##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 001-33803
 WESTERN LIBERTY BANCORP
  Delaware
    
    26-0469120(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 8363 W. Sunset Road, Suite 350, Las Vegas, Nevada 89113
(702) 966-7400
  Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Smaller reporting company o
    
    Non-accelerated filer o
 Yes þ No o




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##### 



WESTERN LIBERTY BANCORP
 TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
       
    1Condensed Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009
    
       
    1Condensed Statements of Operations for the three and nine months ended September 30, 2010 and 2009 (unaudited)
    
       
    2Condensed Statement of Changes in Stockholders Equity for the nine months ended September 30, 2010 (unaudited)
    
       
    3Condensed Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited)
    
       
    4Notes to Condensed Financial Statements (unaudited)
    
       
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
       
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
       
    19Item 4. Controls and Procedures
    
       
    20PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
       
    20Item 1A. Risk Factors
    
       
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
       
    20Item 3. Defaults Upon Senior Securities
    
       
    20Item 4. (Removed and Reserved)
    
       
    20Item 5. Other Information
    
       
    20Item 6. Exhibits
    
       
    21Signatures
    
       
    22Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   i




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 WESTERN LIBERTY BANCORP
 
 CONDENSED BALANCE SHEETS
 September 30, 2010
    
    
    December 31, 2009(unaudited)AssetsCash and cash equivalents
    
    $
    84,317,971
    
    
    $
    87,969,242Prepaid expenses
    
    
    551,360
    
    
    
    551,198$
    84,869,331
    
    
    $
    88,520,440Liabilities and Stockholders EquityLiabilitiesAccrued expenses
    
    $
    379,031
    
    
    $
    628,493Commitments and contingenciesStockholders EquityPreferred stock, $0.0001 par value;
1,000,000 shares authorized; None
issued or outstanding
    
    
    
    
    
    
    Common stock, $0.0001 par value;
100,000,000 shares authorized;
10,959,169 issued and outstanding
    
    
    1,096
    
    
    
    1,096Additional paid-in capital
    
    
    103,142,784
    
    
    
    103,730,471Accumulated deficit
    
    
    (18,653,580
    )
    
    
    (15,839,620
    )84,490,300
    
    
    
    87,891,947$
    84,869,331
    
    
    $
    88,520,440
   1




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##### Table of Contents



WESTERN LIBERTY BANCORP
 
 CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
 Three Months Ended
    
    
    Three Months Ended
    
    
    Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2010
    
    
    September 30, 2009
    
    
    September 30, 2010
    
    
    September 30, 2009Revenue
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating expensesGeneral and administrative expenses
    
    
    1,237,192
    
    
    
    4,969,837
    
    
    
    3,406,752
    
    
    
    8,267,056Stock based compensation
    
    
    (1,850,000
    )
    
    
    93,750
    
    
    
    (587,687
    )
    
    
    281,249Income/(Loss) from operations
    
    
    612,808
    
    
    
    (5,063,587
    )
    
    
    (2,819,065
    )
    
    
    (8,548,305
    )Interest income
    
    
    1,493
    
    
    
    5,925
    
    
    
    5,105
    
    
    
    87,109Net
income (loss)
    
    $
    614,301
    
    
    $
    (5,057,662
    )
    
    $
    (2,813,960
    )
    
    $
    (8,461,196
    )Earnings per shareNet income
(loss)
    
    $
    614,301
    
    
    $
    (5,057,662
    )
    
    $
    (2,813,960
    )
    
    $
    (8,461,196
    )Deferred interest on investments held in trust
relating to common shares subject to possible
conversion
    
    
    
    
    
    
    (95,847
    )
    
    
    
    
    
    
    (95,847
    )Net income
(loss) attributable to common stockholders
    
    $
    614,301
    
    
    $
    (5,153,509
    )
    
    $
    (2,813,960
    )
    
    $
    (8,557,043
    )Weighted average number of common shares subject
to possible conversion outstanding
    
