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, 1995
[ ] 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: 2-17039
NATIONAL WESTERN LIFE INSURANCE COMPANY
(Exact name of Registrant as specified in its charter)
COLORADO 84-0467208
(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 [ ]
As of May 11, 1995, the number of shares of Registrant's common stock
outstanding was: Class A - 3,288,192 and Class B - 200,000.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
INDEX
Part I. Financial Information: Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1995 (Unaudited) and December 31, 1994
Condensed Consolidated Statements of Earnings -
For the Three Months Ended March 31, 1995 and 1994 (Unaudited)
Condensed Consolidated Statements of Stockholders' Equity -
For the Three Months Ended March 31, 1995 and 1994 (Unaudited)
Condensed Consolidated Statements of Cash Flows -
For the Three Months Ended March 31, 1995 and 1994 (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11 - Computation of Earnings per Common Share -
For the Three Months Ended March 31, 1995 and 1994 (Unaudited)
Signatures
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
March 31, December 31,
ASSETS 1995 1994
Cash and investments:
Securities held to maturity, at amortized cost $ 1,617,444 1,605,813
Securities available for sale, at fair value 414,489 354,300
Mortgage loans, net of allowances for possible
losses ($5,668 and $5,929) 190,923 189,632
Policy loans 150,715 151,487
Other long-term investments 26,277 24,872
Securities purchased under agreements to resell 136,906 153,971
Trading securities, at fair value 72,237 69,666
Cash and short-term investments 32,428 21,247
Total cash and investments 2,641,419 2,570,988
Brokerage trade receivables, net of allowances for
possible losses ($1,000 and $1,000) 5,747 675
Accrued investment income 31,569 32,711
Deferred policy acquisition costs 286,363 291,274
Other assets 21,120 19,406
$ 2,986,218 2,915,054
<FN>
Note: The balance sheet at December 31, 1994 has been taken from the
audited financial statements at that date.
See accompanying notes to condensed consolidated financial statements.
</FN>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Shares Outstanding)
(Unaudited)
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
LIABILITIES:
Future policy benefits:
Traditional life and annuity products $ 176,179 177,429
Universal life and investment annuity contracts 2,257,992 2,194,264
Other policyholder liabilities 22,574 23,183
Short-term borrowings 502 29,698
Securities sold not yet purchased 90,450 87,336
Securities sold under agreements to repurchase 107,485 91,781
Brokerage trade payables 7,895 3,692
Federal income taxes payable:
Current 1,243 -
Deferred 4,208 1,996
Other liabilities 33,515 30,541
Total liabilities 2,702,043 2,639,920
STOCKHOLDERS' EQUITY:
Common stock:
Class A-$1 par value; 7,500,000 shares authorized;
3,288,192 shares issued and outstanding in
1995 and 1994 3,288 3,288
Class B-$1 par value; 200,000 shares authorized,
issued and outstanding in 1995 and 1994 200 200
Additional paid-in capital 24,475 24,475
Net unrealized gains (losses) on investment securities 1,518 (2,199)
Retained earnings 254,694 249,370
Total stockholders' equity 284,175 275,134
$ 2,986,218 2,915,054
<FN>
Note: The balance sheet at December 31, 1994 has been taken from the
audited financial statements at that date.
See accompanying notes to condensed consolidated financial statements.
