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2019-01-31 iso4217:USD xbrli:pure iso4217:USD xbrli:shares
xbrli:shares nwli:benefit_plan nwli:security nwli:year
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the
Quarterly Period Ended
March 31, 2020
☐ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d)
OFTHE SECURITIES
EXCHANGE ACT OF 1934
For the
transition period from __________ to __________
Commission File
Number: 000-55522
NATIONAL
WESTERN LIFE GROUP, INC.
(Exact name of
Registrant as specified in its charter)
|
|
|
|
|
Delaware
|
|
|
47-3339380
|
(State or Other Jurisdiction
of Incorporation)
|
|
|
(IRS Employer Identification
No.)
|
|
|
|
|
|
|
10801
N. Mopac Expy Bldg 3
|
|
|
Austin,
|
Texas
|
|
|
78759
|
|
(512)
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836-1010
|
(Address of Principal
Executive Offices) (Zip Code)
|
|
(Telephone Number, including
area code)
|
Securities
registered pursuant to Section 12 (b) of the Act:
|
|
|
|
|
|
Title of each class to be so
registered:
|
|
Trading Symbol
|
|
Name of each exchange on
which
each class is to be
registered:
|
Class
A Common Stock, $0.01 par value
|
|
NWLI
|
|
The
NASDAQ Stock Market LLC
|
Indicate by check
mark whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days: Yes ☒ No
☐
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). : Yes ☒ No
☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See definition
of "accelerated filer." "large accelerated filer," and "emerging
growth company" in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ☒ Accelerated
filer ☐ Non-accelerated
filer (Do not check if a smaller reporting company)
☐ Smaller reporting
company ☐
Emerging growth
company ☐
If an emerging
growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange
Act). Yes ☐ No ☒
As of
May 8,
2020, the
number of shares of Registrant's common stock outstanding was:
Class A – 3,436,020
and Class B
- 200,000.
|
|
|
TABLE OF
CONTENTS
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020 (Unaudited)
and December 31, 2019
|
|
|
|
For the Three Months Ended
March 31, 2020 and 2019 (Unaudited)
|
|
|
|
For the Three Months Ended
March 31, 2020 and 2019 (Unaudited)
|
|
|
|
For the Three Months Ended
March 31, 2020 and 2019 (Unaudited)
|
|
|
|
For the Three Months Ended
March 31, 2020 and 2019 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
PART
I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
NATIONAL
WESTERN LIFE GROUP, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands)
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
ASSETS
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
|
Investments:
|
|
|
|
Debt securities held to
maturity, at amortized cost, net of allowance for credit losses
($6,039 and $0; fair value: $7,181,687 and $7,407,703)
|
$
|
6,990,041
|
|
|
7,106,245
|
|
Debt securities available for
sale, at fair value (cost: $3,206,357 and $3,206,120)
|
3,174,260
|
|
|
3,356,945
|
|
Mortgage loans, net of
allowance for credit losses ($1,885 and $675)
|
276,083
|
|
|
272,422
|
|
Policy loans
|
78,036
|
|
|
80,008
|
|
Derivatives, index
options
|
24,335
|
|
|
157,588
|
|
Equity securities, at fair
value (cost: $15,246 and $16,894)
|
15,984
|
|
|
23,594
|
|
Other long-term
investments
|
66,152
|
|
|
62,090
|
|
|
|
|
|
Total
investments
|
10,624,891
|
|
|
11,058,892
|
|
|
|
|
|
Cash and cash
equivalents
|
352,215
|
|
|
253,525
|
|
Deferred policy acquisition
costs
|
782,904
|
|
|
723,972
|
|
Deferred sales
inducements
|
114,171
|
|
|
104,359
|
|
Value of business
acquired
|
135,879
|
|
|
138,071
|
|
Accrued investment
income
|
95,780
|
|
|
93,298
|
|
Federal income tax
receivable
|
13,282
|
|
|
—
|
|
Other assets
|
165,300
|
|
|
181,330
|
|
|
|
|
|
Total assets
|
$
|
12,284,422
|
|
|
12,553,447
|
|
See accompanying
notes to Condensed Consolidated Financial Statements
(unaudited).
NATIONAL
WESTERN LIFE GROUP, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except share amounts)
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
Future policy
benefits:
|
|
|
|
Universal life and annuity
contracts (Note 1)
|
$
|
9,125,612
|
|
|
9,303,233
|
|
Traditional life
reserves
|
842,551
|
|
|
838,738
|
|
Other policyholder
liabilities
|
134,579
|
|
|
127,607
|
|
Deferred Federal income tax
liability (Note 1)
|
30,438
|
|
|
36,767
|
|
Federal income tax
payable
|
—
|
|
|
3,748
|
|
Other
liabilities
|
120,764
|
|
|
126,924
|
|
|
|
|
|
Total
liabilities
|
10,253,944
|
|
|
10,437,017
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
(Note 8)
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY:
|
|
|
|
|
|
|
|
|
|
Common stock:
|
|
|
|
|
|
Class A - $.01 par value;
7,500,000 shares authorized; 3,436,020 issued and outstanding in
2020 and 2019
|
34
|
|
|
34
|
|
Class B - $.01 par value;
200,000 shares authorized, issued, and outstanding in 2020 and
2019
|
2
|
|
|
2
|
|
Additional paid-in
capital
|
41,716
|
|
|
41,716
|
|
Accumulated other
comprehensive income (loss)
|
(20,750
|
)
|
|
60,108
|
|
Retained earnings (Note
1)
|
2,009,476
|
|
|
2,014,570
|
|
|
|
|
|
Total stockholders’
equity
|
2,030,478
|
|
|
2,116,430
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$
|
12,284,422
|
|
|
12,553,447
|
|
Note: The
Condensed Consolidated Balance Sheet at
December 31, 2019 has been derived from the
audited Consolidated Financial Statements as of that
date.
See accompanying
notes to Condensed Consolidated Financial Statements
(unaudited).
NATIONAL
WESTERN LIFE GROUP, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
For the
Three Months Ended
March 31, 2020 and
2019
(Unaudited)
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Premiums and other
revenues:
|
|
|
|
Universal life and annuity
contract charges
|
$
|
35,306
|
|
|
37,953
|
|
Traditional life
premiums
|
23,522
|
|
|
17,583
|
|
Net investment income
(loss)
|
(13,478
|
)
|
|
151,331
|
|
Other revenues
|
3,653
|
|
|
6,413
|
|
Net realized investment gains
(losses):
|
|
|
|
|
|
Total other-than-temporary
impairment (“OTTI”) gains (losses)
|
2
|
|
|
3
|
|
Portion of OTTI (gains)
losses recognized in other comprehensive income
|
(2
|
)
|
|
(3
|
)
|
Net OTTI losses recognized in
earnings
|
—
|
|
|
—
|
|
Other net investment gains
(losses)
|
3,485
|
|
|
4,629
|
|
Total net realized investment
gains (losses)
|
3,485
|
|
|
4,629
|
|
Total revenues
|
52,488
|
|
|
217,909
|
|
|
|
|
|
Benefits and
expenses:
|
|
|
|
|
|
Life and other policy
benefits
|
33,634
|
|
|
28,189
|
|
Amortization of deferred
policy acquisition costs and value of business
acquired
|
30,037
|
|
|
32,164
|
|
Universal life and annuity
contract interest
|
(28,026
|
)
|
|
80,916
|
|
Other operating
expenses
|
19,822
|
|
|
26,049
|
|
|
|
|
|
Total benefits and
expenses
|
55,467
|
|
|
167,318
|
|
|
|
|
|
Earnings (loss) before
Federal income taxes
|
(2,979
|
)
|
|
50,591
|
|
|
|
|
|
Federal income
taxes
|
(917
|
)
|
|
10,393
|
|
|
|
|
|
Net earnings
(loss)
|
$
|
(2,062
|
)
|
|
40,198
|
|
|
|
|
|
Basic earnings (loss) per
share:
|
|
|
|
|
|
Class A
|
$
|
(0.58
|
)
|
|
$
|
11.37
|
|
Class B
|
$
|
(0.29
|
)
|
|
$
|
5.68
|
|
|
|
|
|
Diluted earnings (loss) per
share:
|
|
|
|
|
|
Class A
|
$
|
(0.58
|
)
|
|
$
|
11.37
|
|
Class B
|
$
|
(0.29
|
)
|
|
$
|
5.68
|
|
See accompanying
notes to Condensed Consolidated Financial Statements
(unaudited).