    
    
    
    
    
    9,584,654
    
    
    
    
    
    
    
    9,584,654Earnings per share common shares subject to possible
conversion
    
    
    
    
    
    $
    0.01
    
    
    
    
    
    
    $
    0.01Weighted average number of common shares
outstanding  basic
    
    
    10,959,169
    
    
    
    39,936,064
    
    
    
    10,959,169
    
    
    
    39,936,064Weighted average number of common shares
outstanding  diluted
    
    
    59,226,927
    
    
    
    39,936,064
    
    
    
    10,959,169
    
    
    
    39,936,064Basic income
(loss) per common share
    
    $
    0.06
    
    
    $
    (0.13
    )
    
    $
    (0.26
    )
    
    $
    (0.21
    )Diluted income
(loss) per common share
    
    $
    0.01
    
    
    $
    (0.13
    )
    
    $
    (0.26
    )
    
    $
    (0.21
    )
   2




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##### Table of Contents



WESTERN LIBERTY BANCORP
 
 CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(Unaudited)
 Common Stock
    
    
    AdditionalShares
    
    
    Amount
    
    
    paid-in capital
    
    
    Accumulated deficit
    
    

Total
stockholders equityBalance at December 31, 2009
    
    
    10,959,169
    
    
    $
    1,096
    
    
    $
    103,730,471
    
    
    $
    (15,839,620
    )
    
    $
    87,891,947Stock based compensation
    
    
    
    
    
    
    
    
    
    
    (587,687
    )
    
    
    
    
    
    
    (587,687
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,813,960
    )
    
    
    (2,813,960
    )Balance at September 30, 2010
    
    
    10,959,169
    
    
    $
    1,096
    
    
    $
    103,142,784
    
    
    $
    (18,653,580
    )
    
    $
    84,490,300
   3




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##### Table of Contents



WESTERN LIBERTY BANCORP
 
 CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2010
    
    
    September 30, 2009Cash flow from operating activitiesNet loss
    
    $
    (2,813,960
    )
    
    $
    (8,461,196
    )Adjustments to reconcile net loss to net cash and cash
equivalents used in operating activitiesStock based compensation
    
    
    (587,687
    )
    
    
    281,249Interest earned on cash held in trust
    
    
    
    
    
    
    (84,589
    )Changes in operating assets and liabilitiesPrepaid expenses
    
    
    (162
    )
    
    
    225,450Accrued expenses
    
    
    (249,462
    )
    
    
    6,638,996Net cash used in operating activities
    
    
    (3,651,271
    )
    
    
    (1,400,090
    )Net decrease in cash and equivalents
    
    
    (3,651,271
    )
    
    
    (1,400,090
    )Cash and cash equivalents, beginning of period
    
    
    87,969,242
    
    
    
    1,445,882Cash and cash equivalents, end of period
    
    $
    84,317,971
    
    
    $
    45,792
   4




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##### Table of Contents



WESTERN LIBERTY BANCORP
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
 Note 1 Interim Financial Information
  Note 2 Organization and Business Operations
 General
  Stockholder Approval to Become Western Liberty Bancorp
  Amendment to Trust Agreement
   5




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##### Table of Contents



COI Amendments
  
    
    amended the definition of Business Combination to remove the requirement that
WLBCs initial acquisition of one or more assets or operating businesses needed to
have a fair market value of at
least 80% of WLBCs net assets held in trust (net of taxes and amounts disbursed for
working capital purposes and excluding the amount held in the trust account
representing a portion of the underwriters discount) at the time of acquisition;
 
    
    removed the prohibition on the consummation of a business combination if holders
of an aggregate of 30% or more in interest of the shares of WLBCs common stock
issued in its initial public offering (Public Shares) exercised their conversion
rights;
 
    
    removed the requirement that only holders of Public Shares who voted against
WLBCs initial business combination could covert their Public Shares into cash;
 
    
    changed WLBCs name from Global Consumer Acquisition Corp. to Western Liberty
Bancorp;
 