</FN>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended March 31, 1995 and 1994
(Unaudited)
(In Thousands Except Per Share Amounts)
1995 1994
Premiums and other revenue:
Life and annuity premiums $ 4,853 4,934
Universal life and investment annuity
contract revenues 17,066 16,248
Net investment income 47,995 45,764
Brokerage revenues 3,725 15,010
Other income 459 155
Realized gains on investments 133 1,714
Total premiums and other revenue 74,231 83,825
Benefits and expenses:
Life and other policy benefits 11,550 7,886
Decrease in liabilities for future
policy benefits (1,250) (65)
Amortization of deferred policy acquisition costs 9,253 8,718
Universal life and investment annuity
contract interest 34,271 32,462
Other insurance operating expenses 6,858 6,029
Brokerage operating expenses 5,358 15,702
Total benefits and expenses 66,040 70,732
Earnings before Federal income taxes 8,191 13,093
Provision (benefit) for Federal income taxes:
Current 2,656 5,396
Deferred 211 (814)
Total Federal income taxes 2,867 4,582
Net earnings $ 5,324 8,511
Earnings per share of common stock:
Net earnings $ 1.53 2.44
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 1995 and 1994
(Unaudited)
(In Thousands)
1995 1994
Common stock shares outstanding:
Shares outstanding at beginning of year
and end of period 3,488 3,485
Common stock:
Balance at beginning of year and end of period $ 3,488 3,485
Additional paid-in capital:
Balance at beginning of year and end of period 24,475 24,356
Net unrealized gains (losses) on investment
securities:
Balance at beginning of year (2,199) (257)
Effect of change in accounting for investments
in debt and equity securities - 26,610
Change in unrealized gains (losses) on investment
securities during the period 4,060 (13,329)
Amortization of net unrealized gain related to
transfer of securities available for sale to
securities held to maturity (343) -
Balance at end of period 1,518 13,024
Retained earnings:
Balance at beginning of year 249,370 215,134
Net earnings 5,324 8,511
Balance at end of period 254,694 223,645
Total stockholders' equity $ 284,175 264,510
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1995 and 1994
(Unaudited)
(In Thousands)
1995 1994
Cash flows from operating activities:
Net earnings $ 5,324 8,511
Adjustments to reconcile net earnings to net cash
from operating activities:
Universal life and investment annuity
contract interest 34,271 32,462
Surrender charges (8,532) (8,466)
Realized gains on investments (133) (1,714)
Accrual and amortization of investment income (2,198) (2,655)
Depreciation and amortization 259 242
Increase in insurance receivables and
other assets (3,166) (5,602)
Decrease (increase) in brokerage receivables, net (869) 15,243
Decrease (increase) in accrued investment income 1,142 (429)
Decrease (increase) in deferred policy
acquisition costs (3,140) 3,840
Decrease in liability for future policy benefits (1,250) (65)
Decrease in other policyholder liabilities (609) (989)
Increase (decrease) in Federal income
taxes payable 2,867 (2,168)
Increase (decrease) in other liabilities 2,974 (18,758)
Net decrease in repurchase agreements
less related liabilities 35,883 42,730
Increase in trading securities (2,571) (72,993)
Other (3) (240)
Net cash provided by (used in) operating activities 60,249 (11,051)
Cash flows from investing activities:
Proceeds from sales of:
Securities available for sale 106 757
Other investments 1,004 11,652
Proceeds from maturities and redemptions of:
Securities held to maturity 14,099 14,223
Securities available for sale 1,274 52,269
Purchases of:
Securities held to maturity (25,371) (79,434)
Securities available for sale (45,797) (10,294)
Other investments (1,854) (1,968)
Principal payments on mortgage loans 2,701 2,204
Cost of mortgage loans acquired (4,678) (8,664)
Decrease in policy loans 772 1,016
Other (119) (112)
Net cash used in investing activities (57,863) (18,351)
<FN>
(Continued on next page)
</FN>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
For the Three Months Ended March 31, 1995 and 1994
(Unaudited)
(In Thousands)
1995 1994
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings $ (29,196) 37,471
Deposits to account balances for universal life
and investment annuity contracts 97,627 26,785
Return of account balances on universal life
and investment annuity contracts (59,636) (51,464)
Net cash provided by financing activities 8,795 12,792
Net increase (decrease) in cash and short-term
investments 11,181 (16,610)
Cash and short-term investments at beginning of year 21,247 32,823
Cash and short-term investments at end of period $ 32,428 16,213
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed consolidated financial statements include the
accounts of National Western Life Insurance Company and its wholly-owned
subsidiaries (the Company), The Westcap Corporation, Commercial Adjusters,
Inc., NWL Investments, Inc., NWL Properties, Inc., and NWL 806 Main, Inc.
