Reduced Deposit Costs And New Talent Will Create Future Success

Key Takeaways

• Reduction in deposit costs and improved asset quality are expected to enhance net interest margins and drive revenue growth.
  
• Strategic initiatives in sales, marketing, and talent acquisition aim to boost noninterest income and strengthen future earnings.
  
• Macroeconomic uncertainties and operational risks could hinder growth in loans, deposits, and noninterest income, affecting First Western Financial's revenue and earnings.

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.

• Expansion in net interest margin driven by successful reduction in deposit costs and higher average yield on interest-earning assets, expected to continue benefiting revenue growth.
  
• Increased productivity from new additions to the banking team contributing to solid loan production and potentially boosting future revenue.
  
• Improved asset quality with a decline in nonperforming assets expected to stabilize, reducing risk and potentially increasing net margins.
  
• Sales and marketing changes, coupled with new talent acquisitions, particularly in Wealth Planning, anticipated to drive revenue growth and contribute positively to future earnings.
  
• A strategic focus on growing noninterest income through the trust and investment management business, potentially enhancing earnings and net margins.

First Western Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming First Western Financial's revenue will grow by 13.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.1% today to 23.8% in 3 years time.
• Analysts expect earnings to reach $32.2 million (and earnings per share of $3.2) by about May 2028, up from $10.1 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 8.1x on those 2028 earnings, down from 19.5x today. This future PE is lower than the current PE for the US Banks industry at 11.0x.
• Analysts expect the number of shares outstanding to grow by 0.86% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

First Western Financial Future Earnings Per Share Growth

Risks

• The macroeconomic uncertainty and potential impact of tariffs could lead to reduced loan demand, affecting First Western Financial's anticipated loan growth and consequently impacting future revenue.
  
• The minimal growth in assets under management (AUM) and recent net withdrawals in the trust and investment management segment could potentially limit future growth in noninterest income.
  
• The expectations of flat or lower deposit balances in the second quarter, driven by seasonally related outflows, could result in limited growth in net interest margin and hence net interest income.
  
• The continued increase in competition and the need for strategic hiring to maintain growth might lead to higher expenses if new hires are not accretive to earnings quickly enough, affecting net margins.
  
• The resolution of nonperforming assets (NPAs) and reliance on a few significant hires to drive growth indicates potential operational risks, which, if unresolved or not effectively leveraged, could impact overall financial performance and earnings.

Valuation

• The analysts have a consensus price target of $24.333 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 $135.1 million, earnings will come to $32.2 million, and it would be trading on a PE ratio of 8.1x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $20.43, the analyst price target of $24.33 is 16.0% 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.