NWLI 2015 Q1 10Q


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, 2015
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: 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 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 7, 2015, 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, 2015 (Unaudited) and December 31, 2014
 
 
For the Three Months Ended March 31, 2015 and 2014 (Unaudited)
 
 
For the Three Months Ended March 31, 2015 and 2014 (Unaudited)
 
 
For the Three Months Ended March 31, 2015 and 2014 (Unaudited)
 
 
For the Three Months Ended March 31, 2015 and 2014 (Unaudited)
 
 
 
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

 
(Unaudited)
 
 
ASSETS
March 31,
2015
 
December 31,
2014
 
 
 
 
Investments:
 
 
 
Securities held to maturity, at amortized cost (fair value: $7,470,133 and $7,175,443)
$
7,042,233

 
6,841,543

Securities available for sale, at fair value (cost: $2,687,568 and $2,590,074)
2,854,690

 
2,728,680

Mortgage loans, net of allowance for possible losses ($650 and $650)
143,918

 
149,503

Policy loans
63,877

 
63,645

Derivatives, index options
95,987

 
114,287

Other long-term investments
29,030

 
28,774

Short-term investments
14,989

 
—

 
 
 
 
Total investments
10,244,724

 
9,926,432

 
 
 
 
Cash and cash equivalents
71,104

 
277,078

Deferred policy acquisition costs
792,992

 
802,919

Deferred sales inducements
152,352

 
159,766

Accrued investment income
101,545

 
96,127

Federal income tax receivable
—

 
—

Other assets
99,286

 
89,570

 
 
 
 
Total assets
$
11,462,003

 
11,351,892


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

3
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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
 
(Unaudited)
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
March 31,
2015
 
December 31,
2014
 
 
 
 
LIABILITIES:
 
 
 
 
 
 
 
Future policy benefits:
 
 
 
Universal life and annuity contracts
$
9,404,339

 
9,384,297

Traditional life reserves
137,928

 
138,225

Other policyholder liabilities
153,389

 
139,222

Deferred Federal income tax liability
44,987

 
31,675

Federal income tax payable
42

 
3,336

Other liabilities
134,666

 
98,817

 
 
 
 
Total liabilities
9,875,351

 
9,795,572

 
 
 
 
COMMITMENTS AND CONTINGENCIES (Note 8)


 


 
 
 
 
STOCKHOLDERS’ EQUITY:
 

 
 

 
 
 
 
Common stock:
 

 
 

Class A - $1 par value; 7,500,000 shares authorized; 3,436,166 issued and outstanding in 2015 and 2014
3,436

 
3,436

Class B - $1 par value; 200,000 shares authorized, issued, and outstanding in 2015 and 2014
200

 
200

Additional paid-in capital
38,116

 
38,116

Accumulated other comprehensive income
50,792

 
41,786

Retained earnings
1,494,108

 
1,472,782

 
 
 
 
Total stockholders’ equity
1,586,652

 
1,556,320

 
 
 
 
Total liabilities and stockholders' equity
$
11,462,003

 
11,351,892


Note:  The Condensed Consolidated Balance Sheet at December 31, 2014 has been derived from the audited Consolidated Financial Statements as of that date.

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


4
Table of Contents

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
(In thousands, except per share amounts)
 
2015
 
2014
 
 
 
 
Premiums and other revenues:
 
 
 
Universal life and annuity contract charges
$
37,313

 
38,005

Traditional life premiums
4,347

 
4,271

Net investment income
99,923

 
108,451

Other revenues
5,329

 
5,763

Net realized investment gains (losses):
 

 
 

Total other-than-temporary impairment (“OTTI”) gains (losses)
160

 
(32
)
Portion of OTTI (gains) losses recognized in other comprehensive income
(160
)
 
(3
)
Net OTTI losses recognized in earnings
—

 
(35
)
Other net investment gains (losses)
978

 
1,548

Total net realized investment gains (losses)
978

 
1,513

 
 
 
 
Total revenues
147,890

 
158,003

 
 
 
 
Benefits and expenses:
 

 
 

Life and other policy benefits
19,266

 
12,963

Amortization of deferred policy acquisition costs
27,652

 
28,579

Universal life and annuity contract interest
49,039

 
62,936

Other operating expenses
20,510

 
23,463

 
 
 
 
Total benefits and expenses
116,467

 
127,941

 
 
