10-Q 1 nwlgi2016q110q.htm NWLGI FORM 10-Q 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2016
o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE 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 of Incorporation)
(I.R.S. Employer Identification Number)
 
 
850 EAST ANDERSON LANE
 
AUSTIN, TEXAS 78752-1602
(512) 836-1010
(Address of Principal Executive Offices)
(Telephone Number)


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 x   No o
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 x   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of "accelerated filer and large accelerated file" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  o     Accelerated filer  x   Non-accelerated filer  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o   No x
As of May 5, 2016, the number of shares of Registrant's common stock outstanding was: Class A – 3,436,166 and  Class B - 200,000.





TABLE OF CONTENTS
 
Page
 
 
 
 
 
 
March 31, 2016 (Unaudited) and December 31, 2015
 
 
For the Three Months Ended March 31, 2016 and 2015 (Unaudited)
 
 
For the Three Months Ended March 31, 2016 and 2015 (Unaudited)
 
 
For the Three Months Ended March 31, 2016 and 2015 (Unaudited)
 
 
For the Three Months Ended March 31, 2016 and 2015 (Unaudited)
 
 
 
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

 
(Unaudited)
 
 
ASSETS
March 31,
2016
 
December 31,
2015
 
 
 
 
Investments:
 
 
 
Securities held to maturity, at amortized cost (fair value: $7,525,865 and $7,335,436)
$
7,195,233

 
7,173,967

Securities available for sale, at fair value (cost: $2,820,091 and $2,847,414)
2,924,376

 
2,879,583

Mortgage loans, net of allowance for possible losses ($650 and $650)
110,520

 
108,311

Policy loans
60,488

 
61,957

Derivatives, index options
42,179

 
38,409

Other long-term investments
47,662

 
26,787

 
 
 
 
Total investments
10,380,458

 
10,289,014

 
 
 
 
Cash and cash equivalents
141,571

 
106,007

Deferred policy acquisition costs
816,523

 
853,451

Deferred sales inducements
150,080

 
159,166

Accrued investment income
102,040

 
99,619

Federal income tax receivable
2,511

 
12,512

Other assets
90,512

 
92,807

 
 
 
 
Total assets
$
11,683,695

 
11,612,576


See accompanying notes to condensed consolidated financial statements (unaudited).

3


NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
 
(Unaudited)
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
March 31,
2016
 
December 31,
2015
 
 
 
 
LIABILITIES:
 
 
 
 
 
 
 
Future policy benefits:
 
 
 
Universal life and annuity contracts
$
9,565,173

 
9,561,358

Traditional life reserves
137,819

 
138,000

Other policyholder liabilities
154,199

 
155,261

Deferred Federal income tax liability
70,798

 
49,333

Other liabilities
102,450

 
96,638

 
 
 
 
Total liabilities
10,030,439

 
10,000,590

 
 
 
 
COMMITMENTS AND CONTINGENCIES (Note 8)


 


 
 
 
 
STOCKHOLDERS’ EQUITY:
 

 
 

 
 
 
 
Common stock:
 

 
 

Class A - $.01 par value; 7,500,000 shares authorized; 3,436,166 issued and outstanding in 2016 and 2015
34

 
34

Class B - $.01 par value; 200,000 shares authorized, issued, and outstanding in 2016 and 2015
2

 
2

Additional paid-in capital
41,716

 
41,716

Accumulated other comprehensive income
24,340

 
329

Retained earnings
1,587,164

 
1,569,905

 
 
 
 
Total stockholders’ equity
1,653,256

 
1,611,986

 
 
 
 
Total liabilities and stockholders' equity
$
11,683,695

 
11,612,576


Note:  The Condensed Consolidated Balance Sheet at December 31, 2015 has been derived from the audited Consolidated Financial Statements as of that date.

See accompanying notes to condensed consolidated financial statements (unaudited).


4


NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended March 31, 2016 and 2015
(Unaudited)
(In thousands, except per share amounts)
 
2016
 
2015
 
 
 
 
Premiums and other revenues:
 
 
 
Universal life and annuity contract charges
$
42,010

 
37,313

Traditional life premiums
4,173

 
4,347

Net investment income
95,500

 
99,923

Other revenues
4,878

 
5,329

Net realized investment gains (losses):
 

 
 

Total other-than-temporary impairment (“OTTI”) gains (losses)
26

 
160

Portion of OTTI (gains) losses recognized in other comprehensive income
(26
)
 
(160
)
Net OTTI losses recognized in earnings

 

Other net investment gains (losses)
2,381

 
978

Total net realized investment gains (losses)
2,381

 
978

 
 
 
 
Total revenues
148,942

 
147,890

 
 
 
 
Benefits and expenses:
 

 
 

Life and other policy benefits
15,601

 
19,266

Amortization of deferred policy acquisition costs
35,220

 
27,652

Universal life and annuity contract interest
49,017

 
49,039

Other operating expenses
23,307

 
20,510

 
 
 
 
Total benefits and expenses
123,145

 
116,467

 
 
 
 
Earnings before Federal income taxes
25,797

 
31,423

 
 
 
 
Federal income taxes
8,538

 
10,097

 
 
 
 
Net earnings
$
17,259

 
21,326

 
 
 
 
Basic earnings per share:
 

 
 

Class A
$
4.88

 
$
6.03

Class B
$
2.44

 
$
3.02

 
 
 
 
Diluted earnings per share:
 

 
 

Class A
$
4.88

 
$
6.03

Class B
$
2.44

 
$
3.02


See accompanying notes to condensed consolidated financial statements (unaudited).

