New Banking Team And Wealth Management Will Drive Future Success

Key Takeaways

• Loan production growth and improved deposit strategies suggest potential revenue increase and enhanced future earnings.
  
• Expanding wealth management and insurance services aim to boost noninterest income, while conservative expense management enhances operating leverage and financial performance.
  
• Declines in assets and income, alongside rising costs and loan reductions, highlight potential risks to revenue growth and net margins for First Western Financial.

Catalysts

A financial holding company, provides wealth advisory, private baking, personal trust, investment management, mortgage lending, and institutional asset management services.

• First Western Financial's loan production is increasing due to additions to their banking team, indicating potential growth in revenue from higher loan generation.
  
• Success in deposit gathering with expanded client relationships and reduced deposit costs could lead to improved net interest margins and enhance future earnings.
  
• Resolution of large nonperforming asset sales, such as the ranch under contract, may free up capital for more productive interest-earning assets, potentially increasing future revenue.
  
• Efforts in expanding wealth management and insurance services are expected to drive higher noninterest income, contributing positively to earnings.
  
• Conservative expense management, combined with revenue growth and strategic investments, is likely to create operating leverage, potentially enhancing net margins and improving overall financial performance.

First Western Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming First Western Financial's revenue will grow by 17.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.1% today to 23.0% in 3 years time.
• Analysts expect earnings to reach $29.6 million (and earnings per share of $2.99) by about January 2028, up from $2.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.6x on those 2028 earnings, down from 79.6x today. This future PE is lower than the current PE for the US Banks industry at 12.3x.
• Analysts expect the number of shares outstanding to grow by 0.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.45%, as per the Simply Wall St company report.

First Western Financial Future Earnings Per Share Growth

Risks

• The company experienced a $145 million decrease in assets under management due to net withdrawals and lower market values in Q4 2024, potentially impacting future revenue growth.
  
• A write-down in Other Real Estate Owned (OREO) assets resulted in a negative earnings per share impact, which may indicate potential future risks to net margins due to asset quality issues.
  
• The company's noninterest income dropped due to a decline in gains from the sale of mortgage loans, signaling potential vulnerability in revenues if mortgage demand remains inconsistent.
  
• Costs rose by $1 million, attributed to the OREO write-down, indicating possible challenges in maintaining cost efficiency, which could affect net margins.
  
• C&I loans showed a significant decrease over the past year, which may impact future earnings if efforts to increase commercial lending do not yield expected results.

Valuation

• The analysts have a consensus price target of $23.5 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 $128.8 million, earnings will come to $29.6 million, and it would be trading on a PE ratio of 8.6x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of $20.63, the analyst's price target of $23.5 is 12.2% 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.