 
 
Earnings before Federal income taxes
31,423

 
30,062

 
 
 
 
Federal income taxes
10,097

 
10,236

 
 
 
 
Net earnings
$
21,326

 
19,826

 
 
 
 
Basic earnings per share:
 

 
 

Class A
$
6.03

 
$
5.61

Class B
$
3.02

 
$
2.80

 
 
 
 
Diluted earnings per share:
 

 
 

Class A
$
6.03

 
$
5.61

Class B
$
3.02

 
$
2.80


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


5
Table of Contents

 
 
 
 

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
(In thousands)
 
2015
 
2014
 
 
 
 
Net earnings
$
21,326

 
19,826

 
 
 
 
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
9,372

 
11,002

Net unrealized liquidity gains (losses)
61

 
23

Reclassification adjustment for net amounts included in net earnings
(165
)
 
(425
)
 
 
 
 
Net unrealized gains (losses) on securities
9,268

 
10,600

 
 
 
 
Foreign currency translation adjustments
41

 
(511
)
 
 
 
 
Benefit plans:
 

 
 

Amortization of net prior service cost and net gain (loss)
(303
)
 
(176
)
 
 
 
 
Other comprehensive income (loss)
9,006

 
9,913

 
 
 
 
Comprehensive income (loss)
$
30,332

 
29,739


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


6
Table of Contents

 
 
 
 

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
(In thousands)
 
2015
 
2014
 
 
 
 
Common stock:
 
 
 
Balance at beginning of period
$
3,636

 
3,635

Shares exercised under stock option plan
—

 
—

 
 
 
 
       Balance at end of period
3,636

 
3,635

 
 
 
 
Additional paid-in capital:
 

 
 

Balance at beginning of period
38,116

 
37,767

Shares exercised under stock option plan
—

 
—

 
 
 
 
       Balance at end of period
38,116

 
37,767

 
 
 
 
Accumulated other comprehensive income:
 

 
 

Unrealized gains on non-impaired securities:
 

 
 

Balance at beginning of period
54,229

 
46,693

Change in unrealized gains (losses) during period, net of tax
9,207

 
10,578

 
 
 
 
   Balance at end of period
63,436

 
57,271

 
 
 
 
Unrealized losses on impaired held to maturity securities:
 

 
 

Balance at beginning of period
(1,262
)
 
(1,287
)
Amortization
104

 
57

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

 
—

Additional credit loss on previously impaired securities
—

 
—

Change in shadow deferred policy acquisition costs
(43
)
 
(35
)
 
 
 
 
   Balance at end of period
(1,201
)
 
(1,265
)
 
 
 
 
Unrealized losses on impaired available for sale securities:
 

 
 

Balance at beginning of period
(1
)
 
(2
)
Other-than-temporary impairments, non-credit, net of tax
—

 
—

Change in shadow deferred policy acquisition costs
—

 
(1
)
Recoveries, net of tax
—

 
2

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

7
Table of Contents

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(continued)
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
(In thousands)
 
 
 
 
 
 
 
 
 
2015
 
2014
 
 
 
 
Foreign currency translation adjustments:
 

 
 

Balance at beginning of period
2,685

 
3,241

Change in translation adjustments during period
41

 
(511
)
 
 
 
 
  Balance at end of period
2,726

 
2,730

 
 
 
 
Benefit plan liability adjustment:
 

 
 

Balance at beginning of period
(13,865
)
 
(10,565
)
Amortization of net prior service cost and net loss, net of tax
(303
)
 
(176
)
 
 
 
 
  Balance at end of period
(14,168
)
 
(10,741
)
 
 
 
 
Accumulated other comprehensive income at end of period
50,792

 
47,994

 
 
 
 
Retained earnings:
 
 
 
   Balance at beginning of period
1,472,782

 
1,368,466

   Net earnings
21,326

 
19,826

   Stockholder dividends
—

 
—

 
 
 
 
   Balance at end of period
1,494,108

 
1,388,292

 
 
 
 
Total stockholders' equity
$
1,586,652

 
$
1,477,688


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



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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
(In thousands)
 
2015
 
2014
 
 
 
 
Cash flows from operating activities:
 
 
 
Net earnings
$
21,326

 
19,826

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

 
 

Universal life and annuity contract interest
49,039

 
62,936

Surrender charges and other policy revenues
(3,894
)
 
