	At December 31,
	2011		2010
	($ in thousands)
Commitments to extend credit	$	19,069	$	18,504
Standby commercial letters of credit		644		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 year ended December 31, 2011 and December 31, 2010, the allowance for unfunded commitments was approximately $115,000 and $372,000, respectively.

Management is not aware of any other material off-balance sheet arrangements or commitments outside of the ordinary course of WLBC’s business.

Contractual Obligations

The following table is a summary of WLBC’s contractual obligations as of December 31, 2011, by contractual maturity date for the next five years.

	Payments Due by Year
($s in thousands) Contractual Obligations	Total		Less Than 1  Year		1-3 Years		3-5 Years		After 5 Years
Long Term Borrowed Funds	$	—	$	—	$	—	$	—	$	—
Capital Lease Obligations		—		—		—		—		—
Operating Lease Obligations		1,322		816		506		—		—
Purchase Obligations		—		—		—		—		—
Time Deposits				32,697
Other Long Term Liabilities		—		—		—		—		—
Total	$	1,322	$	33,513	$	506	$	—	$	—

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Quantitative and Qualitative Disclosures About Market Risk

Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices and/or equity prices. As a financial institution, WLBC’s primary component of market risk is interest rate volatility. Net interest income is the primary component of WLBC’s net income, and fluctuations in interest rates will ultimately affect the level of both income and expense recorded on a large portion of WLBC’s assets and liabilities. In addition to directly impacting net interest income, changes in the level of interest rates can also affect (i) the amount of loans originated and sold by WLBC, (ii) the ability of borrowers to repay adjustable or variable rate loans, (iii) the average maturity of loans, (iv) the rate of amortization of premiums paid on securities, (v) the fair value of WLBC’s saleable assets, (vi) the amount of unrealized gains and losses on securities available for sale, the volume of interest bearing non-maturity deposits and (vii) the early withdrawal likelihood of customer originated certificates of deposit.

Interest rate risk occurs when assets and liabilities re-price at different times as interest rates change. In general, the interest that WLBC earns on its assets and pays on its liabilities is established contractually for a specified period of time. Market interest rates change over time and if a financial institution cannot quickly adapt to changes in interest rates, it may be exposed to volatility in earnings. For instance, if WLBC were to fund long-term fixed rate assets with short-term variable rate deposits, and interest rates were to rise over the term of the assets, the short-term variable deposits would rise in cost, adversely affecting net interest income. Similar risks exist when rate sensitive assets (for example, prime rate based loans) are funded by longer-term fixed rate liabilities in a falling interest rate environment.

WLBC manages its mix of assets and liabilities with the goals of limiting its exposure to interest rate risk, ensuring adequate liquidity, and coordinating its sources and uses of funds while maintaining an acceptable level of net interest income given the current interest rate environment. WLBC’s primary source of funds has been retail deposits, consisting primarily of non-interest bearing deposits, money market accounts and certificates of deposit. WLBC’s management believes retail deposits, unlike brokered deposits, reduce the effects of interest rate fluctuations because they generally represent a more stable source of funds. WLBC has no brokered deposits. WLBC also maintains availability of lines of credit from the FHLB of San Francisco and the Federal Reserve Bank of San Francisco as additional sources of funds, but has not drawn on them. Borrowings under these lines generally have a long-term to maturity than retail deposits.

WLBC also uses interest rate “floors,” ranging from 5.5% to 8.5%, on a majority of its prime-rate based loans to protect against a loss of net interest income that would result from a decline in interest rates. At December 31, 2011, approximately 50% of WLBC’s loans are indexed to the national prime rate. Currently the prime rate is under the applicable floor rate for substantially all of WLBC’s prime-rate based loans. WLBC’s net interest income may be adversely impacted, if the prime rate were to increase but remain below the applicable floor rate since any such increase may result in an increase in WLBC’s interest expenses without an increase in WLBC’s interest income derived from such prime-rate based loans until the prime rate exceeds the applicable floor rate.

WLBC has an interest rate risk management system that captures material sources of interest rate risk and generates reports for senior management and the board of directors. WLBC board establishes interest rate risk management policies that govern the measurement and control of interest rate risk. The asset/liability management committee provides oversight of WLBC’s interest rate risk management. The Chief Financial Officer is responsible for day-to-day management of WLBC’s interest rate sensitivity position and examines the potential impact of differing interest rate scenarios. Key measurements include, but are not limited to, traditional gap ratios, earnings at risk, economic value of equity, net interest margin trends relative to peer banks and performance relative to market interest rate cycles.

Risk tolerance limits are set based on net profit impact of instantaneous and sustained interest rate shocks of +/- 100 basis points, with quarterly measures of shocks up 300 basis points and down 200 basis points. The effect

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of interest rate shocks on WLBC’s economic value of equity will also be considered. WLBC’s interest rate risk model is back-tested to ensure integrity of key assumptions and to compare actual results after significant rate changes to predicted results. Applicable measurements are reviewed for consistency with WLBC’s target aggregates and for indication of actual or potential adverse trends. Interest rate risk management reports are prepared quarterly and back-tested as market conditions warrant.

The computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, asset prepayments and deposit decay, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions WLBC may undertake in response to changes in interest rates. Actual amounts may differ from the projections set forth below should market conditions vary from underlying assumptions.

December 31, 2011

Sensitivity of Net Interest Income

Interest Rate Scenario	Adjusted Net Interest  Income		Percentage Change from Base
	(Dollars in thousands)
Up 300 basis points	$	7,690		7.46	%
Up 200 basis points		7,501		4.82	%
Up 100 basis points		7,318		2.26	%
BASE		7,157		0.00	%
Down 100 basis points		6,971		-2.59	%
Down 200 basis points		6,589		-7.93	%

December 31, 2010

Sensitivity of Net Interest Income

Interest Rate Scenario	Adjusted Net Interest  Income		Percentage Change from Base
	(Dollars in thousands)
Up 300 basis points	$	10,749		5.25	%
Up 200 basis points		10,559		3.39	%
Up 100 basis points		10,374		1.58	%
BASE		10,213		0.00	%
Down 100 basis points		10,069		-1.41	%
Down 200 basis points		9,637		-5.63	%

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SELECTED HISTORICAL FINANCIAL INFORMATION—SERVICE1ST BANK OF NEVADA

Service1st’s balance sheet data for the period ended October 28, 2010 and related statements of operations, changes in shareholders’ equity and cash flows for the period ended October 28, 2010 are derived from Service1st’s audited financial statements, which are included elsewhere in this Form 10-K.

This information should be read together with Service1st’s audited financial statements and related notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Service1^st Bank of Nevada” and other financial information included elsewhere in this Form 10-K. The historical results included below and elsewhere in this Form 10-K are not indicative of the future performance of Service1st. As noted elsewhere in this Form 10-K, Service1st’s results of operations are included in WLBC since October 28, 2010. Accordingly, under smaller reporting company reporting requirements, financial information is generally only provided for 2 fiscal years (2011 and 2010). As such, the Service1st Bank financial information included is as of and for the period ended October 28, 2010 and there is no prior financial information provided herein for Service1st. As a result, the Management Discussion and Analysis of Financial Condition and Results of Operations for Service1st does not contain any comparison or analysis to 2009, rather provides a summary of the 2010 information for informational purposes.

SERVICE1ST BANK OF NEVADA

SELECTED FINANCIAL DATA

	Period Ended October 28, 2010 2010(3)
	($ in thousands except per share data)
Selected Results of Operations Data:
Interest income	$	6,620
Interest expense		1,147
Net interest income		5,473
Provision for loan losses		6,329
Net interest (loss) income after provision for loan losses		(856	)
Non-interest income		507
Non-interest expense		8,368
Net Loss	$	(8,717	)
Per Share data:
Net loss per common share	$	(175.00	)
Book Value		330.01
Selected Balance Sheet Data:
Total Assets	$	179,956
Cash and cash equivalents		15,091
Certificates of deposit(4)		31,928
Investment securities		10,432
Gross loans, including net deferred loan fees		125,404
Allowance for loan losses		9,418
Deposits		162,066
Stockholders’ equity		16,438
Performance Ratios:
Net interest margin(1)		3.24	%
Efficiency ratio(2)		139.93	%
Return on average assets		(4.98	)%
Return on average equity		(46.72	)%

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	Period Ended October 28, 2010 2010(3)
	($ in thousands except per share data)
Asset Quality:
Nonperforming loans	$	20,326
Allowance for loan losses as a percentage of nonperforming loans		46.34	%
Allowance for loan losses as a percentage of portfolio loans		7.51	%
Nonperforming loans as a percentage of total portfolio loans		16.21	%
Nonperforming loans as a percentage of total assets		12.63	%
Net charge-offs to average portfolio loans		2.54	%
Capital Ratios:
Average equity to average assets		10.66	%
Tier 1 equity to average assets		8.70	%
Tier 1 Risk-Based Capital ratio		12.80	%
Total Risk-Based Capital ratio		14.10	%

(1) Net interest margin represents net interest income as a percentage of average interest-earning assets.

(2) Efficiency ratio represents non-interest expenses as a percentage of the total of net interest income plus non-interest income.

(3) Service1st was acquired in 100% stock exchange on October 28, 2010. Thus, the 2010 data represents a partial year.

(4) Certificates of deposit issued by other banks with original maturities greater than three months.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—SERVICE1ST BANK OF NEVADA

The following discussion and analysis should be read in conjunction with Service1st’s audited financial statements and notes to the financial statements included elsewhere in this Form 10-K. This discussion and analysis contains forward-looking statements that involve risk, uncertainties and assumptions. Certain risks, uncertainties and other factors, including but not limited to those set forth under “Cautionary Note Regarding Forward-Looking Statements” may cause actual results to differ materially from those projected in the forward-looking statements.

Overview

Business of Service1st

Service1st was formed on November 3, 2006 and commenced operations as a commercial bank on January 16, 2007 under a state charter from the Nevada FID and with federal deposit insurance from the FDIC. Service1st was initially capitalized with $50 million raised in a private placement. At October 28, 2010, Service1st had total assets of $180.0 million, total gross loans of $125.4 million and total deposits of $162.1 million.

As a traditional community bank, operating from its headquarters and two retail banking locations in the greater Las Vegas area, Service1st provides a variety of loans to its customers, including commercial real estate loans, construction and land development loans, commercial and industrial loans, Small Business Administration (“SBA”) loans, and to a lesser extent consumer loans. As of October 28, 2010, loans secured by real estate constituted 65.77% of Service1st’s loan portfolio. Service1st relies on locally-generated deposits to provide Service1st with funds for making loans. The overwhelming majority of its business is generated in the Nevada market.

Service1st generates substantially all of its revenue from interest on loans and investment securities and service fees and other charges on customer accounts. This revenue is offset by interest expense paid on deposits

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and other borrowings and non-interest expense such as administrative and occupancy expenses. Net interest income is the difference between interest income on interest-earning assets, such as loans and securities, 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.

Service1st receives fees from its deposit customers in the form of service fees, checking fees and other fees. Other services such as safe deposit and wire transfers provide additional fee income. Service1st may also generate income from time to time from the sale of investment securities. The fees collected by Service1st are found under “Non-interest Income” in the statements of operations contained within Service1st’s audited financial statements for the period ended October 28, 2010 (which are included elsewhere in this Form 10-K). Offsetting these earnings are operating expenses referred to as “Non-Interest Expense” in the statements of operations. Because banking is a very people intensive industry, the largest operating expense is employee compensation and related expenses.

With total stockholder’s equity of $16.4 million at October 28, 2010, Service1st had a leverage ratio (the ratio of Tier 1 equity to average assets) of 8.7% of total assets. At October 28, 2010, Tier 1 risk-based capital stood at 12.8%, and total risk-based capital at 14.10%.

Results of Operations

Variable rate loans constitute 58.21% of Service1st’s portfolio for the period end October 28, 2010, and approximately 51.21% of Service1st’s variable rate loans are indexed to the national prime rate. However, a majority of these prime-rate based loans are subject to “floors,” ranging from 5.5% to 8.5%.

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The following table sets forth Service1st’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 October 28, 2010.

	Period Ended October 28, 2010(4)
($ in thousands)	Average Balance			Interest Income/ Expense		Yield
INTEREST-EARNING ASSETS:
Certificates of deposit	$	28,913		$	287		1.19	%
Interest-bearing deposits		28,880			60		0.25	%
Investment securities		14,483			472		3.91	%
Portfolio loans(1)		130,401			5,801		5.34	%
Total interest-earnings assets/interest income		202,677			6,620		3.92	%
NONINTEREST EARNING ASSETS:
Cash and due from banks		9,285
Allowance for loan losses		(7,628	)
Other assets		5,751
Total assets	$	210,085
LIABILITIES AND STOCKHOLDERS’ EQUITY
INTEREST-BEARING LIABILITIES:
Demand deposits	$	31,710		$	349		1.32	%
Money markets		41,118			211		0.62	%
Savings		1,529			7		0.55	%
Time deposits under $100,000		5,780			65		1.35	%
Time deposits $100,00 and over		42,900			515		1.44	%
Total interest-bearing		123,037			1,147		1.12	%
liabilities/interest expense
NONINTEREST BEARING LIABILITIES:
Non-interest-bearing demand deposits		63,154
Accrued interest on deposits and other liabilities		1,490
Total liabilities		187,681
Stockholders’ equity		22,404
Total liabilities and stockholders’ equity	$	210,085
Net interest income and Interest rate spread(2)				$	5,473		2.81	%
Net interest margin(3)							3.24	%
Ratio of Average Interest-Earning Assets to Interest-Bearing Liabilities		165	%

(1) Average balances include nonaccrual loans of approximately $15,066,000, for the period ended October 28, 2010 . Net loan fees or (costs) of $(180,000) are included in the yield computation for the period ended October 28, 2010.

(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.

(4) Service1st was acquired by Western Liberty Bancorp on October 28, 2010, thus the 2010 data represents a partial year; January 1, 2010 to October 28, 2010.

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Non-Interest Income

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

Non-Interest Expense

The following table sets for the principal elements of non-interest expenses for 2010.

($ in thousands)	Period Ended 2010(1)
Non-interest expenses:
Salaries and employee benefits	$	3,536
Occupancy, equipment and depreciation		1,360
Computer service charges		243
Professional fees		1,605
Advertising and business development		79
Insurance		705
Telephone		87
Stationary and supplies		26
Director fees		34
Loss on disposition of equipments		0
Other real estate owned		654
Provision for unfunded commitments		(471	)
Other		510
Total non-interest expenses	$	8,368

(1) For the period January 1, 2010 through October 28, 2010.

Income Taxes

Due to Service1st incurring operating losses from inception, no provision for income taxes has been recorded since the inception of Service1st.

Financial Condition

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 $15.1 million at October 28, 2010.

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Investment Securities and Certificates of Deposits held at other Banks

The tables below summarize Service1st’s investment portfolio for the period ended October 28, 2010. Securities are identified as available-for-sale or held to maturity. Unrealized gains or losses on available-for-sale securities are recorded as accumulated other comprehensive income in stockholders’ equity. Held-to-maturity securities are carried at cost, adjusted for amortization of premiums or accretion of discounts. Amortization of premiums or accretion of discounts on mortgage-backed securities is periodically adjusted for estimated prepayments. Securities measured at fair value are reported at fair value, with unrealized gains and losses included in current earnings.

	For the Period Ended October 28, 2010
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Investments—Available for Sale
U.S. Government Agency Securities	$	1,002	$	—	$	—		$	1,002
Collateralized Mortgage Obligations-commercial		1,868		—		(20	)		1,848
Total	$	2,870	$	—	$	(20	)	$	2,850

	For the Period Ended October 28, 2010
(Dollars in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Investments-Held to Maturity
Corporate debt securities	$	6,924	$	256	$	—	$	7,180
SBA Loan Pools		658		4		—		662
Total	$	7,582	$	260	$	—	$	7,842

The table below summarizes the maturity dates and investment yields on Service1st’s investment portfolio for the period ended October 28, 2010 for securities identified as available for sale or held to maturity.

For the period ended October 28, 2010

	Due Under 1 Year Amount/Yield				Due 1-5 Years Amount/Yield				Due 5-10 Years Amount/Yield				Due Over 10 Years Amount/Yield				Total Amount/Yield
Available for Sale
U.S. Government Agency Securities	$	0	0.00	%	$	1,002	1.50	%	$	0	0.00	%	$	0	0.00	%	$	1,002	1.50	%
Corporate Debt Securities		0	0.00	%		0	0.00	%		0	0.00	%		0	0.00	%		0	0.00	%
Collateralized Mortgage Obligations-commercial		978	6.28	%		870	5.82	%		0	0.00	%		0	0.00	%		1,848	6.06	%
Small Business Administration Loan Pools		0	0.00	%		0	0.00	%		0	0.00	%		0	0.00	%		0	0.00	%
Total available for sale	$	978	6.28	%	$	1,872	3.51	%	$	0	0.00	%	$	0	0.00	%	$	2,850	4.46	%
Held to Maturity
U.S. Government Agency Securities	$	0	0.00	%	$	0	0.00	%	$	0	0.00	%	$	0	0.00	%	$	0	0.00	%
Corporate Debt Securities		4,027	5.36	%		3,153	5.19	%		0	0.00	%		0	0.00	%		7,180	5.29	%
Collateralized Mortgage Obligations-commercial		0	0.00	%		0	0.00	%		0	0.00	%		0	0.00	%		0	0.00	%
Small Business Administration Loan Pools		7	3.12	%		15	5.13	%		100	2.91	%		540	3.27	%		662	3.26	%
Total held to maturity	$	4,034	5.36	%	$	3,168	5.19	%	$	100	2.91	%	$	540	3.27	%	$	7,842	5.11	%

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Loans

As of October 28, 2010, substantially all of Service1st’s loan customers were located in Nevada.

The following table summarizes the composition of Service1st’s loan portfolio by type and percentage of the loan portfolio for the date indicated.

($ in thousands)	For the Period Ended October 28, 2010
Loans secured by real estate:
Construction, land development and other land loans	$	9,225		7.35	%
Commercial real estate		62,963		50.22	%
Residential (1 to 4 family)		10,282		8.20	%
Total real estate-secured loans		82,470		65.77	%
Loans not secured by real estate:
Commercial and industrial		42,778		34.12	%
Consumer		136		0.11	%
Loans, Gross		125,384		100.00	%
Net deferred loan fees		20
Loan, Gross, net of deferred fees		125,404
Less: Allowance for loan losses		(9,418	)
Loans, Net	$	115,986

The table below reflects the maturity distribution for Service1st’s loans, by category of loans, and the amount of fixed versus variable rate interest loans, for the period ended October 28, 2010.

	For the Period Ended October 28, 2010
	Due Within One Year		Due 1-5 Years		Due Over Five  Years		Total
Loans secured by real estate:
Construction, land development and other land loans	$	6,429	$	2,796	$	—	$	9,225
Commercial real estate		350		24,852		37,761		62,963
Residential real estate (1 to 4 family)		7,708		2,409		165		10,282
Total real estate secured loans	$	14,487	$	30,056	$	37,926	$	82,470
Loans not secured by real estate:
Commercial and industrial		20,405		13,920		8,453		42,778
Consumer		80		56		—		136
Loans, Gross	$	34,973	$	44,033	$	46,378	$	125,384
Interest rates:
Fixed	$	8,691	$	35,190	$	8,568	$	52,449
Variable		26,281		8,842		37,811		72,935
Gross loans	$	34,973	$	44,033	$	46,378	$	125,384

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Interest Reserves

Interest reserves are generally established at the time of the loan origination as an expense item in the budget for a construction and land development loan. Service1st’s practice is to monitor the construction, sales and/or leasing progress to determine the feasibility of ongoing construction and development projects. If at any time during the life of the loan the project is determined not to be viable, Service1st generally has the ability to discontinue the use of the interest reserve and take appropriate action to protect its collateral position via negotiation and/or legal action as deemed appropriate. For the period ended October 28, 2010, Service1st had no loans with an interest reserve.

Nonperforming Assets

Nonperforming assets consists of:

(i) nonaccrual loans. In general, loans are placed on nonaccrual status when Service1st determines timely recognition of interest to be in doubt due to the borrower’s financial condition and collection efforts. Service1st generally discontinues accrual of interest when a loan is 90 days delinquent unless the loan is well secured and in the process of collection;

(ii) loans past due 90 days or more and still accruing interest. Loans past due 90 days or more and still accruing interest consist primarily of loans 90 days or more past their maturity date but not their interest due date.