 
 
 
 


5


NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 31, 2016 and 2015
(Unaudited)
(In thousands)
 
2016
 
2015
 
 
 
 
Net earnings
$
17,259

 
21,326

 
 
 
 
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
24,646

 
9,372

Net unrealized liquidity gains (losses)
9

 
61

Reclassification adjustment for net amounts included in net earnings
(460
)
 
(165
)
 
 
 
 
Net unrealized gains (losses) on securities
24,195

 
9,268

 
 
 
 
Foreign currency translation adjustments
99

 
41

 
 
 
 
Benefit plans:
 

 
 

Amortization of net prior service cost and net gain (loss)
(283
)
 
(303
)
 
 
 
 
Other comprehensive income (loss)
24,011

 
9,006

 
 
 
 
Comprehensive income (loss)
$
41,270

 
30,332


See accompanying notes to condensed consolidated financial statements (unaudited).


 
 
 
 



6


NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2016 and 2015
(Unaudited)
(In thousands)
 
2016
 
2015
 
 
 
 
Common stock:
 
 
 
Balance at beginning of period
$
36

 
3,636

Shares exercised under stock option plan

 

 
 
 
 
       Balance at end of period
36

 
3,636

 
 
 
 
Additional paid-in capital:
 

 
 

Balance at beginning of period
41,716

 
38,116

Shares exercised under stock option plan

 

 
 
 
 
       Balance at end of period
41,716

 
38,116

 
 
 
 
Accumulated other comprehensive income:
 

 
 

Unrealized gains on non-impaired securities:
 

 
 

Balance at beginning of period
12,347

 
54,229

Change in unrealized gains (losses) during period, net of tax
24,186

 
9,207

 
 
 
 
   Balance at end of period
36,533

 
63,436

 
 
 
 
Unrealized losses on impaired held to maturity securities:
 

 
 

Balance at beginning of period
(240
)
 
(1,262
)
Amortization
17

 
104

Other-than-temporary impairments, non-credit, net of tax

 

Additional credit loss on previously impaired securities

 

Change in shadow deferred policy acquisition costs
(8
)
 
(43
)
 
 
 
 
   Balance at end of period
(231
)
 
(1,201
)
 
 
 
 
Unrealized losses on impaired available for sale securities:
 

 
 

Balance at beginning of period
(1
)
 
(1
)
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
(1
)
 
(1
)
 
 
 
 
 
Continued on Next Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

7


NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(continued)
For the Three Months Ended March 31, 2016 and 2015
(Unaudited)
(In thousands)
 
2016
 
2015
 
 
 
 
Foreign currency translation adjustments:
 

 
 

Balance at beginning of period
2,825

 
2,685

Change in translation adjustments during period
99

 
41

 
 
 
 
  Balance at end of period
2,924

 
2,726

 
 
 
 
Benefit plan liability adjustment:
 

 
 

Balance at beginning of period
(14,602
)
 
(13,865
)
Amortization of net prior service cost and net loss, net of tax
(283
)
 
(303
)
 
 
 
 
  Balance at end of period
(14,885
)
 
(14,168
)
 
 
 
 
Accumulated other comprehensive income at end of period
24,340

 
50,792

 
 
 
 
Retained earnings:
 
 
 
   Balance at beginning of period
1,569,905

 
1,472,782

   Net earnings
17,259

 
21,326

   Stockholder dividends

 

 
 
 
 
   Balance at end of period
1,587,164

 
1,494,108

 
 
 
 
Total stockholders' equity
$
1,653,256

 
$
1,586,652


See accompanying notes to condensed consolidated financial statements (unaudited).



8


NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2016 and 2015
(Unaudited)
(In thousands)
 
2016
 
2015
 
 
 
 
Cash flows from operating activities:
 
 
 
Net earnings
$
17,259

 
21,326

Adjustments to reconcile net earnings to net cash from operating activities:
 

 
 

Universal life and annuity contract interest
49,017

 
49,039

Surrender charges and other policy revenues
(5,796
)
 
(3,894
)
Realized (gains) losses on investments
(2,381
)
 
(978
)
Accretion/amortization of discounts and premiums, investments
(23
)
 
(4
)
Depreciation and amortization
1,985

 
841

(Increase) decrease in value of derivatives
12,901

 
8,287

(Increase) decrease in deferred policy acquisition and sales inducement costs
11,095

 
2,919

(Increase) decrease in accrued investment income
(2,421
)
 
(5,418
)
(Increase) decrease in other assets
188

 
(7,227
)
Increase (decrease) in liabilities for future policy benefits
629

 
(129
)
Increase (decrease) in other policyholder liabilities
(1,063
)
 
14,168

Increase (decrease) in Federal income taxes liability
10,001

 
(3,294
)
Increase (decrease) in deferred Federal income tax
8,536

 
8,327

Increase (decrease) in other liabilities
3,380

 
6,804

 
 
 
 
