Western Liberty shares benefit from Western Alliance deal

Shares of Western Liberty Bancorp Inc., parent company of Service1st Bank of Nevada, rose slightly Tuesday, as investors and analysts continued to react positively to the
$55 million sale of the company to Western Alliance Bancorporation.

Western Liberty's shares gained 4 cents, or 1.02 percent, to close at $3.86 Tuesday on the Nasdaq Global Market. Shares of the Las Vegas-based company increased 34 percent Monday to $3.82 per share, up from $2.85 on Friday.

"I have a lot of respect for the executives with Western Alliance," said Anton Schutz, president and chief investment officer with Mendon Capital Advisors Corp. "I've invested in banks both large and small; this was an attractive way for me to enter their stock."

Schutz, who owns 1.9 million shares, or 14 percent, is Western Liberty's largest shareholder. Under the deal announced Friday, Western Liberty shareholders may choose either to receive either $4.02 in cash or 0.4341 Western Alliance shares for each of their Western Liberty shares.

Schutz said he has chosen to exchange his shares for Western Alliance stock.

Service1st Bank opened in January 2007 and has struggled annually to reach profitability. The bank's only profitable year was in 2010, when it posted net income of $186,000.

The bank reported a net loss of $14.2 million last year, $17.4 million in 2009, $5.1 million in 2008 and $4.2 million in 2007. Western Liberty was formed in October 2010 with its acquisition of Service1st Bank.

"When you are too small, you can't get enough scale to grow your profits," Schutz said.

Phoenix-based Western Alliance is a bank holding company with six subsidiaries in Nevada, California, Arizona and Colorado, including Bank of Nevada. Shares of Western Alliance lost two cents, or 0.21 percent, Tuesday to close at $9.51 on the New York Stock Exchange.

When the sale closes later this year, Service1st will merge into Bank of Nevada. Bank of Nevada, with $2.9 billion in assets, operates 11 branches in Las Vegas, Henderson, North Las Vegas and Mesquite. Service1st has two branches and $124 million in deposits.

Western Liberty plans to close a branch at 8965 S. Eastern Ave. next month, leaving Service1st with one branch at 8349 W. Sunset Road in Las Vegas. The company also owns Las Vegas Sunset Properties, a nonbank subsidiary that spent
$15.5 million to acquire Service1st's problem assets.

Banking analysts weren't surprised by Western Alliance's purchase of the struggling company. But Western Liberty's small size was expected to add little to Western Alliance's earnings.

Analysts surveyed by Yahoo Finance expect Western Alliance to report third- quarter earnings of 17 cents a share on revenue of $79.5 million. The company posted second-quarter earnings of 15 cents a share on net revenue of
|$76.6 million.

"With $199 million in assets, Western Liberty only increases Western Alliance's size by about 2 percent,," RBC Capital Markets analyst Joe Morford said. "But it fills out the company's Las Vegas presence adding another branch and $124 million in deposits."

In a note to clients, Morford reiterated the firm's "outperform" rating for Western Alliance with a new $11 target.

Oppenheimer & Co. reiterated its "perform" rating without issuing a price target. D.A. Donaldson & Co. rated Western Alliance shares "neutral" with a $10 target.

"Given the small size of the transaction, we expect the deal to be largely neutral to earnings," Oppenheimer managing director and senior analyst Terry McEvoy said in a research report.

Contact reporter Chris Sieroty at
csieroty@reviewjournal.com or 702-477-3893.