    
    changed WLBCs corporate existence to perpetual, so WLBC would not be required
to liquidate on November 27, 2009;
 
    
    deleted the provision in the Certificate of Incorporation that provided that in
the event a business combination was not consummated prior to November 27, 2009,
WLBCs corporate purpose would automatically have been limited to effecting and
implementing WLBCs dissolution and liquidation and that WLBCs powers would be
limited to those set forth in Section 278 of the Delaware General Corporation Law
and as otherwise may be necessary to implement the limited purpose; and
 
    
    deleted the following restrictions only applicable to special purpose
acquisition companies:
 
    
    the requirement that a business combination be
submitted to WLBCs stockholders for approval and authorized by the vote of
a majority of the Public Shares cast at a meeting of stockholders to
approve such business combination;
 
    
    the procedures for exercising conversion rights;
 
    
    the provision for when funds may be disbursed from
WLBCs trust account established in connection with its initial public
offering;
 
    
    the provision that no other business combination could
be consummated until WLBC initial business combination is consummated; and
 
    
    the provision that holders of Public Shares would be
entitled to receive distributions from WLBCs trust account only in the
event of WLBCs liquidation or by demanding conversion.
  6




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##### Table of Contents



Service1st Acquisition
 st st st st st st
 st st
 st st st
 st st st
 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of
Listing
   7




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##### Table of Contents



Warrant Restructuring
     Note 3 Significant Accounting Policies
 Use of Estimates
  Cash and Cash Equivalents
     8




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##### Table of Contents



Income (loss) Per Common Share
   Three Month ended September 30,
    
    
    Nine Months ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income
(loss) available to
common stockholders
    
    $
    614,301
    
    
    $
    (5,153,509
    )
    
    $
    (2,813,960
    )
    
    $
    (8,557,043
    )Denominator:Weighted-average common
shares outstanding
    
    
    10,959,169
    
    
    
    39,936,064
    
    
    
    10,959,169
    
    
    
    39,936,064Dilutive effects of warrants
and Restricted Stock Units
    
    
    48,267,758
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average common
shares outstanding, assuming
dilution
    
    
    59,226,927
    
    
    
    39,936,064
    
    
    
    10,959,169
    
    
    
    39,936,064Net income (loss) per shareBasic
    
    $
    0.06
    
    
    $
    (0.13
    )
    
    $
    (0.26
    )
    
    $
    (0.21
    )Diluted
    
    $
    0.01
   Note 4 Stockholders Equity
 Preferred Stock
  Common Stock
   Restricted Stock
   9




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Note 5 Transaction Costs
    10




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##### Table of Contents



Note 6 Commitments and Contingencies
  Note 7 Indemnifications
   11




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##### Table of Contents



Note 8. Unaudited Pro Forma Condensed Combined Financial Data
 st
 st
 Fair value of WLBC common stock consideration exchanged with Service1st Bank common stock
    
    $
    15,268Fair value of WLBC common stock contingent consideration exchanged with Service1st Bank
common stock
    
    
    4,358Allocated to:Historical book value of Service1st Banks assets and liabilities
    
    
    19,777To adjust Service1st Banks assets and liabilities to fair value:Securities, held to maturity
    
    
    276Loans
    
    
    (5,064
    )Other Real Estate Owned
    
    
    (300
    )Time Deposits
    
    
    (184
    )Core Deposit Intangible
    
    
    4,352Total allocation of purchase price
    
    
    18,857Excess of purchase price over allocation to identifiable assets and liabilities
    
    $
    769
   12




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##### Table of Contents



Unaudited Pro Forma Condensed Combined Balance Sheet
As of September 30, 2010
 Historical
    
    
    Combined
    
    
    Pro Forma
    
    
    CombinedWLBC
    
    
    Service 1st
    
    
    Historical
    
    
    Adjustments
    
    
    Pro Forma(In thousands)ASSETSCash and cash equivalents
    
    $
    84,318
    
    
    $
    27,825
    
    
    $
    112,143
    
    
    $
    (1,000
    )H
    
    $
    108,259
    
    
    