NATIONAL
WESTERN LIFE GROUP, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the
Three Months Ended
March 31, 2020 and
2019
(Unaudited)
(In
thousands)
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Net earnings
(loss)
|
$
|
(2,062
|
)
|
|
40,198
|
|
|
|
|
|
Other comprehensive income
(loss), net of effects of deferred costs and taxes:
|
|
|
|
|
|
Unrealized gains (losses) on
securities:
|
|
|
|
|
|
Net unrealized holding gains
(losses) arising during period
|
(78,153
|
)
|
|
42,743
|
|
Net unrealized liquidity
gains (losses)
|
1
|
|
|
1
|
|
Reclassification adjustment
for net amounts included in net earnings
|
(601
|
)
|
|
(868
|
)
|
|
|
|
|
Net unrealized gains (losses)
on securities
|
(78,753
|
)
|
|
41,876
|
|
|
|
|
|
Foreign currency translation
adjustments
|
(39
|
)
|
|
553
|
|
|
|
|
|
Benefit plans:
|
|
|
|
|
|
Amortization of net prior
service cost and net gain (loss)
|
(2,066
|
)
|
|
(504
|
)
|
|
|
|
|
Other comprehensive income
(loss)
|
(80,858
|
)
|
|
41,925
|
|
|
|
|
|
Comprehensive income
(loss)
|
$
|
(82,920
|
)
|
|
82,123
|
|
See accompanying
notes to Condensed Consolidated Financial Statements
(unaudited).
NATIONAL
WESTERN LIFE GROUP, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY
For the
Three Months Ended March 31, 2020 and 2019
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Common stock:
|
|
|
|
Balance at beginning of
period
|
$
|
36
|
|
|
36
|
|
Shares exercised under stock
option plan
|
—
|
|
|
—
|
|
|
|
|
|
Balance at end of
period
|
36
|
|
|
36
|
|
|
|
|
|
Additional paid-in
capital:
|
|
|
|
|
|
Balance at beginning of
period
|
41,716
|
|
|
41,716
|
|
Shares exercised under stock
option plan
|
—
|
|
|
—
|
|
|
|
|
|
Balance at end of
period
|
41,716
|
|
|
41,716
|
|
|
|
|
|
Accumulated other
comprehensive income (loss):
|
|
|
|
|
|
Unrealized gains (losses) on
non-impaired securities:
|
|
|
|
|
|
Balance at beginning of
period
|
70,665
|
|
|
(30,286
|
)
|
Change in unrealized gains
(losses) during period, net of tax
|
(78,754
|
)
|
|
41,875
|
|
|
|
|
|
Balance at
end of period
|
(8,089
|
)
|
|
11,589
|
|
|
|
|
|
Unrealized losses on impaired
held to maturity securities:
|
|
|
|
|
|
Balance at beginning of
period
|
(4
|
)
|
|
(7
|
)
|
Cumulative effect of change
in accounting principle
|
—
|
|
|
—
|
|
Amortization
|
2
|
|
|
2
|
|
Other-than-temporary
impairments, non-credit, net of tax
|
—
|
|
|
—
|
|
Additional credit loss on
previously impaired securities
|
—
|
|
|
—
|
|
Change in shadow deferred
policy acquisition costs
|
(1
|
)
|
|
(1
|
)
|
|
|
|
|
Balance at
end of period
|
(3
|
)
|
|
(6
|
)
|
|
|
|
|
Unrealized losses on impaired
available for sale securities:
|
|
|
|
|
|
Balance at beginning of
period
|
(2
|
)
|
|
(2
|
)
|
Other-than-temporary
impairments, non-credit, net of tax
|
—
|
|
|
—
|
|
Change in shadow deferred
policy acquisition costs
|
—
|
|
|
—
|
|
Recoveries, net of
tax
|
—
|
|
|
—
|
|
|
|
|
|
Balance at end of
period
|
(2
|
)
|
|
(2
|
)
|
|
|
|
|
|
Continued on Next
Page
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NATIONAL
WESTERN LIFE GROUP, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES
IN
STOCKHOLDERS' EQUITY (continued)
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Foreign currency translation
adjustments:
|
|
|
|
|
|
Balance at beginning of
period
|
5,101
|
|
|
4,577
|
|
Change in translation
adjustments during period
|
(39
|
)
|
|
553
|
|
|
|
|
|
Balance at end of
period
|
5,062
|
|
|
5,130
|
|
|
|
|
|
Benefit plan liability
adjustment:
|
|
|
|
|
|
Balance at beginning of
period
|
(15,652
|
)
|
|
(11,297
|
)
|
Amortization of net prior
service cost and net loss, net of tax
|
(2,066
|
)
|
|
(504
|
)
|
|
|
|
|
Balance at end of
period
|
(17,718
|
)
|
|
(11,801
|
)
|
|
|
|
|
Accumulated other
comprehensive income (loss) at end of period
|
(20,750
|
)
|
|
4,910
|
|
|
|
|
|
Retained
earnings:
|
|
|
|
Balance at
beginning of period
|
2,014,570
|
|
|
1,896,040
|
|
Cumulative effect of change
in accounting principle, net of tax (Note 2)
|
(3,032
|
)
|
|
—
|
|
Net
earnings (loss)
|
(2,062
|
)
|
|
40,198
|
|
|
|
|
|
Balance at end of period
(Note 1)
|
2,009,476
|
|
|
1,936,238
|
|
|
|
|
|
Total stockholders'
equity
|
$
|
2,030,478
|
|
|
1,982,900
|
|
See accompanying
notes to Condensed Consolidated Financial Statements
(unaudited).
NATIONAL
WESTERN LIFE GROUP, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the
Three Months Ended March 31, 2020 and 2019
(Unaudited)
(In
thousands)
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
Net earnings
(loss)
|
$
|
(2,062
|
)
|
|
40,198
|
|
Adjustments to reconcile net
earnings to net cash from operating activities:
|
|
|
|
|
|
Universal life and annuity
contract interest
|
(28,026
|
)
|
|
80,916
|
|
Surrender charges and other
policy revenues
|
(7,450
|
)
|
|
(8,049
|
)
|
Realized (gains) losses on
investments
|
(3,485
|
)
|
|
(4,629
|
)
|
Accretion/amortization of
discounts and premiums, investments
|
850
|
|
|
490
|
|
Depreciation and
amortization
|
2,885
|
|
|
4,455
|
|
Increase (decrease) in
estimated credit losses on investments
|
3,411
|
|
|
—
|
|
(Increase) decrease in value
of equity securities
|
5,816
|
|
|
(1,951
|
)
|
(Increase) decrease in value
of derivatives
|
106,629
|
|
|
(42,003
|
)
|
(Increase) decrease in
deferred policy acquisition and sales inducement costs, and value
of business acquired
|
16,681
|
|
|
20,342
|
|
(Increase) decrease in
accrued investment income
|
(2,482
|
)
|
|
(3,195
|
)
|
(Increase) decrease in other
assets
|
9,399
|
|
|
(1,790
|
)
|
Increase (decrease) in
liabilities for future policy benefits
|
6,357
|
|
|
(776
|
)
|
Increase (decrease) in other
policyholder liabilities
|
6,972
|
|
|
(753
|
)
|
Increase (decrease) in
Federal income tax liability
|
(17,030
|
)
|
|
19,114
|
|
Increase (decrease) in
deferred Federal income tax
|
15,971
|
|
|
(8,823
|
)
|
Increase (decrease) in other
liabilities
|
(8,775
|
)
|
|
(4,142
|
)
|
|
|
|
|
Net cash provided by
operating activities
|
105,661
|
|
|
89,404
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
Proceeds from sales
of:
|
|
|
|
|
|
Debt securities available for
sale
|
—
|
|
|
73,257
|
|
Other
investments
|
9,565
|
|
|
13,193
|
|
Proceeds from maturities and
redemptions of:
|
|
|
|
|
|
Debt securities held to
maturity
|
187,973
|
|
|
137,732
|
|
Debt securities available for
sale
|
93,326
|
|
|
55,569
|
|
Derivatives, index
options
|
52,973
|
|
|
3,047
|
|
Purchases of:
|
|
|
|
|
|
Debt securities held to
maturity
|
(75,836
|
)
|
|
(20,690
|
)
|
Debt securities available for
sale
|
(92,963
|
)
|
|
(20,474
|
)
|
Equity
securities
|
(488
|
)
|
|
(262
|
)
|
Derivatives, index
options
|
(22,403
|
)
|
|
(18,264
|
)
|
Other
investments
|
(11,446
|
)
|
|
(6,908
|
)
|
Property and
equipment
|
(58
|
)
|
|
(77
|
)
|
Payment to acquire
businesses, net of cash acquired
|
—
|
|
|
(189,120
|
)
|
|
|
|
|
|
Continued on Next
Page
|
|
|
|
|
|
|
|
|
|
NATIONAL
WESTERN LIFE GROUP, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the
Three Months Ended March 31, 2020 and 2019
(Unaudited)
(In
thousands)
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Principal payments on
mortgage loans
|
2,149
|
|
|
15,171
|
|
Cost of mortgage loans
acquired
|
(6,996
|
)
|
|
(17,271
|
)
|
Decrease (increase) in policy
loans
|
1,972
|
|
|
1,690
|
|
|
|
|
|
Net cash provided by (used
in) investing activities
|
137,768
|
|
|
26,593
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
Deposits to account balances
for universal life and annuity contracts
|
117,682
|
|
|
92,153
|
|
Return of account balances on
universal life and annuity contracts
|
(262,371
|
)
|
|
(248,890
|
)
|
Borrowings under line of
credit agreement
|
—
|
|
|
75,000
|
|
Principal payments on line of
credit borrowings
|
—
|
|
|
(75,000
|
)
|
|
|
|
|
Net cash provided by (used
in) financing activities
|
(144,689
|
)
|
|
(156,737
|
)
|
|
|
|
|
Effect of foreign
exchange
|
(50
|
)
|
|
700
|
|
|
|
|
|
Net increase (decrease) in
cash, cash equivalents, and restricted cash
|
98,690
|
|
|
(40,040
|
)
|
Cash, cash equivalents, and
restricted cash at beginning of period
|
253,525
|
|
|
131,976
|
|
|
|
|
|
Cash, cash equivalents and
restricted cash at end of period
|
$
|
352,215
|
|
|
91,936
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash paid (received) during
the period for:
|
|
|
|
|
|
Interest
|
$
|
19
|
|
|
19
|
|
Income taxes
|
$
|
1
|
|
|
1
|
|
|
|
|
|
Noncash operating
activities:
|
|
|
|
Net
deferral and amortization of sales inducements
|
$
|
(3,360
|
)
|
|
(4,105
|
)
|
|
|
|
|
Noncash investing and
financing activities:
|
|
|
|
Contingent consideration to
acquire businesses
|
$
|
—
|
|
|
3,700
|
|
See accompanying
notes to Condensed Consolidated Financial Statements
(unaudited).
