Third Quarter 2017 Shareholder Newsletter
It is an exciting time at First Western (FW) and, as shareholders, I hope we will see the current positive developments translate into more value and liquidity in the near term.
We launched a series of fundamental changes in our operating plan two years ago to prepare FW for faster revenue growth, improved earnings, and life as a public company while retaining our vision of creating the Best Private Bank for the Western wealth management client. Changes like these take time to implement and show results, and we are now seeing terrific progress in the latter portion of 2017.
There are a number of very positive developments to report on our operating results in Q3:
- We forecasted significant earnings improvements in 2017 as First Western demonstrates strong operating leverage. The core earnings trends this year, and the financial results in this last quarter provide support to that earnings leverage story.
- On a consolidated basis, FW’s pretax income averaged $666k per month in Q3, up 317% from the prior 9-month average monthly earnings.
- In addition, our pre-tax, pre-provision (PTPP) operating earnings have improved dramatically year to date. FWFI PTPP net income is up from a $3.9mm run rate in December to $10.5mm in September, a 169% improvement.
- Loan growth has been strong, with net loans outstanding up 17% year over year.
- Revenue growth has also been very strong. Normalized revenues at the Bank grew 24% from an annualized run rate of $46.1mm last December to $57.2mm in September.
- Building on our organic mortgage department growth over the last two years, we were pleased to complete the acquisition of a highly regarded suburban Denver mortgage team from Englewood Mortgage Company in September. We anticipate incremental earnings of about $250k/month from our expanded mortgage operation when fully integrated in Q4.
- In addition, non-performing assets—comprised of non-performing loans and “OREO” properties—are down nearly 50% from a year ago.
- We have strengthened our Executive Team with people like Gary Lutz as our new Product Group head (joined Q2), Josh Wilson as Colorado and WY regional president (rejoined us Q1), Dan Thompson over AZ and CA (promoted Q2), and Tina Ballard as our new human capital executive (also Q1).
- Most recently, we completed a national search to recruit a new Chief Investment Officer to succeed to Debbie Silversmith. Debbie has asked to move to a part-time role and remains actively involved on our investment team. We are thrilled to announce that John Sawyer joined us in this critical role. He is a very experienced CFA who, as BBVA Compass Bank’s Chief Investment Officer, built their investment business to over $10b. We’re delighted to welcome John to our team.
There are a number of other significant changes in the works for Q4 that we believe will help First Western continue our strong revenue and earnings performance improvements. We have launched our budgeting and planning process for 2018, which we expect to be fully in line with our three-year plan expectations for next year.
I have previously reported on our pre-IPO preparations that we began in 2016 so FW could be in a position to go public in 2017 or 2018, subject to a number of internal and external factors. We did a non-deal roadshow in April to gauge institutional investor interest in a couple of different paths to public company status that we were contemplating at that time. With that feedback, the Board decided to push the possible IPO to 2018, continue with IPO readiness efforts, and launch a private placement (with a self-placed “PPM”) in mid Q3.
On the PPM, we have spoken with many current and prospective investors since beginning this process. The addition of the “make whole” shares has been an attractive benefit to those who are participating. Let me know if you’d like me to explain how that works. Also, please note that all of our Directors have participated or have said they will be participating and referring others to participate. I greatly appreciate the support of the current and new shareholders that have helped us achieve this progress.
We would like to complete this offering in Q4 to allow us to grow through the Basel III exemption at $1b and continue our strong asset, revenue and earnings growth into 2018. If you are considering participating, doing so before year-end would be most helpful. Your consideration of the current offering is much appreciated. If I can provide more information, please let me know.
In the meantime, we are continuing our IPO preparation efforts.
As always, thanks for your support for First Western. We appreciate and value the relationship and look forward to more positive developments through the remainder of 2017 and into 2018.
Chief Executive Officer