    
    
    
    
    
    
    
    
    (2,884
    )KCertificates of deposit
    
    
    
    
    
    
    32,174
    
    
    
    32,174
    
    
    
    
    
    
    
    32,174Investment securities  AFS
    
    
    
    
    
    
    3,899
    
    
    
    3,899
    
    
    
    
    
    
    
    3,899Investment securities  HTM
    
    
    
    
    
    
    7,584
    
    
    
    7,584
    
    
    
    276
    D
    
    
    7,860Loans
    
    
    
    
    
    
    120,855
    
    
    
    120,855
    
    
    
    (12,085
    )D
    
    
    108,770Allowance for loan losses
    
    
    
    
    
    
    (7,021
    )
    
    
    (7,021
    )
    
    
    7,021
    D
    
    
    Premises and equipment, net
    
    
    
    
    
    
    1,321
    
    
    
    1,321
    
    
    
    
    
    
    
    1,321Other real estate owned
    
    
    
    
    
    
    3,019
    
    
    
    3,019
    
    
    
    (300
    )E
    
    
    2,719Core deposit intangible
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,352
    C
    
    
    4,352Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    769
    A
    
    
    769Accrued interest receivable and other assets
    
    
    551
    
    
    
    3,534
    
    
    
    4,085
    
    
    
    
    
    
    
    4,085TOTAL ASSETS
    
    $
    84,869
    
    
    $
    193,190
    
    
    $
    278,059
    
    
    $
    (3,851
    )
    
    $
    274,208LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Non-interest bearing deposits
    
    $
    
    
    
    $
    75,026
    
    
    $
    75,026
    
    
    
    
    
    
    $
    75,026Interest bearing non-time deposits
    
    
    
    
    
    
    60,076
    
    
    
    60,076
    
    
    
    
    
    
    
    60,076Time Deposits
    
    
    
    
    
    
    36,773
    
    
    
    36,773
    
    
    
    184
    D
    
    
    36,957Total deposits
    
    
    
    
    
    
    171,875
    
    
    
    171,875
    
    
    
    184
    
    
    
    172,059Accrued interest on deposits and other liabilities
    
    
    379
    
    
    
    1,538
    
    
    
    1,917
    
    
    
    4,358
    J
    
    
    6,275Total liabilities
    
    
    379
    
    
    
    173,413
    
    
    
    173,792
    
    
    
    4,542
    
    
    
    178,334STOCKHOLDERS EQUITY:Common stock
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    (1
    )B
    
    
    1Additional paid-in capital
    
    
    103,143
    
    
    
    52,616
    
    
    
    155,759
    
    
    
    (52,616
    )B
    
    
    117,969
    
    
    
    
    
    
    
    
    
    
    
    2,442
    G
    
    
    
    
    
    
    
    
    
    
    
    19,626
    A
    
    
    
    
    
    
    
    
    
    
    
    (4,358
    )J
    
    
    
    
    
    
    
    
    
    
    
    (2,884
    )K
    
    
    Retained-earnings deficit
    
    
    (18,654
    )
    
    
    (32,065
    )
    
    
    (50,719
    )
    
    
    32,065
    B
    
    
    (22,096
    )
    
    
    
    
    
    
    
    
    
    
    
    (2,442
    )G
    
    
    
    
    
    
    
    
    
    
    
    (1,000
    )HTreasury stock
    
    
    
    
    
    
    (775
    )
    
    
    (775
    )
    
    
    775
    B
    
    
    Total stockholders equity
    
    
    84,490
    
    
    
    19,777
    
    
    
    104,267
    
    
    
    (8,393
    )
    
    
    95,874TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    84,869
    
    
    $
    193,190
    
    
    $
    278,059
    
    
    $
    (3,851
    )
    