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
(1)
|
CONSOLIDATION
AND BASIS OF PRESENTATION
|
The accompanying
unaudited Condensed Consolidated Financial Statements have been
prepared in accordance with U.S. generally accepted accounting
principles ("GAAP") for interim financial information and the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by GAAP for annual financial statements. In the
opinion of management, the accompanying Condensed Consolidated
Financial Statements contain all adjustments necessary to present
fairly the financial position of National Western Life Group, Inc.
("NWLGI") and its wholly owned subsidiaries (“Company”) as
of
March 31, 2020, and the results of its
operations and its cash flows
for the three months ended
March 31, 2020 and March 31,
2019. Such
adjustments are of a normal recurring nature. The results of
operations for the
three months ended
March 31, 2020 are not necessarily
indicative of the results to be expected for the full year. It is
recommended that these Condensed Consolidated Financial Statements
be read in conjunction with the audited consolidated financial
statements and notes included in the Company's Annual Report on
Form 10-K for the year ended
December 31, 2019 which is accessible free of
charge through the Company's internet site at www.nwlgi.com
or the Securities
and Exchange Commission internet site at www.sec.gov.
The Condensed Consolidated Balance Sheet at
December 31, 2019 has been derived from the
audited consolidated financial statements as of that
date.
The accompanying
unaudited Condensed Consolidated Financial Statements include the
accounts of NWLGI and its wholly owned subsidiaries: National
Western Life Insurance Company ("NWLIC" or "National Western"),
Regent Care San Marcos Holdings, LLC, NWL Services, Inc., and
N.I.S. Financial Services, Inc. ("NIS"). National Western's wholly
owned subsidiaries include The Westcap Corporation, NWL Financial,
Inc., NWLSM, Inc., Braker P III, LLC, and Ozark National Life
Insurance Company ("Ozark National"). The results of operations for
Ozark National and NIS include their respective business activity
subsequent to their acquisition effective January 31, 2019. All
significant intercorporate transactions and accounts have been
eliminated in consolidation.
The preparation
of financial statements in accordance with GAAP requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosures of contingent assets and
liabilities, and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from
those estimates. Significant estimates in the accompanying
Condensed Consolidated Financial Statements include: (1)
liabilities for future policy benefits, (2) valuation of derivative
instruments, (3) recoverability and amortization of deferred policy
acquisition costs ("DPAC"), deferred sales inducements ("DSI") and
the value of business acquired ("VOBA"), (4) valuation allowances
for deferred tax assets, (5) goodwill, (6) allowances for credit
losses and other-than-temporary impairment losses on debt
securities, (7) commitments and contingencies, and (8) credit loss
and valuation allowances for mortgage loans and real estate. During
the first quarter of 2019, the Company incorporated accounting
estimates for business combinations, value of business acquired,
and fair value measurement as a result of its acquisition of Ozark
National and NIS.
Revision of
Prior Period Consolidated Financial Statements
During the first
quarter of 2020, management identified an understatement of an
excess benefit reserve on a specific block of policies that dated
back to the first quarter of 2004 with the adoption of the
Statement of Position 03-1, Accounting
and Reporting by Insurance Enterprises for Certain Nontraditional
Long-Duration Contracts and for Separate Accounts
(SOP 03-1).
Management concluded that this error was not material to previously
issued consolidated financial statements and would be corrected
through a revision to the comparative consolidated balance sheet
presented for the year ended December 31, 2019. The impact of this
revision as of December 31, 2019 was an increase to the future
policy benefits liability of $15.0
million, a decrease to deferred
federal income tax liability of $3.2
million, and a decrease to retained
earnings of $11.8
million.
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The table below shows the
unrealized gains and losses on available-for-sale securities that
were reclassified out of accumulated other comprehensive
income for
the three months ended March 31, 2020 and March 31,
2019.
|
|
|
|
|
|
|
|
|
Affected Line Item in
the
Statements of
Earnings
|
|
Amount Reclassified From
Accumulated Other Comprehensive Income
|
|
|
Three Months Ended March
31,
|
|
|
2020
|
|
2019
|
|
|
(In thousands)
|
|
|
|
|
|
Other net investment gains
(losses)
|
|
$
|
761
|
|
|
1,099
|
|
Net OTTI losses recognized in
earnings
|
|
—
|
|
|
—
|
|
Earnings before Federal
income taxes
|
|
761
|
|
|
1,099
|
|
Federal income
taxes
|
|
160
|
|
|
231
|
|
|
|
|
|
|
Net earnings
|
|
$
|
601
|
|
|
868
|
|
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
(2)
|
NEW
ACCOUNTING PRONOUNCEMENTS
|
Recent accounting pronouncements not yet adopted
In August 2018,
the FASB issued ASU 2018-12 Financial
Services-Insurance (Topic 944) - Targeted
Improvements to the Accounting for Long-Duration
Contracts.
This update is aimed at improving the Codification as it relates to
long-duration contracts which will improve the timeliness of
recognizing changes in the liability for future policy benefits,
simplify accounting for certain market-based options, simplify the
amortization of deferred acquisition costs, and improve the
effectiveness of required disclosures. Amendments include the
following:
A. Require
insurance entity to (1) review and update assumptions used to
measure cash flows at least annually (with changes recognized in
net income) and (2) update discount rate assumption at each
reporting date (with changes recognized in other comprehensive
income).
B. Require
insurance entity to measure all market risk benefits associated
with deposit (i.e. account balance) contracts at fair value, with
change in fair value attributable to change in instrument-specific
credit risk recognized in other comprehensive income.
C. Simplify
amortization of deferred acquisition costs and other balances
amortized in proportion to premiums, gross profits, or gross
margins and require those balances be amortized on constant level
basis over expected term of related contract. Deferred acquisition
costs are required to be written off for unexpected contract
terminations but are not subject to impairment test.
D. Require
insurance entity to add disclosures of disaggregated rollforwards
of beginning to ending balances of the liability for future policy
benefits, policyholder account balances, market risk benefits,
separate account liabilities, and deferred acquisition costs.
Insurance entity must also disclose information about significant
inputs, judgments, assumptions, and methods used in measurement,
including changes in those inputs, judgments, and assumptions, and
the effect of those changes on measurement.