(4,148
)
Realized (gains) losses on investments
(978
)
 
(1,513
)
Accretion/amortization of discounts and premiums, investments
(4
)
 
(216
)
Depreciation and amortization
841

 
883

(Increase) decrease in value of derivatives
8,287

 
(548
)
(Increase) decrease in deferred policy acquisition and sales inducement costs
2,919

 
2,344

(Increase) decrease in accrued investment income
(5,418
)
 
(3,197
)
(Increase) decrease in other assets
(7,227
)
 
(1,515
)
Increase (decrease) in liabilities for future policy benefits
(129
)
 
(648
)
Increase (decrease) in other policyholder liabilities
14,168

 
1,151

Increase (decrease) in Federal income taxes liability
(3,294
)
 
(11,853
)
Increase (decrease) in deferred Federal income tax
8,327

 
9,715

Increase (decrease) in other liabilities
6,804

 
(213
)
Other, net
—

 
1

 
 
 
 
Net cash provided by operating activities
90,767

 
73,005

 
 
 
 
Cash flows from investing activities:
 

 
 

Proceeds from sales of:
 

 
 

Securities held to maturity
—

 
—

Securities available for sale
5,752

 
2,042

Other investments
—

 
579

Proceeds from maturities and redemptions of:
 

 
 

Securities held to maturity
101,444

 
134,670

Securities available for sale
48,565

 
53,872

Derivatives, index options
26,450

 
54,133

Purchases of:
 

 
 

Securities held to maturity
(271,797
)
 
(212,725
)
Securities available for sale
(152,742
)
 
(57,141
)
Derivatives, index options
(19,166
)
 
(15,507
)
Other investments
(421
)
 
(164
)
Net change in short-term investments
(14,989
)
 
—

 
 
 
 
 
Continued on Next Page
 
 
 
 
 
 
 
 
 

9
Table of Contents

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, (continued)
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
(In thousands)
 
2015
 
2014
 
 
 
 
Principal payments on mortgage loans
6,907

 
5,845

Cost of mortgage loans acquired
(1,281
)
 
(1,537
)
Decrease (increase) in policy loans
(232
)
 
825

Other, net
—

 
—

 
 
 
 
Net cash used in investing activities
(271,510
)
 
(35,108
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Deposits to account balances for universal life and annuity contracts
202,472

 
199,563

Return of account balances on universal life and annuity contracts
(227,744
)
 
(224,969
)
 
 
 
 
Net cash provided by (used in) financing activities
(25,272
)
 
(25,406
)
 
 
 
 
Effect of foreign exchange
41

 
(511
)
 
 
 
 
Net increase (decrease) in cash and short-term investments
(205,974
)
 
11,980

Cash and short-term investments at beginning of period
277,078

 
120,859

 
 
 
 
Cash and short-term investments at end of period
$
71,104

 
$
132,839

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 

 
 

 
 
 
 
Cash paid during the period for:
 

 
 

Interest
$
10

 
10

Income taxes
$
5,247

 
11,918

 
 
 
 
Noncash operating activities:
 
 
 
   Deferral of sales inducements
$
(4,680
)
 
(3,450
)

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



10
Table of Contents

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
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 Insurance Company and its subsidiaries (“Company” or "National Western") as of March 31, 2015, and the results of its operations and its cash flows for the for the three months ended March 31, 2015 and 2014. The results of operations for the three months ended March 31, 2015 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, 2014 and are accessible free of charge through the Company's internet site at www.nationalwesternlife.com or the Securities and Exchange Commission internet site at www.sec.gov. The condensed consolidated balance sheet at December 31, 2014 has been derived from the audited consolidated financial statements as of that date.

The accompanying unaudited condensed consolidated financial statements include the accounts of National Western Life Insurance Company and its wholly-owned subsidiaries: The Westcap Corporation, NWL Investments, Inc., NWL Services, Inc., NWL Financial, Inc., NWLSM, Inc. and Regent Care San Marcos Holdings, LLC. All significant intercorporate transactions and accounts have been eliminated in consolidation.

The preparation of financial statements in accordance with U.S. generally accepted accounting principles ("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, 2015 and 2014.