Commercial Adjusters, Inc. was dissolved in October, 1994, and all remaining
assets and liabilities were assumed by National Western Life Insurance
Company. In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of the Company as of March 31, 1995, and the results
of its operations and its cash flows for the three months ended March 31,
1995 and 1994.
2. The results of operations for the three months ended March 31, 1995
and 1994 are not necessarily indicative of the results to be expected for
the full year.
3. The Company paid no cash dividends on common stock during the three
months ended March 31, 1995 and 1994.
4. The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan," in May, 1993. In October, 1994, the FASB also issued
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures," which amends SFAS No. 114. These statements
address the accounting by creditors for impairment of certain loans and
related financial statement disclosures. The statements are applicable to
all creditors and to all loans, uncollateralized as well as collateralized,
with certain exceptions and also apply to all loans that are restructured
in a troubled debt restructuring involving a modification of terms. The
statements require that impaired loans be measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral
dependent.
Effective January 1, 1995, the Company adopted both SFAS No. 114 and No.
118. As the Company was already providing for impairment of loans through
an allowance for possible losses, the implementation of this statement had
no effect on the level of this allowance. As a result, there was no net
impact on the Company's results of operations or stockholders' equity.
However, additional disclosures are required by these statements which are
provided below.
As of March 31, 1995 and 1994, impaired mortgage loans on real estate were
as follows:
1995 1994
(In thousands)
Impaired loans:
With allowance * $ - 2,040
Without allowance - 721
Total impaired loans $ - 2,761
<FN>
* Represents gross amounts before allowance for mortgage loans
losses of $785 at March 31, 1994.
</FN>
For the quarters ended March 31, 1995 and 1994, average investments in
impaired mortgage loans were $499,000 and $2,987,000, respectively.
Interest income recognized on impaired loans during the quarters ended March
31, 1995 and 1994 was not significant.
Impaired loans are typically placed on non-accrual status and no interest
income is recognized. However, if cash is received on the impaired loan, it
is applied to principal and interest on past due payments, beginning with
the most delinquent payment.
Detailed below are the changes in the allowance for mortgage loan losses for
the three months ended March 31, 1995 and 1994.
1995 1994
(In thousands)
Balance at beginning of year $ 5,929 6,849
Net additions charged to realized investment
gains and losses - -
Deductions resulting from foreclosures (261) (25)
Balance at end of period $ 5,668 6,824
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Investment Philosophy
The Company's investment philosophy is to maintain a diversified portfolio
of investment grade debt and equity securities that provide adequate
liquidity to meet policyholder obligations and other cash needs. The
prevailing strategy within this philosophy is the intent to hold investments
in debt securities to maturity. However, the Company does manage its
portfolio, which entails monitoring and reacting to all components which
affect changes in the price or value of investments in debt and equity
securities. Additionally, the Company's overall conservative investment
philosophy is reflected in the allocation of investments of its insurance
operations which is detailed below as of March 31, 1995 and December 31,
1994. The Company emphasizes debt securities with smaller holdings in
mortgage loans and real estate than industry averages.
Percent of Insurance
Operations Investments
1995 1994
Debt securities 82.4 % 82.5 %
Mortgage loans 7.8 8.1
Policy loans 6.2 6.5
Equity securities 1.1 1.1
Real Estate 0.7 0.8
Other 1.8 1.0
Totals 100.0 % 100.0 %
In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," the Company classifies its investments in debt and
equity securities into the following categories: held to maturity,
available for sale, and trading. The reporting category chosen for the
Company's securities investments depends on various factors including the
type and quality of the particular security and how it will be incorporated
into the Company's overall asset/liability management strategy.
Securities the Company purchases with the intent to hold to maturity are
classified as securities held to maturity. Because the Company has strong
cash flows and matches expected maturities of assets and liabilities, the
Company has the ability to hold the securities, as it would be unlikely that
forced sales of securities would be required prior to maturity to cover
payments of liabilities. As a result, securities held to maturity are
carried at amortized cost less declines in value that are other than
temporary. However, certain situations may change the Company's intent to
hold a particular security to maturity, the most notable of which is a
deterioration in the issuer's creditworthiness. Accordingly, a security may
be sold to avoid a further decline in realizable value when there has been a
significant change in the credit risk of the issuer.
