First Western Financial in Denver knew it was on to something a decade ago after it bought a small registered investment firm in Fort Collins, Colo.
The revenue coming out of that office doubled in the first year and did it again in the second.
As Scott Wylie, the chief executive of First Western, saw it, his then-startup had filled a void between big banks and small brokerages in smaller cities in the West by helping people and businesses manage and invest their money.
"We saw a tremendous need for the kind of private banking and trust that we offer," Wylie said. The $648 million-asset bank now has $4.8 billion under management.
On Tuesday, the company announced it had entered into an agreement to join Sunflower Financial, a $1.7 billion-asset company based in Salina, Kan. The all-stock, merger-like transaction moves the combined company's headquarters to Denver. Wylie is expected to be chairman and chief executive, with Mollie Hale Carter, Sunflower's current CEO, set to be executive chairman.
Wylie and Carter said in an interview that the tale of First Western's growth in Fort Collins played an integral role in reaching the deal.
"We have a lot of cities like Fort Collins in our combined region, so we thought if we could overlay that experience we could have something powerful," Wylie said.
Fort Collins is the home of Colorado State University and has 150,000 residents.
"It is a middle-market community with a growing economy and has a sophisticated base of people, but the institutions there do not have a lot of sophisticated financial offerings," Carter said. "We literally went through our 45 offices and plotted where we thought we could replicate a Fort Collins-like experience."
First Western's focus on private banking puts it in a coveted position for community banks because 53% of its revenue comes from fees. Fees often contribute 20% to 25% of revenues. The combined company should see fees making up 40% of pro forma revenues.
The deal rationale, however, is not totally about First Western's private banking prowess. While it has done well on the private banking side, its loans of $474 million were essentially flat at the end of the second quarter from the previous quarter and a year earlier, according to data from the Federal Deposit Insurance Corp.
The bank is being cautious, Wylie said. Borrowers want long-term fixed rates, and First Western has traditionally been a floating-rate lender. Also, the bank's size and lending limits have also been constraining given the growth in Denver.
His comments echo those made by Bob Malone, chief executive of the $525 million-asset Steele Street Bank & Trust in Denver, which agreed to sell to MidFirst Bank in June.
Sunflower, meanwhile, had loans of $1.02 billion at the end of the second quarter, up nearly 15% from a year earlier.
"What we are finding is that loan growth is out there for banks that are ready for it," Carter said. "It is about getting the right bankers in the right markets."
Observers praised the deal, given how the companies are playing off the other's strengths.
"First Western is so strong in trust and money management, but they don't have a bank with a lot of scale," said Bob Wray, president and chief executive of The Capital Corp., an M&A firm in Overland Park, Kan. "And Sunflower has a lot of scale for a community bank, but not the scale in trust."
The two CEOs met about a year and half ago, Carter said, and at first the conversations were mostly about getting to know each other's organizations since they both had operations in Denver. Over time, the conversations evolved into how the companies could look together.
It was not an obvious pairing, Wylie said. For bankers, it is perhaps an important reminder of how opposites can attract.
"Usually in dealmaking, you take an obvious idea and see if it really makes sense," Wylie said. "For us, it was more like, 'Yeah, this could be interesting, but there are lots of questions.' But as we got serious about it three or four months ago, we saw a lot of synergy that on the surface was not there initially. I wish I could say I saw that vision."
The deal would give Sunflower more scale in Colorado, too. The company has had a presence in the southern part of the state for several years and last year opened three branches in the northern part, including Denver. Carter said she was open to opportunities, but the company did not feel the need to rapidly expand in Denver through an acquisition.
"We felt that we had enough organic growth potential," Carter said.
Still, other observers said the combination should make Sunflower a formidable competitor in Denver.
"This strikes me as a perfect merger," said Ernest Panasci, a partner in the Denver office of Stinson Leonard Street, which was not involved in the deal. "They are going to be a force in the Denver metro area."