Affected Line Item in the
Statements of Earnings
 
Amount Reclassified From Accumulated Other Comprehensive Income
 
 
Three Months Ended March 31,
 
 
2015
 
2014
 
 
(In thousands)
 
 
 
 
 
Other net investment gains (losses)
 
$
254

 
689

Net OTTI losses recognized in earnings
 
—

 
(35
)
Earnings before Federal income taxes
 
254

 
654

Federal income taxes
 
89

 
229

 
 
 
 
 
Net earnings
 
$
165

 
425




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Table of Contents

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(2)
 NEW ACCOUNTING PRONOUNCEMENTS

In July 2013, the FASB issued guidance to amend the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The new guidance states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as reduction to deferred tax assets for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. This guidance is effective for annual reporting periods beginning on or after December 15, 2013 and interim periods within those annual periods. The Company adopted this guidance as of January 1, 2014 and the adoption did not have an effect on the deferred tax asset or liability classification on the Company's balance sheet and did not result in any additional disclosures to the financial statements.

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 will be effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. The Company’s current employee share-based plans do not require performance targets and the adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants ("AICPA"), and the SEC are not believed by management to, have a material impact on the Company’s present or future consolidated financial statements.


(3)
 STOCKHOLDERS' EQUITY

The Company 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 2015 is $118.2 million. The Company did not declare or pay cash dividends on its common stocks during the three months ended March 31, 2015 and 2014.



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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
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,
 
2015
 
2014
 
Class A
 
Class B
 
Class A
 
Class B
 
(In thousands except per share amounts)
 
 
 
 
 
 
 
 
Numerator for Basic and Diluted Earnings Per Share:
 
 
 
 
 
 
 
Net income
$
21,326

 
 
 
19,826

 
 
Dividends - Class A shares
—

 
 
 
—

 
 
Dividends - Class B shares
—

 
 
 
—

 
 
 
 
 
 
 
 
 
 
Undistributed income
$
21,326

 
 
 
19,826

 
 
 
 
 
 
 
 
 
 
Allocation of net income:
 

 
 
 
 

 
 
Dividends
$
—

 
—

 
—

 
—

Allocation of undistributed income
20,723

 
603

 
19,265

 
561

 
 
 
 
 
 
 
 
Net income
$
20,723

 
603

 
19,265

 
561

 
 
 
 
 
 
 
 
Denominator:
 

 
 

 
 

 
 

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

 
200

 
3,435

 
200

Effect of dilutive stock options
2

 
—

 
2

 
—

 
 
 
 
 
 
 
 
Diluted earnings per share - adjusted weighted-average shares for assumed conversions
3,438

 
200

 
3,437

 
200

 
 
 
 
 
 
 
 
Basic Earnings Per Share
$
6.03

 
3.02

 
5.61

 
2.80

 
 
 
 
 
 
 
 
Diluted Earnings Per Share
$
6.03

 
3.02

 
5.61

 
2.80


Stock options that were outstanding during the three months ended March 31, 2015 and 2014, but were not included in the computation of diluted earnings per share because the effect was anti-dilutive, were approximately 21,800 and 22,400, respectively.
 
 
 
 
 
 
 
 


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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(5)
 PENSION AND OTHER POSTRETIREMENT PLANS

(A)
Defined Benefit Pension Plans

The Company 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, the Company'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. Going forward, future pension expense is projected to be minimal. 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,
 
2015
 
2014
 
(In thousands)
 
 
 
 
Service cost
$
51

 
42

Interest cost
246

 
240

Expected return on plan assets
(330
)
 
(320
)
Amortization of prior service cost
1

 
1

Amortization of net loss
196

 
105

 
 
 
 
Net periodic benefit cost
$
164

 
68


The service costs shown in the above table represent plan expenses expected to be paid out of plan assets. Under clarification provided by 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 2015 plan year is $0.0 million. The Company had no remaining contribution payable for the 2014 plan year as of March 31, 2015. As of March 31, 2015, the Company had contributed a total of $0.0 million to the plan for the 2015 plan years.

The Company 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 the Company 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 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, the Company 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.


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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
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,
 
2015
 
2014
 
(In thousands)
 
 
 
 
Service cost
$
64

 
73

Interest cost
219

 
251

Amortization of prior service cost
15

 
15

Amortization of net loss
378

 
323

 
 
 
 
Net periodic benefit cost
$
676

 
662


The Company expects to contribute $2.0 million to these plans in 2015.  As of March 31, 2015, the Company has contributed $0.4 million to the plans.