Net cash provided by operating activities
103,307

 
90,767

 
 
 
 
Cash flows from investing activities:
 

 
 

Proceeds from sales of:
 

 
 

Securities held to maturity

 

Securities available for sale
7,693

 
5,752

Other investments
1,803

 

Proceeds from maturities and redemptions of:
 

 
 

Securities held to maturity
54,386

 
101,444

Securities available for sale
72,477

 
48,565

Derivatives, index options
2,090

 
26,450

Purchases of:
 

 
 

Securities held to maturity
(75,192
)
 
(271,797
)
Securities available for sale
(49,370
)
 
(152,742
)
Derivatives, index options
(19,332
)
 
(19,166
)
Other investments
(21,517
)
 
(421
)
Net change in short-term investments

 
(14,989
)
 
 
 
 
 
Continued on Next Page
 
 
 
 
 
 
 
 
 

9


NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, (continued)
For the Three Months Ended March 31, 2016 and 2015
(Unaudited)
(In thousands)
 
2016
 
2015
 
 
 
 
 
 
 
 
Principal payments on mortgage loans
13,354

 
6,907

Cost of mortgage loans acquired
(15,542
)
 
(1,281
)
Decrease (increase) in policy loans
1,469

 
(232
)
Other, net

 

 
 
 
 
Net cash used in investing activities
(27,681
)
 
(271,510
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Deposits to account balances for universal life and annuity contracts
194,091

 
202,472

Return of account balances on universal life and annuity contracts
(234,307
)
 
(227,744
)
Issuance of common stock under stock option plan

 

 
 
 
 
Net cash provided by (used in) financing activities
(40,216
)
 
(25,272
)
 
 
 
 
Effect of foreign exchange
154

 
41

 
 
 
 
Net increase (decrease) in cash and cash equivalents
35,564

 
(205,974
)
Cash and cash equivalents at beginning of period
106,007

 
277,078

 
 
 
 
Cash and cash equivalents at end of period
$
141,571

 
$
71,104

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 

 
 

 
 
 
 
Cash paid during the period for:
 

 
 

Interest
$
13

 
10

Income taxes
$
(10,000
)
 
5,247

 
 
 
 
Noncash operating activities:
 
 
 
   Deferral of sales inducements
$
(2,397
)
 
(4,680
)

See accompanying notes to condensed consolidated financial statements (unaudited).



10


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


(1)
 CONSOLIDATION AND BASIS OF PRESENTATION

On October 1, 2015, National Western Life Insurance Company ("National Western", "NWLIC", or "company") completed its previously announced holding company reorganization. As a result of the reorganization, National Western became a wholly owned subsidiary of National Western Life Group, Inc. ("NWLGI"), a Delaware Corporation, and NWLGI replaced National Western as the publicly held company.

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 NWLGI and its subsidiaries (“Company”) as of March 31, 2016, and the results of its operations and its cash flows for the for the three months ended March 31, 2016 and 2015. Such adjustments are of a normal recurring nature. The results of operations for the three months ended March 31, 2016 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, 2015 and are 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, 2015 has been derived from the audited consolidated financial statements as of that date.

Prior to the reorganization, the accompanying consolidated financial statements included the accounts of National Western and its wholly owned subsidiaries: The Westcap Corporation, Regent Care San Marcos Holdings, LLC, NWL Investments, Inc., NWL Services, Inc., NWLSM, Inc., and NWL Financial, Inc. During the fourth quarter of 2015, subsequent to the reorganization, National Western transferred ownership of Regent Care San Marcos Holdings, LLC, NWL Investments, Inc., and NWL Services, Inc. to NWLGI via a dividend transaction resulting in those entities becoming wholly owned subsidiaries of NWLGI.

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, (4) valuation allowances for deferred tax assets, (5) other-than-temporary impairment losses on debt securities, (6) commitments and contingencies, and (7) valuation allowances for mortgage loans and real estate.

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, 2016 and 2015.

Affected Line Item in the
Statements of Earnings
 
Amount Reclassified From Accumulated Other Comprehensive Income
 
 
Three Months Ended March 31,
 
 
2016
 
2015
 
 
(In thousands)
 
 
 
 
 
Other net investment gains (losses)
 
$
708

 
254

Net OTTI losses recognized in earnings
 

 

Earnings before Federal income taxes
 
708

 
254

Federal income taxes
 
248

 
89

 
 
 
 
 
Net earnings
 
$
460

 
165


11


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



(2)
 NEW ACCOUNTING PRONOUNCEMENTS

In June 2014, the FASB issued guidance that applies to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. It requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and follows existing accounting guidance for the treatment of performance conditions. The standard is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. The Company adopted this standard during the three month period ended March 31, 2016. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows.
In January 2016, the FASB released accounting standards update 2016-01 Recognition and Measurement of Financial Assets and Liabilities. The main provisions of the update are to eliminate the available for sale classification of accounting for equity securities and to adjust the fair value disclosures for financial instruments carried at amortized costs such that the disclosed fair values represent an exit price as opposed to an entry price. The provisions of this update will require that equity securities be carried at fair market value on the balance sheet and any periodic changes in value will be adjustments to the income statement. The provisions of this update become effective for interim and annual periods beginning after December 15, 2017. The Company does not expect the requirements of this update to have a material impact on the Company’s financial position, results of operations or cash flows.  
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.