Securities purchased by the Company's brokerage subsidiary that are held for
current resale are classified as trading securities. These securities are
typically held for short periods of time, as the intent is to sell them,
producing a trading profit. Trading securities are recorded in the Company's
financial statements at fair value. Any trading profits or losses and
unrealized gains or losses resulting from changes in the fair value of the
securities are reflected as a component of income in the Company's financial
statements.
Securities that are not classified as either held to maturity or trading
securities are reported as securities available for sale. At March 31, 1995,
approximately 20% of the Company's total debt and equity securities were
classified as securities available for sale. These holdings provide
flexibility to the Company to react to market opportunities and conditions
and to practice active management within the portfolio to provide adequate
liquidity to meet policyholder obligations and other cash needs. These
securities may be sold if market or other measurement factors change
unexpectedly after the securities were acquired. For example, opportunities
arise when factors change that allow the Company to improve the performance
and credit quality of the investment portfolio by replacing an existing
security with an alternative security while still maintaining an appropriate
matching of expected maturities of assets and liabilities. Examples of such
improvements are as follows: improving the yield earned on invested assets,
improving the credit quality, changing the duration of the portfolio, and
selling securities in advance of anticipated calls or other prepayments.
Securities available for sale are reported in the Company's financial
statements at individual fair value. Any unrealized gains or losses
resulting from changes in the fair value of the securities are reflected as
a component of stockholders' equity.
As an integral part of its investment philosophy, the Company performs an
ongoing process of monitoring the creditworthiness of issuers within the
investment portfolio. In addition, review procedures are performed on
securities that have had significant declines in fair value. The Company's
objective in these circumstances is to determine if the decline in fair
value is due to changing market expectations regarding inflation and general
interest rates or other factors.
Additional review procedures are performed on those fair value declines
which are caused by factors other than market expectations regarding
inflation and general interest rates. Specific conditions of the issuer and
its ability to comply with all terms of the instrument are considered in the
evaluation of the realizable value of the investment. Information reviewed
in making this evaluation would include the recent operational results and
financial position of the issuer, information about its industry, recent
press releases and other available data. If evidence does not exist to
support a realizable value equal to or greater than the carrying value of
the investment, such decline in fair value is determined to be other than
temporary, and the carrying amount is reduced to its net realizable value.
The amount of the reduction is reported as a realized loss.
Portfolio Analysis
At March 31, 1995, securities held to maturity totaled $1.617 billion or
61.2% of total invested assets. The fair value of these securities was
$1.565 billion which reflects gross unrealized losses of $52 million. The
unrealized losses within this portfolio have decreased $66 million from
December 31, 1994, due primarily to recent decreases in market interest
rates.
Securities available for sale totaled $414 million at March 31, 1995, or
15.7% of total invested assets. Equity securities, which are included in
securities available for sale, continue to be a small component of the
Company's total investment portfolio totaling only $28 million. Securities
available for sale are reported in the accompanying financial statements at
fair value with changes in values reported as a separate component of
stockholders' equity, net of taxes and adjustments to deferred policy
acquisition costs. Net unrealized gains on these securities totaled $1.5
million at March 31, 1995, reflecting an increase of $3.7 million from
December 31, 1994. Again, the positive results for the quarter are due
primarily to decreases in market interest rates.
The Company's insurance operations do not maintain a trading securities
portfolio. All trading securities reported in the accompanying financial
statements are held by the Company's brokerage subsidiary, The Westcap
Corporation. These securities totaled $72.2 million at March 31, 1995, or
2.7% of total invested assets. Net increases in the fair values of these
securities totaled $52,000 for the quarter ended March 31, 1995, and have
been included in earnings.
The Company's insurance operations maintain a diversified debt securities
portfolio which consists of various types of fixed income securities
including primarily U.S. government, public utilities, corporate and
mortgage-backed securities. Investments in mortgage-backed securities
include U.S. government and private issue mortgage-backed pass-through
securities as well as collateralized mortgage obligations (CMOs).