(iii) restructured loans. Restructured loans have modified terms to reduce either principal or interest due to deterioration in the borrower’s financial condition; and

(iv) other real estate owned, or OREO. If a bank takes title to the borrower’s real property that serves as collateral for a defaulted loan, such property is referred to as other real estate owned (“OREO”).

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The following table sets forth nonperforming assets at the date indicated by category of asset.

($’s in thousands)	For the Period Ended October 28, 2010
Nonaccrual loans:
Loans Secured by Real Estate
Construction, land development and other land loans	$	5,977
Commercial real estate		8,611
Residential real estate (1-4 family)		—
Total loans secured by real estate		14,588
Commercial and industrial		5,739
Consumer		—
Total nonaccrual loans		20,327
Past due (>90days) loans and accruing interest:
Loans Secured by Real Estate
Construction, land development and other land loans		—
Commercial real estate		—
Residential real estate (1-4 family)		—
Total loans secured by real estate		—
Commercial and industrial		—
Consumer		—
Total past due loans accruing interest		—
Restructured loans (still on accrual)(1)		—
Total nonperforming loans	$	20,327
Other real estate owned (OREO)		2,403
Total nonperforming assets	$	22,730
Non-Performing Loans as a percentage of total portfolio loans		16.21	%
Non-Performing Loans as a percentage of total assets		11.30	%
Non-Performing assets as a percentage of total assets		12.63	%
Allowance for loan losses as a percentage of nonperforming loans		46.34	%

(1) For the period ended October 28, 2010 Service1st had approximately $11.0 million, in loans classified as restructured loans. All of such loans were on nonaccrual.

The largest category of nonperforming assets is commercial real estate loans and represents one of the loan categories in which Service1st has been most severely impacted by adverse economic conditions in Nevada. The other category in which Service1st has been significantly impacted by adverse economic conditions is construction, land development and other land loans. With many real estate projects requiring an extended time to market, many of Service1st’s borrowers have exhausted their liquidity and stopped making payments, thereby requiring Service1st to place the loans on nonaccrual. Given the current economic conditions in Nevada, Service1st has effectively stopped making commercial real estate loans and construction, land development and other land loans (except for contractually required disbursements under existing facilities) unless borrowers can provide strong financial support outside the project under development.

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Potential Problem Loans

Service1st classifies its loans consistent with federal banking regulations using a ten category grading system. The following table presents information regarding potential problem loans, which are graded but still performing as of the dates indicated. These graded loans are referred to in applicable banking regulations as “Other Loans Especially Mentioned,” “Substandard,” “Doubtful,” and “Loss.” These loan grades are described in further detail in the section entitled “Information Related to Service1st—Potential Problem Loans.”

	For the Period Ended October 28, 2010
	# of Loans		Loan Balance		%			Percent of Total  Loans
Construction, land development and other land loans		1	$	856		5.75	%		0.68	%
Commercial real estate		4		4,319		28.97	%		3.44	%
Residential real estate (1-4 family)		1		2,909		19.51	%		2.32	%
Commercial and industrial		16		6,824		45.77	%		5.44	%
Consumer		0		0		0.00	%		0.00	%
Total Loans		22	$	14,908		100	%		11.88	%

Service1st’s potential problem loans consisted of 22 loans and totaled approximately $14.9 million for the period ended October 28, 2010.

Impaired Loans

For the period ended October 28, 2010 the aggregate total amount of loans classified as impaired, was $26.9 million. The total specific allowance for loan losses related to these loans was $5.4 million for the period ended October 28, 2010. The increase in total impaired loans reflects the overall decline in economic conditions in Nevada.

For the period ended October 28, 2010 Service1st had approximately $11.0 million in loans classified as restructured loans.

The breakdown of total impaired loans and the related specific reserves for the period ended October 28, 2010 is as follows:

	At October 28, 2010
($ in thousands)	Impaired Balance		%			Percent of Total  Loans			Reserve Balance		%			Percent of Total Allowance
Construction, land development and other land loans	$	6,834		25.40	%		5.45	%	$	149		2.74	%		1.58	%
Commercial real estate		9,325		34.67	%		7.44	%		1,395		25.66	%		14.81	%
Residential real estate (1-4 family)		2,909		10.81	%		2.32	%		145		2.67	%		1.54	%
Commercial and industrial		7,833		29.12	%		6.25	%		3,748		68.93	%		39.80	%
Consumer		0		0.00	%		0.00	%		0		0.00	%		0.00	%
Total impaired loans	$	26,901		100.00	%		21.46	%	$	5,437		100.00	%		57.73	%

The amount of interest income recognized on impaired loans for the period ended October 28, 2010 is approximately $147,000.

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Allowance for Loan Losses

The following table presents the activity in Service1st’s allowance for loan losses for the period indicated.

Analysis of Loss Experience by Loan Type ($’s in thousands)	For the Period Ended October 28, 2010
Allowance for Loan and Lease Loss:
Balance at the beginning of the period	$	6,404
Provisions charged to operating expenses		6,329
Recoveries of loans previously charged off:
Construction, land development and other land loans		293
Commercial real estate		0
Residential real estate (1-4 family)		1
Commercial and industrial		321
Consumer		0
Total recoveries		615
Loans charged-off:
Construction, land development and other		1,151
Commercial		922
Residential (including multi-family)		202
Commercial and industrial		1,655
Consumer		0
Total charged-off		3,930
Net charge-offs		3,315
Balance at end of period	$	9,418
Net Charge-offs to average loans outstanding		2.54	%
Allowance for Loan Loss to outstanding loans		7.51	%

The accounting principles used by Service1st in maintaining the allowance for loan losses are discussed in the section entitled “Critical Accounting Policies—Allowance for Loan Losses.” The allowance is maintained at a level management believes to be adequate to absorb estimated future credit losses inherent in Service1st’s loan portfolio, based on evaluation of the collectability of the loans, prior credit loss experience, credit loss experience of other banks and other factors deemed relevant.

The allowance for loan losses is established through a provision for loan losses charged to operations and is increased by the collection of monies on loans previously charged off (recoveries) and reduced by loans that are charged off. Service1st’s board of directors reviews the adequacy of the allowance for loan losses on a monthly basis. For the period ended October 28, 2010, Service1st had established an allowance of $9.4 million after increasing the allowance by $6.3 million in provisions, recording an additional $615,000 in recoveries, and recording charge-offs of $3.9 million.

The following table presents the allocation of Service1st’s allowance for loan losses by loan category and percentage of loans in each category to total loans as of the dates indicated.

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Allocation of the Allowance and percentage of allowance by loan type:

	For the Period  Ended October 28, 2010
($’s in thousands)	Amount		% of loans
Allowance for Loan and Lease Loss:
Loans Secured by Real Estate
Construction, land development and other land loans	$	318		7.36	%
Commercial real estate		3,019		50.22	%
Residential real estate (1-4 family)		737		8.20	%
Total loans secured by real estate		4,074		65.77	%
Commercial and industrial		5,339		34.12	%
Consumer		5		0.11	%
Total allowance for loan loss	$	9,418		100	%

The loan category with the largest level of historical net charge-offs is attributed to Service1st’s commercial and industrial loans. This category had charge-offs of $1.7 million and recoveries of $321,000 for the period ended October 28, 2010. Service1st’s loan balance in this category is $42.8 million for the period ended October 28, 2010 with $5.7 million of that balance being classified as nonaccrual . Accordingly, the allowance for loan losses of $5.3 million was allocated to this category for the period ended October 28, 2010.

Service1st’s construction, land development and other land loans category had charge-offs of $1.2 million and recoveries of $293,000 for the period ended October 28, 2010. Service1st’s loan balance in this category is $9.2 million for the period ended October 28, 2010 with $6.0 million of that balance being classified as nonaccrual. Accordingly, the allowance for loan losses of $318,000 was allocated to this category for the period ended October 28, 2010 .

Service1st’s commercial real estate loan category had charge-offs of $922,000 and no recoveries for the period ended October 28, 2010. Service1st’s loan balance in this category is $63.0 million for the period ended October 28, 2010 with $8.6 million of that balance being classified as nonaccrual. Accordingly, the allowance for loan losses of $3.0 million was allocated to this category for the period ended October 28, 2010.

Service1st’s residential real estate loan category had charge-offs of $202,000 and $1,000 in recoveries for the period ended October 28, 2010. Service1st’s loan balance in this category is $10.3 million for the period ended October 28, 2010 with none of that loan balance being classified as nonaccrual. Accordingly, the allowance for loan losses of $737,000 was allocated to this category for the period ended October 28, 2010.

Deposits

The following table reflects the summary of deposit categories by dollar and percentage for the period ended October 28, 2010.

	December 31, 2010
($’s in thousands)	Amount		% of Total
Non-interest-bearing deposits	$	68,575		42.31	%
Interest-bearing deposits		29,018		17.91	%
Money Markets		28,316		17.47	%
Savings		1,065		0.66	%
Time deposits under $100,000		4,888		3.02	%
Time deposits $100,000 and over		30,204		18.64	%
Total Deposits	$	162,066		100.00	%

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Certificates of deposits of $100,000 or more for the period ended October 28, 2010 totaled $30.2 million. These deposits are generally more rate sensitive than other deposits and are more likely to be withdrawn to obtain higher yields elsewhere, if available. Scheduled maturities of certificates of deposits in amounts of $100,000 or more for the period ended October 28, 2010 were as follows:

Certificates of Deposit Maturities > $100,000

($’s in thousands)	Amount
Three months or less	$	10,503
Over three months to six months		4,075
Over six months to twelve months		15,626
Over 12 months		0
Total	$	30,204

Liquidity and Asset/Liability Management

Service1st’s sources of liquidity consists of cash and due from correspondent banks, overnight funds sold to correspondents and the Federal Reserve Bank, certificates of deposits at other financial institution (non-brokered), unpledged security investments and lines of credit with the Federal Reserve Bank of San Francisco and Federal Home Loan Bank of San Francisco. For the period ended October 28, 2010, Service1st had approximately $15.1 million in cash and cash equivalents, approximately $31.9 million in certificates of deposits at other financial institutions, with maturities of one year or less. In addition, Service1st had $3.5 million in unpledged security investments, of which $2.8 million is classified as available for sale, while the remaining $662,000 is classified as held to maturity. Service1st also has a $4.4 million collateralized line of credit with the Federal Reserve Bank of San Francisco and an $18.1 million collateralized line of credit with the FHLB of San Francisco. Both the $4.4 million line of credit with the Federal Reserve of San Francisco and the $18.1 million line of credit with the FHLB have a zero balance.

Off-Balance Sheet Arrangements

In the normal course of business, Service1st is a party to financial instruments with off-balance-sheet risk. These financial instruments include commitments to extend credit and letters of credit. To varying degrees, these instruments involve elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position.

	For the Period Ended October 28,
	2010
	($ in thousands)
Commitments to extend credit		15,965
Commitments to extend credit to directors and officers (undisbursed amount)		2,392
Standby/commercial letters of credit		695

Service1st maintains an allowance for unfunded commitments, based on the level and quality of Service1st’s undisbursed loan funds, which comprises the majority of Service1st’s off-balance sheet risk. For the period ended October 28, 2010 the allowance for unfunded commitments was approximately $348,000.

Management is not aware of any other material off-balance sheet arrangements or commitments outside of the ordinary course of Service1st’s business.

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Item 7A—Quantitative and Qualitative Disclosures About Market Risk

Information concerning market risks is included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations at pages 27.

Item 8—Financial Statements and Supplementary Data

Registrant’s financial statements and schedules are included in Part IV, Item 15.

Item 9—Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A—Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of December 31, 2011. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating whether the benefits of the controls and procedures that the Company adopts outweigh their costs. Our management, including our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures, has concluded that, as of December 31, 2011, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within time periods specified in the SEC’s rules and forms.

(b) Changes in Internal Control over Financial Reporting

During the quarter ended December 31, 2011, there have not been significant changes in our internal controls that would materially affect, or are reasonably likely to affect, our internal control over financial reporting.

(c) Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

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Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control—Integrated Framework.Based on that assessment, management concluded that, as of December 31, 2011, our internal control over financial reporting is effective based on those criteria established inInternal Control—Integrated Framework.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The annual report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over final reporting pursuant to rules of the SEC applicable to nonaccelerated filers.

Item 9B—Other Information

None

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PART III

Item 10—Directors, Executive Officers and Corporate Governance

Information concerning directors and corporate governance will be included in our definitive proxy statement for the 2012 annual meeting of stockholders. The proxy statement is incorporated by reference.

Executive Officers of the Registrant

The names, ages, and positions of the executive officers as of February 28, 2012 are as follows:

Name	Age		Position
William E. Martin		69	Chief Executive Officer
Patricia A. Ochal		46	Chief Financial Officer
Richard Deglman		67	Chief Credit Officer of Service1st Bank

William E. Martinhas been a member of the Board and our Chief Executive Officer since October 2010. Mr. Martin has been the Chief Executive Officer and Vice Chairman of the Board of Service1st Bank of Nevada since December 2007. Mr. Martin graduated from the University of North Texas and joined the Office of the Comptroller of the Currency, where he spent fifteen years as a national bank examiner in California and Nevada. In 1978 he was placed in charge of that agency’s national problem bank group, was a Deputy Comptroller in charge of the OCC’s UBPR, later adopted by the FFIEC for all banking regulatory agencies, and finally, was Deputy Comptroller for Multinational Banking with responsibility for primary oversight of the eleven largest national banks. He was one of three U.S. representatives appointed to the Basel Committee. In 1983, he left the OCC and became President and Chief Executive Officer of Nevada National Bank, a $700 million asset statewide bank, and its parent company, Nevada National Bancorporation, which was acquired by Security Pacific National Bank in 1989. Later that year, he joined Pioneer Citizens Bank of Nevada as President and Chief Executive Officer. The bank grew from $110 million in assets to over $1.1 billion by 1999, at which time parent company Pioneer Bancorporation was acquired by Zions Bancorporation and Pioneer Citizens Bank merged into Nevada State Bank. For the following seven years, he was Chairman, President and Chief Executive Officer of Nevada State Bank, a $4 billion institution with 70 branch offices statewide. He left Nevada State Bank in late 2007 and joined Service1st Bank of Nevada, where he serves as Vice Chairman and Chief Executive Officer. Mr. Martin has been involved at a board or active participation level in over 30 civic efforts in his 27 years in Nevada, including chairmanships of the Nevada State College Foundation, Las Vegas Chamber of Commerce, Opportunity Village for Intellectually Handicapped Citizens, Nevada Development Capital Corporation, and Water Conservation Coalition.

Patricia A. Ochalcurrently has served as our Chief Financial Officer since late December of 2011. Ms. Ochal manages Service1st’s Accounting and Finance, Information Technology, facilities, leases, insurance and bank-wide risk assessment. At Service1st’s inception, Ms. Ochal was in charge of Human Resources, Bank Operations and Marketing. Bank Operations involved Compliance (BSA/AML/OFAC), on-line banking, remote capture, ACH, wires, ATMs, establishing new branch locations and tenant improvements. Ms. Ochal also coordinated Service1st’s marketing effort and website development/management. Ms. Ochal began organizing Service1st in May 2006. Prior to organizing Service1st, Ms. Ochal was Senior Vice President and Chief Financial Officer of Nevada First Bank from 2004 through 2006. Ms. Ochal received her Bachelor of Science in Accounting from the University of Nevada, Las Vegas and is a Certified Public Accountant in the State of Nevada. Ms. Ochal is an alumnus of KPMG Peat Marwick and currently holds affiliations with the American Institute of Certified Public Accountants (AICPA) and the Nevada Society of Certified Public Accountants.

Richard Deglmanhas been an Executive Vice President and Chief Credit Officer of Service1st Bank of Nevada since June 2008. For ten years before his employment with Service1st Mr. Deglman served as Executive Vice President and Statewide Commercial Real Estate Manager of Nevada State Bank. Prior to that, he was the Teamleader—Emerging Technology Group for Silicon Valley Bank from 1994 to 1998. Before joining Silicon Valley Bank, Mr. Deglman was with Security Pacific Bank for over 20 years in various roles, ending as First Vice President/Regional Manager of commercial real estate before the bank was acquired by Bank of America in 1992. After the

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acquisition, he served as Credit Administrator until 1994. Mr. Deglman earned his Bachelors in Business Administration from San Francisco State University and his MBA from St. Mary’s College. His outside roles and association memberships have included the Nevada Builders Association, Associated General Contractors, State of Nevada Block Grant Commissioner, Board of Directors—Jump Start, and Prospectors—Reno.

Financial Experts on Audit Committee

The Audit Committee of our board of directors currently is and will at all times be composed exclusively of directors who are independent, within the meaning of Nasdaq Rule 5605(a)(2) and Rule 10A-3 of the Exchange Act, and who are financially literate, meaning they are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement. In addition, the Audit Committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the individual’s financial sophistication. The board of directors has determined that Directors Curtis W. Anderson and Richard A.C. Coles satisfy the definition of financial sophistication and also qualify as audit committee financial experts, as defined under the SEC’s rules and regulations.

Item 11—Executive Compensation

Information regarding executive compensation will be included in our definitive proxy statement for the 2012 annual meeting of stockholders. The proxy statement is incorporated by reference.

Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Securities authorized for issuance under equity compensation plans

Equity Compensation Plan Information

	column (a)		column (b)		column (c)
	Number of securities to be issued upon exercise of outstanding options, warrants, and rights		Weighted-average exercise price of outstanding options, warrants, and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders		0		not applicable		0
Equity compensation plans not approved by security holders(1)(2)		246,952	$	21.01		229,023
Total		246,952	$	21.01		229,023

(1) In connection with the Acquisition, outstanding options to acquire Service1st Bank common stock granted under the 2007 Stock Option Plan of Service1st (the “Stock Option Plan”) and outstanding warrants to acquire Service1st common stock became options and warrants to acquire common stock, adjusted for the exchange ratio applicable to the Acquisition. The table does not include the aforementioned warrants granted by Service1st Bank. In recognition of organizational funds contributed and economic risks borne during the bank’s organizational phase, those warrants were granted by Service1st Bank to the individuals who participated in Service1st Bank’s organization, rather than being issued as part of a compensation plan.

(2) In addition to the Stock Option Plan, prior to the Acquisition WLBC’s board of directors granted to its Compensation Committee the right to award up to 1.5 million shares of restricted stock to members of

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management and to consultants. The board of directors granted to the Compensation Committee the right to determine after completion of the acquisition to whom awards, if any, shall be granted and what the terms of those awards shall be. The Compensation Committee awards will not be submitted for approval by stockholders in advance. When the Acquisition occurred WLBC also granted 50,000 shares of to each of Michael B. Frankel, the current Chairman of the board of directors, Richard A.C. Coles, a current member of the board of directors, and Mark Schulhof, a former member of the board of directors.

Restricted stock units that will be settled for a total of 200,000 shares of our stock were granted to five individuals when the acquisition was completed: Jason N. Ader, WLBC’s former Chairman and Chief Executive Officer and a current member of the board (50,000 restricted stock units), Daniel B. Silvers, WLBC’s former President (100,000 restricted stock units), Andrew P. Nelson, our former Chief Financial Officer and a former member of the board (25,000 restricted stock units), Michael Tew, an outside consultant (20,000 restricted stock units), and Laura Conover-Ferchak, an outside consultant (5,000 restricted stock units). Each restricted stock unit is immediately and fully vested and will be settled for one share of our common stock on October 28, 2013, or if sooner when a change of control occurs, without payment of any additional consideration for the shares. The restricted stock units and the shares of common stock that will be issued upon their settlement are not included in the table above.

Security ownership of certain beneficial owners and management

Information regarding security ownership of directors, executive officers, and any person or entity known to us to be the beneficial owner of more than 5% of our common stock will be included in our definitive proxy statement for the 2012 annual meeting of stockholders. The proxy statement is incorporated by reference.

Item 13—Certain Relationships and Related Transactions and Director Independence

Information regarding this item will be included in the registrant’s definitive proxy statement for the 2012 annual meeting of stockholders. The proxy statement is incorporated by reference.