(B)
Defined Benefit Postretirement Healthcare Plans

The Company 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,
 
2015
 
2014
 
(In thousands)
 
 
 
 
Interest cost
$
32

 
28

Amortization of prior service cost
26

 
26

Amortization of net loss
15

 
(1
)
 
 
 
 
Net periodic benefit cost
$
73

 
53


The Company expects to contribute minimal amounts to the plan in 2015.



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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
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, 2015 and March 31, 2014 is provided below.

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

 
 
 
 
 
 
 
 
 
 

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Selected Segment Information:
 
 
 
 
 
 
 
 
 
 
Domestic
Life
Insurance
 
International
 Life
Insurance
 
Annuities
 
All
 Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2014
 
 
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheet Items:
 
 
 
 
 
 
 
 
 
Deferred policy acquisition costs and sales inducements
$
53,815

 
239,432

 
644,532

 
—

 
937,779

Total segment assets
634,334

 
1,188,473

 
8,627,243

 
264,435

 
10,714,485

Future policy benefits
554,247

 
920,665

 
7,682,956

 
—

 
9,157,868

Other policyholder liabilities
11,867

 
15,587

 
116,284

 
—

 
143,738

 
 
 
 
 
 
 
 
 
 
Three Months Ended
 

 
 

 
 

 
 

 
 

March 31, 2014
 

 
 

 
 

 
 

 
 

Condensed Consolidated Income Statements:
 

 
 

 
 

 
 

 
 

Premiums and contract revenues
$
8,165

 
29,108

 
5,003

 
—

 
42,276

Net investment income
6,283

 
10,718

 
86,617

 
4,833

 
108,451

Other revenues
18

 
241

 
37

 
5,467

 
5,763

 
 
 
 
 
 
 
 
 
 
Total revenues
14,466

 
40,067

 
91,657

 
10,300

 
156,490

 
 
 
 
 
 
 
 
 
 
Life and other policy benefits
2,492

 
5,035

 
5,436

 
—

 
12,963

Amortization of deferred acquisition costs
2,400

 
6,745

 
19,434

 
—

 
28,579

Universal life and annuity contract interest
5,105

 
10,205

 
47,626

 
—

 
62,936

Other operating expenses
4,279

 
7,025

 
7,096

 
5,063

 
23,463

Federal income taxes (benefit)
65

 
3,759

 
4,102

 
1,780

 
9,706

 
 
 
 
 
 
 
 
 
 
Total expenses
14,341

 
32,769

 
83,694

 
6,843

 
137,647

 
 
 
 
 
 
 
 
 
 
Segment earnings (loss)
$
125

 
7,298

 
7,963

 
3,457

 
18,843


 
 
 
 
 
 
 
 
 
 


17
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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
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,
 
2015
 
2014
 
(In thousands)
 
 
 
 
Premiums and Other Revenues:
 
 
 
Premiums and contract revenues
$
41,660

 
42,276

Net investment income
99,923

 
108,451

Other revenues
5,329

 
5,763

Realized gains (losses) on investments
978

 
1,513

 
 
 
 
Total condensed consolidated premiums and other revenues
$
147,890

 
158,003


 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
 
 
 
 
Federal Income Taxes:
 
 
 
Total segment Federal income taxes
$
9,755

 
9,706

Taxes on realized gains (losses) on investments
342

 
530

 
 
 
 
Total condensed consolidated Federal income taxes
$
10,097

 
10,236


 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
 
 
 
 
Net Earnings:
 
 
 
Total segment earnings
$
20,690

 
18,843

Realized gains (losses) on investments, net of taxes
636

 
983

 
 
 
 
Total condensed consolidated net earnings
$
21,326

 
19,826




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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
March 31,
 
2015
 
2014
 
(In thousands)
 
 
 
 
Assets:
 
 
 
Total segment assets
$
11,278,305

 
10,714,485

Other unallocated assets
183,698

 
198,132

 
 
 
 
Total condensed consolidated assets
$
11,462,003

 
10,912,617



(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; 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, $1.00 par value, common stock shares eligible for issue not to exceed 300,000. These shares may be authorized and unissued shares. The Company has issued only nonqualified stock options and SARs under these plans.

