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Fellow Shareholders:

In our last update, I shared some highlights of our 2014 move back onto offense – which led to the big news at the end of Q3 of our agreement to merge with Sunflower Financial.  While we have shared with you some of the significant strategic implications of this combination, I’ll review in this update the broader context of this important move for First Western.  In my last communication, I shared 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.  With all that big news, we still continue to make good progress with our organic growth.  Elsewhere in this update, you can find information about our Q3 operating performance in a summary prepared by our Chief Financial Officer, Julie Courkamp, and an investment commentary authored by our Chief Investment Officer, Debbie Silversmith, and Warren Olsen.

Why Sunflower?

Last quarter, I shared some thoughts about where our progress with our growth initiatives might lead with respect to a longer term strategy, especially in creating additional shareholder value and providing liquidity.  The Sunflower merger provides a powerful, complementary, and unique answer to the internal and external factors discussed in that update.  While I will discuss this in terms of the two legacy banks, note that we are very focused in our transition planning on the new company, which we are referring to internally as “Bison”, although no branding decisions have been made at this point.

Sunflower is a very attractive merger partner for us.  They bring a strong balance sheet, excellent earnings, and a growing revenue base, with recent double digit loan growth and a healthy mix of fee income.  With a renewed focus on growing their 122-year-old Kansas franchise, Sunflower Chairman and CEO Mollie Hale Carter has been transforming Sunflower from a family-owned community bank to a high-performing, growth company.  Sunflower shares many of our key values – in particular, putting client needs first, high touch, personal service, accountability to a high level of performance, a conservative credit culture, and a deep commitment to the communities where we operate.

Merger Highlights

Here are some key facts about the merger, which still requires various approvals, including shareholder and regulatory approval:

  • Bison will be $2.5 billion in assets, 3.5 times our current asset size of $722m.
  • Bison is forecast to have $1.7b in loans outstanding and over $2.0 billion in deposits, also about 3.5 times our September 30, 2014 balances.
  • Bison will have 45 offices in six states, adding 35 new locations and two states (Missouri and Kansas) to our current footprint.
  • Book value of shareholder equity also increases about four-fold from $70m today ($81m including our deferred tax asset valuation) to $318m pro forma at closing.
  • While First Western has a much larger wealth management business than Sunflower, we do expect to be able to leverage our expertise into a larger footprint and expect Bison to have about $5.7b in trust and investment management assets at closing.
  • Q4 2015 annualized revenues are forecast to be $144m, over 3x our 2014 YTD revenues annualized to be about $45mm.
  • With pretax earnings of over $33m (using Q4 2015 annualized pro forma earnings to factor out merger noise), the combined company has great earnings power.

While First Western remarkably has over 50% of our revenues coming from fee income, Sunflower has a healthy 28% fee income to total revenues now.  Bison will initially be about 42% fee income, a very strong number for a bank that size.

We have not announced terms publicly, so we do expect that you will keep the valuation information below strictly confidential.  Key elements of the merger agreement are:

  • First Western legacy shareholders will own approximately 39.5% of the merged company.
  • Consideration is all stock so that the transaction is treated as a tax free exchange.
  • The Bison holding company and bank headquarters will be in Denver.
  • I have agreed to continue as Chairman and CEO of the Bank, while the management team has members of both legacy banks in key positions.
  • Mollie will serve as our holding company Executive Chairman, while I am also President and CEO of the holding company.  I will continue as Chairman and CEO of our non-bank subsidiaries.
  • The initial Bison Board composition is set to be two legacy Sunflower directors, four legacy First Western directors, and four new non-legacy independent Directors.  While our current Board is very strong, we agreed that for best governance a new Bison board should represent a combination of legacy and new Directors.

Merger Process

While we have to run our banks separately until we receive all the required merger approvals, which we hope to obtain by the end of the first quarter of 2015 we did begin the transition planning immediately upon signing and announcement of the deal.  We announced internally the new organization and the top 23 executives less than two weeks after the initial merger news, on October 6.

We have met with our various regulators and are well into the process of completing and submitting our various regulatory filings.  We have also informed those whose jobs will be eliminated in the merger due to duplication, a very painful part of the merger process.  Due to the limited geographic and strategic overlap, this was limited to less than 6% of our combined workforce.  Our respective teams are handling the difficult process of this complex merger very well so far, with minimal client impact.

The Goldilocks Size

Assuming we get all the approvals and successfully close this merger, we will become a unique regional bank right in the sweet spot of banking today:

  • On a map showing recent strategic mergers of this size, we are the only one in the plains or mountain states.
  • Banks in the $2.5 to $5b range (which Bison will be) have the second highest net interest margin of any group, and behind the smallest US banks, the best efficiency ratio.
  • Return on Average Assets is also second best in these size banks, just behind the $5 to $10b peers.
  • Pre-tax, pre-provision income to risk weighted assets is second only to the same $5 to $10b peers.
  • Bison will be a unique hybrid bank/wealth manager (“HBWM”) headquartered between the West Coast and the Midwest.
  • HBWMs earn a price premium to tangible book (96%) almost double of that for peer community banks (52%) today.
  • HBWMs also earn a current P/2015e of 14.6x, vs. community bank peers at 12.9x.

We believe this merger will create a highly differentiated HBWM that will have the capital, earnings and management team in place to be very special in our markets and, in the future, as a public company.

Extra Credit

Special credit is due to our First Western directors, who have worked many extra hours over the past six months or so to help this exceptional deal come together for our First Western stakeholders.  Especially for those who will not continue on to the Bison Board, they deserve a special thank you as they are exceptionally well qualified, hardworking Directors that have been there for our shareholders and other stakeholders in the high growth, rapid expansion early years, and then through the Great Recession.  They are each terrific and each has contributed in their own way to make our Board the success it has been.  I hope you will join me in expressing our profound gratitude to Eric, Joe, Pat, David, Martha, Mark, Tom, Dob and Warren – there is no way First Western would be where it is without their wisdom and support.


While we continue to focus on serving our clients and growing our current offices, we will of course need shareholder approval for this proposed merger.  We expect to prepare a formal proxy statement for delivery in early December, and to have a special shareholder meeting in early January to discuss this proposed merger and seek your approval.

If you would like more information or have any questions, please just give me a call at 303-531-8101 or email me at  Thanks once again for all your support.


Scott Wylie

November 2014



We will be mailing you a joint proxy statement and other documents regarding the proposed transaction when it is available.  You should read the joint proxy statement and related materials carefully before submitting a proxy or voting with respect to the merger.  All information in this letter is qualified in its entirety by reference to the joint proxy statement.  

This letter does not constitute a solicitation of vote for the merger, or an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities. This letter contains forward-looking statements. There are a number of factors, many of which are beyond First Western’s and Sunflower’s control that could cause actual events or results to differ significantly from those described in the forward-looking statements.