Item 14—Principal Accountant Fees and Services

Information concerning principal accountant fees and services will be included in our definitive proxy statement for the 2012 annual meeting of stockholders. The proxy statement is incorporated by reference.

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PART IV

Item 15—Exhibits and Financial Statement Schedules

(a) (1)Financial statements filed as part of this Form 10-K.

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Table of Contents

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements

Western Liberty Bancorp
Report of Independent Registered Public Accounting Firm	81
Consolidated Balance Sheets as of December 31, 2011 and 2010	82
Consolidated Statements of Operations for the years ended December 31, 2011 and 2010	83
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) for the years ended December 31, 2011 and 2010	84
Consolidated Statements of Cash Flows for the years ended December 31, 2011 and 2010	85
Notes to Consolidated Financial Statements	86
Service1st Bank of Nevada
Report of Independent Registered Public Accounting Firm	128
Balance Sheet as of October 28, 2010	129
Statement of Operations for the ten months ended October 28, 2010	130
Statement of Stockholders’ Equity and Comprehensive Loss for the ten months ended October  28, 2010	131
Statement of Cash Flows for the ten months ended October 28, 2010	132
Notes to Consolidated Financial Statements	133

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Western Liberty Bancorp

Las Vegas, Nevada

We have audited the accompanying consolidated balance sheets of Western Liberty Bancorp as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis of designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Western Liberty Bancorp as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

/s/ Crowe Horwath LLP

Sherman Oaks, California

March 14, 2012

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WESTERN LIBERTY BANCORP

CONSOLIDATED BALANCE SHEETS

($000’S EXCEPT PER SHARE DATE)

	December 31,
	2011			2010
Assets
Cash and due from banks	$	11,227		$	11,675
Money market funds		100			52,206
Interest-bearing deposits in banks		78,026			39,346
Cash and cash equivalents		89,353			103,227
Certificates of deposits		—			26,889
Securities, available for sale		472			1,819
Securities, held to maturity (estimated fair value of $2,035 and $5,287 at December 31, 2011 and 2010, respectively)		2,031			5,314
Loans, net of allowance of $2,919 and $36 at December 31, 2011 and 2010 respectively.		98,942			106,223
Premises and equipment, net		818			1,228
Other real estate owned, net		4,008			3,406
Goodwill, net		—			5,633
Other intangibles, net		670			768
Accrued interest receivable and other assets		1,996			3,039
Total assets	$	198,290		$	257,546
Liabilities And Stockholders’ Equity
Deposits:
Non-interest bearing demand		50,488		$	67,087
Interest bearing:		70,738			93,199
Total deposits		121,226			160,286
Accrued interest payable and other liabilities		1,023			3,431
Total liabilities		122,249			163,717
Commitments and contingencies (Note 16)
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 13,466,535 outstanding at December 31, 2011 and 15,088,023 issued and outstanding at December 31, 2010		1			1
Additional paid-in capital		117,846			117,317
Treasury stock 1,621,488 shares, at cost		(4,094	)		—
Accumulated deficit		(37,717	)		(23,489	)
Accumulated other comprehensive income, net		5			—
Total stockholders’ equity		76,041			93,829
Total liabilities and stockholders’ equity	$	198,290		$	257,546

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

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WESTERN LIBERTY BANCORP

CONSOLIDATED STATEMENTS OF OPERATIONS

($000 EXCEPT PER SHARE DATA)

	Years Ended December 31,
	2011			2010
Interest and dividend income:
Loans, including fees	$	9,253		$	1,403
Securities, taxable		260			47
Federal funds sold and other		—			80
Total interest and dividend income	$	9,513		$	1,530
Interest expense:
Deposits		484			115
Total interest expense		484			115
Net interest income		9,029			1,415
Provision for loan losses		8,717			36
Net interest income after provision for loan losses		312			1,379
Non—interest income:
Service charges		302			57
Change in fair value of contingent consideration		1,816			—
Other		289			51
		2,407			108
Non—interest expense
Salaries and employee benefits		3,242			1,461
Occupancy, equipment and depreciation		1,490			269
Computer service charges		294			51
Federal deposit insurance		524			90
Legal and professional fees		2,634			3,851
Advertising and business development		97			7
Insurance		284			825
Printing and supplies		283			314
Director Fees		225			25
Stock—based compensation		529			1,771
Provision for unfunded commitments		(257	)		—
OREO Property Impairment		797			—
Goodwill Impairment		5,633			—
Other		1,172			473
		16,947			9,137
Net loss	$	(14,228	)	$	(7,650	)
Basic loss per common share	$	(0.96	)	$	(0.65	)
Diluted loss per common share	$	(0.96	)	$	(0.65	)

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

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WESTERN LIBERTY BANCORP

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

YEARS ENDED DECEMBER 31, 2011, and 2010

	Comprehensive Loss			Common Stock Issued and Outstanding					Additional Paid-in- Capital			Earnings (Deficit)			Accumulated Other Comprehensive Income		Treasury Stock			Total
				Shares			Amounts
Balance, December 31, 2009	$	—			10,959,169		$	1	$	103,730		$	(15,839	)	$	—	$	—		$	87,892
Stock-based compensation reversal		—			—			—		(587	)		—			—		—			(587	)
Issue common shares in conjunction with acquisition of Service 1st Bank of Nevada		—			2,370,722			—		15,267			—			—		—			15,267
Exercise Warrants		—			1,502,088			—		(2,884	)		—			—		—			(2,884	)
Issuance of 194,098 shares of common stock for restricted stock award		—			194,098			—		—			—			—		—			—
Issuance of 150,000 shares of common stock for restricted stock award		—			150,000			—		966			—			—		—			966
Purchase of dissenter’s shares		—			(88,054	)		—		(567	)		—			—		—			(567	)
Stock-based compensation		—			—			—		1,392			—			—		—			1,392
Net loss		(7,650	)		—			—		—			(7,650	)		—		—			(7,650	)
Other comprehensive income (loss)					—			—		—			—			—		—			—
Comprehensive loss	$	(7,650	)
Balance, December 31, 2010					15,088,023		$	1	$	117,317		$	(23,489	)		—	$	—		$	93,829
Stock-based compensation								—		529			—			—		—			529
Net loss		(14,228	)					—		—			(14,228	)		—		—			(14,228	)
Other comprehensive income		5						—		—			—			5		—			5
Treasury Stock Purchases, including forfeited restricted shares					(1,621,488	)		—		—			—			—		(4,094	)		(4,094	)
Comprehensive loss	$	(14,223	)
Balance, December 31, 2011					13,466,535		$	1	$	17,846		$	(37,717	)	$	5	$	(4,094	)	$	76,041

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

84

WESTERN LIBERTY BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2011 and 2010

($000’S EXCEPT PER SHARE)

	December 31,
	2011			2010
Cash Flows from Operating Activities:
Net loss	$	(14,228	)	$	(7,650	)
Adjustments to reconcile net loss to net cash used in Operating activities:
Accretion of loan discount, net		(3,637	)		(436	)
Amortization of core deposit intangible		98			16
Oreo property impairment		797			—
Goodwill Impairment		5,633			—
Contingent liability (change in fair value)		(1,816	)		—
Amortization of lease liability		(93	)		(31	)
Amortization of time deposit premium		(41	)		(5	)
Depreciation of premises and equipment		433			72
Amortization of securities premiums/discounts, net		185			28
Gain on disposition of other real estate owned		(34	)		—
Provision for loan losses		8,717			36
Stock compensation expense		529			1,771
Prepaid expenses and other assets		1,047			343
Accrued interest payable and other liabilities		(499	)		(708	)
Net cash used in operating activities		(2,909	)		(6,564	)
Cash Flows from Investing Activities:
Proceeds from certificates of deposit	$	26,889		$	5,039
Purchases of securities available for sale		(250	)		—
Proceeds from maturities of securities available for sale		198			1,000
Proceeds from principal paydowns of securities available for sale		1,370			23
Proceeds from maturities of securities held to maturity		3,000			2,500
Proceeds from principal paydowns of securities held to maturity		128			10
Purchase of premises and equipment		(23	)		(16	)
Cash acquired from acquisition		—			15,090
Proceeds from disposition of other real estate owned		1,075			—
Net decrease (increase) in loans		(239	)		3,453
Net cash provided by investing activities		32,148			27,099
Cash Flows from Financing Activities:
Net (decrease) in deposits		(39,019	)		(1,826	)
Cash payments for warrants		—			(2,884	)
Cash payments for dissenter common shares		—			(567	)
Payments to purchase treasury stock		(4,094	)		—
Net cash used in financing activities		(43,113	)		(5,277	)
(Decrease) increase in cash and cash equivalents		(13,874	)		15,258
Cash and cash equivalents, beginning		103,227			87,969
Cash and cash equivalents, ending	$	89,353		$	103,227
Supplementary cash flow information:
Interest paid on deposits and other borrowed funds	$	478		$	124
Supplemental disclosure of noncash operating and investing activities:
Transfers of loans to other real estate owned	$	2,440		$	1,003
Principal paydowns on SBA loan pool securities reclassified to other assets	$	4		$	—
Supplemental schedule of non-cash investing activities from acquisition:
Non-cash assets acquired:
Certificates of deposits	$	—		$	31,928
Investment securities available for sale		—			2,850
Investment securities held to maturity		—			7,842
Loans, net of discount		—			110,278
Other real estate owned, net of discount		—			2,403
Premises and equipment		—			1,284
Goodwill		—			5,633
Other intangibles		—			784
Other assets		—			2,826
Total non-cash assets acquired:		—		$	165,828
Liabilities assumed:
Deposits	$	—		$	162,112
Accrued expenses and other liabilities		—			1,694
				$	163,806
Total liabilities assumed:	$	—		$	2,022
Net non-cash assets acquired (liabilities assumed):	$	—		$	15,090
Net cash and cash equivalents (paid) acquired		—			—

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

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WESTERN LIBERTY BANCORP

NOTES TO 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, stock purchase, reorganization or similar business combination with one or more businesses. WLBC consummated on November 27, 2007 and received net proceeds of $305,658,960 therefrom and $8,500,000 from concurrent private placement of warrants to WLBC’s founders. Substantially all of the net proceeds of the Offering were placed in a trust account and intended to be generally applied toward consummating a business combination. WLBC’s management had complete discretion in identifying and selecting the target business. Although WLBC’s goal in 2007, when it was established as a special purpose acquisition company, was to identify for acquisition domestic and international operating companies engaged in the consumer products and services business, by the spring of 2009, WLBC determined that the banking industry had become an attractive investment opportunity, particularly the community banking industry in Nevada. On October 7, 2009, stockholders approved certain amendments to its Amended and Restated Certificate of Incorporation removing certain provisions specific to special purpose acquisition companies, changing its name to “Western Liberty Bancorp” and authorizing the distribution and termination of the trust account. Effective October 7, 2009, WLBC began its business operations and exited its development stage. WLBC owns two subsidiaries; Service1st Bank of Nevada and Las Vegas Sunset Properties, and currently conducts no business activities other than acting as the holding company of Service1st and Las Vegas Sunset Properties.

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 deposit, lending and other banking services to locally owned businesses, professional firms, individuals and other customer from its headquarters and two retail banking facilities located in the greater Las Vegas area. Services provided include basic commercial and consumer depository services, commercial working capital and equipment loans, commercial real estate loans and other traditional commercial banking services. Service1st relies primarily on locally generated deposits to fund its lending activities. Service1st 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.

Las Vegas Sunset Properties was established in 2011 for the purpose of owning and managing certain nonperforming and subperforming assets. As a result, certain OREO assets with an estimated carrying basis of $4 million were acquired by this subsidiary from Service1st on December 28 2011. These assets are accounted for on a lower of cost or fair value basis and the assets were transferred on a consistent basis with no resulting transaction gain or loss.

In connection with the FDIC’s approval of deposit insurance, the FDIC subjected Service1st to customary conditions applicable tode novobanks for a period of three years, including the requirement that during such three-year period, Service1st maintain a Tier 1 capital leverage ratio of not less than 8.0%. In addition, during the three-year period, Service1st was required to operate within the parameters of the business plan submitted as part of Service1st’s application for deposit insurance, and to provide the FDIC 60 days’ advance notice of any proposed material change or material deviation from the business plan, before making any such change or deviation.

In September of 2009, the FDIC extended the special supervision period for allde novobanks from three years to seven years, thus extending the period during which the foregoing restrictions apply to Service1st from January 2010 to January 2014. In connection with the extension, at the FDIC’s request, Service1st submitted a

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revised business plan to the FDIC in the fourth quarter of 2009. The FDIC also advised allde novobanks that during the remainder of the seven-yearde novoperiod, banks will remain on a 12-month risk management examination cycle and be subject to enhanced supervision for compliance examinations and Community Reinvestment Act evaluations.

In May of 2009, Service1st entered into the MOU with the FDIC and the Nevada FID. Pursuant to the MOU, Service1st agreed, among other initiatives, to develop and submit a comprehensive strategic plan covering at least a three-year operating period; to reduce the level of adversely classified assets and review loan grading criteria and procedures to ensure accurate risk ratings; to develop a plan to strengthen credit administration of construction and land loans (including the reduction of concentration limits in land, construction and development loans and the improvement of stress-testing of commercial real estate loan concentrations); to review its methodology for determining the adequacy of the allowance for loan and lease losses; and to correct apparent violations listed in its most recent report of examination.

Since mid-2009, Service1st has been required (i) to provide the FDIC with at least 30 days’ prior notice before appointing any new director or senior executive officer or changing the responsibilities of any senior executive officer; and (ii) to obtain FDIC approval before making (or agreeing to make) any severance payments (except pursuant to a qualified pension or retirement plan and certain other employee benefit plans).

On September 1, 2010, Service1st, without admitting or denying any possible charges relating to the conduct of its banking operations, agreed with the FDIC and the Nevada FID to the issuance of a Consent Order. The Consent Order supersedes an informal 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 qualifications 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 its total risk-based capital must equal or exceed 12.0% (as of December 31, 2011, Service1st’s Tier 1 leverage ratio was 14.4% and total risk-based capital was 29.7%); (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.

During the application process for the acquisition of Service1st by WLBC, the Company made a number of commitments to the FDIC. First, the Company 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 FID terminates. The Company also agreed that for the same time period the Company will make no change in the directors or executive management of Service1st unless the Company first receives the FDIC’s non-objection to the proposed change. The Company assured the FDIC in writing during the application process that the Company will not seek to expand by acquisition until Service1st is restored to a satisfactory condition, which at a minimum means that the September 1, 2010 Consent Order must first be terminated. Until that occurs, any growth on Service1st’s part must be the result of organic growth in the bank’s existing business. The Company also agreed to seek advance approval both from the FDIC and the Nevada FID for any major deviation from the business plan that we submitted during the acquisition application process.

On October 20, 2011 the company’s consent order was terminated and replaced with an informal understanding with the FDIC and the Nevada that encompasses some requirements such as the Bank shall retain

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management qualified to restore the Bank to satisfactory condition and the Board will revise the three-year business plan. The Bank must also meet certain criteria such as updating its written plan for reducing total adverse classifications and exposure for each classified asset, correct apparent violations listed in the ROE and implement procedures to prevent future violations, the Bank shall furnish written progress reports to the Regional Director and Commissioner detailing actions taken to comply with this informal agreement.

The Federal Reserve notified Western Liberty by letter dated December 15, 2011 that Western Liberty must obtain advance approval for the appointment of new directors or senior executives and Western Liberty is subject to the golden parachute compensation limitations of 12 C.F.R. Part 359.

While the chief decision makers monitor the revenue streams of various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly all the financial service operations are considered by management to be aggregated in one reportable segment.

The consolidated financial statements include WLBC and its wholly owned subsidiaries, Service1st and Las Vegas Sunset Properties collectively, “the Company” for the year ended December 31, 2011. Intercompany transactions and balances are eliminated in consolidation. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and general practice in the banking industry. A summary of the significant accounting policies used by the Company are as follows:

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. Material estimates relate to the determination of the allowance for loan losses, deferred tax assets, and the value of other real estate owned and can particularly be susceptible to significant change in the near term.

Cash and cash equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks (including cash items in process of clearing), and interest-bearing deposits in banks with original maturities of 90 days or less. Cash flows from loans originated by the Company, deposits, and certificates of deposit, are reported net.

At December 31, 2011, the Company is required to maintain balances in cash or on deposit with the Federal Reserve Bank. The total of those reserve balances was approximately $8.1 million.

Certificates of deposit

The company invests in institutional certificates of deposits in addition to selling overnight federal funds. The Company’s certificates of deposit do not exceed the FDIC insured limit at any one institution. The terms of the company’s certificates of deposit do not exceed one year.

Securities

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage- backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Securities classified as available for sale are debt securities the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available for sale

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would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities available for sale are reported at fair value with unrealized gains or losses reported as other comprehensive income (loss). Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings.

Securities classified as held to maturity are those debt securities the Company has both the positive intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs, or general economic conditions. These securities are carried at amortized cost, adjusted for amortization of premium and accretion of discount computed by the interest method over the contractual lives. The sale of a security within three months of its maturity date or after at least 85% of the principal outstanding has been collected is considered a maturity for purposes of classification and disclosure. Purchase premiums and discounts are generally recognized in interest income using the effective yield method over the term of the securities.

Management evaluates securities for other-than-temporary impairment (OTTI) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer including an evaluation of credit ratings, (3) the impact of changes in market interest rates, (4) the intent of the Company to sell a security, and (5) whether it is more likely than not the Company will have to sell the security before recovery of its cost basis.

If the Company intends to sell an impaired security, the Company records another-than-temporary loss in an amount equal to the entire difference between fair value and amortized cost. If a security is determined to be other-than-temporarily impaired, but the Company does not intend to sell the security, only the credit portion of the estimated loss is recognized in earnings, with the other portion of the loss recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

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.

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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 which the terms have been modified resulting in a concession, and 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 a 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.

All loans that are graded substandard are individually evaluated for impairment. If a loan is impaired, the loan is adjusted to the lower of net present value or collateral value if real estate secured. This adjustment is allocated as a portion of the allowance. Trouble 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 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 three 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; national and local economic trends and conditions. 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. Service1st 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 was no carryover of the seller’s allowance for loan losses. As a result of the transaction, the allowance for loan losses at December 31, 2010 only related to a general component for new loans generated since the transaction. No specific allocations had been made between October 28, 2010 and December 31, 2010 because no additional deterioration of the loan portfolio had been identified. After acquisition, losses have been recognized by an increase in the allowance for loan losses for additional credit deterioration in this portfolio.

Purchased loans with credit impairment are accounted for individually or aggregated into pools of loans based on common risk characteristics such as, 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

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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 prospectively 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 all classes of 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 all classes of 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, a mark to market of the credit and yield components of the loan, 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. Fees related to standby letters of credit are recognized over the commitment period.

Transfers of financial assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. The Company’s transfers of financial assets consist solely of loan participations.

Foreclosed assets

Assets acquired through or instead of loan foreclosure 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.

Advertising costs

Advertising costs are expensed as incurred.

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Premises and equipment

Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. Improvements to leased property are amortized over the lesser of the term of the lease or life of the improvements. Depreciation and amortization is computed using the following estimated lives:

	Years
Furniture and fixtures	7 – 10
Equipment and vehicles	3 – 5
Leasehold improvements	5 – 10

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 acquire, 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, unless there are events which require an analysis to be completed at an earlier date. 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. See Footnote 7Goodwill Intangibles for further discussion of the goodwill impairment charge taken during 2011.

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

Accrued interest receivable and other assets

Accrued interest receivable and other assets include prepaid expenses. Prepaid assets are amortized over the terms of the agreements. As of December 31, 2011, the Company has prepaid approximately $535,000 or approximately 1 year, of its FDIC insurance premiums which will be amortized through 2012.

The Company, as a member of the FHLB system, is required to maintain an investment in capital stock of the FHLB of an amount pursuant to the agreement with the FHLB. These investments are recorded at cost since no ready market exists for them, and they have no quoted market value. As of December 31, 2011, the Company’s investment in the FHLB was $574,000 which is included in other assets.

