Transcript Western Financial Group 2008 Year End Financial Results Conference Call March 20, 2009

Western Financial Group
2008 Year End Financial Results
Conference Call
March 20, 2009
Forward-Looking Statements
This presentation contains certain forward-looking statements. Forward-looking statements include, without
limitation, statements regarding the future financial position, business strategy, budgets, litigation, projected
costs, capital expenditures, financial results, taxes and plans and objectives of or involving Western
Financial Group Inc. (the “Company”) or its subsidiaries. Many of these statements can be identified by
looking for words such as ‘‘believe’’, ‘‘expects’’, ‘‘expected’’, ‘‘will’’, ‘‘intends’’, ‘‘projects’’, ‘‘anticipates’’,
‘‘estimates’’, ‘‘continues’’ or similar words. The Company believes the expectations reflected in such
forward-looking statements are reasonable but no assurance can be given that these expectations will
prove to be correct and such forward-looking statements should not be unduly relied upon. Forwardlooking statements are not guarantees of future performance and involve a number of risks and
uncertainties only some of which are described herein. Many factors could cause the Company’s actual
results, performance or achievements to, or future events or developments to, differ materially from those
expressed or implied by the forward-looking statements, including, without limitation, the risk factors, which
are discussed in greater detail in the ‘‘Risk Factors’’ section of the prospectus. Any forward-looking
statements are made as of the date hereof and the Company does not assume any obligation to publicly
update or revise such statements to reflect new information, subsequent events or otherwise.
Non-GAAP Measures
Throughout this presentation, the Company may use the term ‘‘operating income’’ to refer to earnings,
including investment income, before interest expense, taxes, depreciation and amortization of intangible
and capital assets, excluding gain (loss) from the sale of assets and income (loss) from equity investments.
The Company uses ‘‘operating income’’ to assist it in measuring corporate performance before the costs of
capital and amortization of capital and intangible assets. Operating income is not a measure recognized by
GAAP and does not have a standardized meaning prescribed by GAAP. Therefore, this measure may not
be comparable to similar measures presented by other issuers and investors are cautioned that it should
not be used as an alternative to ‘‘net income’’ or other measures of financial performance
calculated in accordance with GAAP.
Today’s Remarks
• Operational progress in 2008
• Top achievements and disappointments in
2008
• 2008 financial review
• Priorities for 2009
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Operational Progress in 2008
WFG Agency Network
• Same store customer count +3.5%
• Same store sales +8.9%
• Soft pricing market continued - bottomed out
in Q4
• Deteriorating loss ratios at insurance
companies in 2nd half cause adjustment of
$1.0 million to 2008 profit share commission
estimates
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WFG Agency Network
Acquisitions:
•
•
•
•
•
•
•
Southern
Simpson
Woodland
Dunn
Vet’s
Boyd
Bakes-Jarvie (Jan 1/09)
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Western Life Assurance
• Sales and production increases – all lines
• Certificate count growth 11.5% in 2008
• Bolt-on product for network is at 6,400+ policies.
Target was 20,000 by Q2/08, extended through
2008 Y/E - has flattened. Target of 7,500 for Y/E
2009
• Western & Affiliates account for $3.2 million of 2008
net premium revenue
• Smooth CEO transition
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Bank West
• Loan book stable at $273.4 MM – capacity
held for AgriFinancial
• AgriFinancial will add $80 MM in 2009
• Non-performing loans – 1.2% at year end
• Specific provisions at 37 bps
• Overspent on new banking platform
• Bruce Ratzlaff takes helm in November
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Top 2 Achievements in 2008
Top 2 Achievements in 2008
• Strong market share gains at Network
• Cross sales between WFG/Western Life
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Top 4 Disappointments in 2008
Top 4 Disappointments in 2008
• “Lost Year” at Bank West – delay in
AgriFinancial approvals
• Equity portfolio write-downs – liberalization of
policies aggravated the loss
• Execution delays on acquisitions
• Collapse of share price
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2008 Financial Review
Total Revenue
140
125
($ Millions)
120
CAGR 25.7%
114
100
83
80
64
60
40
20
20
22
28
33
42
0
0
1
2
3
4
5
6
7
8
0
0
0
0
0
0
0
0
0
20
20
20
20
20
20
20
20
20
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Overall
Revenue ($)
Income from Equity Investments ($)
Net Income ($)
Earnings per share ($) – Basic
– Diluted
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2008
2007
124,855
2,172
6,548
0.05
0.05
114,126
2,172
12,213
0.24
0.22
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The Network
2008
75,424
2007
66,408
Operating expenses ($)
54,710
46,613
Operating income ($)
20,714
19,795
Commission & other
customer revenue ($)
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Bank West
2008
2007
18,596
13,805
Net interest & investment income ($)
6,041
4,596
Operating & provision expenses ($)
4,804
3,506
Operating income/loss ($)
1,237
1,090
Interest & investment income ($)
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Non Performing Loans
Personal
$604,009
Commercial
Mortgages
$10,992
$1,303,180
Leases
$940,185
TOTAL
$2,858,366
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Western Life Assurance
Investment income ($)
2008
31,309
1,614
2007
27,348
2,748
Policyholder benefits ($)
14,789
13,934
Operating expenses ($)
13,907
12,102
4,227
4,060
(2,505)
-
Premium income ($)
Operating income ($)
Impairment on AFS Investments
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Corporate & All Other
Other revenues ($)
2008
1,959
2007
3,817
Operating expenses ($)
9,223
9,130
Operating loss ($)
(7,264)
(5,313)
Impairment on AFS Investments
(1,542)
-
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9
8
7
6
5
4
3
2
1
0
7.2
7.5
8.3
8.1
7.9
8.1
5.6
1.9
1.8
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
Percent
Western Financial Group
Historical Consolidated ROE
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Earnings Per Share
0.3
0.24
0.25
0.18
0.2
0.17
0.22
0.15
0.1
0.08
0.08
0.11
0.05
0.05
0.03
0
0
1
2
3
4
5
6
7
8
0
0
0
0
0
0
0
0
0
20
20
20
20
20
20
20
20
20
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What Could Have Been…
2008
Net income before the following:
$15,122
Short fall in contingent
(1,000)
Reduction in equity investment income
(1,500)
Reduction in dividends
(1,700)
Impairment on equity investments
(2,053)
Impairment of AFS preferred shares
(1,325)
Impairment of AFS equities
(2,505)
Change in tax expense
1,509
Net income for the year
6,548
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Priorities for 2009
2009 Priorities
• Manage NPLs at Bank West
• Internal growth focus – same store sales, cross
sales, PPCA
• Increasing ownership in partner company – HED
• Managing costs
• Re-establishing profitability
• Enhancing brand and reputation
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Questions
…because we live here.