WLBC Western Liberty Bancorp (MM)

Western Liberty Bancorp, Inc. (NASDAQ: WLBC), the holding company for Service1st Bank of Nevada (Service1st Bank) and Las Vegas Sunset Properties (LVSP), today reported its tangible book value per share increased to $5.60 from $5.54 in the prior quarter. Western Liberty also reported it lost $14.2 million, or $0.96 per share, in 2011, following an $8.7 million provision for loan losses for the year and a third quarter non-cash charge of $5.6 million for goodwill impairment which was partially offset by the $1.8 million reduction in the fair value of the contingent consideration liability related to the Service1st acquisition. All financial results for 2011 are unaudited.

For the fourth quarter of 2011, the net loss totaled $2.4 million, or $0.17 per share, which includes a $1.3 million provision for loan losses. Before the acquisition of Service1st Bank on October 28, 2010, Western Liberty had no operating entity. Consequently the comparisons for the year ago periods, reflect only two months of operations of Service1st Bank.

“To expedite the resolution of nonperforming assets, we formed a new wholly-owned subsidiary, Las Vegas Sunset Properties (LVSP), and transferred $4.0 million in foreclosed properties into LVSP from Service1st Bank in the fourth quarter of 2011,” said William Martin, Chief Executive Officer. “In January, we also moved $11.5 million in nonperforming loans (NPLs) to LVSP. Following the January transfer of NPLs, the Bank’s ratio of classified assets to Tier 1 capital plus reserves improved to 48.4%.

“With our extremely strong capital levels, we repurchased 934,987 shares during the fourth quarter at an average cost of $2.34 per share, bringing total shares repurchased during the second half of the year to 1.6 million at an average cost of $2.59 per share,” Martin continued.

“While the national and local economic indicators are starting to improve, we are continuing to see asset quality decline, although at a slower pace than in past quarters,” said Patricia Ochal, Chief Financial Officer. Nonaccrual loans increased to $24.1 million, of which $15.9 million are loans that have been modified or restructured. During the year, these troubled debt restructured (TDR) loans were written down to $14.6 million from $20.0 million, and $1.9 million of the TDR’s are paying on time. “As a result of the decline in asset quality, we are increasing our allowance for loan losses, which was eliminated last year under fair value accounting standards during the merger. Consequently, the allowance for loans losses is now 2.85% of total portfolio loans.”

Financial Highlights (at or for the quarter ended December 31, 2011)

• Service1st Bank has exceptionally strong capital ratios with Tier 1 Capital/Total risk-weighted assets of 28.4%.
• Western Liberty also has exceptionally strong capital ratios with Tier 1 Capital/Total risk-weighted assets of 70.4%.
• Tangible book value increased to $5.60 per share, based on 13,466,535 shares outstanding.
• Total cash and cash equivalents held by Western Liberty is $89.4 million, of which $29.3 million is at the holding company level and $12.9 million is at LVSP.
• Noninterest bearing deposits accounted for 42% of total deposits and core deposits (excluding time certificates of $100,000 or more) are 78% of total deposits.
• Western Liberty repurchased 1,574,400 shares at an average cost of $2.59 as of December 31, 2011.

Nevada Economic Update

“As shown below, a variety of measures show that Nevada economic activity began a slow recovery in 2011,” said Stephen P. A. Brown, PhD, Director, Center for Business and Economic Research at the University of Nevada, Las Vegas in his January 25th Economic Outlook. “The Nevada economy should continue to see improvement in 2012 and 2013. The gains will be stronger in the second half of 2012 than in the first, and the gains in 2013 will be stronger than in 2012.”

                                    Nevada Economic Indicators (percent change) 2010           2011           2012           2013 So. Nevada Visitor Volume 2.7 % 4.8 % 5.1 % 5.3 % NV Gross Gaming Revenue 1.0 % 2.9 % 4.3 % 4.5 % So. Nevada Hotel Rooms 0.0 % 0.7 % -0.1 % 0.2 % NV Population 0.5 % 0.2 % 0.8 % 1.2 % NV Employment -2.8 % 0.1 % 1.0 % 1.5 % NV Unemployment Rate* 14.9 % 12.6 % 11.9 % 9.6 % NV Personal Income 1.8 % 3.9 % 4.2 % 4.5 % NV Housing Permits 15.2 % -9.4 % 3.8 % 5.0 % Note: *Unemployment rate in December.