The Company views its investment in the FHLB stock as a long-term investment. Accordingly, when evaluating FHLB stock for impairment, the value is determined based on the ultimate recovery of the par value rather than recognizing temporary declines in values. The determination of whether a decline affects the ultimate recovery is influenced by criteria such as: (1) the significance of the decline in net assets of the FHLBs as compared to the capital stock amount and length of time a decline has persisted; (2) impact of legislative and regulatory changes on the FHLB; and (3) the liquidity position of the FHLB. The FHLB of San Francisco’s capital ratios exceeded the required ratios as of December 31, 2011 and the Company does not believe that its investment in the FHLB is impaired as of this date. However, this estimate could change in the near term as a result of any of the following events: (1) significant OTTI losses are incurred on the mortgage-backed securities (MBS) portfolio of the FHLB of San Francisco, causing a significant decline in regulatory capital ratios; (2) the economic losses resulting from credit deterioration on the MBS increases significantly; and (3) capital preservation strategies being utilized by the FHLB become ineffective.

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Income taxes

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Preferred stock

WLBC is authorized to issue 1,000,000 shares of blank check stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors.

Stock compensation plans

The Company has the 2007 Stock Option Plan, which is described more fully in Note 13. 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.

Loan commitments and related financial instruments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Comprehensive loss

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net loss, are components of comprehensive loss. Gains and losses on available for sale securities are reclassified to net loss as the gains or losses are realized upon sale of the securities. OTTI impairment charges are reclassified to net income at the time of the charge.

Fair value measurement

For assets and liabilities recorded at fair value, it is the 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

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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 December 31, 2011. The estimated fair value amounts as of December 31, 2011 have been measured as of that date and have not been reevaluated or updated for purposes of these financial statements subsequent to that date. As such, the estimated fair values of these financial statements subsequent to the reporting date may be different than the amounts reported as of December 31, 2011 and 2010.

The information in Note 3 should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company’s assets. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimate, comparisons between the Company’s disclosures and those of other companies or banks may not be meaningful.

Certificates of deposit

The carrying amounts reported in the balance sheet for certificates of deposit approximate their fair value as the terms on the certificates of deposits do not exceed one year.

Securities

Fair values for securities are based on quoted market prices where available or on quoted market prices for similar securities in the absence of quoted prices on the specific security.

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 50% of the loan portfolio as of December 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.

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Accrued interest receivable and payable

The carrying amounts reported in the balance sheets 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.

Contingent Consideration

Contingent consideration is measured at its estimated fair value on a quarterly basis by management and material fair value adjustments are recorded in the period they occur. The fair value of the contingent consideration is determined based on various models, which take into account the expected value of the Company’s stock, taking into account current and projected values, volatility, and other factors. During the third quarter of 2011 it was determined based on the continued decline in stock price, the volatility of the stock and current market conditions, the performance of the company, the goodwill impairment and the remaining time that the contingency is in place, that the probability of reaching the prescribed targets was nominal. As a result, management reversed all of the contingent consideration liability. The company will continue to reevaluate this determination on a quarterly basis.

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.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

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Dividend Restriction

Banking regulations require maintaining certain capital levels and may limit the dividends paid by the bank to the holding company or by the holding company to shareholders.

Reclassifications

Certain amounts in the financial statements and related disclosures as of December 31, 2011 have been reclassified to conform to the current presentation, with no impact in previously reported stockholders’ equity or net loss.

Recent accounting pronouncements

In April 2011, the FASB issued an accounting standard updated to amend previous guidance with respect to troubled debt restructurings. This updated guidance is designed to assist creditors with determining whether or not a restructuring constitutes a troubled debt restructuring. In particular, additional guidance has been added to help creditors determine whether a concession has been granted and whether a debtor is experiencing financial difficulties. Both of these conditions are required to be met for a restructuring to constitute a troubled debt restructuring. The amendments in the update are effective for the first interim period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. Also of note is that the update deferred the additional required disclosures surrounding trouble debt restructurings to interim and annual periods beginning after June 15, 2011. The additional trouble debt restructuring disclosures which are required in the third quarter 2011 include the amount and type of trouble debt restructurings which occurred during the period in addition to the amount and type of defaults of troubled debt restructurings that had been restructured in the preceding 12 months. The provisions of this update did not have a material impact on the Company’s financial position, results or operations or cash flows.

Newly issued but not yet effective accounting standards

In May 2011, the FASB issued an accounting standards update to improve the comparability between US GAAP fair value accounting and reporting requirements and International Financial Reporting Standards (IFRS) fair value accounting and reporting requirements. Additional disclosures required by the update include: (i) Disclosure of quantitative information regarding the unobservable inputs used in any fair value measurement classified as Level 3 in the fair value hierarchy in addition to an explanation of the valuation techniques used in valuing Level 3 items and information regarding the sensitivity in the valuation of Level 3 items to changes in the values assigned to unobservable inputs. (ii) Categorization by level within the fair value hierarchy of items not recognized on the Statement of Financial Position at fair value but for which fair values are required to be disclosed. (iii) Instances where the fair values disclosed for non-financial assets were based on a highest and best use assumption when in fact the assets are not being utilized in that capacity. The amendments in the update are effective for interim and annual periods beginning on or after December 15, 2011. 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.

FASB ASU 2011-05, “Presentation of Comprehensive Income (Topic 220)”—This ASU is intended to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS, the FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity, among other amendments in this Update. These amendments apply to all entities that report items of other comprehensive income, in any period presented. Under the amendments to Topic 220, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but

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consecutive statements. The FASB issued FASB ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” that defers the effective date of ASU 2011-05. The deferral is temporary until the FASB reconsiders the operational concerns and needs of financial statement users. The FASB has not yet established a timetable for its reconsideration.

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. Service1st Bank results of operations were included in the Company’s results beginning November 1, 2010 (first business day after the acquisition). Acquisition-related costs are included in the Company’s income statement for the year ended December 31, 2010 and approximated $6 million. The fair value of the common shares issued as the consideration paid for Service1st Bank was determined in the basis of the closing price of the Company’s common shares on the acquisition date.

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. The transaction resulted in $5.6 million of goodwill.

The most significant fair value adjustment resulting from the application of purchase accounting adjustments for this acquisition were 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 loan fair value 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.

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Goodwill of approximately $5.6 million was recorded in conjunction with the transaction. The goodwill arising from the acquisition is largely the result of the benefit to the Company of acquiring Service1st Bank, thereby creating a platform for future operations and completing its transition to an operating bank holding company. The offset to this primarily relates to the mark-to-market process for the loan portfolio. None of this amount is expected to be deductible for income taxes purposes. In completing the allocation of purchase price, the tax effect of such adjustments was not considered as the Company has been operating at a loss and as such, any net deferred tax asset would result in a corresponding valuation allowance. The following table summarizes the fair value of consideration paid for Service1st Bank and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date:

Consideration ($ in 000’s)
Cash (fractional shares and additional dissenter payments)	$	29
Equity instruments		15,267
Contingent consideration		1,816
Fair value of total consideration transferred		17,112
Book value of net assets acquired		16,438
Excess purchase price over book value of net assets acquired	$	674
Allocation of Excess Purchase Price:
Core deposit intangible	$	784
Fair Value Adjustments:
Loans		(5,715	)
Time deposits		(46	)
Securities Held to Maturity		260
Leases		(242	)
Goodwill		5,633
Total	$	674
Fair value of assets acquired
Cash and cash equivalents	$	15,090
Certificates of deposit		31,928
Securities, available for sale		2,850
Securities, held to maturity		7,842
Loans		110,278
Premises and equipment, net		1,284
Other Real Estate Owned		2,403
Core deposit intangible		784
Goodwill		5,633
Other		2,826
Fair value of assets acquired	$	180,918
Fair value of liabilities assumed
Deposits		162,112
Other		1,694
Fair value of liabilities assumed		163,806
Net assets acquired at fair value	$	17,112

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The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows. However, the Company believes that all contractual cash flows related to these financial instruments will be collected. As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased loans which have shown evidence of credit deterioration since origination. Receivables acquired that were not subject to these requirements include non-impaired loans with a fair value, principal at purchase and gross contractual amounts receivable of $86.3 million, $89.9 million and $102.9 million on the date of acquisition.

Purchased loans for which it was probable, at acquisition, that all contractually required payments would not be collected are as follows:

($ in 000’s)	2010
Contractually required payments receivable of loans purchased during the year:
Construction, land development and other land	$	7,685
Commercial real estate		9,675
Residential real estate		5,909
Commercial and industrial		12,321
	$	35,590
Cash flows expected to be collected at acquisition:
Construction, land development and other land	$	5,743
Commercial real estate		5,563
Residential real estate		5,327
Commercial and industrial		8,083
	$	24,716
Fair Value of acquired loans at acquisition:
Construction, land development and other land	$	5,696
Commercial real estate		5,524
Residential real estate		5,244
Commercial and industrial		7,676
	$	24,140

The following table presentspro formainformation as if the acquisition had occurred at the beginning of 2010. Thepro formainformation includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, and interest expense on deposits acquired. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed dates.

	2010
Net interest income	$	7,098
Net (loss) income	$	(14,753	)
Basic earnings per share	$	(0.98	)
Diluted earnings per share	$	(0.98	)

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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 December 31, 2011
($ in 000’s) Description	Total		Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Securities available for sale
U.S. Agencies	$	253	$	—	$	253	$	—
Collateralized Mortgage Obligation Securities-commercial	$	219		—		219	$	—
	$	472	$	—	$	472	$	—
			Fair Value Measurements at December 31, 2010
($ in 000’s) Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Securities available for sale
Collateralized Mortgage Obligation Securities-commercial	$	1,819	$	—	$	1,819	$	—

There were no transfers between Level 1 and Level 2 during 2010.

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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 December 31, 2011
($ in 000’s) Description	Total		Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Impaired loans
Construction, land development and other land	$	2,113	$	—	$	—	$	2,113
Commercial real estate		18,221						18,221
Residential real estate		3,698						3,698
Commercial and industrial		2,312						2,312
Other real estate owned		—		—		—		—
Construction , land development and other land		2,230		—		—		2,230
Commercial and industrial		1,778		—		—		1,778
	$	30,352	$	—	$	—	$	30,352

			Fair Value Measurements at December 31, 2010
($ in 000’s) Description	Total		Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable  Inputs (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				—		—
Construction, land development and other land		625		—		—		625
Commercial real estate		2,781		—		—		2,781
	$	14,844	$	—	$	—	$	14,844

Impaired loans

Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or fair value. Fair value is measured based on the value of the collateral securing these loans and is classified at a Level 3 in the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable and is determined based on appraisals performed by qualified licensed appraisers hired by the Company. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.

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Impaired loans, which are usually measured for impairment using the fair value of collateral, had a carrying amount of $29.2 million at December 31, 2011, after a partial charge-off of $1.4 million. In addition, these loans have a specific valuation allowance of $335,000 at December 31, 2011. Impaired loans in 2010 had a carrying amount of $11.4 million after partial charge-offs of $0.

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 December 31, 2011, there was a valuation allowance of $797,000 charged against two of the above listed properties which resulted in a total of $797,000 expensed for the year ended 2011. As of December 31, 2010, there was no valuation allowance for the above reported assets based on the fair value adjustments made in conjunction with the October 29, 2010 transaction.

The investment securities, reported as held-to-maturity, have the fair value reported on the face of the balance sheet. The Company’s other principal asset is cash and cash equivalents and at December 31, 2011 and 2010 the carrying value is the fair value. Based on these facts, management believes the carrying values on the balance sheet are materially the same as the fair value with the exception of held-to-maturity investment securities, which have the fair value notation on the face of the statement.

The estimated fair value of Service1st’s financial statements as of December 31, 2011 and is as follows:

	2011				2010
($ in 000’s)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Cash and cash equivalents	$	89,353	$	89,353	$	103,227	$	103,227
Certificates of deposits		—		—		26,889		26,889
Securities available for sale		472		472		1,819		1,819
Securities held to maturity		2,031		2,035		5,314		5,287
Loans, net		98,942		97,857		106,223		106,223
Accrued interest receivables		243		243		447		447
Financial Liabilities:
Deposits		121,226		121,226		160,286		160,286
Accrued interest payable		41		41		35		35

Loan Commitments

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

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NOTE 4.    SECURITIES

Carrying amounts and fair values of securities at December 31 are summarized as follows:

	2011
Securities Available for Sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
US Agencies	$	250	$	3	$	—	$	253
Collateralized Mortgage Obligation Securities-commercial		217		2		—		219
	$	467	$	5	$	—	$	472

Securities Held to Maturity	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Corporate Debt Securities	$	1,520	$	—	$	(1	)	$	1,519
Small Business Administration Loan Pools		511		5		—			516
	$	2,031	$	5	$	(1	)	$	2,035
	2010
Securities Available for Sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Collateralized Mortgage Obligation Securities-commercial	$	1,819	$	—	$	—		$	1,819
	$	1,819	$	—	$	—		$	1,819

Securities Held to Maturity	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair 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 December 31, 2011, securities of $1.5 and $4.7 million were pledged for various purposes as required or permitted by law.

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

	2011
	Less Than Twelve Months					Over Twelve Months
	Gross  Unrealized (Losses)			Fair Value		Gross  Unrealized (Losses)		Fair Value
Securities Held to Maturity
Corporate Debt Securities	$	(1	)	$	1,519	$	—	$	—

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	2010
	Less Than Twelve Months					Over Twelve Months
	Gross Unrealized (Losses)			Fair Value		Gross Unrealized (Losses)		Fair Value
Securities Held to Maturity
Corporate Debt Securities	$	(27	)	$	4,636	$	—	$	—

As of December 31, 2011 and December 31, 2010, one and three debt securities, respectively, have unrealized losses with aggregate degradation of approximately 0.07% and 0.05%, respectively, from the Company’s carrying value. These unrealized losses, totaling $1,000 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 December 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 December 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	$	217	$	219
Due after one year through five years		250		253
	$	467	$	472

	Amortized Cost		Fair Value
Securities held to maturity
Due in one year or less	$	1,520	$	1,519
Small Business Administration loan pools		511		516
	$	2,031	$	2,035

NOTE 5.    LOANS

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

($ in 000’s)	2011			2010
Construction, land development and other land	$	3,417		$	5,923
Commercial real estate		58,252			54,975
Residential real estate		4,704			9,247
Commercial and industrial		35,417			35,946
Consumer		30			131
Plus: net deferred loan costs		41			37
	$	101,861		$	106,259
Less: allowance for loan losses		(2,919	)		(36	)
	$	98,942		$	106,223

104

Activity in the allowance for loan losses was as follows:

($ in 000’s)	Commercial			Commercial Real Estate			Residential Real Estate		Consumer		Construction, Land Development, Other Land			Total
December 31, 2011
Beginning balance December 31, 2010	$	36		$	—		$	—	$	—	$	—		$	36
Provision for loan losses		3,901			4,293			15		—		508			8,717
Recoveries		268			2			4		—		300			574
Loan charge-offs		(1,935	)		(3,873	)		—		—		(600	)		(6,408	)
Ending balance December 31, 2011	$	2,270		$	422		$	19	$	—	$	208		$	2,919

($ in 000’s)	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Construction, Land Development, Other Land		Total
December 31, 2010
Beginning balance, October 28, 2010	$	—	$	—	$	—	$	—	$	—	$	—
Provision for loan losses		36		—		—		—		—		36
Recoveries		—		—		—		—		—		—
Loan charge-offs		—		—		—		—		—		—
Ending balance December 31, 2010	$	36	$	—	$	—	$	—	$	—	$	36

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 December 31, 2011 and December 31, 2010:

($ in 000’s)	Commercial		Commercial Real Estate		Residential Real  Estate		Consumer		Construction, Land Development, Other Land		Total
December 31, 2011
Allowance for loan losses:
Ending allowance balance attributed to loans:
Individually evaluated for impairment	$	335	$	—	$	—	$	—	$	—	$	335
Collectively evaluated for impairment		1,935		422		19		—		208		2,584
Acquired with deteriorated credit quality		—		—		—		—		—		—
Total ending allowance balance	$	2,270	$	422	$	19	$	—	$	208	$	2,919
Loans:
Loans individually evaluated for impairment	$	1,820		16,480	$	3,700	$	1	$	710	$	22,711
Loans collectively evaluated for impairment		32,053		38,188		1,011		22		1,304		72,578
Loans acquired with deteriorated credit quality		1,599		3,561		—		—		1,412		6,572
Total ending loans balance	$	35,472	$	58,229	$	4,711	$	23	$	3,426	$	101,861

105

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

The impaired balance is the recorded investment, which represents customer balances net of any partial charge-offs recognized on the loans, net of any deferred fees and costs. As nearly all of our impaired loans at December 31, 2011 and December 31, 2010 are on nonaccrual status, recorded investment excludes any insignificant amount of accrued interest receivable on loans 90 days or more past due and still accruing.

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

Impaired loans with no related allowance:

	December 31, 2011
($ in 000’s)	Impaired Balance		Percent of Total Loans			Reserve Balance		Percent of Total Allowance
Construction, land development and other land loans	$	2,122		2.08	%	$	—		0.00	%
Commercial real estate		20,041		19.67	%		—		0.00	%
Residential real estate (1-4 family)		3,700		3.63	%		—		0.00	%
Commercial and industrial		1,766		1.73	%		—		0.00	%
Consumer		—		0.00	%		—		0.00	%
Total	$	27,630		27.13	%	$	—		0.00	%

106

Impaired loans with related allowance:

	December 31, 2011
($ in 000’s)	Impaired Balance		Percent of Total Loans			Reserve Balance		Percent of Total Allowance
Construction, land development and other land loans	$	—		0.00	%	$	—		0.00	%
Commercial real estate		—		0.00	%		—		0.00	%
Residential real estate (1-4 family)		—		0.00	%		—		0.00	%
Commercial and industrial		1,653		1.62	%		335		11.48	%
Consumer		—		0.00	%		—		0.00
Total impaired loans	$	1,653		1.62	%	$	335		11.48	%

Total impaired loans:

	December 31, 2011
($ in 000’s)	Impaired Balance		Percent of Total Loans			Reserve Balance		Percent of Total Allowance
Construction, land development and other land loans	$	2,122		2.08	%	$	—		0.00	%
Commercial real estate		20,041		19.67	%		—		0.00	%
Residential real estate (1-4 family)		3,700		3.63	%		—		0.00	%
Commercial and industrial		3,419		3.36	%		335		11.48	%
Consumer		1		0.00	%		—		0.00	%
Total	$	29,283		28.75	%	$	335		11.48	%

Impaired loans with no related allowance:

	December 31, 2010
($ in 000’s)	Impaired Balance		Percent of Total Loans			Reserve Balance		Percent of Total Allowance
Construction, land development and other land loans	$	3,220		3.03	%	$	—		0.00	%
Commercial real estate		1,648		1.55	%		—		0.00	%
Residential real estate (1-4 family)		2,900		2.73	%		—		0.00	%
Commercial and industrial		3,670		3.46	%		—		0.00	%
Consumer		—		—			—		0.00	%
Total	$	11,438		10.77	%	$	—		0.00	%

Impaired loans with a related allowance:

	December 31, 2010
($ in 000’s)	Impaired Balance		Percent of Total Loans		Reserve Balance		Percent of Total Allowance
Construction, land development and other land loans	$	—		—	$	—		—
Commercial real estate		—		—		—		—
Residential real estate (1-4 family)		—		—		—		—
Commercial and industrial		—		—		—		—
Consumer		—		—		—		—
Total	$	—		—	$	—		—

107

Total impaired loans:

	December 31, 2010
($ in 000’s)	Impaired Balance		Percent of Total Loans			Reserve Balance		Percent of Total Allowance
Construction, land development and other land loans	$	3,220		3.03	%	$	—		0.00	%
Commercial real estate		1,648		1.55	%		—		0.00	%
Residential real estate (1-4 family)		2,900		2.73	%		—		0.00	%
Commercial and industrial		3,670		3.46	%		—		0.00	%
Consumer		—		—			—		0.00	%
Total	$	11,438		10.77	%	$	—		0.00	%

The following table depicts the average impaired loan balances, and the interest income recognized during impairment:

	December 31, 2011,				December 31, 2010
($ in 000’s)	Average		Interest		Average		Interest
Construction, land development and other land	$	2,621	$	123	$	3,250	$	10
Commercial real estate		21,475		1,109		1,657		26
Residential real estate		3,749		135		2,664		—
Commercial and industrial		3,279		142		1,918		36
Consumer		23		2		—		—
Total	$	31,147	$	1,511	$	9,489	$	72

There was no cash-basis interest income recognized during the periods presented above. The gross year-to-date interest income that would have been recorded in the current period had the nonaccrual loans been current in accordance with their original terms was $477,000 for the year ending December 31, 2011 and $0 for the year ending December 31, 2010.