    $
    274,208
   13




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WESTERN LIBERTY BANCORP
 Unaudited Pro Forma Condensed Combined Statement of Operations
For the Nine Months Ended September 30, 2010
 Historical
    
    
    Combined
    
    
    Pro Forma
    
    
    CombinedWLBC
    
    
    Service1st
    
    
    Historical
    
    
    Adjustments
    
    
    Pro Forma(In thousands, except per share data)Interest Income
    
    $
    5
    
    
    $
    6,116
    
    
    $
    6,121
    
    
    $
    (55)
    D
    
    $
    6,309243
    DInterest Expense
    
    
    
    
    
    
    1,083
    
    
    
    1,083
    
    
    
    
    
    
    
    1,083Net interest income
    
    
    5
    
    
    
    5,033
    
    
    
    5,038
    
    
    
    188
    
    
    
    5,226Provision for loan losses
    
    
    
    
    
    
    3,938
    
    
    
    3,938
    
    
    
    
    
    
    
    3,938Net interest income after provision for loan losses
    
    
    5
    
    
    
    1,095
    
    
    
    1,100
    
    
    
    188
    
    
    
    1,288Noninterest income
    
    
    
    
    
    
    466
    
    
    
    466
    
    
    
    
    
    
    
    466Noninterest expense
    
    
    2,819
    
    
    
    6,920
    
    
    
    9,739
    
    
    
    534
    C
    
    
    10,461188
    GLoss before federal income tax benefit
    
    
    (2,814
    )
    
    
    (5,359
    )
    
    
    (8,173
    )
    
    
    (534
    )
    
    
    (8,707
    )Federal income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    I
    
    
    NET LOSS
    
    $
    (2,814
    )
    
    $
    (5,359
    )
    
    $
    (8,173
    )
    
    $
    (534
    )
    
    $
    (8,707
    )Pro forma net income (loss) attributable to common stock
    
    $
    (2,814
    )
    
    $
    (5,359
    )
    
    $
    (8,173
    )
    
    $
    (534
    )
    
    $
    (8,707
    )Pro forma net loss per common share  Basic
    
    $
    (0.26
    )
    
    $
    (107.59
    )
    
    
    
    
    
    
    
    
    
    $
    (0.54
    )Pro forma net loss per common share  Diluted(1)
    
    $
    (0.26
    )
    
    $
    (107.59
    )
    
    
    
    
    
    
    
    
    
    $
    (0.54
    )Weighted Average Number of Share Outstanding  Basic(1)
    
    
    10,959,169
    
    
    
    49,811
    
    
    
    
    
    
    
    
    
    
    
    16,007,936Weighted Average Number of Share Outstanding 
Diluted(1)
    
    
    10,959,169
    
    
    
    49,811
    
    
    
    
    
    
    
    
    
    
    
    16,007,936
 
 (1)
    
    When an entity has a net loss from continuing operations the inclusion
of potential common shares in the computation of diluted per-share
amounts is prohibited. Accordingly, we have utilized the basic shares
outstanding amount to calculate both basic and diluted loss per share
for all periods presented. This pro forma presentation assumes the transaction
occurred on January 1, 2009.   14




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WESTERN LIBERTY BANCORP
 Unaudited Pro Forma Condensed Combined Statement of Operations
For the Nine Months Ended September 30, 2009
 Historical
    
    
    Combined
    
    
    Pro Forma
    
    
    CombinedWLBC
    
    
    Service1st
    
    
    Historical
    
    
    Adjustments
    
    
    Pro Forma(In thousands, except per share data)Interest Income
    
    $
    87
    
    
    $
    6,751
    
    
    $
    6,838
    
    
    $
    (166)
    D
    
    $
    6,915243
    DInterest Expense
    
    
    
    
    
    
    2,118
    
    
    
    2,118
    
    
    
    (138)
    D
    
    
    1,980Net interest income
    
    
    87
    
    
    
    4,633
    
    
    
    4,720
    
    
    