These updates are
required to be applied retrospectively to the earliest period
presented in the financial statements for periods beginning after
December 15, 2021, with early adoption permitted. The Company has
performed a preliminary gap analysis and created a roadmap for
implementation of this standard by the effective date and is
evaluating the impact of the new guidance on its Consolidated
Financial Statements.
In December 2019,
the FASB issued ASU 2019-12 Income
Taxes - Simplifying the Accounting for Income Taxes (Topic
740),
which simplifies various aspects of the income tax accounting
guidance and will be applied using different approaches depending
on the specific amendment. The amendments will be effective for
fiscal periods beginning after December 15, 2020. Early adoption is
permitted. The Company does not expect this guidance to have a
material impact on the Consolidated Financial Statements and
related disclosures upon adoption.
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Accounting pronouncements adopted
In June 2016, the
FASB released ASU 2016-13, Financial
Instruments-Credit Losses, which revises the credit
loss recognition criteria for certain financial assets measured at
amortized cost. The new guidance replaces the existing incurred
loss recognition model with an expected loss recognition model
(“CECL”). The objective of the CECL model is for the reporting
entity to recognize its estimate of current expected credit losses
for affected financial assets in a valuation allowance deducted
from the amortized cost basis of the related financial assets that
results in presenting the net carrying value of the financial
assets at the amount expected to be collected. In April 2019, the
FASB issued ASU 2019-04, Codification
Improvements to Topic 326, Financial Instruments - Credit Losses,
Topic 815, Derivatives and Hedging, and Topic 825, Financial
Instruments. The amendments in this
Update add clarification and correction to ASU 2016-13 around
accrued interest, transfers between classifications or categories
for loans and debt securities, consideration of recoveries in
estimating allowances, reinsurance recoveries, consideration of
prepayments and estimated costs to sell when foreclosure is
probable. In November, the FASB issued ASU 2019-11,
Codification
Improvements to Topic 326, Financial Instruments - Credit
Losses. The amendments in this Update
add clarification and correction to ASU 2016-13 around expected
recoveries for purchased financial assets with credit
deterioration, transition relief for troubled debt restructurings,
disclosures related to accrued interest receivables, and financial
assets secured by collateral maintenance provisions. The guidance
for these pronouncements was effective for interim and annual
periods beginning after December 15, 2019, and for most affected
instruments must be adopted using a modified retrospective
approach, with a cumulative effect adjustment recorded to beginning
retained earnings. Effective January 1, 2020, the Company adopted
the expected loss recognition model related to mortgage loans, debt
securities held to maturity and reinsurance recoverable. The change
in accounting, net of tax, of $3.0
million was recorded to retained
earnings in the first quarter of 2020 to set up an initial
allowance for estimated credit losses of $1.2
million on mortgage loans and
$3.3
million on debt securities held to
maturity. The estimated credit losses for the reinsurance
recoverable were immaterial to the financial statements, but will
be monitored on a quarterly basis for any changes. Refer to Note
(9) Investments
for more
information. Certain disclosures required by ASU 2016-13 are not
included in the consolidated financial statements as the impact of
this standard was not material.
Other recent
accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force), the AICPA, and the SEC did not, or are
not believed by management to, have a material impact on the
Company’s present or future Consolidated Financial
Statements.
The Robert L.
Moody Revocable Trust beneficially owns 99.0%
of the total
outstanding shares of the Company's Class B common stock as of
March 31, 2020. Holders of the Company's Class A common stock elect
one-third of the Board of Directors of the Company, and holders of
the Class B common stock elect the remainder. Any cash or in-kind
dividends paid on each share of Class B common stock are to be only
one-half of the cash or in-kind dividends paid on each share of
Class A common stock. In the event of liquidation of the Company,
the Class A stockholders will receive the par value of their
shares; then the Class B stockholders shall receive the par value
of their shares; and the remaining net assets of the Company shall
be divided between the stockholders of both Class A and Class B
stock based upon the number of shares held.
National Western
is restricted by state insurance laws as to dividend amounts which
may be paid to stockholders without prior approval from the
Colorado Division of Insurance. The restrictions are
based on the lesser of statutory earnings from operations,
excluding capital gains, or
10% of
statutory surplus of National Western as of the previous
year-end. Under these guidelines the maximum dividend
payment which may be made without prior approval in
2020
is
$152.8 million. As the sole owner of NWLIC,
all dividends declared by National Western are payable entirely to
NWLGI and are eliminated in consolidation.
Ozark National is
similarly restricted under the state insurance laws of Missouri as
to dividend amounts which may be paid to stockholders without prior
approval to the greater of 10.0% of the statutory surplus of
the company from the preceding year-end or the company's net gain
from operations, excluding capital gains, from the prior calendar
year. Based upon this restriction, the maximum dividend payment
which may be made in 2020 without prior approval is
$17.2
million.
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As part of the
Stock Purchase Agreement dated October 3, 2018, by and between
NWLIC and Ozark National's previous owner, the Missouri Department
of Commerce and Insurance granted approval for an extraordinary
dividend of $102.7
million to be paid to the prior owner
concurrent with the closing of the transaction effective January
31, 2019. All dividends declared by Ozark National thereafter are
payable entirely to NWLIC as the sole owner and are eliminated in
consolidation.
National Western
did not declare or pay cash dividends to NWLGI in the first quarter
of 2020. In the first quarter of 2019, National Western
declared and paid a $32.0
million dividend to NWLGI, the
proceeds of which were used as part of the cash purchase of NIS.
Ozark National did not declare or pay cash dividends on its shares
during the first quarter of 2020 or in the two-month period ended
March 31, 2019.
NIS declared and
paid a $0.9
million dividend to NWLGI in the
first quarter of 2020. As the sole owner of NIS, all
dividends declared by NIS are payable entirely to NWLGI and are
eliminated in consolidation. NIS did not declare or pay cash
dividends on its shares during the two-month period ended March 31,
2019.
NWLGI did
not
declare or pay cash dividends on its common shares during
the three months ended
March 31,
2020 and 2019.
Basic earnings
(loss) per share of common stock are computed by dividing net
earnings (loss) available to each class of common stockholders on
an as if distributed basis by the weighted-average number of common
shares outstanding for the period. Diluted earnings (loss) per
share, by definition, reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the
issuance of common stock, that then shared in the distributed
earnings (loss) of each class of common stock. U.S. GAAP requires a
two-class presentation for the Company's two classes of common
stock. The Company currently has no share-based compensation awards
outstanding that could be redeemed for shares of common
stock.
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Net earnings
(loss) for the periods shown below is allocated between Class A
shares and Class B shares based upon (1) the proportionate number
of shares issued and outstanding as of the end of the period, and
(2) the per share dividend rights of the two classes under the
Company's Restated Certificate of Incorporation (the Class B
dividend per share is equal to one-half the Class A dividend per
share).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March
31,
|
|
2020
|
|
2019
|
|
Class A
|
|
Class B
|
|
Class A
|
|
Class B
|
|
(In thousands except per
share amounts)
|
|
|
|
|
|
|
|
|
Numerator
for Basic and Diluted Earnings (Loss) Per Share:
|
|
|
|
|
|
|
|
Net earnings
(loss)
|
$
|
(2,062
|
)
|
|
|
|
40,198
|
|
|
|
Dividends - Class A
shares
|
—
|
|
|
|
|
—
|
|
|
|
Dividends - Class B
shares
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed earnings
(loss)
|
$
|
(2,062
|
)
|
|
|
|
40,198
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of net earnings
(loss):
|
|
|
|
|
|
|
|
|
|
Dividends
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Allocation of undistributed
earnings (loss)
|
(2,004
|
)
|
|
(58
|
)
|
|
39,061
|
|
|
1,137
|
|
|
|
|
|
|
|
|
|
Net earnings
(loss)
|
$
|
(2,004
|
)
|
|
(58
|
)
|
|
39,061
|
|
|
1,137
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per
share - weighted-average shares
|
3,436
|
|
|
200
|
|
|
3,436
|
|
|
200
|
|
Effect of dilutive stock
options
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per
share - adjusted weighted-average shares for assumed
conversions
|
3,436
|
|
|
200
|
|
|
3,436
|
|
|
200
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per
share
|
$
|
(0.58
|
)
|
|
(0.29
|
)
|
|
11.37
|
|
|
5.68
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per
share
|
$
|
(0.58
|
)
|
|
(0.29
|
)
|
|
11.37
|
|
|
5.68
|
|
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
(5)
|
PENSION
AND OTHER POSTRETIREMENT PLANS
|
|
|
(A)
|
Defined
Benefit Pension Plans
|
National Western
sponsors a qualified defined benefit pension plan covering
employees enrolled prior to 2008. The plan provides benefits based
on the participants' years of service and compensation. The Company
makes annual contributions to the plan that comply with the minimum
funding provisions of the Employee Retirement Income Security Act
of 1974 ("ERISA"). On October 19, 2007, National Western's Board of
Directors approved an amendment to freeze the pension plan as of
December 31, 2007. The freeze ceased future benefit accruals to all
participants and closed the plan to any new participants. In
addition, all participants became immediately
100% vested in their accrued
benefits as of that date. As participants are no longer earning a
credit for service, future qualified defined benefit plan expense
is projected to be minimal. Fair values of plan assets and
liabilities are measured as of the prior December 31 for each year.