12


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(3)
 STOCKHOLDERS' EQUITY

NWLIC 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 greater of statutory earnings from operations excluding capital gains or 10% of statutory surplus of the company.  The maximum dividend payment which may be made without prior approval in 2016 is $117.1 million. National Western did not declare or pay cash dividends on its common stocks during the three months ended March 31, 2016 and 2015.

As discussed in Note 1, Consolidation and Basis of Presentation, on October 1, 2015, NWLIC completed its previously announced holding company reorganization and became a wholly owned subsidiary of NWLGI. While remaining under the same Colorado Division of Insurance restrictions pertaining to dividend amounts, dividends declared by NWLIC from that date forward are payable entirely to NWLGI as the sole owner of NWLIC.

The reorganization effective October 1, 2015 provided for the conversion of each share of Class A common stock, par value $1.00 per share, and each share of Class B common stock, par value $1.00 per share, of NWLIC issued and outstanding immediately prior to the effective time of the merger, into one duly issued, fully paid and non-assessable share of Class A common stock, par value $0.01 per share, and Class B common stock, par value $0.01 per share, of NWLGI. Consequently, NWLGI replaced NWLIC as the publicly held company and is the successor issuer to NWLIC.



13


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(4)
 EARNINGS PER SHARE

Basic earnings per share of common stock are computed by dividing net income by the weighted-average basic common shares outstanding during the period. Diluted earnings per share assumes the issuance of common shares applicable to stock options in the denominator.
 
Three Months Ended March 31,
 
2016
 
2015
 
Class A
 
Class B
 
Class A
 
Class B
 
(In thousands except per share amounts)
 
 
 
 
 
 
 
 
Numerator for Basic and Diluted Earnings Per Share:
 
 
 
 
 
 
 
Net income
$
17,259

 
 
 
21,326

 
 
Dividends - Class A shares

 
 
 

 
 
Dividends - Class B shares

 
 
 

 
 
 
 
 
 
 
 
 
 
Undistributed income
$
17,259

 
 
 
21,326

 
 
 
 
 
 
 
 
 
 
Allocation of net income:
 

 
 
 
 

 
 
Dividends
$

 

 

 

Allocation of undistributed income
16,771

 
488

 
20,723

 
603

 
 
 
 
 
 
 
 
Net income
$
16,771

 
488

 
20,723

 
603

 
 
 
 
 
 
 
 
Denominator:
 

 
 

 
 

 
 

Basic earnings per share - weighted-average shares
3,436

 
200

 
3,436

 
200

Effect of dilutive stock options
1

 

 
2

 

 
 
 
 
 
 
 
 
Diluted earnings per share - adjusted weighted-average shares for assumed conversions
3,437

 
200

 
3,438

 
200

 
 
 
 
 
 
 
 
Basic Earnings Per Share
$
4.88

 
2.44

 
6.03

 
3.02

 
 
 
 
 
 
 
 
Diluted Earnings Per Share
$
4.88

 
2.44

 
6.03

 
3.02


Stock options that were outstanding during the three months ended March 31, 2016 and 2015, but were not included in the computation of diluted earnings per share because the effect was anti-dilutive, were approximately 20,800 and 21,800, respectively.
 
 
 
 
 
 
 
 


14


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 complies 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. Fair values of plan assets and liabilities are measured as of the prior December 31 for each respective year. The following table summarizes the components of net periodic benefit cost.

 
Three Months Ended
 
March 31,
 
2016
 
2015
 
(In thousands)
 
 
 
 
Service cost
$
26

 
51

Interest cost
250

 
246

Expected return on plan assets
(304
)
 
(330
)
Amortization of prior service cost

 
1

Amortization of net loss
193

 
196

 
 
 
 
Net periodic benefit cost
$
165

 
164


The service costs shown in the above table represent 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 2016 plan year is $0.2 million. There was no remaining contribution payable for the 2015 plan year as of March 31, 2016. As of March 31, 2016, the company had contributed a total of $0.0 million to the plan for the 2016 plan year.

National Western also sponsors a nonqualified defined benefit plan primarily for senior officers. The plan provides benefits based on the participants' years of service and compensation. The 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"). 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 Chairman and the President of the company in order to comply with law changes under the American Jobs Creation Act of 2004 ("Act").

Effective July 1, 2005, National Western established a second nonqualified defined benefit plan for the benefit of the Chairman and the President 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 nonqualified defined benefit plan, while complying with the requirements of the Act.


15


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table summarizes the components of net periodic benefit costs for the Chairman and President's nonqualified defined benefit plans.

 
Three Months Ended
 
March 31,
 
2016
 
2015
 
(In thousands)
 
 
 
 
Service cost
$
109

 
64

Interest cost
265

 
219

Amortization of prior service cost
15

 
15

Amortization of net loss
501

 
378

 
 
 
 
Net periodic benefit cost
$
890

 
676


The company expects to contribute $2.0 million to these plans in 2016.  As of March 31, 2016, the company has contributed $0.4 million to the plans.

(B)
Defined Benefit Postretirement Healthcare Plans

National Western sponsors two healthcare plans to provide postretirement benefits to certain fully-vested individuals.  The following table summarizes the components of net periodic benefit costs.