    215
    
    
    
    4,935Provision for loan losses
    
    
    
    
    
    
    4,391
    
    
    
    4,391
    
    
    
    
    
    
    
    4,391Net interest income after provision for loan losses
    
    
    87
    
    
    
    242
    
    
    
    329
    
    
    
    215
    
    
    
    544Noninterest income
    
    
    
    
    
    
    385
    
    
    
    385
    
    
    
    
    
    
    
    385Noninterest expense
    
    
    8,548
    
    
    
    5,651
    
    
    
    14,199
    
    
    
    593
    C
    
    
    17,2342,442
    GLoss before federal income tax benefit
    
    
    (8,461
    )
    
    
    (5,024
    )
    
    
    (13,485
    )
    
    
    (2,820
    )
    
    
    (16,305
    )Federal income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    I
    
    
    NET LOSS
    
    $
    (8,461
    )
    
    $
    (5,024
    )
    
    $
    (13,485
    )
    
    $
    (2,820
    )
    
    $
    (16,305
    )Pro forma net income (loss) attributable to common stock
    
    $
    (8,461
    )
    
    $
    (5,024
    )
    
    $
    (13,485
    )
    
    $
    (2,820
    )
    
    $
    (16,305
    )Pro forma net loss per common share  Basic
    
    $
    (0.21
    )
    
    $
    (98.92
    )
    
    
    
    
    
    
    
    
    
    $
    (0.36
    )Pro forma net loss per common share  Diluted(1)
    
    $
    (0.21
    )
    
    $
    (98.92
    )
    
    
    
    
    
    
    
    
    
    $
    (0.36
    )Weighted Average Number of Share Outstanding  Basic(1)
    
    
    39,936,064
    
    
    
    50,789
    
    
    
    
    
    
    
    
    
    
    
    45,031,509Weighted Average Number of Share Outstanding 
Diluted(1)
    
    
    39,936,064
    
    
    
    50,789
    
    
    
    
    
    
    
    
    
    
    
    45,031,509DS
 
 (1)
    
    When an entity has a net loss from continuing operations the inclusion
of potential common shares in the computation of diluted per-share
amounts is prohibited. Accordingly, we have utilized the basic shares
outstanding amount to calculate both basic and diluted loss per share
for all periods presented. This pro forma presentation assumes the transaction
occurred on January 1, 2009.   15




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##### Table of Contents



A)
    
    WLBC issued 2,370,878 shares of common stock based on a price of $8.00 per share to
exchange for all of the shares of Service1st Bank. Under the terms of the Merger
Agreement, WLBC stock has a floor of $8.00 and a ceiling of $9.78 for computing the daily volume
weighted average price. For purposes of this pro forma presentation, the fair value of merger
consideration shares is approximately $15,268,000 or $6.44 per share based on the closing price of
WLBC on October 28, 2010. All other share value components will be calculated using the closing
price of $6.44 per share. The total amount of Base Acquisition Consideration for calculation of the
number of shares to be issued as of September 30, 2010 is $18,967,000. The Base Acquisition
Consideration is based upon a formula detailed in the Merger Agreement, section 3.2. In addition,
this section describes the computation of Contingent Acquisition Consideration. In general, the
Contingent Acquisition Consideration is calculated as 20% of the tangible book value of
Service1st as of the Valuation Date (as defined herein). Using the September 30, 2010
tangible book value of Service1st, the Contingent Acquisition Consideration would be
approximately $4,358,000. The Contingent Acquisition Consideration is payable if at any time during
the first two years after the Effective Time and WLBCs common stock closes at a price in excess of
$12.75 per share for thirty (30) consecutive trading days. For purposes of this disclosure, the
Contingent Acquisition Consideration will be calculated at $12.75 per share to assume maximum
dilution of the Contingent Acquisition Consideration. The fair value of the Contingent Acquisition
Consideration will be recorded as a liability until the trigger event is met and the shares are
issued. The Contingent Acquisition Consideration shall be remeasured to fair value at each
reporting date until the contingency is resolved with the changes in fair value recognized in
earnings.B)
    