The following table summarizes the components of net periodic
benefit cost.
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
March 31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
|
|
|
|
Service cost
|
$
|
27
|
|
|
24
|
|
Interest cost
|
168
|
|
|
210
|
|
Expected return on plan
assets
|
(315
|
)
|
|
(272
|
)
|
Amortization of net
loss
|
145
|
|
|
165
|
|
|
|
|
|
Net periodic benefit
cost
|
$
|
25
|
|
|
127
|
|
The service cost
shown above for each period represents plan expenses expected to be
paid out of plan assets. Under the clarified rules of the Pension
Protection Act, plan expenses paid from plan assets are to be
included in the plan's service cost component.
The Company's
minimum required contribution for the 2020 plan year is
$0.0
million. There was
$0.8
million in planned contributions
remaining for the 2019 plan year as of
March 31,
2020. As
of March 31,
2020, the
Company had made $0.1
million in contributions to the plan
for the 2020 plan year.
The components of
net periodic benefit cost including service cost are reported in
the line item “Other operating expenses” in the Condensed
Consolidated Statements of Earnings (Loss).
National Western
also sponsors three
non-qualified
defined benefit pension plans. The first plan covers certain senior
officers and provides benefits based on the participants' years of
service and compensation. The primary pension obligations and
administrative responsibilities of the plan are maintained by a
pension administration firm, which is a subsidiary of American
National Insurance Company ("ANICO"), a related party. ANICO has
guaranteed the payment of pension obligations under the plan.
However, the company has a contingent liability with respect to the
plan should these entities be unable to meet their obligations
under the existing agreements. Also, the Company has a contingent
liability with respect to the plan in the event that a plan
participant continues employment with National Western beyond age
seventy, the aggregate average annual participant salary increases
exceed
10% per year, or any additional
employees become eligible to participate in the plan. If any of
these conditions are met, the Company would be responsible for any
additional pension obligations resulting from these items.
Amendments were made to the plan to allow an additional employee to
participate and to change the benefit formula for the then Chairman
of the Company. As previously mentioned, these additional
obligations are a liability to the Company. Effective December 31,
2004, this plan was frozen with respect to the continued accrual of
benefits of the then Chairman and the then President of the Company
in order to comply with law changes under the American Jobs
Creation Act of 2004 ("Act").
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Effective July 1,
2005, National Western established a second non-qualified defined
benefit plan for the benefit of the then Chairman of the
Company. This plan is intended to provide for post-2004
benefit accruals that mirror and supplement the pre-2005 benefit
accruals under the previously discussed non-qualified plan, while
complying with the requirements of the Act.
Effective
November 1, 2005, National Western established a third
non-qualified defined benefit plan for the benefit of the then
President of the Company. This plan is intended to
provide for post-2004 benefit accruals that supplement the pre-2005
benefit accruals under the first non-qualified plan as previously
discussed, while complying with the requirements of the
Act.
The following
table summarizes the components of net periodic benefit costs for
the non-qualified defined benefit plans.
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
March 31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
|
|
|
|
Service cost
|
$
|
302
|
|
|
125
|
|
Interest cost
|
338
|
|
|
256
|
|
Amortization of prior service
cost
|
15
|
|
|
15
|
|
Amortization of net
loss
|
1,445
|
|
|
348
|
|
|
|
|
|
Net periodic benefit
cost
|
$
|
2,100
|
|
|
744
|
|
As the plans are
not funded, there is no expected return on plan assets shown in the
net periodic benefit cost table above. The Company expects to
contribute
$2.0 million to these plans in
2020. As of
March 31, 2020, the Company has
contributed
$0.4 million to the plans.
The components of
net periodic benefit cost including service cost are reported in
the line item “Other operating expenses” in the Condensed
Consolidated Statements of Earnings (Loss).
Ozark National
and NIS have no defined benefit plans.
|
|
(B)
|
Postretirement
Employment Plans Other Than Pension
|
National Western
sponsors two
healthcare plans
that were amended in 2004 to provide postretirement benefits to
certain fully-vested individuals. The plans are
unfunded. The following table summarizes the components of net
periodic benefit costs.
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
March 31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
|
|
|
|
Interest cost
|
$
|
41
|
|
|
49
|
|
Amortization of prior service
cost
|
—
|
|
|
13
|
|
Amortization of net
loss
|
40
|
|
|
61
|
|
|
|
|
|
Net periodic benefit
cost
|
$
|
81
|
|
|
123
|
|
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As the plans are
not funded, there is no expected return on plan assets shown in the
net periodic benefit cost table above. The Company expects to
contribute minimal amounts to the plans
in
2020.
Ozark National and NIS do not offer postemployment
benefits.
The components of
net periodic benefit cost including service cost are reported in
the line item “Other operating expenses” in the Condensed
Consolidated Statements of Earnings (Loss).
|
|
(6)
|
SEGMENT AND
OTHER OPERATING INFORMATION
|
The Company
defines its reportable operating segments as domestic life
insurance, international life insurance, annuities, and acquired
businesses. These segments are organized based on product types,
geographic marketing areas, and business groupings. Ozark
National and NIS have been combined into the segment "Acquired
Businesses" given its inter-related marketing and sales approach
which consists of a coordinated sale of a non-participating whole
life insurance product (Ozark National) and a mutual fund
investment product (NIS). A fifth category "All Others" primarily
includes investments and earnings of non-operating subsidiaries as
well as other remaining investments and assets not otherwise
supporting specific segment operations.
A summary of
segment information as of March 31, 2020
and
December 31,
2019 for
the Condensed Consolidated Balance Sheet items and for the
three
months
ended
March 31, 2020 and
March 31, 2019 for the Condensed
Consolidated Statements of Earnings (Loss) is provided
below.
Condensed
Consolidated Balance Sheet Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
Domestic
Life
Insurance
|
|
International
Life
Insurance
|
|
Annuities
|
|
Acquired
Businesses
|
|
All
Others
|
|
Totals
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred policy acquisition
costs, sales inducements, and value of business
acquired
|
$
|
140,151
|
|
|
217,805
|
|
|
533,788
|
|
|
141,210
|
|
|
—
|
|
|
1,032,954
|
|
Total segment
assets
|
1,369,973
|
|
|
1,105,816
|
|
|
7,912,799
|
|
|
972,601
|
|
|
355,373
|
|
|
11,716,562
|
|
Future policy
benefits
|
1,196,180
|
|
|
840,215
|
|
|
7,220,704
|
|
|
711,064
|
|
|
—
|
|
|
9,968,163
|
|
Other policyholder
liabilities
|
15,873
|
|
|
14,229
|
|
|
89,572
|
|
|
14,905
|
|
|
—
|
|
|
134,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
Domestic
Life
Insurance
|
|
International
Life
Insurance
|
|
Annuities
|
|
Acquired
Businesses
|
|
All
Others
|
|
Totals
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred policy acquisition
costs, sales inducements, and value of business
acquired
|
$
|
127,557
|
|
|
209,858
|
|
|
486,553
|
|
|
142,434
|
|
|
—
|
|
|
966,402
|
|
Total segment
assets
|
1,399,818
|
|
|
1,153,105
|
|
|
8,198,730
|
|
|
978,243
|
|
|
362,900
|
|
|
12,092,796
|
|
Future policy benefits
(1)
|
1,198,103
|
|
|
870,461
|
|
|
7,366,894
|
|
|
706,513
|
|
|
—
|
|
|
10,141,971
|
|
Other policyholder
liabilities
|
18,016
|
|
|
14,903
|
|
|
80,002
|
|
|
14,686
|
|
|
—
|
|
|
127,607
|
|
(1) Revised to correct for an
adjustment related to an understatement of reserve liabilities
of $15.0
million. Refer to Note
1.