 
Three Months Ended
 
March 31,
 
2016
 
2015
 
(In thousands)
 
 
 
 
Interest cost
$
30

 
32

Amortization of prior service cost
26

 
26

Amortization of net loss

 
15

 
 
 
 
Net periodic benefit cost
$
56

 
73


The company expects to contribute minimal amounts to the plan in 2016.



16


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(6)
SEGMENT AND OTHER OPERATING INFORMATION

The Company defines its reportable operating segments as domestic life insurance, international life insurance, and annuities. These segments are organized based on product types and geographic marketing areas.  A summary of segment information for the quarters ended March 31, 2016 and March 31, 2015 is provided below.

Selected Segment Information:
 
 
 
 
 
 
 
 
 
 
Domestic
Life
Insurance
 
International
 Life
Insurance
 
Annuities
 
All
 Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2016
 
 
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheet Items:
 
 
 
 
 
 
 
 
 
Deferred policy acquisition costs and sales inducements
$
76,444

 
242,788

 
647,371

 

 
966,603

Total segment assets
892,147

 
1,253,574

 
9,103,314

 
284,012

 
11,533,047

Future policy benefits
766,900

 
936,857

 
7,999,235

 

 
9,702,992

Other policyholder liabilities
15,190

 
12,996

 
126,013

 

 
154,199

 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
 
 
 
 
 
 
 

March 31, 2016
 
 
 
 
 
 
 
 
 

Condensed Consolidated Income Statements:
 
 
 
 
 
 
 
 
 

Premiums and contract revenues
$
7,659

 
32,788

 
5,736

 

 
46,183

Net investment income
6,133

 
6,847

 
77,639

 
4,881

 
95,500

Other revenues
24

 
36

 
60

 
4,758

 
4,878

 
 
 
 
 
 
 
 
 
 
Total revenues
13,816

 
39,671

 
83,435

 
9,639

 
146,561

 
 
 
 
 
 
 
 
 
 
Life and other policy benefits
3,621

 
5,168

 
6,812

 

 
15,601

Amortization of deferred acquisition costs
2,011

 
5,105

 
28,104

 

 
35,220

Universal life and annuity contract interest
3,843

 
5,683

 
39,491

 

 
49,017

Other operating expenses
3,575

 
5,526

 
9,590

 
4,616

 
23,307

Federal income taxes (benefit)
252

 
5,984

 
(185
)
 
1,653

 
7,704

 
 
 
 
 
 
 
 
 
 
Total expenses
13,302

 
27,466

 
83,812

 
6,269

 
130,849

 
 
 
 
 
 
 
 
 
 
Segment earnings (loss)
$
514

 
12,205

 
(377
)
 
3,370

 
15,712

 
 
 
 
 
 
 
 
 
 

17


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Selected Segment Information:
 
 
 
 
 
 
 
 
 
 
Domestic
Life
Insurance
 
International
 Life
Insurance
 
Annuities
 
All
 Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2015
 
 
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheet Items:
 
 
 
 
 
 
 
 
 
Deferred policy acquisition costs and sales inducements
$
65,368

 
249,736

 
630,240

 

 
945,344

Total segment assets
783,839

 
1,246,906

 
8,988,348

 
259,212

 
11,278,305

Future policy benefits
675,837

 
949,876

 
7,916,554

 

 
9,542,267

Other policyholder liabilities
13,661

 
17,777

 
121,951

 

 
153,389

 
 
 
 
 
 
 
 
 
 
Three Months Ended
 

 
 

 
 

 
 

 
 

March 31, 2015
 

 
 

 
 

 
 

 
 

Condensed Consolidated Income Statements:
 

 
 

 
 

 
 

 
 

Premiums and contract revenues
$
6,487

 
30,333

 
4,840

 

 
41,660

Net investment income
7,165

 
8,614

 
79,236

 
4,908

 
99,923

Other revenues
16

 
86

 
15

 
5,212

 
5,329

 
 
 
 
 
 
 
 
 
 
Total revenues
13,668

 
39,033

 
84,091

 
10,120

 
146,912

 
 
 
 
 
 
 
 
 
 
Life and other policy benefits
5,113

 
6,205

 
7,948

 

 
19,266

Amortization of deferred acquisition costs
3,181

 
(650
)
 
25,121

 

 
27,652

Universal life and annuity contract interest
4,939

 
7,130

 
36,970

 

 
49,039

Other operating expenses
3,715

 
5,922

 
6,178

 
4,695

 
20,510

Federal income taxes (benefit)
(1,051
)
 
6,545

 
2,523

 
1,738

 
9,755

 
 
 
 
 
 
 
 
 
 
Total expenses
15,897

 
25,152

 
78,740

 
6,433

 
126,222

 
 
 
 
 
 
 
 
 
 
Segment earnings (loss)
$
(2,229
)
 
13,881

 
5,351

 
3,687

 
20,690


 
 
 
 
 
 
 
 
 
 


18


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Reconciliations of segment information to the Company's condensed consolidated financial statements are provided below.