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 December 31, 2011 and December 31, 2010:

	December 31, 2011
($ in 000’s)	Nonaccrual		Over 90 days and accruing
Construction, land development and other land	$	612	$	—
Commercial real estate		17,483		—
Residential real estate		3,698		—
Commercial and industrial		2,261		—
Consumer		—		—
Total	$	24,054	$	—

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

108

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

	December 31, 2011
($ in 000’s)	30 to 89 days		Over 90 days		Total Past Due
Construction, land development and other land	$	—	$	—	$	—
Commercial real estate		—		—		—
Residential real estate		—		—		—
Commercial and industrial		1,241		97		1,338
Consumer		—		—		—
Total	$	1,241	$	97	$	1,338

	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. Generally, performing loans are not subjected to grade reviews unless the loan matures or some event or information occurs that causes the servicing loan officer to re-evaluate the loan grade. Loans that are adversely classified are considered for grade changes in conjunction with preparation of the monthly problem loan reports. 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.

109

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 December 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:

	December 31, 2011
($ in 000’s)	Pass		Special Mention		Substandard		Doubtful		Total
Construction, land development and other land	$	1,556	$	—	$	1,870	$	—	$	3,426
Commercial real estate		32,207		6,596		18,219		—		57,022
Residential real estate		2,218		—		3,700		—		5,918
Commercial and industrial		31,994		123		3,169		187		35,472
Consumer		22		—		1		—		23
Total	$	67,997	$	6,718	$	26,959	$	187	$	101,861

	December 31, 2010
($ in 000’s)	Pass		Special Mention		Substandard		Doubtful		Total
Construction, land development and other land	$	996	$	—	$	4,630	$	—	$	5,626
Commercial real estate		47,711		2,806		4,296		162		54,975
Residential real estate		3,990		—		5,257		—		9,247
Commercial and industrial		30,582		240		4,483		938		36,243
Consumer		131		—		—		—		131
Total	$	83,410	$	3,046	$	18,666	$	1,100	$	106,222

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 (including the SBA guaranteed portions) is as follows:

($ in 000’s)	December 31, 2011		December 31, 2010
Construction, land development and other land	$	1,412	$	4,630
Commercial real estate		3,561		4,458
Residential real estate		—		5,257
Commercial and industrial		1,599		5,421
Total	$	6,572	$	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.

110

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 full year ended 2011, approximately $1.6 million 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 year ended 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		(197	)		(1,552	)
Loans renegotiated and charge-offs		(21	)		(1,509	)
Other changes, net		—			(91	)
Balance, December 31, 2011	$	321		$	6,165

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 December 31, 2011, no reserves were added relating to the October 28, 2010 purchased credit impaired loan portfolio. Credit discount $1,552 was accreted to income as a result of $3.2 million in payoffs.

Troubled Debt Restructurings:

The Company has allocated $335,000 and $0 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2011 and December 31, 2010, respectively. At December 31, 2011, and December 31, 2010, the aggregate amounts of troubled debt restructurings were $23 million and $11.9 million, respectively. The Company has not committed to lend additional amounts as of December 31, 2011 to customers with outstanding loans that are classified as troubled debt restructurings.

During the period ending December 31, 2011, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following; a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from 18 months to 7 years. Modifications involving an extension of the maturity date were for periods ranging from 2 months to 1 year.

111

The following table presents loans by class modified as troubled debt restructurings that occurred during the period ending December, 2011:

	Year ended December 31, 2011
($ in 000’s)	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Construction, land development and other land		3	$	1,664	$	1,374
Commercial real estate		9		15,457		11,234
Residential real estate		2		2,979		2,979
Total loans secured by real estate		14		20,100		15,587
Commercial and industrial		12		3,299		2,187
Consumer		—		—		—
Total Troubled Debt Restructurings		26		23,399		17,774

The troubled debt restructurings described above increased the provision for loan losses by $9.4 million and resulted in charge-offs of $4.4 million during the year ended December 31, 2011.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the year ended December 31, 2011:

	Year ended December 31, 2011
($ in 000’s)	Number of Contracts		Recorded Investment
Troubled Debt Restructurings:
Construction, land development and other land		—	$	—
Commercial real estate		—		—
Residential real estate		—		—
Total loans secured by real estate		—		—
Commercial and industrial		—		—
Consumer		—		—
Total Troubled Debt Restructurings		—	$	—

The terms of certain other loans were modified during the period ending December 31, 2011 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment as of December 31, 2011 of $16.6 million. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default or any of its debt in the foreseeable future without the modification. This evaluation is performed under the company’s internal underwriting policy.

A delay in payment is considered to be insignificant if it is less than 3 months.

112

NOTE 6.    PREMISES AND EQUIPMENT

The major classes of premises and equipment and the total accumulated depreciation and amortization as of December 31 are as follows:

($ in 000’s)	2011			2010
Leasehold improvements	$	835		$	835
Equipment		159			138
Furniture and fixtures		312			309
Vehicles		18			18
		1,324			1,300
Less: accumulated depreciation and amortization		(506	)		(72	)
	$	818		$	1,228

Depreciation expense for the period ended December 31, 2011 was approximately $433,000. Depreciation expense was approximately $72,000 for the last two months of calendar year 2010 (from the acquisition date of Service1st Bank.)

NOTE 7.    GOODWILL, 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. All the goodwill is assigned to the bank subsidiary, Service1st Bank. The Company established October 31 for annual impairment testing of goodwill, or if an event occurs or circumstances change that would more likely than not reduce the fair value of reporting unit. We determine the fair value of our reporting unit and compare it to its carrying amount. If the carrying amount of the reporting unit exceeds its fair value, we are required to perform as second step to the impairment test to measure the extent of the impairment.

During the third quarter of 2011, management determined that there was an adverse change in the business climate. This was directly related to the adverse local economy persisting which is continuing to have a meaningful impact on Service1st’s operations, and although the acquisition of Service1st was consummated less than one year ago, it was more likely than not that the fair value of the reporting unit had fallen below its carrying amount. The primary indicator for this decision was the ongoing deterioration of borrowers who can no longer perform under the original terms of the loan agreements. The restructured loans typically require significant reserves or charge-offs based on appraised collateral values that may have declined 50-80% since the inception of the loan resulting in $8.7 million in provisions for loan losses during 2011. The Company elected to obtain professional assistance in determining the fair value of the reporting unit and if necessary to assist in determining the fair values of all assets and liabilities, any core deposit intangibles and the fair value of the contingent consideration. We determined the fair value of our reporting unit and compared it to its carrying amount and determined that step two of the impairment test should be performed during the third quarter. The method for estimating the value of the reporting unit included a weighted average of the discounted cash flows method as well as the guideline change of control transactions method and public company method. The second step of the goodwill impairment test is performed to determine the amount of the goodwill impairment, if any. Step two required us to compute the implied fair value of the reporting unit goodwill and compare it against the actual carrying amount of the reporting unit goodwill. The implied fair value of the reporting unit goodwill was determined in the same manner that goodwill recognized in a business combination is determined. That is, the fair value of the reporting unit was allocated to all of the individual assets and liabilities of the reporting unit, including any unrecognized identifiable intangible assets, as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit determined in the first step was the price paid to acquire the reporting unit. The allocation process is only performed for purposes of testing goodwill for impairment, as the other assets and liabilities are not written up or down, nor is any additional unrecognized identifiable asset recorded as part of this process.

113

After this analysis, it was determined the implied fair value of the goodwill assigned to the reporting unit was less than the carrying value on the Company’s balance sheet, and the Company reduced the carrying value of goodwill to zero through an impairment charge to earnings. Such charge had no effect on the Company’s cash balances or liquidity. In addition, because goodwill is not included in the calculation of regulatory capital, the Company’s regulatory ratios were not affected by this non-cash expense.

The following table presents the carrying amount of goodwill as of December 31:

($ in 000’s)	2011			2010
Balance at beginning of period	$	5,633		$	—
Goodwill from business combination		—			5,633
Impairment		(5,633	)		—
Balance at end of period	$	—		$	5,633

The Company has other intangible assets which consist of a core deposit intangible that had, as of December 31, 2011, a remaining average amortization period of approximately nine 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 December 31:

($ in 000’s)	2011			2010
Balance at beginning of period	$	768		$	—
Core deposit intangibles					784
Amortization expense		(98	)		(16	)
Balance at end of period	$	670		$	768
Gross carrying amount		784		$	784
Accumulated amortization		(114	)		(16	)
Net book value	$	670		$	768

The following presents the estimated amortization expense of other intangible assets:

Years ending December 31, ($ in 000’s)	Amount
2012	$	92
2013		87
2014		83
2015		79
2016		75
Thereafter		254
	$	670

114

NOTE 8.    OTHER REAL ESTATE ACQUIRED THROUGH FORECLOSURE

The following table presents the changes in other assets acquired through foreclosure for the periods ended December 31, 2011.

($ in 000’s)	2011			2010
Balance at beginning of period	$	3,406		$	—
Purchased OREO		—			2,403
Additions		2,440			1,003
Dispositions		(1,041	)		—
Valuation adjustments in the period		(797	)		—
Balance, end of period	$	4,008		$	3,406

Purchased OREO consists of OREO property that was acquired by WLBC in the acquisition of Service1st Bank of Nevada on October 28^th, 2010.

During the period ended December 31, 2011 Service1st Bank sold two properties for a $34,000 gain on the sale of the property.

On December 28^th, 2011 Service1st Bank of Nevada sold all of its OREO properties at estimated fair market value to Las Vegas Sunset Properties, which is a wholly owned subsidiary of WLBC. Total consideration paid was approximately $4.0 million. This was an intercompany transaction and eliminated in consolidation.

NOTE 9.    DEPOSITS

The composition of deposits is as follows as of December 31:

($ in 000’s)	2011		2010
Demand deposits, noninterest bearing	$	50,488	$	67,087
NOW and money market accounts		37,306		56,509
Savings deposits		735		1,273
Time certificates, $100 or more		26,479		30,498
Other time certificates		6,218		4,919
Total	$	121,226	$	160,286

At December 31, 2011, all time deposits are scheduled to mature in 2011 as the maximum term offered for time certificates is twelve months.

The Company did no have any brokered deposits as of December 31, 2011.

NOTE 10.    EMPLOYEE BENEFIT PLAN

Service1st Bank has a qualified 401(k) employee benefit plan for all eligible employees. Participants under 50 years of age are able to defer up to $16,500 of their annual compensation, while participants 50 years of age and over are able to defer up to $22,000 of their annual compensation. Under the terms of the plan, Service1st may not make matching contributions.

Stock-based compensation arrangements are fully discussed in Note 13.

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NOTE 11.    INCOME TAX MATTERS

The Company files income tax returns in the U.S. federal jurisdiction. ASC 740,Income taxes, was amended to clarify the accounting and disclosure for uncertain tax positions as defined. The Company is subject to the provisions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The company identifies its federal tax return as “major” tax jurisdictions, as defined. The periods subject to examination for the Company’s federal tax return are 2008, 2009, and 2010. The Company believes that its income tax filing positions for deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to applicable guidance.

The Company may, from time to time, be assessed interest or penalties by tax jurisdictions, although the Company has had no such assessments historically. The Company’s policy is to include interest and penalties related to income taxes as a component of income tax expense.

The cumulative tax effects of the primary temporary difference as of December 31 are as follows:

	2011			2010
Deferred tax assets:
Net operating loss carryforward	$	9,685		$	5,889
Organization costs and start up costs		5,680			5,576
Allowance for loan losses, unfunded commitments and loan discounts		2,540			4,250
Stock warrants and stock options		760			2,231
Accrued expenses		865			769
Premises and equipment		114			76
		19,644			18,891
Deferred tax liabilities:
Cored deposit Intangible		(228	)		(261	)
Prepaid expenses		(102	)		(122	)
Deferred loan costs		(118	)		(109	)
Net deferred tax asset		19,196			18,399
Valuation allowance		(19,196	)		(18,399	)
	$	—		$	—

As of December 31, 2011, and 2010, a valuation allowance for the entire net deferred tax asset is considered necessary as the Company has determined that it is not more likely than not that the deferred tax assets will be realized. Due to the Company incurring operating losses, no provision for income taxes has been recorded for the periods ended December 31, 2011, and 2010. Federal operating loss carry forwards total approximately $28,485,600 and begin to expire in 2027.

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For the years ended December 31, 2010 and 2009, the components of income tax benefit consist of the following:

	2011			2010			2009
Current:
Federal	$	—		$	—		$	—
State		—			—			—
		—			—			—
Deferred:
Federal		(797	)		(682	)	$	(2,685	)
State		—			—			—
Less valuation allowance		797			682			2,685
Income tax benefit	$	—		$	—		$	—

The reasons for the differences between the statutory federal income tax rate of 34% and the effective tax rates are summarized as follows:

	2011			2010			2009
Computed expected tax (benefit)	$	(4,837	)	$	(2,601	)	$	(5,065	)
Nondeductible expenses		6			904			771
Goodwill impairment/contingency liability	$	1,298		$	—			—
Write-off of deferred tax assets	$	2,763			2,618			—
Other		(27	)		(1,603	)		1,609
Change in deferred tax asset valuation allowance	$	797		$	682			2,685
Total tax expense (benefit)

Internal Revenue Code Section 382 places a limitation on the amount of taxable income that can be offset by net operating loss carryforwards after a change in control (generally, a greater than 50% change in ownership) of a loss corporation. Accordingly, utilization of net operating loss carryforwards may be subject to an annual limitation regarding their utilization against future taxable income upon change in control.

On October 28, 2010, a business combination between WLBC and Service1st Bank resulted in a section 382 limitation against the separate company net operating loss carryforwards acquired from Service1st Bank. As a result of this section 382 limitation, the Company reduced the deferred tax asset related to the NOL carryforward and the valuation allowance by $10,360,000.

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NOTE 12.    TRANSACTIONS WITH RELATED PARTIES

Loans

Principal stockholders of the Company and officers and directors, including their families and companies of which they are principal owners, are considered to be related parties. These related parties were loan customers of, and had other transactions with, the Company in the ordinary course of business. In management’s opinion, these loans and transactions are on the same terms as those for comparable loans and transactions with unrelated parties. The aggregate activity in such loans for the years ended December 31 is as follows:

($’s in 000)	2011			2010
Beginning Balance	$	2,436		$	—
Balance assumed at merger		—			2,480
New loans		732			25
Repayments		(168	)		(69	)
Change in related party		(2,283	)		—
Ending balances	$	717		$	2,436

Total loan commitments outstanding with related parties total approximately $357,000 and $1.4 million as of December 31, 2011 and 2010 respectively.

NOTE 13.    STOCK-BASED COMPENSATION

The Company has a number of share-based compensation programs. Total compensation cost that has been charged against income for those programs was approximately $530,000 and $1.8 million for 2011 and 2010. There has been no income tax benefit recorded because of the offset in the deferred tax asset valuation allowance.

Restricted Stock

Pursuant to Letter Agreements dated December 23, 2008 between WLBC and three of its independent directors, and a Letter Agreement dated as of April 28, 2009 between WLBC and WLBC’s former President, WLBC granted each independent director and then President, 50,000 restricted stock units with respect to shares of WLBC’s common stock, subject to certain terms and conditions.

WLBC incurred compensation expense equal to the grant date fair value of the restricted stock units. Based upon the market price of WLBC common shares at grant date, WLBC determined that the grant date fair value of the restricted stock units was $9.25 per unit, $1,850,000 in the aggregate. WLBC recorded compensation expense of $1,850,000 over the estimated vesting period of 266 days, which occurred during 2009 and 2010. WLBC estimated the vesting period as the number of days from the grant date to the estimated closing date of the business combination. On completion of the acquisition of Service1st, the requirements of the aforementioned letter agreements were not satisfied, so that the restricted stock units did not, and now cannot vest according to their terms. Management made this determination on September 30, 2010 upon receipt of the final approval from the applicable regulatory agencies. As a result of this determination, WLBC reversed the stock compensation expense ($1,850,000) previously recorded for the 200,000 restricted stock units described above, during the third quarter of 2010.

WLBC also provided a one-time grant of restricted stock equal to $250,000 divided by the closing price of WLBC’s common stock on the closing date of the acquisition to WLBC’s former Chief Financial Officer, for his future services. In addition, WLBC shall also issued restricted stock with respect to shares of our common stock to the proposed Chief Executive Officer and Chief Executive Officer of Service1st. The Chief Executive Officer was issued restricted shares of WLBC common stock in an amount equal to $1.0 million divided by the closing price of our common stock on the closing date of the acquisition in consideration for his future services. The

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grant date fair value of each share of restricted stock was $6.44. The Chief Financial Officer and Chief Executive Officer were granted 38,819 and 155,279 shares of restricted stock, respectively, on October 28, 2010, vesting over a five year term. However, on December 2011, the Chief Financial Officer resigned from WLBC. At the time of the Chief Financial Officer’s resignation he had 7,764 shares vested of the 38,819 shares of restricted stock originally granted. Of the 7,764 shares, 2,562 were held to cover taxes and a fifty percent reduction of 3,882 was applied due to the employment contract. For the year ended December 31, 2011, 10,870 shares of the Chief Financial Officer Chief Executive Officer’s vested shares were forfeited to cover taxes. Annual expense associated with these grants is estimated to be approximately $200,000 per year, for the remaining four years.

On October 28, 2010, WLBC and each of five officers and consultants entered into letter agreements (the “Letter Agreements”), pursuant to which each of the foregoing individuals received a grant of restricted stock units of WLBC (the “Restricted Stock Units”) for past services. The former Chairman and Chief Executive Officer of WLBC, and a current director, received 50,000 Restricted Stock Units; WLBC’s former President, received 100,000 Restricted Stock Units; a former director of WLBC, received 25,000 Restricted Stock Units; an outside consultant to WLBC, received 20,000 Restricted Stock Units; and another outside consultant to WLBC, received 5,000 Restricted Stock Units. Each Restricted Stock Unit is immediately and fully vested and shall be settled for one share of common stock, par value $0.0001, of WLBC on the earlier to occur of (i) a Change of Control Event (as such term is defined in the Letter Agreement) and (ii) October 28, 2013 (the “Settlement Date”). Any cash dividends paid with respect to the shares of common stock covered by the Restricted Stock Units prior to the Settlement Date shall be credited to a dividend book entry account as if the shares of common stock had been issued, provided that such cash dividends shall not be deemed to reinvested in shares of common stock and will be held uninvested and without interest and shall be paid in cash on the Settlement Date. Any stock dividends paid with respect to the shares of common stock covered by the Restricted Stock Units prior to the Settlement Date shall be credited to a dividend book entry account as if shares of common stock had been issued, provided that such dividends shall be paid on the Settlement Date. These grants were recorded as of October 28, 2010 and resulted in recording expenses of approximately $1,288,000, based upon a grant date fair value of $6.44 per restricted stock unit.

Furthermore, WLBC made a one-time grant of 50,000 shares of common stock to each of the current Chairman of the Board of Directors of WLBC, a current member of the Board of Directors and a former member of the Board of Directors for past services. The issuances of Restricted Stock units and common stock were made in reliance upon an available exemption from registration under the Securities Act. These grants were recorded as of October 28, 2010 and resulted in recording expenses of approximately $966,000, based upon a grant date fair value of $6.44 per restricted stock unit.