The Company substantially reduces prepayment and extension risks in its
mortgage-backed securities portfolio by investing primarily in
collateralized mortgage obligations which have more predictable cash flow
patterns than pass-through securities. The Company invests primarily in
planned amortization class I (PAC I) CMOs which are designed to amortize in
a more predictable manner than other CMO classes or pass-throughs. Due to
this strategy, the Company continues to manage and reduce prepayment and
extension risks, thereby helping to maintain the appropriate matching of the
Company's assets and liabilities.
In addition to managing prepayment and extension risks, the Company
continues to maintain high quality investments in debt securities. Much
attention is often placed on a company's holdings of below investment grade
debt securities, as these securities generally have greater default risk
than higher rated corporate debt. These issuers usually have high levels of
indebtedness and are more sensitive to adverse industry or economic
conditions than are investment grade issuers. The Company's small holdings
of below investment grade debt securities are summarized as follows:
Below Investment
Grade Debt Securities
% of
Carrying Market Invested
Value Value Assets
(In thousands)
March 31, 1995 $ 22,705 21,404 0.9%
December 31, 1994 $ 31,861 28,670 1.2%
The level of investments in debt securities which are in default as to
principal or interest payments is indicative of the Company's minimal
holdings of below investment grade debt securities. At March 31, 1995, and
December 31, 1994, securities with principal balances totaling $3,151,000
and $2,415,000 were in default and on non-accrual status.
MORTGAGE LOANS AND REAL ESTATE
Investment Philosophy
In general, the Company seeks loans on high quality, income producing
properties such as shopping centers, freestanding retail stores, office
buildings, industrial and sales or service facilities, selected apartment
buildings, motels, and health care facilities. The location of these loans
is typically in growth areas that offer a potential for property value
appreciation. These growth areas are found primarily in major metropolitan
areas, but occasionally in selected smaller communities. The Company
currently seeks loans ranging from $500,000 to $11,000,000, with terms
ranging from three to twenty-five years, at interest rates dictated by the
marketplace.
The Company continues to improve the quality of its mortgage loan portfolio
through strict underwriting guidelines and diversification of underlying
property types and geographic locations. In addition to all mortgage loans
being secured by the property, the majority of loans originated since 1991
are amortized over the term of the lease on the property, which is
guaranteed by the lessee, and are approved based on the credit strength of
the lessee. This approach also enables the Company to choose the locale in
which the property securing the loan is located. In addition, the Company's
underwriting guidelines require a loan-to-value ratio of 75% or less.
The Company's direct investments in real estate are not a significant
portion of its total investment portfolio, and the majority of real estate
owned was acquired through mortgage loan foreclosures. However, the Company
is also currently participating in several real estate joint ventures. The
joint ventures invest primarily in income-producing retail properties.
While not a significant portion of the Company's investment portfolio, the
joint ventures have produced favorable returns to date. The Company has no
current plans to significantly increase its investments in real estate in
the foreseeable future.
Portfolio Analysis
The Company held net investments in mortgage loans totaling $190,923,000 and
$189,632,000, or 7.2% and 7.4% of total invested assets, at March 31, 1995,
and December 31, 1994, respectively. The loans are real estate mortgages
substantially all of which are related to commercial properties and
developments and have fixed interest rates.
As of March 31, 1995, the allowance for possible losses on mortgage loans
was $5,668,000. No additions were made to the allowance in the quarter ended
March 31, 1995, as management believes that the current balance is adequate.
However, while management uses available information to recognize losses,
future additions to the allowance may be necessary based on changes in
economic conditions, particularly in the region where the majority of the
loans and underlying properties are located. This region includes Texas,
Louisiana, Oklahoma, and Arkansas.
The Company typically places impaired loans on non-accrual status and no
interest income is recognized during this period. Also, the Company will at
times restructure mortgage loans under certain conditions which may involve
changes in interest rates, payment terms or other modifications. For the
three months ended March 31, 1995 and 1994, the reductions in interest
income due to impaired and restructured mortgage loans was not significant.
