Digital Banking And Demographic Shifts Will Redefine Wealth Management

Key Takeaways

• Expansion in wealth management, trust, and estate services positions the company for long-term growth amid favorable demographic and market trends.
  
• Digital adoption and targeted Western U.S. expansion drive operating leverage, organic growth, and greater revenue diversification.
  
• Intensifying competition, fee income pressures, rapid loan growth, mortgage market weakness, and regional credit risks threaten profitability, revenue growth, and earnings stability.

Catalysts

A financial holding company, provides wealth advisory, private banking, personal trust, investment management, mortgage lending, and institutional asset management services to individual and corporate clients.

• Ongoing growth in U.S. household wealth and the pending generational wealth transfer are expanding First Western's target market for wealth management and private banking, supporting future growth in assets under management and fee income.
  
• The demographic shift towards an aging population is boosting demand for trust, estate, and financial planning services-a key focus of First Western's PTIM division and an area now prioritized for accelerated expansion-providing a long-term tailwind for advisory revenue.
  
• Increased adoption of digital and hybrid banking solutions among high-net-worth clients enables First Western to scale efficiently-evidenced by stable expenses amid revenue growth-driving operating leverage and long-term margin improvement.
  
• The company's deepening presence in underbanked Western U.S. markets through strategic hiring and expansion is resulting in strong organic loan and deposit growth, which is expected to lift net interest income and overall earnings.
  
• Investments in technology and new business channels (such as the B2B initiative in planning/treasury) are expected to broaden fee-based revenue streams and improve client retention, enhancing earnings stability and long-term profitability.

First Western Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming First Western Financial's revenue will grow by 13.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.4% today to 23.2% in 3 years time.
• Analysts expect earnings to reach $31.6 million (and earnings per share of $3.16) by about August 2028, up from $11.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.1x on those 2028 earnings, down from 18.4x today. This future PE is lower than the current PE for the US Banks industry at 11.4x.
• Analysts expect the number of shares outstanding to grow by 0.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.6%, as per the Simply Wall St company report.

First Western Financial Future Earnings Per Share Growth

Risks

• Increasing competition in the regional banking sector for both loans and deposits could pressure First Western Financial's net interest margins and limit pricing power, which may in turn constrain revenue growth and profitability.
  
• The persistent decline in higher-margin trust and investment management (PTIM) fees, as clients shift toward lower-margin services, poses a risk to noninterest income and overall earnings scalability, despite management's stated turnaround efforts.
  
• The company's loan growth strategy, while currently diversified, has seen significant acceleration; rapid expansion in the loan book increases credit risk, and dependency on continued "healthy economic conditions" in narrow geographic markets exposes earnings to downturns or localized shocks.
  
• The industry-wide weakness in the mortgage market has outweighed First Western's investment in mortgage loan officers, and the ongoing market and interest rate uncertainty could continue to limit mortgage origination growth, negatively impacting fee income and revenue mix.
  
• Reliance on stable or improving asset quality assumes that current market conditions and borrower confidence will persist, but any deterioration-especially given modest increases in non-performing loans and the company's regional focus-could result in higher credit losses and reduced earnings.

Valuation

• The analysts have a consensus price target of $25.667 for First Western Financial based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $136.3 million, earnings will come to $31.6 million, and it would be trading on a PE ratio of 9.1x, assuming you use a discount rate of 7.6%.
• Given the current share price of $21.92, the analyst price target of $25.67 is 14.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.