All of the employees of the Company and its subsidiaries are eligible to participate in the current 2008 Plan (as well as previously in the expired 1995 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. The directors' grants vest 20% annually following one full year of service to the Company from the date of grant. The employees' grants vest 20% annually following three full years of service to the Company from the date of grant. All grants issued expire after ten years. No awards were issued during the first three months of 2015 or 2014.

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.


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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Company uses the current fair value method to measure compensation cost. As of March 31, 2015 and 2014, the liability balance was $8.4 million and $7.1 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, 2015
291,000

 
29,768

 
$
242.48

Exercised
—

 
—

 
$
—

Forfeited
—

 
—

 
$
—

Expired
—

 
—

 
$
—

Stock options granted
—

 
—

 
$
—

 
 
 
 
 
 
Balance at March 31, 2015
291,000

 
29,768

 
$
242.48


 
Stock Appreciation Rights Outstanding
 
Awards
 
Weighted-
Average
Exercise
Price
 
 
 
 
Stock Appreciation Rights:
 
 
 
Balance at January 1, 2015
92,186

 
$
157.71

Exercised
(775
)
 
$
116.95

Forfeited
—

 
$
—

Granted
—

 
$
—

 
 
 
 
Balance at March 31, 2015
91,411

 
$
158.05


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, 2014 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 $0.5 million for the three months ended March 31, 2015 and 2014, respectively. The total share-based liabilities paid for the exercised SARs were $0.1 million and $0.5 million for the three months ended March 31, 2015 and 2014, respectively. The total fair value of stock options and SARs vested during the three months ended March 31, 2015 and 2014 was $0.3 million and $0.4 million, respectively. For the three months ended March 31, 2015 and 2014, the total cash received from the exercise of stock options under the Plans was $0 million and $0, respectively, as no stock options were exercised in these periods.


20
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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table summarizes information about stock options and SARs outstanding at March 31, 2015.

 
 
Options/SARs Outstanding
 
 
Number
Outstanding
 
Weighted-
Average
Remaining
Contractual Life
 
Number
Exercisable
 
 
 
 
 
 
 
Exercise prices:
 
 
 
 
 
 $255.13 (options)
 
21,768

 
3.0 years
 
17,615

 $208.05 (options)
 
8,000

 
3.2 years
 
8,000

 $236.00 (SARs)
 
250

 
3.4 years
 
200

 $114.64 (SARs)
 
25,243

 
3.9 years
 
21,064

 $132.56 (SARs)
 
30,418

 
6.7 years
 
9,604

 $210.22 (SARs)
 
35,500

 
8.7 years
 
2,800

 
 
 
 
 
 
 
Totals
 
121,179

 
 
 
59,283

 
 

 
 
 
 

Aggregate intrinsic value (in thousands)
$
9,168

 
 
 
$
4,608


The aggregate intrinsic value in the table above is based on the closing stock price of $254.30 per share on March 31, 2015.

In estimating the fair value of the options outstanding at March 31, 2015 and December 31, 2014, the Company employed the Black-Scholes option pricing model with assumptions detailed below.

 
March 31,
2015
 
December 31,
2014
 
 
 
 
Expected term of options
3.0 to 8.7 years

 
3.3 to 9.0 years

Expected volatility:
 
 
 
Range
21.30% to 37.77%

 
19.67% to 37.75%

Weighted-average
24.30
%
 
22.91
%
Expected dividend yield
0.14
%
 
0.13
%
Risk-free rate:
 
 
 
Range
0.22% to 1.47%

 
0.13% to 1.62%

Weighted-average
0.49
%
 
0.56
%

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 recognized in the financial statements related to the two plans defined above was $(0.8) million and $1.7 million for the three months ended March 31, 2015 and 2014, respectively. The related tax (expense)/benefit recognized was $0.3 million and $(0.6) million for the three months ended March 31, 2015 and 2014, respectively.

As of March 31, 2015, the total compensation cost related to nonvested options not yet recognized was $2.0 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.

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
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. The Company has been a defendant over the past several years in two 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.