Sources: Las Vegas Convention and Visitors Authority; State of Nevada Gaming Control Board; Nevada State Demographer; Nevada Department of Employment, Training and Rehabilitation; Federal Reserve Bank of St. Louis; Center for Business and Economic Research, UNLV.

 

“To sum it up, the Nevada economy has begun a long-awaited recovery,” Brown continued. “Because the Nevada economy is heavily dependent on tourism, its outlook is tied to the growth of the U.S. and western states’ economies. Nevada cannot look to real estate for its economic growth right now. Diversification will pay dividends in the future.

“We are already seeing a recovery in tourism — particularly in Southern Nevada. Continued gains can be expected to continue into 2012 and 2013. The national economy is on a path for a gradual acceleration of economic growth over the next few years. As the recoveries in the United States and western states’ economies advance, they will further stimulate Southern Nevada tourism.”

Additional reports on the Nevada economy can be found on the CBER website, which can be found at http://cber.unlv.edu. Sources: http://business.unlv.edu/wp-content/uploads/2011/03/CBERonNevadaEconomy-Jan2012.pdf

Balance Sheet Review

Western Liberty’s total assets declined 4% to $198.3 million at December 31, 2011, from $206.1 million at September 30, 2011, and fell 23% from $257.5 million from a year ago. Total loans were $101.9 million at December 31, 2011, compared to $101.8 million at September 30, 2011, and $106.3 million at December 31, 2010. Commercial real estate loans accounted for 57% and commercial and industrial loans comprised 35% of the loan portfolio. Construction and land development loans accounted for 3% and residential real estate loans were 5% of total loans at year end. Of the total loan portfolio, 65% is secured by real estate and 32% of the commercial real estate loan portfolio is owner occupied. Half of the loan portfolio is adjustable rate loans, with most of these loans indexed to the national prime rate with interest rate floors above the current prime rate index.

Western Liberty’s deposits totaled $121.2 million at December 31, 2011, with 42% in noninterest bearing demand accounts. At September 30, 2011, total deposits were $124.8 million, compared to $160.3 million at December 31, 2010. “Our core deposit base continues to be almost completely local deposits, with no brokered or internet funding in the mix,” said Martin.

“We had two nonrecurring balance sheet adjustments, one asset and one liability, that significantly impacted the income statement this year,” said Ochal. “Based on the current economic climate, our overall performance, and the market value of our shares, we determined that it was appropriate to completely write down the $5.6 million of goodwill carried on our balance sheet. In addition, we eliminated the contingent liability associated with the merger, generating noninterest income of $1.8 million.”

Total shares outstanding were 13.5 million at year end reflecting the recent share repurchase program. Shareholders’ equity was $76.0 million at the end of December compared to $80.7 million at the end of September and $93.8 million at the end of December 2010. Tangible book value per share was $5.60 at year end from $5.54 in the preceding quarter and $5.79 a year ago.

Asset Quality

Nonperforming assets totaled $28.1 million, or 14.2% of total assets at December 31, 2011, compared to $23.0 million, or 11.2% of total assets at September 30, 2011, and $13.8 million, or 5.4% of total assets at December 30, 2010. Loans measured for impairment, which include nonperforming loans as well as loans that continue to perform but have some identified weakness, totaled $26.3 million, or 25.8% of the loan portfolio.

Activity in the allowance for loan losses was as follows:

                                    Allowance for Loan Losses ($ in 000s) unaudited Commercial

CommercialRE

ResidentialRE

Consumer

Construction /Land

Total Beginning Balance 12/31/2010 36 - - - - 36 Provision 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 12/31/2011 2,270         422         19       -       208         2,919    

Review of Operations

Net interest income, before the provision for loan losses, increased 20% to $1.8 million in the fourth quarter of 2011, from $1.5 million in the preceding quarter. For the full year, net interest income, before the provision for loan losses was $9.0 million compared to $1.4 million in 2010. The increase in net interest income in 2011 is primarily a result of having only two months of operations for 2010. Discount accretion contributed $3.6 million to interest income in 2011 compared to $436,000 in 2010.