The Company owns real estate that was acquired through foreclosure and
through direct investment totaling approximately $17,694,000 and $17,766,000
at March 31, 1995, and December 31, 1994, respectively. This small
concentration of properties represents less than one percent of the
Company's entire investment portfolio. The real estate holdings consist
primarily of income-producing properties which are being operated by the
Company. The Company recognized small operating gains on these properties
of approximately $122,000 for the three months ended March 31, 1995, and
losses of $60,000 for the three months ended March 31, 1994. The Company
does not anticipate significant changes in these operating results in the
near future.
The Company monitors the conditions and market values of these properties on
a regular basis. No significant realized losses were recognized due to
declines in values of properties for the three months ended March 31, 1995
and 1994, respectively. The Company makes repairs and capital improvements
to keep the properties in good condition and will continue this maintenance
as needed. However, the amounts expended for this maintenance has not had a
significant impact on the Company's liquidity and capital resources, and
such maintenance is not foreseen to have a significant impact in the near
future.
RESULTS OF OPERATIONS
Summary of Consolidated Operations
A summary of operating results, net of taxes, for the quarters ended March
31, 1995 and 1994 is provided below:
Three Months Ended March 31,
1995 1994
(In thousands except per share data)
Revenues:
Insurance revenues excluding realized
gains on investments $ 70,373 67,101
Brokerage revenues 3,725 15,010
Realized gains on investments 133 1,714
Total revenues $ 74,231 83,825
Earnings:
Earnings from insurance operations $ 6,971 7,847
Losses from brokerage operations (1,733) (450)
Net realized gains on investments 86 1,114
Net earnings $ 5,324 8,511
Earnings Per Share:
Earnings from insurance operations $ 2.00 2.25
Losses from brokerage operations (0.50) (0.13)
Net realized gains on investments 0.03 0.32
Net earnings $ 1.53 2.44
Significant changes and fluctuations in income and expense items between the
three months ended March 31, 1995 and 1994 are described in detail for
insurance and brokerage operations as follows:
Insurance Operations
Insurance Operations Net Earnings: Earnings from insurance operations
decreased $876,000, or $0.25 per share, compared to the first quarter of
1994. The decrease in earnings for the quarter ended March 31, 1995,
results primarily from increased life insurance benefit claims. These
expenses were up over $1.8 million net of taxes, or $0.54 per share,
compared to the first quarter of 1994.
Universal Life and Investment Annuity Contract Revenues: These revenues are
from the Company's non-traditional products which are universal life and
investment annuities. Revenues from these types of products consist of
policy charges for the cost of insurance, policy administration fees and
surrender charges assessed during the period. These revenues increased from
$16.2 million for the quarter ended March 31, 1994, to $17.1 million for the
same 1995 period. This increase is primarily due to increases in cost of
insurance revenues offset somewhat by decreases in surrender charge
revenues. Increases in cost of insurance revenues are primarily from
increased universal life insurance in force.
Actual universal life and investment annuity deposits collected for the
quarters ended March 31, 1995 and 1994, are detailed below. Deposits
collected on these non-traditional products are not reflected as revenues in
the Company's statements of earnings, as they are recorded directly to
policyholder liabilities upon receipt, in accordance with generally accepted
accounting principles.
Three Months Ended March 31,
1995 1994
(In thousands)
Investment annuities $ 89,214 20,484
Universal life insurance 17,134 14,444
Totals $ 106,348 34,928
As detailed above, deposits increased significantly from 1994 due primarily
to investment annuities. The Company's increased marketing efforts through
agency additions and new product developments, beginning in latter 1994,
continue to produce positive sales results.
Net Investment Income: Net investment income increased $2,231,000 from
$45,764,000 in 1994 to $47,995,000 in 1995. The majority of the increase
resulted from increases in invested assets. The increases in invested
assets are attributable primarily to increases in annuity production as
previously described.
Realized Gains on Investments: The Company had realized gains of $133,000
in 1995 compared to $1,714,000 in 1994. The 1994 realized gains consist
primarily of gains on investments in debt securities called for redemption.