Restricted Stock Roll Forward

A summary of the status of the Company’s non-vested shares of restricted stock as of December 31, 2011 and changes during the year then ended is presented below:

	Shares (in thousands)
Balance at January 1, 2011		194,098
Granted		—
Vested		(38,820	)
Forfeited		(31,055	)
Balance at December 31, 2011		124,223

Stock Option Program

Pursuant to the Agreement and Plan of Merger between the Company and Service1st Bank, the Company assumed to assume the Service1st Bank 2007 Stock Option Plan (the “Service1st Plan”)and exchanged each outstanding option issued under the Service1st Plan (each a ‘Bank Stock Option’ into an option to acquire shares

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of WLBC common stock on substantially the same terms and conditions as were applicable under such Bank Stock Options immediately prior to the transaction under these terms; (i) each Bank Stock Option is exercisable for a number of WLBC common stock equal to the product of the number of shares of Bank common stock that would have been issuable upon exercise of such Bank Stock Option outstanding immediately prior to the transaction multiplied by the Exchange Ratio, rounded down to the nearest whole number of shares of WLBC common stock, and (ii) the per share exercise price for the WLBC common stock issuable upon exercise of such assumed Bank Stock Option is equal to the quotient determined by dividing the per share exercise price for such Bank Stock Option outstanding immediately prior to the transaction date by the Exchange Ratio, rounded up to the nearest whole cent. Any restrictions on the exercisability of such Bank Stock Option in effect at the time of the Service1st acquisition, continue in full force and effect, and the term, exercisability, and vesting schedule of such Bank Stock Option as in effect at the time of the Service1st acquisition of the date hereof will remain unchanged. Stock awards available to grant, subject to the necessary approvals, were approximately 229,000 at December 31, 2011.

Generally, Bank Stock Options granted had vesting periods of 3 to 5 years. The fair value of shares at the date of grant was determined by the Bank’s Board of Directors. The fair value of each stock award was estimated on the date of grant using the Black-Scholes Option Valuation Model.

A summary of Bank Stock Option activity as of December 31, 2011 is presented below:

	Shares		Weighted Average Exercise Price
Outstanding Stock Options at December 31, 2010		246,947		21.01
Granted		—		—
Exercised		—		—
Forfeited or expired		20,460		21.01
Outstanding, December 31, 2011		226,487		21.01
Exercisable, end of period		164,673		21.01

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 option 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 option ($1,000.00 divided by 47.5975 equals $21.01).

As of December 31, 2011, there was $288,000 of total unrecognized compensation cost related to the above listed non-vested stock options assumed under the Merger Agreement. The cost is expected to be recognized over a weighted-average period of 4 years. As of December 31, 2011, the aggregate intrinsic value of the outstanding and vested stock options is $0.

NOTE 14.    WARRANTS

On November 27, 2007, WLBC sold 31,948,850 units, including 1,948,850 units from the partial exercise of the underwriters’ over-allotment option. Each unit consisted of one share of WLBC’s common stock warrant that entitled the holder to purchase from WLBC one share of common stock. In addition, certain of WLBC’s initial stockholders purchased an aggregate of 8,500,000 warrants in a private placement simultaneously with the consummation of the Offering. Each warrant was exercisable to one share of common stock.

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

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held at least a majority of its outstanding warrants (the “Consenting Warrant Holders”) confirming the basis and terms upon which the parties agreed to amend the agreement governing the warrants to provide for the automatic exercise of all of the outstanding warrants into one thirty-second (1/32) of one share of WLBC’s common stock concurrently with the consummation of the Acquisition. Any warrants that entitled a holder 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. As of September 23, 2010, there were 48,067,758 warrants outstanding which were automatically converted into approximately 1,502.088 shares of common stock upon the consummation of the Acquisition. WLBC also paid a consent fee to the holders of warrants in an amount equal to $0.06 per warrant for an aggregate payment of $2.9 million.

Bank Warrant Exchange

In connection with the Acquisition, WLBC agreed to exchange each outstanding warrant of Service1st (the “Bank Stock Warrants”) into warrants to acquire shares of WLBC common stock on substantially the same terms and conditions as were applicable under such Bank Stock Warrants immediately prior to the transaction under these terms; (i) each Bank Stock Warrant was exercisable for a number of WLBC common stock shares equal to the product of the number of shares of Bank common stock that would be issuable upon exercise of such Bank Stock Warrant outstanding immediately prior to the acquisition multiplied by the exchange ratio of 47.5975, rounded down to the nearest whole number of shares of WLBC common stock, and (ii) the per share exercise price for the WLBC common stock issuable upon exercise of each Bank Stock Warrant was equal to the quotient determined by dividing the per share exercise price for such Bank Stock Warrant outstanding immediately prior to the transaction date by the Exchange Ratio, rounded up to the nearest whole cent. As a result, 900 Bank Stock Warrants were converted to 42,834 WLBC stock warrants with an exercise price of $21,01 per stock warrant. As of December 31, 2011 the remaining contractual term of the outstanding stock warrants was approximately one month the aggregate intrinsic value of outstanding and vested stock warrants was $0, and the number of stock warrants that expired were 3.046.

NOTE 15.    REGULATORY CAPITAL 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 December 31, 2011, the Company and Service1st Bank met all capital adequacy requirements to which they are subject.

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Actual capital levels and minimum required levels were as follows at year-end:

	December 31, 2011
	Actual					Minimum Required for  Capital Adequacy Purposes					To Be Well Capitalized Under Prompt  Corrective Action Regulations					Minimum Required Under Regulatory Agreements
($ in million’s)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)
Consolidated	$	76.7		71.6	%	$	8.6		8.0	%	$	10.7		10.0	%	$	—		NA
Service1st Bank		30.6		29.7	%		8.2		8.0	%		10.3		10.0	%		12.3		12.0	%
Tier 1 capital (to risk-weighted assets)
Consolidated		75.4		70.4	%		4.3		4.0	%		6.4		6.0	%		—		NA
Service1st Bank		29.3		28.4	%		4.1		4.0	%		6.2		6.0	%		—		NA
Tier 1 capital (to average assets)
Consolidated		74.4		25.7	%		11.8		4.0	%		14.7		5.0	%		—		NA
Service1st Bank		29.3		14.4	%		8.1		4.0	%		10.1		5.0	%		20.3		10.0	%

	December 31, 2010
	Actual					Minimum Required for  Capital Adequacy Purposes					To Be Well Capitalized Under Prompt  Corrective Action Regulations					Minimum Required Under Regulatory Agreements
($ in million’s)	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 an informal 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 risk exposure to adversely classified assets; (vi) not extend any additional credit to any borrower whose loan has been classified as “substandard” or “doubtful” without prior approval from Service1st’s board of directors or loan committee; (vii) formulate and implement a plan to address profitability; and (x) not accept brokered deposits (which include 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 the 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. The Consent Order was terminated effective October 31, 2011 and Service1st now has an informal understanding with the FDIC that Service1st must maintain leverage capital of at least 8.5%.

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NOTE 16.    COMMITMENTS AND CONTINGENCIES

Contingencies

In the normal course of business, the Company and its subsidiary bank are involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the financial statements.

Pursuant to an employment agreement effective August 1, 2007 between WLBC and its former CEO, WLBC’s former CEO obtained an option to purchase 475,000 shares of Private Shares at the purchase price of $0.001 per share from WLBC’s sponsor and its affiliates, which option will vest on the date (the “Trigger Date”) that is one year after the closing of a qualifying business combination, but the vesting will occur only if the appreciation of the per share price of WLBC’s common stock is either (i) greater than 1x the Russell 2000 hurdle rate on the Trigger Date or (ii) exceeds the Russell 2000 hurdle rate for 20 consecutive trading days after the Trigger Date. The Russell hurdle rate means the Russell 2000 Index performance over the period between the completion of the Offering and the Trigger Date. The amount of the option was increased by the amount of shares equal to 10,000 shares for each $10,000,000 of gross proceeds from the exercise of the underwriter’s over-allotment option. As a result the option was increased to 495,000 shares due to the exercise of 1,948,850 Units of the underwriter’s over-allotment option.

WLBC determined that the fair value of the options on the date of grant, November 27, 2007 was $4,573,597. The fair value of the option is based on a Black-Scholes model using an expected life of three years, stock price of $9.25 per share, volatility of 33.7% and a risk-free interest rate of 4.98%. However, because shares of WLBC’s common stock did not have a trading history, the volatility assumption is based on information that was available to WLBC. WLBC believes that the volatility estimate is a reasonable benchmark to use in estimating the expected volatility of shares of WLBC’s common stock. In addition, WLBC believes a stock price of $9.25 per share is a fare assumption based on WLBC’s observation of market prices for comparable shares of common stock. This assumption is based on all comparable initial public offerings by blank check companies in 2007. The stock-based compensation expense will be recognized over the service period of 24 months. WLBC estimated the service period as the estimated time to complete a business combination. However, pursuant to a Settlement Agreement dated December 23, 2008, the options were deemed to be fully vested as of the effective date of the Settlement Agreement. As a result, the entire remaining compensation expense was recognized by WLBC on December 23, 2008. WLBC recognized $237,973 in stock-based compensation expense related to the options for the period from June 28, 2007 (inception) to December 31, 2007 $4,155,368 for the year ended December 31, 2008 and $0 for the year ended December 31, 2009. The Company also, as required under the terms of the Settlement Agreement, paid $247,917 in compensation expenses related to a severance payment to the former CEO during January, 2009.

Indemnifications

WLBC has entered into agreements with its directors to provide contractual indemnification in addition to the indemnification provided in its amended and restated certificate of incorporation. WLBC believes that these provisions and agreements are necessary to attract qualified directors. WLBC’s bylaws also will permit it to secure insurance on behalf of any officer, director or employee for any liability arising out of his or her actions, regardless of whether Delaware law would permit indemnification. WLBC has purchased a policy of directors’ and officers’ liability insurance that insures WLBC’s directors and officers against the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify the directors and officers.

Financial instruments with off-balance sheet risk

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates.

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Commitments may expire without being used. Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amounts of financial instruments with off-balance-sheet risk at year end were as follows:

($ in 000’s)	2011		2010
Unused lines of credit	$	19,069	$	18,504
Standby letters of credit		644	$	590

Unused lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. The lines generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Service1st Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by Service1st Bank upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate, undeveloped and developed land, and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by Service1st Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required as Service1st deems necessary. Generally, letters of credit issued have expiration dates within one year.

At year-end 2011, the majority of the unused lines of credit were at variable rates tied to various established indices, most lines contain floors that are currently in excess of the contractual rates.

The total liability for financial instruments with off-balance sheet risk as of December 31, 2011 is approximately $115,000 and $372,000.

Lease commitments

The Company’s subsidiary bank leases premises and equipment under non-cancelable operating leases expiring through 2013. Generally, these leases contain 5-year renewal options. The following is a schedule of future minimum rental payments under these leases as of December 31, 2011:

($ in 000’s)
2012	$	816
2013		506
2014		—
	$	1,322

Rent expense of approximately $669,000 included in occupancy expense for the year ended December 31, 2011.

Concentrations

The Company grants commercial, construction, real estate, and consumer loans to customers. The Company’s business is concentrated in Nevada, and the loan portfolio includes significant credit exposure to the commercial real estate industry of this area. As of December 31, 2011, commercial real estate loans represent

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57.21% of total loans. Owner-occupied commercial real estate loans represent 28.37% of commercial real estate loans. As of December 31, 2011, real estate-related loans accounted for approximately 65.19% of total loans.

The Company’s policy for requiring collateral is to obtain collateral whenever it is available or desirable; depending upon the degree of risk Service1st Bank is willing to take.

Lines of credit

The Company has lines of credit available from the FHLB, FRB and PCBB. Borrowing capacity is determined based on collateral pledged, generally consisting of securities and loans, at the time of the borrowing. As of December 31, 2011, the Company had available credit with the FHLB, FRB and Pacific Coast Bankers Bank of approximately $16.2 million, and $1.4 million, and $5 million, respectively. As of December 31, 2011, the Company has no outstanding borrowings under these agreements.

NOTE 17.    PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial information of Western Liberty Bancorp follows:

CONDENSED BALANCE SHEETS

December 31,

	2011		2010
	($ in 000’s)
ASSETS
Cash and cash equivalents	$	29,324	$	53,476
Investment in banking subsidiaries—Service1st Bank		29,935		42,299
Investment in banking subsidiaries—Las Vegas Sunset Properties		16,900
Other assets		206		162
Total assets	$	76,365	$	95,937
LIABILITIES AND EQUITY
Accrued expenses and other liabilities	$	324	$	292
Contingent consideration		—		1,816
Shareholders’ equity		76,041		93,829
Total liabilities and shareholders’ equity	$	76,365	$	95,937

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CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Years ended December 31

	2011			2010
Interest and other income	$	1,819		$	8
Interest and other expense		3,578			7,844
Loss before income tax and undistributed subsidiary income		(1,759	)		(7,836	)
Income tax expense (benefit)		—			—
Equity in undistributed subsidiary income		(12,469	)		186
Net income (loss)	$	(14,228	)	$	(7,650	)
Other comprehensive income	$	5		$	—

CONDENSED STATEMENTS OF CASH FLOWS

Years ended December 31

	2011			2010
Cash flows from operating activities
Net (loss) income	$	(14,228	)	$	(7,650	)
Adjustments:
Equity in undistributed subsidiary income		12,469			(186	)
Stock-based compensation expense		529			1,771
Contingent liability impairment		(1,816	)		—
Change in other assets		(44	)		389
Change in other liabilities		32			(365	)
Net cash from operating activities		(3,058	)		(6,041	)
Cash flows from investing activities
Investments in subsidiaries		(17,000	)		(25,000	)
Net cash from investing activities		(17,000	)		(25,000	)
Cash flows from financing activities
Share repurchases		(4,094	)		—
Cash payment for warrant exchange		—			(2,884	)
Redemption of dissenters shares		—			(567	)
Cash payment for fractional shares		—			(1	)
Net cash from financing activities		(4,094	)		(3,452	)
Net change in cash and cash equivalents		(24,152	)		(34,493	)
Beginning cash and cash equivalents		53,476			87,969
Ending cash and cash equivalents	$	29,324		$	53,476

126

NOTE 18.    EARNINGS PER SHARE

Basic earnings per common share (“Basic EPS”) is computed by dividing the net income available to common stockholders by the weighted-average number of shares outstanding. Diluted earnings per common share (“Diluted EPS”) are computed by dividing the net income available to common stockholders by the weighted average number of common shares and dilutive common share equivalents then outstanding.

For the years ended December 31, 2011 and 2010, potentially dilutive securities are excluded from the computation of fully diluted earnings per share as their effects are anti-dilutive.

The following table sets forth the computation of basic and diluted per share information:

($’s in 000s, except per share)	December 31, 2011			December 31, 2010
Numerator:
Net (loss) income available to common stockholders	$	(14,228	)	$	(7,650	)
Denominator:
Weighted-average common shares outstanding		14,840,249			11,680,609
Dilutive effect of Restricted Stock Units, Warrants and Stock Options		—			—
Weighted-average common shares outstanding, assuming dilution		14,840,249			11,680,609
Net (loss) income per share
Basic	$	(0.96	)	$	(0.65	)
Diluted	$	(0.96	)		—

At December 31, 2011, the Company had 200,000 Restricted Stock Units, 124,655 shares of restricted stock, and 226,487 stock options outstanding. At December 31, 2010 the Company had 200,000 Restricted Stock Units, 194,098 shares of restricted stock, and 246,947 stock options outstanding. For the year ending December 31, 2011 and 2010, 39,788 and 42,834 stock warrants were outstanding, respectively. Due to the net losses for the years ended December 31, 2011, and 2010, all of the dilutive stock based awards are considered anti-dilutive and not included in the computation of diluted earnings (loss) per share.

127

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Service1st Bank of Nevada

We have audited the accompanying balance sheet of Service1st Bank of Nevada (the Company) as of October 28, 2010 and the related statements of operations, stockholders’ equity and comprehensive loss and cash flows for period January 1, 2010 through October 28, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 28, 2010 and the results of its operations and its cash flows for period January 1, 2010 through October 28, 2010, in conformity with U.S. generally accepted accounting principles.

As described in Note 16, on October 28, 2010, the Company was acquired by Western Liberty Bancorp. These financial statements do not contain any fair value or other adjustments related to this acquisition.

/s/ Crowe Horwath LLP

Sherman Oaks, California

March 31, 2011

128

SERVICE1ST BANK OF NEVADA

BALANCE SHEET

(In thousands, except for per share amounts)	October 28, 2010
Assets
Cash and due from banks	$	10,164
Interest-bearing deposits in banks		4,927
Cash and cash equivalents		15,091
Certificates of deposits		31,928
Securities, available for sale		2,850
Securities, held to maturity (fair value 2010: $7,842)		7,582
Loans, net of allowance for loan losses $9,418		115,986
Premises and equipment, net		1,284
Accrued interest receivable		605
Other real estate owned		2,403
Other assets		2,227
Total assets	$	179,956
Liabilities and Stockholders’ Equity
Deposits:
Non-interest bearing demand	$	68,575
Interest bearing:
Demand		29,018
Savings and money market		29,381
Time, $100 or more		30,204
Other time		4,888
Total deposits		162,066
Accrued interest payable and other liabilities		1,452
Total liabilities		163,518
Commitments and contingencies (Note 8)
Stockholders’ Equity:
Common stock, par value: $.01; shares authorized: 25,000,000; shares issued: 50,811; and shares outstanding 1,000 shares held in treasury		1
Additional paid-in capital		52,642
Accumulated deficit		(35,410	)
Accumulated other comprehensive loss, net		(20	)
Less cost of treasury stock, 1,000 shares		(775	)
Total stockholders’ equity		16,438
Total liabilities and stockholders’ equity	$	179,956

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

129

SERVICE1ST BANK OF NEVADA

STATEMENT OF OPERATIONS

FOR THE PERIOD JANUARY 1, 2010 THROUGH OCTOBER 28, 2010

(In thousands, except for per share amounts)	2010
Interest and dividend income:
Loans, including fees	$	5,801
Securities, taxable		472
Federal funds sold and other		347
Total interest and dividend income		6,620
Interest expense:
Deposits		1,147
Repurchase sweep agreements		—
Total interest expense		1,147
Net interest income		5,473
Provision for loan losses		6,329
Net interest (loss) income after provision for loan losses		(856	)
Non-interest income:
Service charges		382
Loan and late fees		17
Gain on sale of securities		13
Other		95
		507
Non-interest expense:
Salaries and employee benefits		3,536
Occupancy, equipment and depreciation		1,360
Computer service charges		243
Professional fees		1,605
Advertising and business development		79
Insurance		705
Telephone		87
Stationery and supplies		26
Director fees		34
Other real estate owned		654
Provision for unfunded commitments		(471	)
Other		510
		8,368
Net loss	$	(8,717	)
Loss per share:
Basic and diluted	$	(175.00	)

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

130

SERVICE1ST BANK OF NEVADA

STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS

FOR THE PERIOD JANUARY 1, 2010 THROUGH OCTOBER 28, 2010

				Common Stock				Additional					Accumulated Other Comprehensive Loss
(In thousands, except for per share amount)	Comprehensive Loss			(Issued)				Paid-In		Accumulated Deficit						Treasury Stock					Total
				Shares		Amount		Capital								Shares		Amount
Balance, December 31, 2009	$	(8,717	)		50,811	$	1	$	52,009	$	(26,693	)	$	(23	)		1,000	$	(775	)	$	24,519
Stock option expense									633													633
Net loss											(8,717	)										(8,717	)
Unrealized Loss on securities available for sale, net of taxes		3			—		—		—		—			3			—		—			3
Balance, October 28, 2010	$	(8,714	)		50,811	$	1	$	52,642	$	(35,410	)	$	(20	)		1,000	$	(775	)	$	16,438

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

131

SERVICE1ST BANK OF NEVADA

STATEMENT OF CASH FLOWS

FOR PERIOD JANUARY 1, 2010 THROUGH OCTOBER 28, 2010

(In thousands, except for per share amount)	2010
Cash Flows from Operating Activities:
Net loss	$	(8,717	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of premises and equipment		422
Amortization of securities premiums/discounts, net		48
Provision for loan losses		6,329
Stock warrants and stock option expense		633
Loss on disposition of equipment		—
Gain on sale securities		(13	)
Increase in accrued interest receivable		(76	)
Decrease (increase) in other assets		231
(Decrease) increase in accrued interest payable and other liabilities		(469	)
Net cash used in operating activities		(1,612	)
Cash Flows from Investing Activities:
Purchases of certificates of deposit		(39,921	)
Proceeds from certificates of deposit		17,306
Purchases of securities available for sale		(6,000	)
Proceeds from sales of securities available for sale		4,000
Proceeds from maturities of securities available for sale		6,245
Proceeds from principal paydowns of securities available for sale		279
Proceeds from maturities of securities held to maturity		2,497
Proceeds from principal paydowns of securities held to maturity		145
Purchase of premises and equipment		(72	)
Net decrease (increase) in loans		5,845
Net cash used in investing activities		(9,676	)
Cash Flows from Financing Activities:
Net (decrease) increase in deposits		(23,254	)
Net (repayments) proceeds from repurchase sweep agreements		—
Net cash provided by financing activities		(23,254	)
(Decrease) increase in cash and cash equivalents		(34,542	)
Cash and cash equivalents, beginning	$	49,633
Cash and cash equivalents, ending	$	15,091
Supplementary cash flow information:
Interest paid on deposits and repurchase sweep agreements	$	1,242
Supplemental disclosure of noncash operating and investing activities:
Principal paydowns on SBA loan pool securities reclassified to other assets	$	3
Transfers of loans to other real estate owned	$	2,403

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

132

SERVICE1ST BANK OF NEVADA

NOTES TO FINANCIAL STATEMENTS

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

Nature of business

Service1st Bank of Nevada (Service1st) was formed on November 3, 2006 and commenced operations as a financial institution on January 16, 2007 when a state charter was received from the Nevada Financial Institutions Division (NFID) and federal deposit insurance was granted by the Federal Deposit Insurance Corporation (FDIC). The Bank is under the supervision of and subject to regulation and examination by the NFID and the FDIC.