The Company resolved a class action lawsuit pending since June 12, 2006, in the U.S. District Court for the Southern District of California. The case is titled In Re National Western Life Insurance Deferred Annuities Litigation. The complaint asserted claims for RICO violations, Financial Elder Abuse, Violation of Cal. Bus. & Prof. Code 17200, et seq, Violation of Cal. Bus. & Prof. Code 17500, et seq, Breach of Fiduciary Duty, Aiding and Abetting Breach of Fiduciary Duty, Fraudulent Concealment, Cal. Civ. Code 1710, et seq, Breach of the Duty of Good Faith and Fair Dealing, and Unjust Enrichment and Imposition of Constructive Trust. On July 12, 2010 the Court certified a nationwide class of policyholders under the RICO allegation and a California class under all of the remaining causes of action except breach of fiduciary duty. The parties entered into a Settlement and Release Agreement in August of 2013 ("Settlement") which was finally approved by the Court on February 11, 2014. On February 12, 2014, the Court issued a redacted final approval order granting the Motion for Final Approval of Class Action Settlement. The Settlement became final and non-appealable on April 12, 2014. The Settlement Agreement and Plaintiffs' Request for Attorneys' Fees and Costs were approved by the Court, and the Company paid the Court-approved amount of attorneys’ fees and costs in April 2014. The Company also made certain payments to surrendered and annuitized policyholders in June 2014. In addition, the Company agreed to provide bonuses on annuitization for active policyholders who choose a 10-year or a 20-year certain and life settlement option. The Company had held reserves of $6.5 million for the matter which approximated the ultimate settlement amounts described above.

In addition to the class action lawsuit described above, the Company was the named defendant in the case of Sheila Newman vs. National Western Life Insurance Company, which alleged mishandling of policyholder funds by an agent.  On February 3, 2010, the 415th Judicial District Court of Parker County in Weatherford, Texas, entered a Final Judgment against the Company of approximately $208,000 including actual damages of $113,000 and amounts for attorney's fees, and prejudgment interest on the actual damages.  In addition, the Final Judgment included $150 million for exemplary damages. The Company vigorously defended this case and appealed the Final Judgment to the Court of Appeals Second District of Texas in Fort Worth. The Court of Appeals on August 11, 2011, reversed the trial court judgment in its entirety and rendered a take nothing verdict in favor of National Western. Plaintiffs (Appellees) filed a motion for a rehearing which the Court ruled on October 13, 2011, that the trial court's judgment was still reversed and judgment was still entered that Newman take nothing, all in favor of National Western. The Plaintiffs (Appellees) filed a Motion for Reconsideration En Banc which the Court of Appeals denied on October 27, 2011. The Plaintiffs (Appellees) then filed a Motion for Rehearing of the Court's amended decision, which the Court of Appeals denied on December 22, 2011. On March 21, 2012, Plaintiffs (Appellees) filed a petition for review with the Texas Supreme Court and the Company filed its response on April 20, 2012. The Supreme Court asked the parties for briefs on the issues before deciding on whether to hear the case and both parties submitted their briefs. On February 14, 2013, the Supreme Court denied the Plaintiffs petition for review. On April 3, 2013, Plaintiff filed a Motion for Rehearing. The Supreme Court denied Plaintiff's Motion for Rehearing on June 7, 2013, thus ending the matter.

On October 26, 2011 the Brazilian Superintendence of Private Insurance (“SUSEP”) attempted to serve the Company with a subpoena regarding an administrative proceeding initiated by SUSEP in which it alleged that the Company was operating as an insurance company in Brazil without due authorization.  The Company had been informed that SUSEP was attempting to impose a penal fine of approximately $6.0 billion on the Company.  SUSEP unsuccessfully attempted to serve the Company with notice regarding this matter.  The Company does not transact business in Brazil and has no officers, employees, property, or assets in Brazil.  The Company 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.  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.


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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
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, the Company has recently become aware that the Brazilian authorities have commenced an investigation into possible violations of Brazilian criminal law in connection with the issuance of the Company's 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. Because the Company has only recently become aware of this investigation, 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. The Company plans to cooperate 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 sheet.

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 extend credit relating to mortgage loans at March 31, 2015. 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,
 
2015
 
2014
 
(In thousands)
 
 
 
 
Available for sale debt securities:
 
 
 
Realized gains on disposal
$
213

 
692

Realized losses on disposal
(9
)
 
(8
)
Held to maturity debt securities:
—

 


Realized gains on disposal
724

 
782

Realized losses on disposal
—

 
(11
)
Equity securities realized gains (losses)
50

 
4

Real estate gains (losses)
—

 
89

 
 
 
 
Totals
$
978

 
1,548



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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Company uses the specific identification method in computing realized gains and losses. Approximately 75% of the gains on bonds are due to calls of securities rather than sales. 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,
 
 
2015
 
2014
 
 
(In thousands)
 
 
 
 
 
Total other-than-temporary impairment gains (losses) on debt securities
 
$
160

 
(4
)
Portion of loss (gain) recognized in comprehensive income
 
(160
)
 
(3
)
 
 
 
 
 
Net impairment losses on debt securities recognized in earnings
 
—

 
(7
)
Equity securities impairments
 
—

 
(28
)
 
 
 
 
 
Totals
 
$
—

 
(35
)


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.