No significant write-downs on investments were recorded in 1995 or 1994.
The small realized gains are reflective of the Company's prevailing
investment philosophy and intent to hold debt securities to maturity.
Life and Other Policy Benefits: Expenses for 1995 and 1994 were $11.6
million and $7.9 million, respectively. The significant increase in
expenses is due to higher life insurance benefit claims. The 1995 expenses
are abnormally high due to adverse claims experience. Throughout the
Company's history, it has experienced both periods of higher and lower
benefit claims in comparison to Company averages. The first quarter of 1995
reflects such a period as benefit claims were significantly higher. Such
deviations are not uncommon in the life insurance industry and, over
extended periods of time, tend to be offset by periods of lower claims
experience.
Universal Life and Investment Annuity Contract Interest: Interest expense
was up over $1,800,000 from $32,462,000 in 1994 to $34,271,000 in 1995.
Increases in annuity production, resulting in corresponding increases in
policy liabilities, are the primarily reason for the higher expenses. Also,
some of the Company's new annuity products credit higher interest rates in
the first policy year resulting in higher interest costs.
Brokerage Operations
First quarter 1995 losses from the Company's brokerage subsidiary, The
Westcap Corporation, totaled $1,733,000, or $0.50 per share, compared to
losses of $450,000, or $0.13 per share, for the first quarter of 1994.
Adverse bond market conditions continue to be the major factor for lower
production and the resulting losses for the subsidiary. Westcap continues
to reduce administrative and other operating expenses in response to the
current market conditions and lower production levels.
Westcap is currently a defendant in several legal proceedings seeking
various judgments for damages arising out of securities transactions
involving Westcap and several of its customers. Although the uncertainty of
the outcomes of these proceedings may be affecting Westcap's sales
production to some extent, quantifying such effects is not possible.
However, based on continued contact and transactions with its customers,
Westcap has determined the primary reason for the decline in its production
is current bond market conditions which are having adverse effects on the
entire bond brokerage industry.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of the Company are met primarily by funds
provided from operations. Premium deposits and revenues, investment income,
and investment maturities are the primary sources of funds, while investment
purchases and policy benefits are the primary uses of funds. Primary
sources of liquidity to meet unexpected cash needs are the Company's
securities available for sale portfolio, net cash provided by operations and
a $60 million bank line of credit. The Company's brokerage subsidiary also
uses revolving lines of credit to complement any funds generated from
operations. These lines of credit are used primarily for clearing functions
for all securities transactions with its customers.
A primary liquidity concern for the Company's life insurance operations is
the risk of early policyholder withdrawals. Consequently, the Company
closely evaluates and manages the risk of early surrenders or withdrawals.
The Company includes provisions within annuity and universal life insurance
policies, such as surrender charges, that help limit early withdrawals. The
Company also prepares cash flow projections and performs cash flow tests
under various market interest rate scenarios to assist in evaluating
liquidity needs and adequacy. The Company currently expects available
liquidity sources and future cash flows to be adequate to meet the demand
for funds.
The Company had no long-term debt during 1995 or 1994. There are no present
material commitments for capital expenditures in 1995, and the Company does
not anticipate incurring any such commitments in the remainder of 1995.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Part 1 - Exhibit 11: Computation of Earnings Per Common Share
(b) Reports on Form 8-K: There were no reports on Form 8-K filed
during the quarter ended March 31, 1995.
EXHIBIT 11
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
For the Three Months Ended March 31, 1995 and 1994
(Unaudited)
(In Thousands Except Per Share Data)
1995 1994
Earnings applicable to common shares:
Net earnings $ 5,324 8,511
Weighted average common shares outstanding 3,488 3,485
Earnings per common share:
Net earnings $ 1.53 2.44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National Western Life Insurance Company
(Registrant)
Date: May 11, 1995 /S/ Ross R. Moody
Ross R. Moody
President and Chief Operating Officer
Date: May 11, 1995 /S/ Robert L. Busby, III
Robert L. Busby, III
Senior Vice President -
Chief Administrative Officer,
Chief Financial Officer
and Treasurer