The Bank has two branches located in Las Vegas, Nevada, which accept deposits and grant loans to customers. The Bank’s loan portfolio contains primarily commercial and real estate loans concentrated in Nevada. Segment information is not presented since all of the Bank’s results are attributed to Service1st Bank of Nevada.

On October 28, 2010, Western Liberty Bancorp (WLBC) consummated its acquisition (the “Acquisition”) of the Bank, pursuant to which the Bank became WLBC’s wholly-owned subsidiary.

The accounting and reporting policies of the Bank conform to accounting principles generally accepted in the United States of America and general practice in the banking industry. A summary of the significant accounting policies used by the Bank is as follows:

Use of estimates in the preparation of financial statements

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relates to the determination of the allowance for loan losses, deferred tax assets, and the value of other real estate owned.

Cash and cash equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks (including cash items in process of clearing), federal funds sold, and interest-bearing deposits in banks with original maturities of 90 days or less. Cash flows from loans originated by the Bank and deposits are reported net.

The Bank is required to maintain balances in cash or on deposit with the Federal Reserve Bank. The total of those reserve balances was approximately $5.3 million as of October 28, 2010.

Certificates of deposit

The Bank invests in institutional certificates of deposits in addition to selling overnight federal funds. The Bank’s certificates of deposit do not exceed the FDIC insured limit at any one institution. The terms of the Bank’s certificates of deposit do not exceed one year.

Securities

Securities classified as available for sale are debt securities the Bank intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available for sale would be

133

SERVICE1ST BANK OF NEVADA

NOTES TO FINANCIAL STATEMENTS—(Continued)

based on various factors, including significant movements in interest rates, changes in the maturity mix of the Bank’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities available for sale are reported at fair value with unrealized gains or losses reported as other comprehensive income (loss). Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings.

Securities classified as held to maturity are those debt securities the Bank has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs, or general economic conditions. These securities are carried at amortized cost, adjusted for amortization of premium and accretion of discount computed by the interest method over the contractual lives. The sale of a security within three months of its maturity date or after at least 85% of the principal outstanding has been collected is considered a maturity for purposes of classification and disclosure. Purchase premiums and discounts are generally recognized in interest income using the effective yield method over the term of the securities.

Management evaluates securities for other-than-temporary impairment (OTTI) at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer including an evaluation of credit ratings, (3) the impact of changes in market interest rates, 4) the intent of the Bank to sell a security, and 5) whether it is more likely than not the Bank will have to sell the security before recovery of its cost basis.

If the Bank intends to sell an impaired security, the Bank records an other-than-temporary loss in an amount equal to the entire difference between fair value and amortized cost. If a security is determined to be other-than-temporarily impaired, but the Bank does not intend to sell the security, only the credit portion of the estimated loss is recognized in earnings, with the other portion of the loss recognized in other comprehensive income.

Loans

Loans are stated at the amount of unpaid principal, reduced by unearned net loan fees and allowance for loan losses.

The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that collectibility of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

The allowance is an amount that management believes will be adequate to absorb probable losses on existing loans that may become uncollectible, based on evaluation of the collectability of loans and prior credit loss experience of the Bank and peer bank historical loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, specific problem credits, peer bank information, and current economic conditions that may affect the borrower’s ability to pay. Due to the credit concentration of the Bank’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 Bank’s allowance for loan losses, and may require the Bank to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For such loans, an allowance is established when the discounted cash flows (or collateral

134

SERVICE1ST BANK OF NEVADA

NOTES TO FINANCIAL STATEMENTS—(Continued)

value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical loss experience of the Bank and peer bank historical loss experience, adjusted for qualitative and environmental factors.

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 over $250,000 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 Bank determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

Interest and fees on loans

Interest on loans is recognized over the terms of the loans and is calculated using the effective interest method. The accrual of interest on impaired loans is discontinued when, in management’s opinion, the borrower may be unable to make payments as they become due.

The Bank determines a loan to be delinquent when payments have not been made according to contractual terms, typically evidenced by nonpayment of a monthly installment by the due date. The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well secured and in the process of collection.

All interest accrued but not collected for loans that are placed on nonaccrual status or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Loan origination and commitment fees and certain direct loan origination costs are deferred and the net amount amortized as an adjustment to the related loan’s yield. The Bank 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.

135

SERVICE1ST BANK OF NEVADA

NOTES TO FINANCIAL STATEMENTS—(Continued)

Transfers of financial assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Bank, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. The Bank’s transfers of financial assets consist solely of loan participations.

Advertising costs

Advertising costs are expensed as incurred.

Foreclosed assets

Assets acquired through or instead of loan foreclosure 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.

Premises and equipment

Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. Improvements to leased property are amortized over the lesser of the term of the lease or life of the improvements. Depreciation and amortization is computed using the following estimated lives:

	Years
Furniture and fixtures	7 – 10
Equipment and vehicles	3 – 5
Leasehold improvements	5 – 10

Other assets

Other assets are comprised primarily of Federal Home Loan Bank (FHLB) stock and prepaid expenses.

Prepaid expenses are amortized over the terms of the agreements. The Bank had approximately $1.1 million of prepayments relating to three years of FDIC assessments as of October 28, 2010, that were prepaid on December 31, 2009.

The Bank, as a member of the FHLB system, is required to maintain an investment in capital stock of the FHLB of an amount pursuant to the agreement with the FHLB. These investments are recorded at cost since no ready market exists for them, and they have no quoted market value. As of October 28, 2010 the Bank’s investment in the FHLB was $658,000 and is included in other assets.

The Bank views its investment in the FHLB stock as a long-term investment. Accordingly, when evaluating FHLB stock for impairment, the value is determined based on the ultimate recovery of the par value rather than recognizing temporary declines in values. The determination of whether a decline affects the ultimate recovery is influenced by criteria such as: (1) the significance of the decline in net assets of the FHLBs as compared to the

136

SERVICE1ST BANK OF NEVADA

NOTES TO FINANCIAL STATEMENTS—(Continued)

capital stock amount and length of time a decline has persisted; (2) impact of legislative and regulatory changes on the FHLB; and (3) the liquidity position of the FHLB. The FHLB of San Francisco’s capital ratios exceeded the required ratios as of September 30, 2010 and the Bank does not believe that its investment in the FHLB is impaired as of this date. However, this estimate could change in the near term as a result of any of the following events: (1) significant OTTI losses are incurred on the mortgage-backed securities (MBS) portfolio of the FHLB of San Francisco causing a significant decline in the FHLB’s regulatory capital ratios; (2) the economic losses resulting from credit deterioration on the MBS increases significantly; and (3) capital preservation strategies being utilized by the FHLB become ineffective.

Income taxes

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

Stock compensation plans

Compensation cost is recognized for stock options and restricted stock awards issued to employees and directors 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 Bank’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.

Off-balance sheet instruments

In the ordinary course of business, the Bank has entered into off-balance sheet financing instruments consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded.

Comprehensive loss

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net loss, are components of comprehensive loss. Gains and losses on available for sale securities are reclassified to net loss as the gains or losses are realized upon sale of the securities. OTTI impairment charges are reclassified to net income at the time of the charge.

Fair value measurement

For assets and liabilities recorded at fair value, it is the Bank’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

137

SERVICE1ST BANK OF NEVADA

NOTES TO FINANCIAL STATEMENTS—(Continued)

precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values. The Bank utilizes fair value measurements to determine fair value disclosures and certain assets recorded at fair value on a recurring and nonrecurring basis. See Notes 2 and 14.

Fair values of financial instruments

The Bank discloses fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value.

Management uses its best judgment in estimating the fair value of the Bank’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 Bank could have realized in a sales transaction as of October 28, 2010. The estimated fair value amounts as of October 28, 2010 have been measured as of that date and have not been reevaluated or updated for purposes of these financial statements subsequent to that date. As such, the estimated fair values of these financial statements subsequent to the reporting date may be different than the amounts reported as of October 28, 2010.

The information in Note 14 should not be interpreted as an estimate of the fair value of the entire Bank since a fair value calculation is only required for a limited portion of the Bank’s assets. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimate, comparisons between the Bank’s disclosures and those of other companies or banks may not be meaningful.

Certificates of deposit

The carrying amounts reported in the balance sheet for certificates of deposit approximate their fair value as the terms on the certificates of deposits do not exceed one year.

Securities

Fair values for securities are based on quoted market prices where available or on quoted market prices for similar securities in the absence of quoted prices on the specific security.

Loans

For variable rate loans that reprice frequently and that have experienced no significant change in credit risk, fair values are based on carrying values. Variable rate loans comprise approximately 58% of the loan portfolio as of October 28, 2010. Fair value for all other loans is estimated based on discounted cash flows using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. Prepayments prior to the repricing date are not expected to be significant. Loans are expected to be held to maturity and any unrealized gains or losses are not expected to be realized.

Impaired loans

The fair value of an impaired loan is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value, and discounted cash flows. Those impaired loans not requiring an allowance for probable losses represent loans for which the fair value of the expected repayments or collateral exceeds the recorded investment in such loans.

138

SERVICE1ST BANK OF NEVADA

NOTES TO FINANCIAL STATEMENTS—(Continued)

Accrued interest receivable and payable

The carrying amounts reported in the balance sheet for accrued interest receivable and payable approximate their fair value.

Restricted stock

The Bank is a member of the FHLB system and maintains an investment in capital stock of the FHLB of an amount pursuant to the agreement with the FHLB. This investment is carried at cost since no ready market exists, and there is no quoted market value.

Deposit liabilities

The fair value disclosed for demand and savings deposits is by definition equal to the amount payable on demand at their reporting date (carrying amount). The carrying amount for variable-rate deposit accounts approximates their fair value. Fair value of fixed-rate certificates of deposit is estimated based on current market rates offered in the local market as well as the Bank’s current rates for certificates of deposit with similar terms.

Off-balance sheet instruments

Fair values for the Bank’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.

Basic and diluted loss per share, based on the weighted average outstanding shares, are summarized as follows:

($ in 000’s, except for per share amounts)	For the Period January 1, 2010 through October 28, 2010
Basic and diluted:
Net loss applicable to common stock	$	(8,717	)
Weighted average common shares outstanding		49,811
Loss per share	$	(175.00	)

Due to the Bank’s historical net losses, all of the Bank’s stock based awards are considered anti-dilutive, and accordingly, basic and diluted loss per share is the same.

139

SERVICE1ST BANK OF NEVADA

NOTES TO FINANCIAL STATEMENTS—(Continued)

NOTE 2.    FAIR VALUE ACCOUNTING

The Bank uses a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques where all significant assumptions are observable, either directly or indirectly, in the market;

Level 3—Valuation is generated from model-based techniques where all significant assumptions are not observable, either directly or indirectly, in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include use of matrix pricing, discounted cash flow models and similar techniques.

Fair value on a recurring basis

Financial assets measured at fair value on a recurring basis include the following:

Securities available for sale. Securities reported as available for sale are reported at fair value utilizing Level 2 inputs. For these securities the Bank obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. 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.

There were no significant transfers between Level 1 and Level 2 during the period January 1, 2010 through October 28, 2010.

	Fair Value Measurements at October 28, 2010:
($ in 000’s)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Securities available for sale
US Agency Securities—GSE	$	1,002	$	—	$	1,002	$	—
Collateralized Mortgage Obligation Securities		1,848		—		1,848		—
	$	2,850	$	—	$	2,850	$	—

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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 October 28, 2010
($ in 000’s)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans
Construction, land development, and other land loans	$	3,958	$	—	$	—	$	3,958
Commercial real estate		4,844		—		—		4,844
Residential real estate		2,764		—		—		2,764
Other real estate owned		1,778		—		—		1,778
	$	13,344	$	—	$	—	$	13,344

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.

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $13.3 million, with a valuation allowance of $1.7 million at October 28, 2010, resulting in an additional provision for loan losses of $820,000 for the period January 1, 2010 through October 28, 2010.

Other real estate owned measured at fair value less costs to sell, had a net carrying amount of $1.8 million, which is made up of the outstanding balance of $1.8 million, net of a valuation allowance of $0 at October 28, 2010. The Bank took an impairment charge of $617,000 for the period January 1, 2010 through October 28, 2010.

NOTE 3.    SECURITIES

Carrying amounts and fair values of investment securities as of October 28, 2010 are summarized as follows:

($ in 000’s)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities Available for Sale
U.S. Agencies—GSE	$	1,002	$	—	$	—		$	1,002
Collateralized Mortgage Obligation Securities		1,868		—		(20	)		1,848
	$	2,870	$	—	$	(20	)	$	2,850

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($ in 000’s)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Securities Held to Maturity
U.S. Agencies—GSE	$	6,924	$	256	$	—	$	7,180
Corporate Debt Securities		658		4		—		662
Small Business Administration Loan Pools	$	7,582	$	260	$	—	$	7,842

As of October 28, 2010 proceeds from sales of available-for-sale securities were $4.0 million. Gross realized gains from sales for the period January 1, 2010 through October 28, 2010 were $13,000. There were no gross realized losses on available-for-sale securities for the period January 1, 2010 through October 28, 2010.

Securities with carrying amounts of approximately $6.9 million as of October 28, 2010, respectively, were pledged for various purposes as required or permitted by law.

Information pertaining to securities with gross losses at October 28, 2010, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

	2010
	Less than Twelve Months					Over Twelve Months
($ in 000’s)	Gross Unrealized (Losses)			Fair Value		Gross Unrealized (Losses)		Fair Value
Securities Available for Sale
U.S Agencies—GSE	$	—		$	—	$	—	$	—
Collateralized Mortgage Obligations Securities		(20	)		1,848		—		—
	$	(20	)	$	1,848	$	—	$	—
Securities Held to Maturity
U.S Agencies—GSE	$	—		$	—	$	—	$	—
Corporate Debt Securities		—			—		—		—
Small Business Administration Loan Pools	$	—		$	—	$	—	$	—

As of October 28, 2010, five debt securities have unrealized losses with aggregate degradation of approximately 1% from the Bank’s amortized costs basis. These unrealized losses totaling approximately $20,000 relate primarily to fluctuations in the current interest rate environment and other factors, but do not presently represent realized losses. As of October 28, 2010 there are no securities that have been determined to be OTTI.

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The amortized cost and fair value of securities as of October 28, 2010 by contractual maturities are shown below. The maturities of small business administration loan pools may differ from their contractual maturities because the loans underlying the securities may be repaid without any penalties; therefore, these securities are listed separately in the maturity summary.

($ in 000’s)	Amortized Cost		Fair Value
Securities available for sale
Due in one year or less	$	993	$	978
Due after one year through five years		1,877		1,872
	$	2,870	$	2,850

($ in 000’s)	Amortized Cost		Fair Value
Securities held to maturity
Due in one year or less	$	3,998	$	4,027
Due after one year through five years		2,926		3,153
Small Business Administration Loan Pools		658		662
	$	7,582	$	7,842

NOTE 4.    LOANS

The components of the Bank’s loan portfolio as of October 28 are as follows:

($ in 000’s)	2010
Construction, land development, and other land loans	$	9,225
Commercial real estate		62,963
Residential real estate		10,282
Commercial and industrial		42,778
Consumer		136
Less: net deferred loan fees		20
		125,404
Less: allowance for loan losses		(9,418	)
	$	115,986

Information about impaired and non-accrual loans as of and for the periods ended October 28 is as follows:

($ in 000’s)	2010
Impaired loans without a valuation allowance	$	9,269
Impaired loans with a valuation allowance	$	17,631
Total impaired loans	$	26,900
Related allowance for loan losses on impaired loans	$	5,493
Total non-accrual loans	$	20,327
Loans past due 90 days or more and still accruing	$	—

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($ in 000’s)	2010
Average balance during the year on impaired loans	$	28,943
Interest income recognized on impaired loans	$	147
Interest income recognized on cash basis	$	—

As of October 28, 2010, approximately 71% of the Bank’s impaired loans are real estate-secured loans. As of October 28, 2010, approximately $9.3 million of the Bank’s impaired loans do not have any specific valuation allowance. However, impaired loans as of October 28, 2010 are net of partial charge-offs of approximately $7.3 million. The Bank experienced significant declines in current valuations for real estate supporting its loan collateral in 2010. If real estate values continue to decline and as updated appraisals are received, the Bank may have to increase its allowance for loan losses appropriately. The Bank has allocated $1.3 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of October 28, 2010.

At October 28, 2010, the Bank was not committed to lend additional funds on these impaired loans or loans that have been classified as troubled debt restructurings.

Changes in the allowance for loan losses for the periods ended October 28 are as follows:

($ in 000’s)	2010
Balance, beginning	$	6,404
Provisions charged to operating expense		6,329
Recoveries of amounts charged off		615
Less amounts charged off		(3,930	)
Balance, ending	$	9,418

NOTE 5.    PREMISES AND EQUIPMENT

The major classes of premises and equipment and the total accumulated depreciation and amortization as of October 28 are as follows:

($ in 000’s)	2010
Leasehold improvements	$	1,733
Equipment		885
Furniture and fixtures		612
Vehicles		56
		3,286
Less: accumulated depreciation and amortization		(2,002	)
	$	1,284

Depreciation expense for the period January 1, 2010 through October 28, 2010, was approximately $422,000.

NOTE 6.    INCOME TAX MATTERS

The Bank files income tax returns in the U.S. federal jurisdiction. ASC 740,Income taxes, was amended to clarify the accounting and disclosure for uncertain tax positions as defined. The Bank is subject to the provisions

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NOTES TO FINANCIAL STATEMENTS—(Continued)

of this updated guidance effective as of January 1, 2009, and has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Bank identified its federal tax return as “major” tax jurisdictions, as defined. The periods subject to examination for the Bank’s federal tax return are 2007, 2008, and 2009. The Bank believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to applicable guidance. In addition, the Bank did not record a cumulative effect adjustment related to the adoption of this amended guidance.

The Bank may from time to time be assessed interest or penalties by tax jurisdictions, although the Bank has had no such assessments historically. The Bank’s policy is to include interest and penalties related to income taxes as a component of income tax expense.

The cumulative tax effects of the primary temporary differences as of October 28 are as follows:

($ in 000’s)	2010
Deferred tax assets:
Net operating loss carryforward	$	7,287
Organization costs		313
Allowance for loan losses and unfunded commitments		2,393
Stock warrants and stock options		333
Accrued expenses		646
Other		74
		11,046
Deferred tax liabilities:
Prepaid loan fees		(96	)
Deferred loan costs		(114	)
Net deferred tax asset		10,836
Valuation allowance		(10,836	)
	$	—

As of October 28, 2010 a valuation allowance for the entire net deferred tax asset is considered necessary as the Bank has determined that it is not more likely than not that the deferred tax assets will be realized. Due to the Bank incurring operating losses, no provision for income taxes has been recorded for the period January 1, 2010 through October 28, 2010. Federal operating loss carryforwards totals approximately $21.4 million and begin to expire in 2027.

