This is one of my favorite times of year as an investor: CEO letters—the ones that appear at the front of companies' annual reports—have begun to arrive in the mail. Most investors tend to flip right past the CEO's letter on their way to the financial statements in the back, on the assumption (often true) most letters are boilerplate that have been churned out by the public relations department. Not me. I read every word. The CEO's annual letter to shareholders is his one chance a year to step back and provide an explanation of the company's long-term strategy, and give an honest assessment of how it's executing against it. He can review the prior year, and tell shareholders what to expect in the upcoming one. For that matter, he can talk about anything he thinks it's important for his shareholders to know. It can be very telling which CEOs take full advantage of this once-a-year opportunity and which just go through the motions. My rough sense is that the CEOs who write the most thoughtful letters tend also to be the most capable.
We're only partly through CEO-letter season so far, but three that I've read stand out: the letters from Wells Fargo (WFC)
, M&T Bank Corp. (MTB)
, and Glacier Bancorp (GBCI)'
. All three are terrific, for slightly different reasons. At Wells, for instance, John Stumpf does great job of recapping the company's recent performance and tying it to its long-term strategy, which he lays out in detail. M&T's Bob Wilmers provides ahard-headed review of the company's results—but the highlight of the letter is the thoughtful, long-term analysis of the state of the banking industry he provides. It lays out pretty clearly how the industry ended up in the crisis it did in 2007. The letter should be required reading for anyone who's interested in understanding the credit crunch and preventing another one. Finally, Glacier Bancorp.'s Mick Blodnick gives shareholders a candid assessment of how Glacier is doing as it works it way through the bottom of the credit cycle, and a candid assessment, too, of the long-term state of the banking industry. His tone is neither too optimistic nor too pessimistic just candidly forthright. You can tell he writes the letter himself.
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Let's take Blodnick's letter first. Glacier, like most banks its size, took some lumps on the real estate side during the recession. OREO costs hit hard in 2011, and Blodnick makes plain that they will again in 2012.