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed
Consolidated Statements of Earnings (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
2020
|
|
Domestic
Life
Insurance
|
|
International
Life
Insurance
|
|
Annuities
|
|
Acquired
Businesses
|
|
All
Others
|
|
Totals
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and contract
revenues
|
$
|
11,228
|
|
|
22,867
|
|
|
4,650
|
|
|
20,083
|
|
|
—
|
|
|
58,828
|
|
Net investment income
(loss)
|
(19,383
|
)
|
|
(9,000
|
)
|
|
10,632
|
|
|
6,301
|
|
|
(2,028
|
)
|
|
(13,478
|
)
|
Other revenues
|
29
|
|
|
54
|
|
|
4
|
|
|
2,422
|
|
|
1,144
|
|
|
3,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
(8,126
|
)
|
|
13,921
|
|
|
15,286
|
|
|
28,806
|
|
|
(884
|
)
|
|
49,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life and other policy
benefits
|
5,877
|
|
|
3,331
|
|
|
8,189
|
|
|
16,237
|
|
|
—
|
|
|
33,634
|
|
Amortization of deferred
policy acquisition costs and value of business
acquired
|
2,573
|
|
|
6,052
|
|
|
19,021
|
|
|
2,391
|
|
|
—
|
|
|
30,037
|
|
Universal life and annuity
contract interest
|
(21,693
|
)
|
|
(10,837
|
)
|
|
4,504
|
|
|
—
|
|
|
—
|
|
|
(28,026
|
)
|
Other operating
expenses
|
4,295
|
|
|
3,096
|
|
|
6,867
|
|
|
4,069
|
|
|
1,495
|
|
|
19,822
|
|
Federal income taxes
(benefit)
|
188
|
|
|
2,804
|
|
|
(5,319
|
)
|
|
1,222
|
|
|
(544
|
)
|
|
(1,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
(8,760
|
)
|
|
4,446
|
|
|
33,262
|
|
|
23,919
|
|
|
951
|
|
|
53,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
(loss)
|
$
|
634
|
|
|
9,475
|
|
|
(17,976
|
)
|
|
4,887
|
|
|
(1,835
|
)
|
|
(4,815
|
)
|
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
2019
|
|
Domestic
Life
Insurance
|
|
International
Life
Insurance
|
|
Annuities
|
|
Acquired
Businesses
|
|
All
Others
|
|
Totals
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and contract
revenues
|
$
|
10,804
|
|
|
26,063
|
|
|
4,868
|
|
|
13,801
|
|
|
—
|
|
|
55,536
|
|
Net investment
income
|
23,499
|
|
|
14,017
|
|
|
103,154
|
|
|
3,976
|
|
|
6,685
|
|
|
151,331
|
|
Other revenues
|
44
|
|
|
21
|
|
|
8
|
|
|
1,441
|
|
|
4,899
|
|
|
6,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
34,347
|
|
|
40,101
|
|
|
108,030
|
|
|
19,218
|
|
|
11,584
|
|
|
213,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life and other policy
benefits
|
3,922
|
|
|
2,162
|
|
|
11,430
|
|
|
10,675
|
|
|
—
|
|
|
28,189
|
|
Amortization of deferred
acquisition costs and value of business acquired
|
3,410
|
|
|
7,294
|
|
|
19,712
|
|
|
1,748
|
|
|
—
|
|
|
32,164
|
|
Universal life and annuity
contract interest
|
21,441
|
|
|
11,993
|
|
|
47,482
|
|
|
—
|
|
|
—
|
|
|
80,916
|
|
Other operating
expenses
|
4,123
|
|
|
4,264
|
|
|
7,508
|
|
|
3,085
|
|
|
7,069
|
|
|
26,049
|
|
Federal income taxes
(benefit)
|
324
|
|
|
3,208
|
|
|
4,883
|
|
|
747
|
|
|
259
|
|
|
9,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
33,220
|
|
|
28,921
|
|
|
91,015
|
|
|
16,255
|
|
|
7,328
|
|
|
176,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
(loss)
|
$
|
1,127
|
|
|
11,180
|
|
|
17,015
|
|
|
2,963
|
|
|
4,256
|
|
|
36,541
|
|
Reconciliations
of segment information to the Company's Condensed Consolidated
Financial Statements are provided below.
|
|
|
|
|
|
|
|
|
Three Months Ended March
31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
|
|
|
|
Premiums
and Other Revenues:
|
|
|
|
Premiums and contract
revenues
|
$
|
58,828
|
|
|
55,536
|
|
Net investment income
(loss)
|
(13,478
|
)
|
|
151,331
|
|
Other revenues
|
3,653
|
|
|
6,413
|
|
Realized gains (losses) on
investments
|
3,485
|
|
|
4,629
|
|
|
|
|
|
Total condensed consolidated
premiums and other revenues
|
$
|
52,488
|
|
|
217,909
|
|
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
Three Months Ended March
31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
|
|
|
|
Federal
Income Taxes:
|
|
|
|
Total segment Federal income
taxes
|
$
|
(1,649
|
)
|
|
9,421
|
|
Taxes on realized gains
(losses) on investments
|
732
|
|
|
972
|
|
|
|
|
|
Total condensed consolidated
Federal income taxes
|
$
|
(917
|
)
|
|
10,393
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March
31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
|
|
|
|
Net
Earnings (Loss):
|
|
|
|
Total segment earnings
(loss)
|
$
|
(4,815
|
)
|
|
36,541
|
|
Realized gains (losses) on
investments, net of taxes
|
2,753
|
|
|
3,657
|
|
|
|
|
|
Total condensed consolidated
net earnings (loss)
|
$
|
(2,062
|
)
|
|
40,198
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
|
|
|
|
Assets:
|
|
|
|
Total segment
assets
|
$
|
11,716,562
|
|
|
12,092,796
|
|
Other unallocated
assets
|
567,860
|
|
|
460,651
|
|
|
|
|
|
Total condensed consolidated
assets
|
$
|
12,284,422
|
|
|
$
|
12,553,447
|
|
Effective June
20, 2008, the Company's shareholders approved a 2008 Incentive Plan
(“2008 Plan”) which provided for the grant of any or all of the
following types of awards to eligible employees: (1) stock options,
including incentive stock options and nonqualified stock options;
(2) stock appreciation rights ("SARs"), in tandem with stock
options or freestanding; (3) restricted stock or restricted stock
units; and, (4) performance awards. The number of shares of Class
A,
$1.00 par value, common stock which
were allowed to be issued under the 1995 Plan, or as to which SARs
or other awards were allowed to be granted, could not exceed
300,000. This plan was assumed by
NWLGI from National Western pursuant to the terms of the holding
company reorganization in 2015. On June 15, 2016, stockholders of
NWLGI approved an amended and restated 2008 Plan ("Incentive
Plan"), which extended the term of the 2008 Plan for ten years from
the date of stockholder approval. The Incentive Plan includes
additional provisions, most notably regarding the definition of
performance objectives which could be used in the issuance of the
fourth type of award noted above (performance awards).
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
All of the
employees of the Company and its subsidiaries are eligible to
participate in the current Incentive Plan. In addition, directors
of the Company are eligible to receive the same types of awards as
employees except that they are not eligible to receive incentive
stock options. Company directors, including members of the
Compensation and Stock Option Committee, are eligible for
nondiscretionary stock options. At the end of 2018, all stock
options granted under the 2008 Plan had been exercised, forfeited,
or expired. SARs granted prior to 2016 vest 20%
annually
following three
years of service following the
grant date. Employee SARs granted 2016 forward vest
33.3%
annually
following one year
of service from
the date of the grant. Directors' SARs grants vest
20%
annually
following one year
of service from
the date of grant.
Effective during
August 2008, the Company adopted and implemented a limited stock
buy-back program with respect to the 2008 Plan which provided stock
option holders the additional alternative of selling shares
acquired through the exercise of options directly back to the
Company. Option holders could elect to sell such acquired shares
back to the Company at any time within ninety (90) days after the exercise of
options at the prevailing market price as of the date of notice of
election. The buy-back program did not alter the terms and
conditions of the 2008 Plan. This plans was assumed as well by
NWLGI from National Western pursuant to the terms of the holding
company reorganization. There are currently no stock options issued
and outstanding.
The Incentive
Plan allows for certain other share or unit awards which are solely
paid out in cash based on the value of the Company's shares, or
changes therein, as well as the financial performance of the
Company under pre-determined target performance metrics. Certain
awards, such as restricted stock units ("RSUs") provide solely for
cash settlement based upon the market price of the Company's Class
A common shares, often referred to as "phantom stock-based awards"
in equity compensation plans. Unlike share-settled awards, which
have a fixed grant-date fair value, the fair value of unsettled or
unvested liability awards is remeasured at the end of each
reporting period based on the change in fair value of a share. The
liability and corresponding expense are adjusted accordingly until
the award is settled. For employees, the vesting period for RSUs
is 100%
at the end
of three
years from the grant date. RSUs
granted prior to 2019 are payable in cash at the vesting date equal
to the closing price of the Company's Class A common share on the
three years anniversary date. RSUs granted in 2019 are
payable in cash at the three
years vesting date equal to the
20-day moving average closing price of the Company’s Class A common
share at that time.