Western Liberty’s provision for loan losses was $1.3 million for the fourth quarter of 2011, compared to $1.7 million in the third quarter of 2011. Provision for loan losses was $8.7 million for the year ended December 31, 2011.

During the fourth quarter other operating income was $117,000 and $2.4 million in the full year of 2011, which included the $1.8 million in contingent consideration liability reduction. Noninterest expense for the fourth quarter of 2011 declined to $3.0 million from $8.7 million, which included the $5.6 million goodwill impairment charge in the third quarter of 2011. For the year, noninterest expense was $16.9 million compared to $9.1 million in 2010, which only included two months of operations.

In addition, the bank recorded a $111,000 impairment on its other real estate owned (OREO) during the fourth quarter of 2011.

About Western Liberty Bancorp

Western Liberty Bancorp is a Nevada bank holding company which conducts operations through Service1st Bank of Nevada, its wholly-owned banking subsidiary, and its newly created wholly-owned subsidiary Las Vegas Sunset Properties. Service1st Bank operates as a traditional community bank and provides a full range of deposit, lending and other banking services to locally-owned businesses, 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. Primarily all of the bank’s business is generated in the Nevada market.

www.wlbancorp.com

FORWARD LOOKING STATEMENTS

This release may contain “forward-looking statements” that are subject to risks and uncertainties. Readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. All statements, other than statements of historical fact, regarding our financial position, business strategy and management’s plans and objectives for future operations are forward-looking statements. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” and “intend” and words or phrases of similar meaning, as they relate to Western Liberty or management, are intended to help identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although we believe that management’s expectations as reflected in forward-looking statements are reasonable, we cannot assure readers that those expectations will prove to be correct. Forward-looking statements are subject to various risks and uncertainties that may cause our actual results to differ materially and adversely from our expectations as indicated in the forward-looking statements. These risks and uncertainties include our ability to maintain or expand our market share or net interest margins, and to implement our marketing and growth strategies. Further, actual results may be affected by our ability to compete on price and other factors with other financial institutions; customer acceptance of new products and services; the regulatory environment in which we operate; and general trends in the local, regional and national banking industry and economy, as those factors relate to our cost of funds and return on assets. In addition, there are risks inherent in the banking industry relating to collectability of loans and changes in interest rates. Many of these risks, as well as other risks that may have a material adverse impact on our operations and business, are identified in our other filings with the SEC. However, you should be aware that these factors are not an exhaustive list, and you should not assume these are the only factors that may cause our actual results to differ from our expectations.

                             

Selected Consolidated Financial Highlights

(Dollars in thousands, except per share data) December 31, September 30, June 30, March 31, December 31, (Unaudited) 2011 2011 2011 2011 2010 Per Share data: Book Value $ 5.65 $ 5.58 $ 5.91 $ 6.21 $ 6.22 Tangible Book Value $ 5.60 $ 5.54 $ 5.48 $ 5.78 $ 5.79   Selected Balance Sheet Data: Total Assets $ 198,290 $ 206,140 $ 223,343 $ 228,791 $ 257,546 Cash and cash equivalents 89,353 95,004 103,426 90,443 103,227 Gross loans, including net deferred loan costs 101,861 101,776 101,533 102,207 106,259 Allowance for loan losses 2,919 3,005 4,404 1,290 36 Deposits 121,226 124,783 131,585 131,813 160,286 Stockholders' equity 76,041 80,673 89,099 93,558 93,829   Capital Ratios: Tier 1 equity to average assets 25.70 % 28.40 % 31.40 % 33.00 % 30.50 % Tier 1 Risk-Based Capital ratio 70.37 % 73.60 % 70.10 % 70.60 % 68.40 % Total Risk-Based Capital ratio 71.59 % 74.80 % 71.30 % 71.70 % 68.80 %    