 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
 
 
 
 
Premiums and Other Revenues:
 
 
 
Premiums and contract revenues
$
46,183

 
41,660

Net investment income
95,500

 
99,923

Other revenues
4,878

 
5,329

Realized gains (losses) on investments
2,381

 
978

 
 
 
 
Total condensed consolidated premiums and other revenues
$
148,942

 
147,890


 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
 
 
 
 
Federal Income Taxes:
 
 
 
Total segment Federal income taxes
$
7,704

 
9,755

Taxes on realized gains (losses) on investments
834

 
342

 
 
 
 
Total condensed consolidated Federal income taxes
$
8,538

 
10,097


 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
 
 
 
 
Net Earnings:
 
 
 
Total segment earnings
$
15,712

 
20,690

Realized gains (losses) on investments, net of taxes
1,547

 
636

 
 
 
 
Total condensed consolidated net earnings
$
17,259

 
21,326




19


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
March 31,
 
2016
 
2015
 
(In thousands)
 
 
 
 
Assets:
 
 
 
Total segment assets
$
11,533,047

 
11,278,305

Other unallocated assets
150,648

 
183,698

 
 
 
 
Total condensed consolidated assets
$
11,683,695

 
11,462,003



(7)
  SHARE-BASED PAYMENTS

The Company had a stock and incentive plan ("1995 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, in tandem with stock options or freestanding; (3) restricted stock or restricted stock units; and, (4) performance awards. The 1995 Plan began on April 21, 1995, and was amended on June 25, 2004 to extend the termination date to April 20, 2010. 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 stock appreciation rights ("SARs") or other awards were allowed to be granted, could not exceed 300,000. Effective June 20, 2008, the Company's shareholders approved a 2008 Incentive Plan (“2008 Plan”). The 2008 Plan is substantially similar to the 1995 Plan and authorized an additional number of Class A, $0.01 par value, common stock shares eligible for issue not to exceed 300,000. These plans were assumed by NWLGI from National Western pursuant to the terms of the reorganization.

All of the employees of the Company and its subsidiaries are eligible to participate in the current 2008 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. Employee grants vest 20% annually following three years of service following the grant date. Directors' grants vest 20% annually following one year of service from the date of grant.

Effective during March 2006, the Company adopted and implemented a limited stock buy-back program with respect to the 1995 Plan which provides option holders the additional alternative of selling shares acquired through the exercise of options directly back to the Company. Option holders may 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 1995 Plan; however, the program necessitated a change in accounting from the equity classification to the liability classification. In August 2008, the Company implemented another limited stock buy-back program, substantially similar to the 2006 program, for shares issued under the 2008 Plan.

On February 17, 2016, the Company granted 14,643 SARs to officers of National Western at the closing market price per Class A common share of $216.48. These SARs, unlike prior grants, will vest annually at a rate of 33.3% per year from the date of grant. No stock option or SAR awards were issued during the first three months of 2015.

While not previously utilized, the 2008 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 commons shares, often referred to as "phantom stock-based awards". 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. 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.


20


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

On February 17, 2016, the Company granted 5,727 performance stock units and 3,661 restricted stock units to officers of National Western based upon the closing market price per Class A common share of $216.48. Both the PSUs and RSUs vest three years from the date of grant. The RSUs are payable in cash at the vesting date equal to the closing price of the Company's Class A common share at that time. For PSUs, the performance period begins the first day of the calendar year, in this case January 1, 2016, and runs three 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.

The Company uses the current fair value method to measure compensation cost. As of March 31, 2016 and 2015, the liability balance was $6.2 million and $8.4 million, respectively. A summary of shares available for grant and activity is detailed below.

 
 
 
Options Outstanding
 
Shares
Available
For Grant
 
Shares
 
Weighted-
Average
Exercise
Price
 
 
 
 
 
 
Stock Options:
 
 
 
 
 
Balance at January 1, 2016
291,000

 
27,768

 
$
243.26

Exercised

 

 
$

Forfeited

 

 
$

Expired

 

 
$

Stock options granted

 

 
$

 
 
 
 
 
 
Balance at March 31, 2016
291,000

 
27,768

 
$
243.26


 
Liability Awards
 
SAR
 
RSU
 
PSU
 
 
 
 
 
 
Balance at January 1, 2016
86,261

 

 

Exercised
(275
)
 

 

Forfeited

 

 

Granted
14,643

 
3,661

 
5,727

 
 
 
 
 
 
Balance at March 31, 2016
100,629

 
3,661

 
5,727


Stock options and SARs shown as forfeited in the above tables represent vested and unvested awards not exercised by plan participants prior to their termination from the Company. Forfeited stock options during the three months ended March 31, 2016 were awarded under the 1995 Plan. As the 1995 Plan terminated during calendar year 2010, the forfeited shares are not shown as being added back to the "Shares Available For Grant" balance.

The total intrinsic value of SARs exercised was $0.1 million and $0.1 million for the three months ended March 31, 2016 and 2015, respectively. The total share-based liabilities paid for the exercised SARs were $0 million and $0.1 million for the three months ended March 31, 2016 and 2015, respectively. The total fair value of stock options and SARs vested during the three months ended March 31, 2016 and 2015 was $0.6 million and $0.3 million, respectively. For the three months ended March 31, 2016 and 2015, the total cash received from the exercise of stock options under the Plans was $0 million and $0 million, respectively.