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NOTES TO FINANCIAL STATEMENTS—(Continued)

For the period January 1, 2010 through October 28, the components of income tax benefit consist of the following:

($ in 000’s)	2010
Current:
Federal	$	—
State		—
		—
Deferred:
Federal		1,960
State		—
		1,960
Less valuation allowance		(1,960	)
Income tax benefit	$	—

The reasons for the differences between the statutory federal income tax rate of 34% and the effective tax rates are summarized as follows:

($ in 000’s)	2010
Computed expected tax (benefit)	$	(2,964	)
Nondeductible expenses		588
Other		416
Deferred tax asset valuation allowance		1,960
	$	—

Internal Revenue Code section 382 places a limitation on the amount of taxable income that can be offset by net operating loss carry forwards after a change in control (generally greater than 50% change in ownership) of a loss corporation. Accordingly, utilization of net operating loss carry forwards may be subject to an annual limitation regarding their utilization against future taxable income upon change in control.

NOTE 7.    DEPOSITS

As of October 28, 2010, all time deposits are scheduled to mature within one year.

As of October 28, 2010, the Bank had two deposit customers with demand deposits equal to 21% of total deposits. One of the deposit customers is a trust company with $24.9 million in demand deposits as of October 28,2010 and the second depositor had demand deposits totaling $8.5 million at the same date.

None of the time certificates are brokered deposits as of December 31, 2010. However, in October 2010, Service1st Bank was notified by the FDIC and Nevada Financial Institutions Division that a legal determination was made that a NOW account owned by a trust company customer with $24.9 million in demand deposits as of October 28, 2010 was deemed to be a brokered deposit. Consistent with the September 1, 2010 Consent Order which restricts the bank’s use of brokered deposits, the bank was given a date of December 31, 2010 to divest of these funds. Working in concert with the customer and bank regulators, the subject account was changed from a NOW account to a noninterest bearing account on January 1, 2011 and on January 4, 2011 the account in the amount of approximately $23.5 million was wired to another financial institution. Both regulatory agencies were notified of the planned disposition of the account and neither agency objected to the plan to divest the account.

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NOTES TO FINANCIAL STATEMENTS—(Continued)

NOTE 8.    COMMITMENTS AND CONTINGENCIES

Contingencies

In the normal course of business, the Bank is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the financial statements.

Financial instruments with off-balance sheet risk

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. They involve, to varying degrees, elements of credit risk in excess of amounts recognized in the balance sheet.

The Bank’s exposure to credit loss in the event of nonperformance by the other parties to the financial instrument for these commitments is represented by the contractual amounts of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

A summary of the contract amount of the Bank’s exposure to off-balance sheet risk as of October 28 is as follows:

($ in 000’s)	2010
Unfunded commitments under lines of credit	$	15,965
Standby letters of credit		695
	$	16,660

Unfunded commitments under commercial and commercial real estate lines-of-credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines-of-credit may or may not contain a specified maturity date and ultimately may not be drawn upon to the total extent to which the Bank is committed.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required as the Bank deems necessary. Essentially all letters of credit issued have expiration dates within one year.

The total liability for financial instruments with off-balance sheet risk as of October 28, 2010 is approximately $348,000.

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Lease commitments

The Bank leases premises and equipment under non-cancelable operating leases expiring through 2013. Generally, these leases contain 5-year renewal options. The following is a schedule of future minimum rental payments under these leases as of October 28, 2010:

($ in 000’s)
2010	$	149
2011		910
2012		742
2013		444
	$	2,245

Rent expense of approximately $653,000 is included in occupancy expense for the period January 1, 2010 through October 28, 2010.

Concentrations

The Bank grants commercial, construction, real estate, and consumer loans to customers. The Bank’s business is concentrated in Nevada, and the loan portfolio includes significant credit exposure to the commercial real estate industry of this area. As of October 28, 2010, commercial real estate loans represent 50% of total loans. Owner-occupied commercial real estate loans represent 38% of commercial real estate loans. As of October 28, 2010, real estate-related loans accounted for approximately 66%, of total loans.

The Bank’s policy for requiring collateral is to obtain collateral whenever it is available or desirable, depending upon the degree of risk the Bank is willing to take.

Lines of credit

The Bank has lines of credit available from the FHLB and the FRB. Borrowing capacity is determined based on collateral pledged, generally consisting of securities and loans, at the time of the borrowing. As of October 28, 2010, the Bank had available credit with the FHLB and FRB of approximately $18.1 million and $4.4 million, respectively. As of October 28, 2010, the Bank has no outstanding borrowings under these agreements.

NOTE 9.    STOCK AWARDS

During April 2007, the stockholders of the Bank approved the 2007 Stock Option Plan (the Plan). The Plan gives the Board of Directors the authority to grant up to 10,000 stock options. Stock awards available to grant as of October 28, 2010 are 4,811. The maximum contractual term for options granted under the Plan is 10 years. Generally, stock options granted have vesting period of 3 to 5 years. The fair value of shares at the date of grant is determined by the Board of Directors. The fair value of each stock award is estimated on the date of grant using the Black-Scholes Option Valuation Model that uses the assumptions noted in the following table. The expected volatility is based on the historical volatility of the stock of a similar bank that has traded at least as long as the expected life of the Bank’s stock-based awards. The Bank estimates the life of the awards by calculating the average of the vesting period and the contractual life. The risk-free rate for periods within the contractual life of the awards is based on the U.S. Treasury yield for debt instruments with maturities similar to the expected life of the awards. The dividends rate assumption of zero is based on management’s inability to pay dividends for the foreseeable future.

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NOTES TO FINANCIAL STATEMENTS—(Continued)

A summary of stock award activity as of October 28, 2010 and changes during the period January 1, 2010 through October 28, 2010 is presented below:

	Stock Warrants				Stock Options
	Shares		Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, January 1, 2010		900	$	1,000		6,034		$	1,000
Granted		—		—		—			—
Exercised		—		—		—			—
Forfeited or expired		—		—		(845	)		1,000
Outstanding, October 28, 2010		900	$	1,000		5,189		$	1,000
Exercisable, end of period		900	$	1,000		3,101		$	1,000

As of October 28, 2010, the weighted average remaining contractual terms of outstanding stock warrants are approximately 1.2. The weighted average contractual terms of vested stock warrants are 1.2. As of October 28, 2010, the aggregate intrinsic value of outstanding and vested stock warrants is $0.

As of October 28, 2010, the weighted average remaining contractual terms of outstanding stock options are 6.7. The weighted average contractual terms of vested stock options are 3.9. As of October 28, 2010, the aggregate intrinsic value of outstanding and vested stock options is $0.

For stock options granted under the Plan as of October 28, 2010, there is approximately $860,000, of total unrecognized compensation cost related to non-vested stock award compensation. That cost is expected to be recognized over a weighted average period of 2.0.

Stock-based compensation expense is based on awards that are ultimately expected to vest and therefore has been reduced for estimated forfeitures. The Bank estimates forfeitures using historical data based upon the groups identified by management. Stock-based compensation expense was approximately $633,000 for the period January 1, 2010 through October 28, 2010.

NOTE 10.    REGULATORY CAPITAL

The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve qualitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes, as of October 28, 2010 that the Bank meets all capital adequacy requirements to which it is subject.

As of October 28, 2010, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as adequately capitalized under the regulatory framework for prompt corrective action.

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There are no conditions or events since the notification that management believes have changed the Bank’s category. The Bank cannot be considered well capitalized for prompt corrective action while under the Consent Order.

On September 1, 2010, the Bank, 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 an informal understanding entered into by the Bank with the FDIC and Nevada, FID in May of 2009. Under the Consent Order, the Bank 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 the Bank; (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 risk exposure to adversely classified assets; (vi) not extend any additional credit to any borrower whose loan has been classified as “substandard” or “doubtful” without prior approval from the Bank’s board of directors or loan committee; (vii) formulate and implement a plan to address profitability; and (x) not accept brokered deposits (which include deposits paying interest rates significantly higher than prevailing rates in the Bank’s market area) and reduce its reliance on existing brokered deposits, if any.

	October 28, 2010
	Actual					For Capital Adequacy Purposes					To Be Well Capitalized					Required Under Regulatory Agreements
($ in 000’s)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk-Weighted Assets)	$	18,164		14.1	%	$	10,319		8.0	%	$	12,899		10.0	%	$	15,479		12.0	%
Tier 1 Capital (to Risk-Weighted Assets)		16,451		12.8	%		5,160		4.0	%		7,739		6.0	%		—		N/A
Tier 1 Capital (to Average Assets)		16,451		8.7	%		7,548		4.0	%		9,435		5.0	%		16,040		8.5	%

Additionally, State of Nevada banking regulations restrict distribution of the net assets of the Bank because such regulations require the sum of the Bank’s stockholders’ equity and reserve for loan losses to be at least 6% of the average total daily deposit liabilities for the preceding 60 days. As a result of these regulations, approximately $10.2 million of the Bank’s stockholders’ equity is restricted as of October 28, 2010.

NOTE  11.    EMPLOYEE BENEFIT PLAN

The Bank has a qualified 401(k) employee benefit plan for all eligible employees. Participants under 50 years of age are able to defer up to $16,500 of their annual compensation, while participants 50 years of age and over are able to defer up to $22,000 of their annual compensation. Under the terms of the plan, the Bank may not make matching contributions.

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NOTES TO FINANCIAL STATEMENTS—(Continued)

NOTE 12.    TRANSACTIONS WITH RELATED PARTIES

Principal stockholders of the Bank and officers and directors, including their families and companies of which they are principal owners, are considered to be related parties. These related parties were loan customers of, and had other transactions with, the Bank in the ordinary course of business. In management’s opinion, these loans and transactions are on the same terms as those for comparable loans and transactions with unrelated parties. The aggregate activity in such loans for the period January 1, 2010 through October 28 2010 is as follows:

($ in 000’s)	2010
Balance, beginning	$	6,626
New loans		455
Repayments		(862	)
Other Changes		—
Balance, ending	$	6,219

The Bank had one related party credit that was placed on a non-accrual status in March of 2010. The outstanding balance on the credit was approximately $3.8 million with an impairment reserve of approximately $1.5 million as of October 28, 2010.

Total loan commitments outstanding with related parties total approximately $2.6 million as of October 28, 2010.

NOTE 13.    STOCKHOLDERS’ EQUITY

The Bank is authorized to issue only one class of stock, which is designated as Common Stock. The total number of shares the Bank is authorized to issue is 25 million, and the par value of each share is one penny ($0.01).

NOTE 14.    FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of the Bank’s financial statements as of October 28, is as follows:

	2010
($ in 000’s)	Fair Value		Fair Value
Financial assets:
Cash and due from banks	$	10,164	$	10,164
Interest-bearing deposits in banks		4,927		4,927
Certificates of deposits		31,928		31,928
Restricted Stock		658		658
Securities available for sale		2,850		2,850
Securities held to maturity		7,852		7,842
Loans, net		115,986		109,589
Accrued interest receivable		605		605
Financial liabilities:
Deposits		162,066		162,112
Accrued interest payable		44		44

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NOTES TO FINANCIAL STATEMENTS—(Continued)

Fair Value of Commitments

The estimated fair value of the standby letters of credit at October 28, 2010 is insignificant. Loan commitments on which the committed interest rate is less than the current market rate are also insignificant at October 28, 2010.

Interest Rate Risk

The Bank assumes interest rate risk (the risk to the Bank’s earnings and capital from changes in interest rate levels) as a result of its normal operations. As a result, the fair values of the Bank’s financial instruments as well as its future net interest income will change when interest rate levels change and that change may be either favorable or unfavorable to the Bank.

NOTE 15.    SUBSEQUENT EVENTS

On October 28, 2010, Western Liberty Bancorp (WLBC) consummated its acquisition (the “Acquisition”) of the Bank, a Nevada-chartered non-member bank pursuant to a Merger Agreement (the “Merger Agreement”), dated as of November 6, 2009, as amended by a First Amendment to the Merger Agreement, dated as of June 21, 2010 (“Amendment No. 1” and, together with the Merger Agreement, the “Amended Merger Agreement”), each among WL-S1 Interim Bank, a Nevada corporation and wholly-owned subsidiary of WLBC (“Acquisition Sub”), the Bank and Curtis W. Anderson, as representative of the former stockholders of the Bank. Pursuant to the Amended Merger Agreement, Acquisition Sub merged with and into the Bank, with the Bank being the surviving entity and becoming WLBC’s wholly-owned subsidiary. WLBC previously received the requisite approvals of certain bank regulatory authorities to complete the Acquisition to become a bank holding company.

The former stockholders of the Bank received approximately 2,370,878 shares of Common Stock in exchange for all of the outstanding shares of capital stock of the Bank (the “Base Acquisition Consideration”). In addition, the holders of the Bank’s outstanding options and warrants now hold options and warrants of similar tenor to purchase up to 289,808 shares of Common Stock.

In addition to the Base Acquisition Consideration, each of the former stockholders of the Bank may be entitled to receive additional consideration (the “Contingent Acquisition Consideration”), payable in common stock, if at any time within the first two years after the consummation of the Acquisition, the closing price per share of the common stock exceeds $12.75 for 30 consecutive days. The Contingent Acquisition Consideration would be equal to 20% of the tangible book value of the Bank at the close of business on the last day of the calendar month immediately before the calendar month in which the final regulatory approval necessary for the completion of the Acquisition was obtained. The total number of shares of our common stock issuable to the former the Bank stockholders would be determined by dividing the Contingent Acquisition Consideration by the average of the daily closing price of the common stock on the first 30 trading days on which the closing price of the common stock exceeded $12.75.

At the close of business on October 28, 2010, WLBC was a new Nevada financial institution bank holding company by consummating the acquisition of the Bank and conducting operations through the Bank. In conjunction with the transaction, WLBC infused $25.0 million of capital onto the balance sheet of the Bank. On October 29, 2010, the common shares of WLBC began trading on the Nasdaq Global Market, under the ticker symbol WLBC.

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(a)(2)Financial statement schedules filed as part of this Form 10-K. Financial Statement Schedules are omitted because they are not applicable or the required information is shown elsewhere in the Financial Statements or Notes thereto or in Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the portions of the 2010 Annual Report to Stockholders that are incorporated herein by reference.

(b) Exhibits. We hereby file as part of this Annual Report on Form 10-K the Exhibits listed in the following Exhibit Index. Exhibits incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of such material can also be obtained from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates.

Exhibit Numbers
2.1	Agreement and Plan of Merger, dated as of November 6, 2009, by and among Western Liberty Bancorp., WL-S1 Interim Bank, Service1st Bank of Nevada and Curtis W. Anderson, as Former Stockholders’ Representative (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K, File No. 001-33803, filed by WLBC with the Securities and Exchange Commission on November 9, 2009)
2.2	First Amendment to the Agreement and Plan of Merger, dated as of June 21, 2010, by and among Western Liberty Bancorp., WL-S1 Interim Bank, Service1st Bank of Nevada and Curtis W. Anderson, as Former Stockholders’ Representative (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K, File No. 001-33803, filed by WLBC with the Securities and Exchange Commission on June 24, 2010)
3.1	Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K, File No. 001-33803, filed by WLBC with the Securities and Exchange Commission on October 9, 2009)
3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K, File No. 001-33803, filed by WLBC with the Securities and Exchange Commission on November 3, 2010)
4.1	Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.7 to the Form S-3, filed by WLBC with the Securities and Exchange Commission on November 16, 2009)
10.1*	Form of Indemnification Agreement between WLBC and each of the directors and officers of WLBC (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Form S-1, File No. 333-144799, filed by WLBC with the Securities and Exchange Commission on September 6, 2007)
10.2*	Settlement Agreement and General Release, dated December 23, 2008, between WLBC and Scott LaPorta (incorporated by reference to Exhibit 10.13 to Current Report on Form 8-K, File No. 001-33803, filed by WLBC with the Securities and Exchange Commission on December 29, 2008)
10.3	Director Resignation Agreement, dated December 23, 2008, between WLBC, Robert M. Foresman, Carl H. Hahn, Philip A. Marineau and Steven Westly (incorporated by reference to Exhibit 10.14 to Current Report on Form 8-K, File No. 001-33803, filed by WLBC with the Securities and Exchange Commission on December 29, 2008)
10.4	Second Amended and Restated Sponsor Support Agreement, dated as of August 13, 2009, by and between Global Consumer Acquisition Corp. and Hayground Cove Asset Management LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 001-33803, filed by WLBC with the Securities and Exchange Commission on August 14, 2009)

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Exhibit Numbers
10.5*	Employment Agreement, dated as of November 6, 2009, by and between Western Liberty Bancorp and Richard Deglman (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, File No. 001-33803, filed by WLBC with the Securities and Exchange Commission on November 9, 2009)
10.6*	Second Amended and Restated Employment Agreement, dated as of December 18, 2009, by and between Western Liberty Bancorp and George A. Rosenbaum, Jr. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 001-33803, filed by WLBC with the Securities and Exchange Commission on December 24, 2009)
10.7*	Letter Agreement, dated as of October 28, 2010, between Western Liberty Bancorp and Jason N. Ader (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 001-33803, filed by WLBC with the Securities and Exchange Commission on November 3, 2010)
10.8*	Letter Agreement, dated as of October 28, 2010, between Western Liberty Bancorp and Daniel B. Silvers (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 001-33803, filed by WLBC with the Securities and Exchange Commission on November 3, 2010)
10.9*	Letter Agreement, dated as of October 28, 2010, between Western Liberty Bancorp and Andrew P. Nelson (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 001-33803, filed by WLBC with the Securities and Exchange Commission on November 3, 2010)
10.10*	Letter Agreement, dated as of October 28, 2010, between Western Liberty Bancorp and Michael Tew (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 001-33803, filed by WLBC with the Securities and Exchange Commission on November 3, 2010)
10.11*	Letter Agreement, dated as of October 28, 2010, between Western Liberty Bancorp and Laura Conover-Ferchak (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 001-33803, filed by WLBC with the Securities and Exchange Commission on November 3, 2010)
10.12	Expense Sharing Agreement, dated as of October 29, 2010, between Western Liberty Bancorp and Service1st Bank of Nevada (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 001-33803, filed by WLBC with the Securities and Exchange Commission on November 3, 2010)
10.13	Tax Allocation Agreement, dated as of October 29, 2010, between Western Liberty Bancorp and Service1st Bank of Nevada (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 001-33803, filed by WLBC with the Securities and Exchange Commission on November 3, 2010)
10.14*	Amended and Restated Employment Agreement, dated as of February 8, 2010, by and between Western Liberty Bancorp and William E. Martin (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 001-33803, filed by WLBC with the Securities and Exchange Commission on February 8, 2010)
10.15* **	Restricted Stock Agreement with William E. Martin
14.1	Code of Conduct and Ethics**
21	Subsidiaries of the registrant: Service1st Bank of Nevada, a Nevada corporation located in Las Vegas, Nevada, and Las Vegas Sunset Properties, also of Las Vegas, Nevada, are the sole subsidiaries of Western Liberty Bancorp**
23.1**	Consent of Crowe Horwath LLP (filed herewith)

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Exhibit Numbers
31.1**	Certification of Periodic Report by the Chief Executive Officer pursuant to Rule 13(a)-14(a) of the Securities Exchange Act of 1934
31.2**	Certification of Periodic Report by the Chief Financial Officer pursuant to Rule 13(a)-14(a) of the Securities Exchange Act of 1934
32.1**	Certification of Periodic Report by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**	Certification of Periodic Report by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1.1	Consent Order of Federal Deposit Insurance Corporation and the Nevada Financial Institutions Division, dated as of September 1, 2010, In the Matter of Service1st Bank of Nevada, FDIC-10-512b (incorporated by reference to Exhibit 99.1 to the Form S-1, Amendment No. 1, File No. 333-170862, filed by WLBC with the Securities and Exchange Commission on March 30, 2011)
99.1.2**	Order Terminating Consent Order, dated October 31, 2011

* Management contract or compensatory plan or arrangement

** filed herewith

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the 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
By:	/s/    WILLIAM E. MARTIN
	William E. Martin
	Chief Executive Officer and
	Director
Date:  March 30, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/    WILLIAM E. MARTIN         William E. Martin	Director and Chief Executive Officer (Principal Executive Officer)	March 30, 2012
/s/    PATRICIA A. OCHAL         Patricia A. Ochal	Chief Financial Officer (Principal Accounting and Financial Officer)	March 30, 2012

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