 
Three months ended March 31, 2015
 
Twelve Months
Ended
December 31,
2014
 
 
 
 
 
 
 
 
Beginning balance, cumulative credit losses related to other-than-temporary impairments
$
2,298

 
2,472

Reductions for securities sold during current period
(20
)
 
(181
)
Additions for credit losses not previously recognized in other-than-temporary impairments
—

 
7

 
 
 
 
Ending balance, cumulative credit losses related to other-than-temporary impairments
$
2,278

 
2,298



24
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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
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, 2015.

 
Securities Held to Maturity
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
U.S. agencies
$
15,047

 
634

 
—

 
15,681

U.S. Treasury
1,921

 
414

 
—

 
2,335

States and political subdivisions
436,398

 
35,935

 
(250
)
 
472,083

Foreign governments
—

 
—

 
—

 
—

Public utilities
975,817

 
78,915

 
(68
)
 
1,054,664

Corporate
3,975,303

 
226,933

 
(4,642
)
 
4,197,594

Mortgage-backed
1,614,749

 
86,462

 
(1,403
)
 
1,699,808

Home equity
18,704

 
4,614

 
—

 
23,318

Manufactured housing
4,294

 
356

 
—

 
4,650

 
 
 
 
 
 
 
 
Totals
$
7,042,233

 
434,263

 
(6,363
)
 
7,470,133


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

 
Securities Available for Sale
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
States and political subdivisions
$
588

 
—

 
(35
)
 
553

Foreign governments
9,941

 
684

 
—

 
10,625

Public utilities
164,169

 
10,580

 
—

 
174,749

Corporate
2,441,317

 
152,193

 
(5,538
)
 
2,587,972

Mortgage-backed
45,563

 
4,177

 
—

 
49,740

Home equity
11,577

 
213

 
(13
)
 
11,777

Manufactured housing
1,606

 
53

 
—

 
1,659

 
2,674,761

 
167,900

 
(5,586
)
 
2,837,075

 
 
 
 
 
 
 
 
Equity securities
12,807

 
4,964

 
(156
)
 
17,615

 
 
 
 
 
 
 
 
Totals
$
2,687,568

 
172,864

 
(5,742
)
 
2,854,690


25
Table of Contents

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The table below presents amortized costs and fair values of securities held to maturity at December 31, 2014.

 
Securities Held to Maturity
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
U.S. agencies
$
10,061

 
705

 
—

 
10,766

U.S. Treasury
1,920

 
409

 
—

 
2,329

States and political subdivisions
432,186

 
31,417

 
(336
)
 
463,267

Public utilities
978,847

 
67,836

 
(757
)
 
1,045,926

Corporate
3,754,222

 
183,650

 
(18,591
)
 
3,919,281

Mortgage-backed
1,640,582

 
68,726

 
(4,164
)
 
1,705,144

Home equity
18,886

 
4,734

 
(57
)
 
23,563

Manufactured housing
4,839

 
328

 
—

 
5,167

 
 
 
 
 
 
 
 
Totals
$
6,841,543

 
357,805

 
(23,905
)
 
7,175,443


The table below presents amortized costs and fair values of securities available for sale at December 31, 2014.

 
Securities Available for Sale
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
States and political subdivisions
$
589

 
—

 
(36
)
 
553

Foreign governments
9,939

 
386

 
—

 
10,325

Public utilities
169,179

 
10,163

 
(126
)
 
179,216

Corporate
2,334,700

 
128,280

 
(8,961
)
 
2,454,019

Mortgage-backed
48,674

 
4,116

 
—

 
52,790

Home equity
11,702

 
225

 
(9
)
 
11,918

Manufactured housing
2,492

 
64

 
—

 
2,556

 
2,577,275

 
143,234

 
(9,132
)
 
2,711,377