    Reflects the elimination of Service1st Banks historical net equity of approximately
$19.8 million as a result of the acquisition.C)
    
    Reflects the pro forma impact of the core deposit intangible assets of Service1st Bank. The
preliminary fair value adjustment and related amortization is as follows (in thousands): Core DepositIntangibleFair Value Adjustment
    
    $
    4,352Amortization Period
    
    10 yrsAmortization:For the nine months ended September 30, 2010
    
    $
    534For the nine months ended September 30, 2009
    
    $
    593
  D)
    
    Reflects the pro forma impact of the Purchase Accounting Adjustments (PAA) on the assets
and liabilities of Service1st Bank.For fixed rate loans or deposits and for variable rate loans or deposits with infrequent
repricing or repricing limits, fair value is based on discounted cash flows using current market
rates applied to the estimated life and credit risk including consideration of widening credit
spreads. A $974,000 fair value adjustment was due to fixed rate loans related to the acquisition.
The fair value was based on discounted cash flows using current market rates applied to the
estimated life and credit risk including consideration of widening credit spreads for performing
loans. This fair value adjustment will be accreted to income over a weighted average life of
3.0 years. The preliminary fair value adjustment and related amortization is as follows: Held toMaturity
    
    
    
    
    
    
    TimeInvestments
    
    
    Loans
    
    
    Deposits($ in 000s)Fair Value Adjustment
    
    $
    276
    
    
    $
    (974
    )
    
    $
    184Amortization Period
    
    1.3 yrs
    
    
    3.0 yrs
    
    
    1.0 yrAmortization (Accretion):Method (level yield)For the nine months ended September 30, 2010
    
    $
    (55
    )
    
    $
    243
    
    
    $
    For the nine months ended September 30, 2009
    
    
    (166
    )
    
    $
    243
    
    
    $
    (138
    )
 In addition to the interest rate differential adjustment on performing credits of $974,000, an
additional discount of approximately $11,111,000 is applied to the gross loan balance. This
additional discount is related to the removal of the original valuation allowance for loans and
approximates the present value of expected cash flows on certain loans which have shown evidence of
credit deterioration since origination. Purchased loans are recorded at the allocated fair value,
such that there is no carryover of the sellers allowance for loan losses of approximately
$7,021,000. If the present value of expected cash flows is less than the carrying amount, a
loss is recorded. If the present value of expected cash flows is greater than the carrying amount,
it is recognized as part of future interest income.  16




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##### Table of Contents



E)
    
    A fair market adjustment in the amount of $300,000 is recorded to adjust the carrying value
of two pieces of other real estate owned for disposition costs, adverse market conditions and
expedited disposition.F)
    
    Pro forma earnings per share (EPS), basic and diluted, are based on the following
calculations of the number of shares of common stock. Loss per share is computed by dividing net
loss by the weighted-average number of shares of common stock outstanding during the period. The Contingent
Acquisition Consideration shares will be issued at the 30 day average above $12.75 per share and
are reflected as issued and outstanding using a price of $12.75 per share in the below table. September 30, 2010Basic and diluted shares:WLBC shares outstanding
    
    
    10,959,169Shares issued to exchange with Service1ststockholders
    
    
    2,370,878Shares issued as Contingent Acquisition Consideration to Service1ststockholders
    
    
    341,804Restricted stock units granted to directors, officers and consultants
    
    
    200,000Restricted shares issued to CFO per employment agreement
    
    
    38,820Restricted shares issued to CEO per employment agreement
    
    
    155,280Common stock issued to a director and former directors
    
    
    150,000Common stock issued in conjunction with the warrant conversion
    
    
    1,502,177Common stock options and warrants exchanged with Service1st holders
    
    
    289,80816,007,936
 G)
    