Other awards may
involve performance share units ("PSUs") which are units granted at
a specified dollar amount per unit, typically linked to the
Company's Class A common share price, that are subsequently
multiplied by an attained performance factor to derive the number
of PSUs to be paid as cash compensation at the vesting date. PSUs
also vest three
years from the date of grant. For
PSUs, the performance period begins the first day of the calendar
year for which the PSUs are granted and runs three calendar years. At that time,
the three-year performance outcome will be measured against the
pre-defined target amounts to determine the number of PSUs earned
as compensation. PSUs granted prior to 2019 are paid at the closing
price of the Company's Class A common share on the vesting date.
PSUs granted in 2019 are payable at the 20-day moving average
closing price of the Company’s Class A common share at the vesting
date.
PSU awards
covering the three year measurement period ended December 31, 2018
were paid out in the first quarter of 2019. The performance factor
during the measurement period used to determine compensation
payouts was 93.86%
of the
pre-defined metric target.
PSU awards
covering the three year measurement period ended December 31, 2019
were paid out in the first quarter of 2020. The performance factor
during the measurement period used to determine compensation
payouts was 101.19%
of the
pre-defined metric target.
Directors of the
Company are eligible to receive RSUs under the Incentive Plan.
Unlike RSUs granted to officers, the RSUs granted to directors
vest one year
from the date of
grant. RSUs granted prior to 2019 are payable in cash at the
vesting date equal to the closing price of the Company's Class A
common share at that time. RSUs granted in 2019 are payable in cash
at the vesting date equal to the 20-day moving average closing
price of the Company’s Class A common share at that
time.
No awards were
granted to officers and directors during the three months ended
March 31,
2020 and 2019.
The Company uses
the current fair value method to measure compensation costs for
awards granted under the share-based plans.
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of
March 31,
2020 and
December 31, 2019, the liability balance
was $3.1
million and $11.2
million, respectively. A summary of
awards by type and related activity is detailed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
Shares
Available
For Grant
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
|
|
|
|
|
Stock Options:
|
|
|
|
|
|
Balance at January 1,
2020
|
291,000
|
|
|
—
|
|
|
$
|
—
|
|
Exercised
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Forfeited
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Expired
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Stock options
granted
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Balance at March 31,
2020
|
291,000
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Awards
|
|
SAR
|
|
RSU
|
|
PSU
|
|
|
|
|
|
|
Other Share/Unit
Awards:
|
|
|
|
|
|
Balance at January 1,
2020
|
107,517
|
|
|
14,352
|
|
|
19,108
|
|
Exercised
|
(1,372
|
)
|
|
(2,306
|
)
|
|
(4,049
|
)
|
Forfeited
|
(872
|
)
|
|
—
|
|
|
—
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Balance at March 31,
2020
|
105,273
|
|
|
12,046
|
|
|
15,059
|
|
SARs, RSUs, and
PSUs shown as forfeited in the above tables represent vested and
unvested awards not exercised by plan participants upon their
termination from the Company in accordance with the expiration
provisions of the awards.
The total
intrinsic value of share-based compensation exercised was
$1.9 million and
$2.5 million for the three months ended March 31,
2020 and
2019,
respectively. The total share-based compensation paid was
$1.9 million and
$2.5 million for the three months ended March 31,
2020 and
2019,
respectively. The total fair value of SARs, RSUs, and PSUs vested
during the three months ended March 31,
2020 and
2019 was
$1.8 million and
$3.0 million, respectively.
No
cash amounts were
received from the exercise of stock options under the Plans during
the periods reported on.
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following
table summarizes information about SARs outstanding at
March 31, 2020. There were
no
options
outstanding as of March 31,
2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARs Outstanding
|
|
|
Number
Outstanding
|
|
Weighted-
Average
Remaining
Contractual Life
|
|
Number
Exercisable
|
|
|
|
|
|
|
|
Exercise prices:
|
|
|
|
|
|
$132.56
|
|
19,118
|
|
|
1.7
years
|
|
19,118
|
|
$210.22
|
|
23,650
|
|
|
3.7
years
|
|
19,550
|
|
$216.48
|
|
11,149
|
|
|
5.9
years
|
|
11,149
|
|
$311.16
|
|
9,897
|
|
|
6.9
years
|
|
9,897
|
|
$310.55
|
|
203
|
|
|
7.1
years
|
|
135
|
|
$334.34
|
|
9,310
|
|
|
7.7
years
|
|
6,202
|
|
$303.77
|
|
11,566
|
|
|
8.7
years
|
|
3,848
|
|
$252.91
|
|
20,380
|
|
|
9.7
years
|
|
—
|
|
|
|
|
|
|
|
|
Totals
|
|
105,273
|
|
|
|
|
69,899
|
|
|
|
|
|
|
|
|
|
Aggregate intrinsic value (in
thousands)
|
$
|
754
|
|
|
|
|
$
|
754
|
|
The aggregate
intrinsic value in the table above is based on the closing Class A
stock price of $172.00
per share
on
March 31, 2020.
In estimating the
fair value of the SARs outstanding at
March 31, 2020 and
December 31, 2019, the Company employed the
Black-Scholes option pricing model with assumptions detailed
below.
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
|
Expected term
|
1.7 to 9.7
years
|
|
|
1.9 to 10.0
years
|
|
Expected volatility
weighted-average
|
28.30
|
%
|
|
22.19
|
%
|
Expected dividend
yield
|
0.21
|
%
|
|
0.12
|
%
|
Risk-free rate
weighted-average
|
0.23
|
%
|
|
1.61
|
%
|
The Company
reviewed the contractual term relative to the SARs as well as
perceived future behavior patterns of exercise. Volatility is
based on the Company’s historical volatility over the expected term
of the SARs by expected exercise date.
The pre-tax
compensation cost/(benefit) recognized in the financial statements
related to these plans was $(6.3)
million and $(1.5)
million for the three months
ended March 31, 2020
and
2019, respectively. The related
tax expense/(benefit) recognized was $1.3
million and $0.3
million for the three months ended
March 31, 2020 and 2019.
As of
March 31, 2020, the total pre-tax
compensation expense related to non-vested share-based awards not
yet recognized was
$3.5 million. This amount is
expected to be recognized over a weighted-average period of
1.5
years. The Company
recognizes compensation cost over the graded vesting
periods.
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
(8)
|
COMMITMENTS
AND CONTINGENCIES
|
(A) Legal
Proceedings
In the normal
course of business, the Company is involved or may become involved
in various legal actions in which claims for alleged economic and
punitive damages have been or may be asserted, some for substantial
amounts. In recent years, carriers offering life insurance and
annuity products have faced litigation, including class action
lawsuits, alleging improper product design, improper sales
practices, and similar claims. As previously disclosed, the Company
has been a defendant in prior years in such class action lawsuits.
Given the uncertainty involved in these types of actions, the
ability to make a reliable evaluation of the likelihood of an
unfavorable outcome or an estimate of the amount of or range of
potential loss is endemic to the particular circumstances and
evolving developments of each individual matter on its own
merits.
On September 28,
2017, a purported shareholder derivative lawsuit was filed in the
122nd District Court of Galveston County, State of Texas entitled
Robert L. Moody, Jr. derivatively on behalf of National Western
Life Insurance Company and National Western Life Group, Inc. v.
