In our last update, I shared some highlights of our strong rebound in 2013, how that was allowing First Western to return to offense, and the terrific progress we were seeing in 2014. In this update, I wanted to share how this progress translates into a longer term plan and vision for the company, as well as a description of some the external factors that are helping make that vision more achievable. Elsewhere in this update, you can find information about our Q2 operating performance in a summary prepared by our Chief Financial Officer, Julie Courkamp, and an investment commentary coauthored by Chief Investment Officer, Debbie Silversmith, and Warren Olsen.
From Offense to FW 2020
Last quarter, I talked about the three parts of our return to offense at First Western – organic growth, expansion, and mergers and acquisitions. I shared how we are off to a good start in all three of these areas in 2014, and detailed our progress in each area, which continues. Many of us that have been shareholders for the longer term might wonder where that progress leads with respect to a longer term strategy, especially in creating additional shareholder value and providing liquidity.
We think the best way to create shareholder value and attractive liquidity options is to push toward an initial public offering (IPO), which we think we may be ready for as soon as early 2016. The goal of an IPO for First Western is not to cash out, but to raise additional growth capital, provide a currency for M&A activity, and provide a ready market for realizing shareholder value for those who want liquidity.
As part of this planning, we have been working on our vision for First Western in 2020. We are assessing the elements of capital, revenue growth, strong stable earnings, sophisticated products and services, and innovative distribution that we need to be the “best private bank for the Western wealth management client” (our mission since the beginning) needed in the years to come.
In our 2014 business planning cycle, we developed a 3 year plan that showed how some of the progress and investments we made in 2013 and 2014 would drive improvements in revenue growth and operating leverage through 2016. With our stock value today up from $20 last year to $25 (as valued in the stock portion of a couple of our current M&A term sheets), we have wondered again what it would take to see that grow to $50 or $100 per share, given today’s valuation metrics. We have developed a new plan for FW 2020 that we think can drive an exciting shareholder value story for those who want to stay in for the long term, or for new investors that want to join in our next chapter together.
Over the next three months, we will be working with the Board on our business plan for 2015. We’ll develop and discuss more of these exciting initiatives, sharing how they build on each other to create a very exciting future for our unique franchise as the first, Western based private bank and trust.
Tailwinds, at Last
In addition to these positive initiatives, here are some external developments that are helping us with gentle but persistent tailwinds, a welcome change from years of stiff headwinds.
- Economic conditions in our key markets – Colorado, Arizona, California and Wyoming – are all strong and stable. This creates good lending opportunities, supports wealth creation for our prospects and clients, and drives investor interest in our markets – all good news for us as shareholders.
- The regulatory environment has improved from hostile to difficult – which has been good for us. We are getting good support from our key regulators (Fed, FDIC, SEC and State) for our various requests. Perhaps more importantly, however, is that this continued re-regulation of financial institutions of all sizes has made it very difficult for smaller banks – creating good acquisition and consolidation opportunities for us.
- The capital markets are much more interested in banks these days, especially in the “sweet spot” of $1b to $50b asset banks (First Western, with more than 50% of our revenues in fee income, is the revenue equivalent of a $1.5b asset low fee bank). This is a critical development for us in valuing the progress we have made and are making, and in raising growth capital. There continue to be a stream of bank IPOs and as I commented last quarter, “story” IPOs like ours are of particular interest to the market.
- In addition, there is strong interest in our region, and in our niche. In the Great Recession, very little incremental value was ascribed to high fee banks, our public company peer group. That has changed and these banks are back trading at much higher multiples that similar sized non-fee banks, again very helpful to our capital strategy.
Which is not to say we don’t have challenges:
- Competitive factors continue to make lending at fair rates difficult. Competitors anxious to grow revenues usually have only one way to do that – grow loans at whatever price the market demands. We manage First Western to be rate neutral or even asset sensitive so we will perform well in a rising rate environment. Many competitors are happy making low rate, long term fixed rate loans today that we don’t feel comfortable matching.
- Low absolute rates are difficult too – we continue to face interest margin pressure with nominal rates so low.
In the last two updates, I shared that the market for bank stocks like ours seems to finally be improving too. Bank IPOs continue in 2014, with many successful offerings now completed and, in spite of a general softening from last year’s hot small bank stock market, are performing well in the market. The market has moved off of tangible book and book value multiples to focus on revenue and earnings growth, a critical development for First Western. Two Q2 M&A deals – the sale of Steele Street Bank here in Denver for a price rumored to be just over 2x book, and the sale of a $4b asset manager in Florida to Boston Private for a reported $60mm price with a $15mm earnout – both show the significant interest in our markets and the value that is returning to our stock. Hopefully more harbingers of good things to come.
In addition to our earnings, capital, asset quality and revenue improvements, we continue to make great progress in 2014. Bank and consolidated revenues and earnings are performing well. The five Colorado offices are making great progress, and the newer offices in AZ, WY and CA are each now on a path to profitable growth. Our expansion effort is back on track, and we have some great opportunities in the merger and acquisition arena.
As you can see from this update, we are building on our progress in 2014 getting First Western back to playing offense, leveraging that into opportunity and shareholder value for 2015 and beyond.
If you would like more information or have any questions, please just give me a call at 303-531-8101 or email me at Scott.Wylie@myfw.com. Thanks once again for all your support.
August 13, 2014