    Reflects the pro forma adjustment to Non-Interest Expense, representing the Employment
Contract the Company has entered into with the CFO. As approved at the October 7, 2009 stockholder
meeting, the CFO will receive a one-time grant of restricted stock equal to $250,000, divided by
the closing price of our common stock on the Effective Date. In
addition, the CEO will receive a one-time grant of
restricted stock equal to $1,000,000, divided by the closing price of our common stock on the
Effective Date. The restricted stock will vest 20% on each of the first, second, third, fourth and
fifth anniversaries of the Effective Date. The total grant consideration of $1,250,000 for the
one-time grants of restricted stock is considered in common stock outstanding based on the stock
price of $6.44 resulting in 194,100 shares outstanding disclosed in Note F.
As previously discussed in Note 4 to the Condensed Financial Statements (unaudited), the Company awarded
200,000 restricted stock units and 150,000 shares of common stock to certain directors, officers,
and consultants in consideration of their substantial service to and in support of WLBC during the
period in which WLBC sought regulatory approval to become a bank holding company. As a result
of these awards, for past services, the Company recorded stock compensation expense of
$2,254,000 as of October 28, 2010 based on the closing stock price.
The stock price is based on the October 28, 2010 closing price.Our Board of Directors has approved the award of up to 1,500,000 shares of restricted stock in
connection with the Acquisition, which we expect to be awarded to certain members of our management
and our consultants, in connection with the Acquisition. As soon as practicable after the closing
of the Acquisition, the Compensation Committee will meet to determine which members of our
management and our consultants will receive equity grants and the allocation of such grants. As
such, the shares have not been included in the pro forma financial statements.H)
    
    Reflects the estimated payment of $1.0 million of fees yet to be incurred prior to the
closing of the transaction. The fees are non-recurring items directly attributable to the closing
of the transaction and are not expected to have a continuing impact on operations and therefore are
not included in the Unaudited Pro Forma Statement of Operations.I)
    
    No tax provision or deferred taxes are reflected in the pro forma acquisition adjustments
due to the net operating losses previously incurred by Service1st Bank and the uncertainty of
realization of deferred taxes in future periods.J)
    
    Reflects the maximum estimated amount for the contingent consideration. The fair value of
the contingent consideration has not been determined as of this filing date.K)
    
    The conversion of the Companys warrants took place with the transaction closing on October
28, 2010. The Company paid a consent fee of $0.06, and one thirty-second (1/32) of one share of
WLBC common stock for each warrant. This resulted in the issuance of 1,502,117 shares of common
stock and disbursement of $2,844,065.  17




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 You should read the following discussion and analysis in conjunction with unaudited condensed
financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q and our combined and
consolidated financial statements and related notes thereto included in or incorporated into Part
II, Item 8 of our Annual Report on Form 10-K and the Risk Factors included in Part I, Item 1A of
our Annual Report on Form 10-K , as well as other cautionary statements and risks described
elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K .
  Forward-Looking Statements
  Overview
 st
 st
 Contractual Obligations, Commitments and Contingencies
  Results of Operations for the Three Months Ended September 30, 2010 and 2009
  Results of Operations for the Nine Months Ended September 30, 2010 and 2009
   18




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##### Table of Contents



Liquidity and Capital Resources
    Critical Accounting Policies and Estimates
  Fair value of financial instruments
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 st st
   19




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. (REMOVED AND RESERVED)
 
 ITEM 5. OTHER INFORMATION
   20




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##### Table of Contents



ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description31.1
    
    
    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  21




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##### Table of Contents



SIGNATURES
  WESTERN LIBERTY BANCORP
Date: November 9, 2010/s/ William E. MartinName:
    William E. MartinTitle:
    Chief Executive Officer
(Principal Executive Officer)WESTERN LIBERTY BANCORP
Date: November 9, 2010/s/ George A. Rosenbaum Jr.Name:
    George A. Rosenbaum Jr.Title:
    Chief Financial Officer
(Principal Accounting and Financial Officer) 
  22