21


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table summarizes information about stock options and SARs outstanding at March 31, 2016.

 
 
Options/SARs Outstanding
 
 
Number
Outstanding
 
Weighted-
Average
Remaining
Contractual Life
 
Number
Exercisable
 
 
 
 
 
 
 
Exercise prices:
 
 
 
 
 
 255.13 (options)
 
20,768

 
2.1 years
 
20,768

 208.05 (options)
 
7,000

 
2.2 years
 
7,000

 114.64 (SARs)
 
23,268

 
2.9 years
 
23,268

 132.56 (SARs)
 
28,218

 
5.7 years
 
13,508

 210.22 (SARs)
 
34,500

 
7.7 years
 
3,600

 216.48 (SARs)
 
14,643

 
9.9 years
 

 
 
 
 
 
 
 
Totals
 
128,397

 
 
 
68,144

 
 

 
 
 
 

Aggregate intrinsic value (in thousands)
$
6,536

 
 
 
$
4,255


The aggregate intrinsic value in the table above is based on the closing stock price of $230.63 per share on March 31, 2016.

In estimating the fair value of the share based awards outstanding at March 31, 2016 and December 31, 2015, the Company employed the Black-Scholes option pricing model with assumptions detailed below.

 
March 31,
2016
 
December 31,
2015
 
 
 
 
Expected term of options
2.0 to 9.9 years

 
2.3 to 8.0 years

Expected volatility:
 
 
 
Range
21.95% to 25.44%

 
21.11% to 37.77%

Weighted-average
23.57
%
 
23.89
%
Expected dividend yield
0.16
%
 
0.14
%
Risk-free rate:
 
 
 
Range
0.53% to 1.22%

 
0.22% to 1.67%

Weighted-average
0.67
%
 
0.63
%

The Company reviewed the contractual term relative to the options as well as perceived future behavior patterns of exercise.  Volatility is based on the Company’s historical volatility over the expected term of the option’s expected exercise date.

The pre-tax compensation cost (benefit) recognized in the financial statements related to the two plans defined above was $(1.5) million and $(0.8) million for the three months ended March 31, 2016 and 2015, respectively. The related tax (expense)/benefit recognized was $0.5 million and $0.3 million for the three months ended March 31, 2016 and 2015, respectively.

As of March 31, 2016, the total compensation cost related to nonvested share based awards not yet recognized was $3.8 million.  This amount is expected to be recognized over a weighted-average period of 2.0 years.  The Company recognizes compensation cost over the graded vesting periods.


22


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. 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 October 26, 2011 the Brazilian Superintendence of Private Insurance (“SUSEP”) attempted to serve National Western with a subpoena regarding an administrative proceeding initiated by SUSEP in which it alleged that National Western was operating as an insurance company in Brazil without due authorization. National Western had been informed that SUSEP was attempting to impose a penal fine, based on currency exchange rates at that time, of approximately $6.0 billion on the company.  SUSEP unsuccessfully attempted to serve National Western with notice regarding this matter.  National Western does not transact business in Brazil and has no officers, employees, property, or assets in Brazil. National Western believes that SUSEP has no jurisdiction over the company, that SUSEP's attempts at service of process were invalid, and that any penal fine would be unenforceable.  In addition, a new law recently enacted in Brazil would limit the amount of any penal fine to 3 million reais (approximately $800,000 based on current exchange rates). For the reasons described above, the Company does not believe that this matter meets the definition of a material pending legal proceeding as such term is defined in Item 103 of Regulation S-K but has included the foregoing description solely due to the purported amount of the fine sought at that time. Nonetheless, National Western is in discussions with SUSEP in an effort to resolve this matter. No conclusion can be drawn at this time as to the outcome of these discussions, or whether they will continue, or how any such outcome may impact the Company’s business, results of operations, or financial condition. However, in light of the pendency of discussions with Brazilian authorities, National Western has ceased accepting new applications from residents in Brazil.

National Western was the named defendant in the case of Damaris Maldonado Vinas, et al. vs. National Western Life Insurance, in which the plaintiffs, after National Western had paid the death benefits to the beneficiary (Francisco Iglesias-Alvarez) upon the annuitant’s (Carlos Iglesias-Alvarez) death, sought to annul two annuity policies issued by National Western at the behest of Carlos Iglesias-Alvarez and which named Francisco Iglesias-Alvarez as their beneficiary.  On March 31, 2016, the United States District Court for the District of Puerto Rico (the “Court”) issued its Opinion and Order on the pending Motions for Summary Judgment submitted by the parties, and therein denied National Western’s motion and granted plaintiffs’ motion voiding the two annuities and requesting a refund of the premiums paid $(2.9) million.  National Western vigorously defended the case and believes that the Court’s Opinion and Order is contrary to applicable law.  As such, National Western filed a Motion for Reconsideration of Opinion and Order and Corresponding Judgment with the Court on April 27, 2016, and if unsuccessful National Western intends to appeal the judgment.

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, the Brazilian authorities have 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 has issued a subpoena upon the company 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 is cooperating with the relevant governmental authorities in regard to this matter.

23


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(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 $25.9 million commitments to fund new loans and $2.9 million commitments on existing loans to extend credit relating to loans at March 31, 2016. The Company evaluates each customer's creditworthiness on a case-by-case basis.