Consolidated Balance Sheet

                          (Dollars in thousands, except per share data) (Unaudited) December 31, September 30, December 31,       2011 2011 2010   Assets: Cash and due from banks $ 11,227 $ 4,815 $ 11,675 Money market funds 100 100 52,206 Interest-bearing deposits in banks   78,026     90,089     39,346   Cash and cash equivalents 89,353 95,004 103,227   Certificates of deposits - 246 26,889 Securities, available for sale 472 773 1,819 Securities, held to maturity 2,031 3,631 5,314 Loans: Construction, land development and other land 3,417 3,582 5,923 Commercial real estate 58,252 52,058 54,975 Residential real estate 4,704 4,674 9,247 Commercial and industrial 35,417 41,373 35,946 Consumer 30 69 131 Plus: net deferred loan costs   41     20     37   Total loans 101,861 101,776 106,259 Less: allowance for loan losses   (2,919 )   (3,005 )   (36 ) Net loans 98,942 98,771 106,223 Premises and equipment, net 818 927 1,228 Other real estate owned, net 4,008 4,119 3,406 Goodwill, net - - 5,633 Other intangibles, net 670 695 768 Accrued interest receivable and other assets   1,996     1,974     3,039   Total assets $ 198,290   $ 206,140   $ 257,546     Liabilities: Demand deposits, noninterest bearing $ 50,488 $ 52,770 $ 67,087 NOW and money market 37,306 32,301 56,509 Savings deposits 735 599 1,273 Time deposits $100,000 or more 26,479 31,926 30,498 Other time deposits   6,218     7,187     4,919   Total deposits 121,226 124,783 160,286 Contingent consideration - - 1,816 Accrued interest and other liabilities   1,023     684     1,615   Total liabilities 122,249 125,467 163,717   Shareholders' Equity: Common stock 1 1 1 Additional paid-in capital 117,846 117,728 117,317 Accumulated deficit (37,717 ) (35,361 ) (23,489 ) Treasury stock (4,094 ) (1,696 ) - Accumulated other comprehensive gain/(loss), net   5     1     -  

 

Total shareholders' equity   76,041     80,673     93,829   Total liabilities and stockholders’ equity

$

198,290

  $ 206,140   $ 257,546                              

Consolidated Income Statement

(Dollars in thousands, except per share data) Three Months Ended Twelve Months Ended (Unaudited) December 31, September 30, June 30, March 31, December 31,     2011 2011   2011   2011 2011 Interest Income: Interest and fees on loans $ 1,866 $ 1,587 $ 2,018 $ 3,782 $ 9,253 Interest on securities, taxable and other   66     60     68     66     260   Total interest and dividend income 1,932 1,647 2,086 3,848 9,513 Interest Expense: Interest expense on deposits   122     123     127     112     484   Net interest income 1,810 1,524 1,959 3,736 9,029 Provision for loan losses   1,287     1,718     4,348     1,364     8,717   Net interest income (loss) after provision for loan losses 523 (194 ) (2,389 ) 2,372 312   Other Operating Income: Service charges 69 77 78 78 302 Contingent consideration recovery 0 1,816 - - 1,816 Other   48     84     114     43     289   Total other operating income 117 1,977 192 121 2,407   Other Operating Expense: Salaries and employee benefits 861 823 765 793 3,242 Occupancy, equipment and depreciation 377 365 374 374 1,490 Computer service charges 72 71 74 77 294 Federal deposit insurance 132 111 129 152 524 Legal and professional fees 837 341 520 936 2,634 Advertising and business development 12 17 48 20 97 Insurance 73 73 67 71 284 Telephone 19 19 17 26 81 Printing and supplies 24 30 87 142 283 Director fees 76 51 49 49 225 Stock-based compensation 119 131 138 141 529 Provision for unfunded commitments 31 48 (203 ) (133 ) (257 )

OREO property impairment

111 686 - - 797 Goodwill impairment 0 5,633 - - 5,633 Other   252     251     334     254     1,091   Total other operating expense   2,996     8,650     2,399     2,902     16,947   Net loss $ (2,356 ) $ (6,867 ) $ (4,596 ) $ (409 ) $ (14,228 )   Basic EPS $ (0.17 ) $ (0.46 ) $ (0.30 ) $ (0.03 ) $ (0.96 ) Diluted EPS $ (0.17 ) $ (0.46 ) $ (0.30 ) $ (0.03 ) $ (0.96 ) Average basic shares 14,278,467 15,058,383 15,088,023 15,088,023 14,878,224 Average diluted shares 14,278,467 15,058,383 15,088,023 15,088,023 14,878,224  

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Note Transmitted on Business Wire on February 13, 2012, at 5:30a.m. Pacific Standard Time.