Ross Rankin Moody, et al., naming certain current and former
directors and current officers as defendants. The complaint
challenged the directors’ oversight of insurance sales to non-U.S.
residents and alleged that the defendants breached their fiduciary
duties in the conduct of their duties as board members by failing
to act (i) on an informed basis and (ii) in good faith or with the
honest belief that their actions were in the best interests of the
Company. The complaint sought an undetermined amount of
damages, attorneys’ fees and costs, and equitable relief, including
the removal of the Company’s Chairman and Chief Executive Officer
and other board members and/or officers of the Company. The
Company believes that the claims in the complaint were baseless and
without merit, will continue to vigorously defend this lawsuit, and
was awarded reimbursement of legal costs and expenses from
plaintiff as detailed below. The Company believes, based on
information currently available, that the final outcome of this
lawsuit will not have a material adverse effect on the Company’s
business, results of operations, or consolidated financial
position. The companies and directors filed their respective Pleas
to the Jurisdiction ("Pleas") contesting the plaintiff's standing
to even pursue this action, along with their Answers, on October
27, 2017. On December 14, 2017, plaintiff filed a Response to the
Pleas and on December 21, 2017, the Court heard oral argument on
the Pleas. Plaintiff then filed a First Amended Petition on January
11, 2018. The companies and directors filed a Supplement to the
Pleas on January 30, 2018, to which plaintiff responded on February
1, 2018, and the companies and directors replied on February 9,
2018. On May 3, 2018, the Court issued a memorandum to all
attorneys of record stating that the Court would grant the
defendants' Pleas and asked the attorney for defendants to prepare
and submit proposed orders/judgments granting the requested relief
for consideration by the Court. The defendants filed such
proposed order granting the Pleas on May 7, 2018. On May 16, 2018
the Court issued an Order granting the Pleas and dismissing Robert
L. Moody, Jr.’s claims with prejudice, and plaintiff then filed a
Motion to Transfer Venue (“MTTV”). Defendants filed an
Application for Fees, seeking to recover defendants’
legal costs and expenses from plaintiff, and a Response to the
MTTV on June 8, 2018. In response plaintiff filed a Motion to
Vacate, a Response to the Application for Fees, and his own Request
for Attorney’s Fees on July 5, 2018. Defendants filed a
Response to the Motion to Vacate and to plaintiff’s Request for
Attorney’s Fees on July 11, 2018, and the Court heard oral
arguments on July 16, 2018. Plaintiff filed supplemental briefing
in support of his July 5, 2018 filings on July 25, 2018, and
defendants filed their response to plaintiff's supplemental
briefing on July 27, 2018. On August 8, 2018 the Court issued an
Order denying plaintiff's Motion to Vacate. Pursuant to the Court’s
instructions, on October 5, 2018, defendants filed an Order
Granting Application for Expenses. Defendants then filed a
Motion for Entry of Final Judgment and a Request for Submission
Date on Motion for Entry of Final Judgment on October 11, 2018,
which the Court set as October 30, 2018. Plaintiff filed his
Objection to Proposed Final Judgment and Objection to Proposed
Order on Attorneys’ Fees on October 25, 2018, to which defendants
filed a response on October 30, 2018. On November 11, 2018, the
Court issued its Final Judgment: ordering Plaintiff to pay the
companies $1,314,054
for reasonable
and necessary fees and expenses; denying Plaintiff’s Motion to
Transfer Venue, and; dismissing Plaintiff’s counterclaim.
Plaintiff has appealed the Court’s Final Judgment and that appeal
is pending before the First District Court of Appeals in Houston,
TX.
In April of 2019,
National Western defended a two-week jury trial in which it was
alleged that it committed actionable Financial Elder Abuse in its
issuance of a $100,000
equity indexed
annuity to the Plaintiff in the case of Williams v
Pantaleoni et al, Case No. 17CV03462, Butte
County California Superior Court. The Court entered an
Amended Judgment on the Jury Verdict on July 27, 2019 against
National Western in the amount of $14,949
for economic
damages and $2.9
million in non-economic and punitive
damages. National Western vigorously disputes the verdicts and
the amounts awarded, and in furtherance of such, filed a Motion for
Judgment Notwithstanding Jury Verdict and a Motion for New Trial,
both of which were rejected by the Court. On September 9, 2019,
NWLIC filed its Notice of Appeal. On November 11, 2019, the judge
awarded the Plaintiff attorney’s fees in the amount of
$1.26
million. Both the Plaintiff and
NWLIC have appealed this ruling.
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Although there
can be no assurances, at the present time, the Company does not
anticipate that the ultimate liability arising from such other
potential, pending, or threatened legal actions will have a
material adverse effect on the financial condition or operating
results of the Company.
Separately,
Brazilian authorities commenced an investigation into possible
violations of Brazilian criminal law in connection with the
issuance of National Western insurance policies to Brazilian
residents, and in assistance of such investigation a Commissioner
appointed by the U.S. District Court for the Western District of
Texas issued a subpoena in March of 2015 upon NWLIC to provide
information relating to such possible violations. No conclusion can
be drawn at this time as to its outcome or how such outcome may
impact the Company’s business, results of operations or financial
condition. National Western has been cooperating with the relevant
governmental authorities in regard to this matter.
(B)
Financial Instruments
In order to meet
the financing needs of its customers in the normal course of
business, the Company is a party to financial instruments with
off-balance sheet risk. These financial instruments are commitments
to extend credit which involve elements of credit and interest rate
risk in excess of the amounts recognized in the Condensed
Consolidated Balance Sheets.
The Company's
exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit
is represented by the contractual amounts, assuming that the
amounts are fully advanced and that collateral or other security is
of no value. Commitments to extend credit are legally binding
agreements to lend to a customer that generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Commitments do not necessarily represent future
liquidity requirements, as some could expire without being drawn
upon. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance
sheet instruments. The Company controls the credit risk of these
transactions through credit approvals, limits, and monitoring
procedures.
The Company
had no
commitments to
fund new loans and no
commitments to
extend credit relating to existing loans at March 31,
2020. The
Company evaluates each customer's creditworthiness on a
case-by-case basis.
|
|
(A)
|
Investment
Gains and Losses
|
The Company uses
the specific identification method in computing realized gains and
losses. The table below presents realized gains and losses,
excluding impairment losses, for the periods
indicated.
|
|
|
|
|
|
|
|
|
Three Months Ended March
31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
|
|
|
|
Available for sale debt
securities:
|
|
|
|
Realized gains on
disposal
|
$
|
761
|
|
|
1,183
|
|
Realized losses on
disposal
|
—
|
|
|
(84
|
)
|
Held to maturity debt
securities:
|
|
|
|
Realized gains on
disposal
|
2,724
|
|
|
27
|
|
Realized losses on
disposal
|
—
|
|
|
—
|
|
Real estate gains
(losses)
|
—
|
|
|
3,503
|
|
|
|
|
|
Totals
|
$
|
3,485
|
|
|
4,629
|
|
NATIONAL
WESTERN LIFE GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Disposals in the
held to maturity category during the periods shown represent calls
initiated by the credit issuer of the debt security. It is the
Company's policy to initiate disposals of debt securities in the
held to maturity category only in instances in which the credit
status of the issuer comes into question and the realization of all
or a significant portion of the investment principal of the holding
is deemed to be in jeopardy.
Net real estate
gains for the three months ended March 31, 2019 primarily pertain
to the Company's sale of its nursing home operations in Reno,
Nevada and San Marcos, Texas as well as a property sold located in
Austin, Texas. The sale of the Reno nursing home was completed
effective February 1, 2019 and a gain of $5.7
million was realized on the sale of
the land and building associated with the operation. The sale of
the San Marcos nursing home was concluded effective May 1, 2019 and
the Company recorded a loss of $(2.0)
million associated with the sale of
the land and building of this operation (an impairment loss on this
property of $(2.2)
million was recorded in the quarter
ended March 31, 2019). The sale of the Company's prior home office
completed effective June 7, 2019 realized a gain on the sale
of $3.2
million.
For the
three months
ended March 31, 2020 and 2019 the percentage of gains on
bonds due to the call of securities was 99.6%
and
41.4%,
respectively. This includes calls out of the Company's available
for sale portfolio of debt securities.
The table below
presents amortized costs and fair values of debt securities held to
maturity at March 31,
2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities Held to
Maturity
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Allowance for Credit
Losses
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
U.S. agencies
|
$
|
89,906
|
|
|
3,270
|
|
|
—
|
|
|
93,176
|
|
|
(4
|
)
|
U.S. Treasury
|
3,787
|
|
|
217
|
|
|
—
|
|
|
4,004
|
|
|
—
|
|
States and political
subdivisions
|
418,332
|
|
|
21,576
|
|
|
(174
|
)
|
|
439,734
|
|
|
(74
|
)
|
Foreign
governments
|
1,139
|
|
|
123
|
|
|
—
|
|
|
1,262
|
|
|
—
|
|
Public utilities
|
891,636
|
|
|
22,159
|
|
|
(7,360
|
)
|
|
906,435
|
|
|
(1,173
|
)
|
Corporate
|
4,547,631
|
|
|
140,323
|
|
|
(65,070
|
)
|
|
4,622,884
|
|
|
(4,788
|
)
|
Commercial
mortgage-backed
|
3,031
|
|
|
—
|
|
|
(12
|
)
|
|
3,019
|
|
|
—
|
|
Residential
mortgage-backed
|
1,038,062
|
|
|
70,619
|
|
|
(49
|
)
|
|
1,108,632
|
|
|
—
|
|
Asset-backed
|
|