(9)
INVESTMENTS

(A)
Investment Gains and Losses

The table below presents realized investment gains and losses, excluding impairment losses, for the periods indicated.

 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
 
 
 
 
Available for sale debt securities:
 
 
 
Realized gains on disposal
$
677

 
213

Realized losses on disposal
(6
)
 
(9
)
Held to maturity debt securities:
 
 
 
Realized gains on disposal
489

 
724

Realized losses on disposal
(106
)
 

Equity securities realized gains (losses)
37

 
50

Real estate gains (losses)
1,290

 

Other

 

 
 
 
 
Totals
$
2,381

 
978



24


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Company uses the specific identification method in computing realized gains and losses. For the three months ended March 31, 2016 and 2015 the percentage of gains on bonds due to the call of securities was 36% and 75%, respectively. This includes calls out of the Company's available for sale portfolio of debt securities.

The table below presents net impairment losses recognized in earnings for the periods indicated.

 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
 
 
(In thousands)
 
 
 
 
 
Total other-than-temporary impairment gains (losses) on debt securities
 
$
26

 
160

Portion of loss (gain) recognized in comprehensive income
 
(26
)
 
(160
)
 
 
 
 
 
Net impairment losses on debt securities recognized in earnings
 

 

Equity securities impairments
 

 

 
 
 
 
 
Totals
 
$

 


The table below presents a roll forward of credit losses on securities for which the Company also recorded non-credit other-than-temporary impairments in other comprehensive loss.

 
For the Three Months Ended March 31, 2016
 
For the Year Ended
December 31,
2015
 
(In thousands)
 
 
 
 
Beginning balance, cumulative credit losses related to other-than-temporary impairments
$
2,278

 
2,298

Reductions for securities sold during current period
(629
)
 
(20
)
Additions for credit losses not previously recognized in other-than-temporary impairments

 

 
 
 
 
Ending balance, cumulative credit losses related to other-than-temporary impairments
$
1,649

 
2,278



25


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(B)
Debt and Equity Securities

The table below presents amortized costs and fair values of securities held to maturity at March 31, 2016.

 
Securities Held to Maturity
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
U.S. agencies
$
10,015

 
183

 

 
10,198

U.S. Treasury
1,928

 
342

 

 
2,270

States and political subdivisions
441,630

 
37,605

 
(26
)
 
479,209

Public utilities
1,094,032

 
63,064

 
(2,326
)
 
1,154,770

Corporate
4,159,049

 
177,686

 
(33,112
)
 
4,303,623

Residential mortgage-backed
1,475,990

 
85,835

 
(421
)
 
1,561,404

Home equity
10,639

 
1,618

 

 
12,257

Manufactured housing
1,950

 
184

 

 
2,134

 
 
 
 
 
 
 
 
Totals
$
7,195,233

 
366,517

 
(35,885
)
 
7,525,865


The table below presents amortized costs and fair values of securities available for sale at March 31, 2016.

 
Securities Available for Sale
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
States and political subdivisions
$
584

 

 
(20
)
 
564

Foreign governments
9,949

 
636

 

 
10,585

Public utilities
162,228

 
7,879

 
(996
)
 
169,111

Corporate
2,586,105

 
113,956

 
(25,493
)
 
2,674,568

Residential mortgage-backed
33,606

 
3,183

 
(35
)
 
36,754

Home equity
13,050

 
357

 
(31
)
 
13,376

Manufactured housing
931

 
21

 

 
952

 
2,806,453

 
126,032

 
(26,575
)
 
2,905,910

 
 
 
 
 
 
 
 
Equity securities
13,638

 
5,032

 
(204
)
 
18,466

 
 
 
 
 
 
 
 
Totals
$
2,820,091

 
131,064

 
(26,779
)
 
2,924,376



26


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The table below presents amortized costs and fair values of securities held to maturity at December 31, 2015.

 
Securities Held to Maturity
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
U.S. agencies
$
15,019

 
275

 

 
15,294

U.S. Treasury
1,927

 
317

 

 
2,244

States and political subdivisions
435,941

 
29,129

 
(662
)
 
464,408

Public utilities
1,044,063

 
42,271

 
(6,621
)
 
1,079,713

Corporate
4,160,628

 
114,920

 
(72,913
)
 
4,202,635

Residential mortgage-backed
1,503,021

 
59,013

 
(6,227
)
 
1,555,807

Home equity
11,047

 
1,701

 

 
12,748

Manufactured housing
2,321

 
266

 

 
2,587

 
 
 
 
 
 
 
 
Totals
$
7,173,967

 
247,892

 
(86,423
)
 
7,335,436


The table below presents amortized costs and fair values of securities available for sale at December 31, 2015.

 
Securities Available for Sale
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
States and political subdivisions
$
586

 

 
(34
)
 
552

Foreign governments
9,947

 
408

 

 
10,355

Public utilities
129,980

 
5,354

 
(775
)
 
134,559

Corporate
2,635,536

 
73,132

 
(54,503
)
 
2,654,165

Residential mortgage-backed
36,463

 
3,103

 

 
39,566

Home equity
20,123

 
825

 
(12
)
 
20,936

Manufactured housing
1,063

 
26