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 September 30, 1997
[ ] 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 November 12, 1997, the number of shares of Registrant's common stock
outstanding was: Class A - 3,291,338 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 -
September 30, 1997 (Unaudited) and December 31, 1996
Condensed Consolidated Statements of Earnings -
For the Three Months Ended September 30, 1997 and 1996
(Unaudited)
Condensed Consolidated Statements of Earnings -
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
Condensed Consolidated Statements of Stockholders' Equity -
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
Condensed Consolidated Statements of Cash Flows -
For the Nine Months Ended September 30, 1997 and 1996
(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 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit 11 - Computation of Earnings per Share -
For the Three Months Ended September 30, 1997 and 1996
(Unaudited)
Exhibit 11 - Computation of Earnings per Share -
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
<S> <C> <C>
1997 1996
ASSETS
Cash and investments:
Securities held to maturity,
at amortized cost $ 1,878,334 1,873,561
Securities available for sale,
at fair value 617,225 527,627
Mortgage loans, net of
allowance for possible
losses ($4,640 and $5,988) 182,312 193,311
Policy loans 136,117 142,077
Other long-term investments 26,787 22,997
Cash and short-term investments 6,224 11,358
Total cash and investments 2,846,999 2,770,931
Accrued investment income 40,147 39,503
Deferred policy acquisition costs 290,480 295,666
Other assets 14,456 13,472
Assets of discontinued operations 892 1,257
$ 3,192,974 3,120,829
<FN>
Note: The balance sheet at December 31, 1996, has been taken from the
audited financial statements at that date.
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Shares Outstanding)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
<S> <C> <C>
LIABILITIES:
Future policy benefits:
Traditional life and annuity products $ 170,364 172,565
Universal life and investment
annuity contracts 2,567,190 2,529,307
Other policyholder liabilities 25,549 24,403
Federal income taxes payable:
Current 1,596 -
Deferred 11,685 11,910
Other liabilities 31,430 28,527
Liabilities of discontinued operations 892 1,257
Total liabilities 2,808,706 2,767,969
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY:
Common stock:
Class A - $1 par value; 7,500,000
shares authorized; 3,291,338
shares issued and outstanding
in 1997 and 1996 3,291 3,291
Class B - $1 par value; 200,000
shares authorized, issued,
and outstanding in 1997 and 1996 200 200
Additional paid-in capital 24,647 24,647
Net unrealized gains
on investment securities 11,915 9,853
Foreign currency translation adjustment 2,267 -
Retained earnings 341,948 314,869
Total stockholders' equity 384,268 352,860
$ 3,192,974 3,120,829
<FN>
Note: The balance sheet at December 31, 1996, has been taken from the
audited financial statements at that date.
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended September 30, 1997 and 1996
(Unaudited)
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Premiums and other revenue:
Life and annuity premiums $ 3,411 3,206
Universal life and investment
annuity contract revenues 19,303 19,155
Net investment income 52,908 54,778
Other income 64 32
Realized gains (losses) on investments 408 (446)
Total premiums and other revenue 76,094 76,725
Benefits and expenses:
Life and other policy benefits 9,362 8,902
Decrease in liabilities for
future policy benefits (96) (1,009)
Amortization of deferred
policy acquisition costs 9,785 5,945
Universal life and investment
annuity contract interest 36,116 37,568
Other insurance operating expenses 6,378 5,997
Total benefits and expenses 61,545 57,403
Earnings before Federal income taxes 14,549 19,322
Provision (benefit) for Federal
income taxes:
Current 6,741 6,178
Deferred (1,721) 584
Total Federal income taxes 5,020 6,762
Net earnings $ 9,529 12,560
Earnings per share of common stock:
Net earnings $ 2.73 3.59
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Premiums and other revenue:
Life and annuity premiums $ 11,682 11,799
Universal life and investment
annuity contract revenues 59,984 57,998
Net investment income 160,419 159,461
Other income 220 1,171
Realized gains(losses)on investments (2,371) 1,275
Total premiums and other revenue 229,934 231,704
Benefits and expenses:
Life and other policy benefits 29,371 26,393
Decrease in liabilities for
future policy benefits (2,096) (1,924)
Amortization of deferred
policy acquisition costs 30,670 21,733
Universal life and investment
annuity contract interest 110,180 115,522
Other insurance operating expenses 19,750 18,989
Total benefits and expenses 187,875 180,713
Earnings from continuing operations
before Federal income taxes 42,059 50,991
Provision (benefit) for Federal income
taxes:
Current 16,536 18,085
Deferred (2,556) (238)
Total Federal income taxes 13,980 17,847
Earnings from continuing operations 28,079 33,144
Losses from discontinued operations (1,000) -
Net earnings $ 27,079 33,144
Earnings (losses) per share
of common stock:
Earnings from continuing operations $ 8.05 9.49
Losses from discontinued operations (0.29) -
Net earnings $ 7.76 9.49
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Common stock shares outstanding:
Shares outstanding at beginning
of year and end of period 3,491 3,491
Common stock:
Balance at beginning of year
and end of period $ 3,491 3,491
Additional paid-in capital:
Balance at beginning of year
and end of period 24,647 24,647
Net unrealized gains (losses)
on investment securities,
net of effects of deferred policy
acquisition costs and taxes:
Balance at beginning of year 9,853 15,195
Change in unrealized gains
(losses) during period 2,848 (7,856)
Amortization of net unrealized
gains related to transfers of
securities available for sale
to securities held to maturity (786) (875)
Balance at end of period 11,915 6,464
Foreign currency translation adjustment, net
of taxes:
Balance at beginning of year - -
Change in translation adjustment
during period 2,267 -
Balance at end of period 2,267 -
Retained earnings:
Balance at beginning of year 314,869 268,654
Net earnings 27,079 33,144
Balance at end of period 341,948 301,798
Total stockholders' equity $ 384,268 336,400
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 27,079 33,144
Adjustments to reconcile net
earnings to net cash
from operating activities:
Universal life and investment
annuity contract interest 110,180 115,522
Surrender charges and other
policy revenues (31,716) (30,924)
Realized (gains) losses on investments 2,371 (1,275)
Accrual and amortization of
investment income (3,846) (5,370)
Depreciation and amortization 746 525
Decrease (increase) in insurance
receivables and other assets 395 (1,210)
Increase in accrued investment income (644) (851)
Decrease (increase) in deferred
policy acquisition costs 2,391 (8,526)
Decrease in liability for future
policy benefits (2,096) (1,924)
Increase (decrease) in other
policyholder liabilities 1,146 (1,836)
Increase in Federal income
taxes payable 976 11,569
Increase in other liabilities 2,903 6,581
Net cash provided by operating activities 109,885 115,425
Cash flows from investing activities:
Proceeds from sales of:
Securities held to maturity 1,993 -
Securities available for sale 48,170 31,060
Other investments 1,615 1,608
Proceeds from maturities
and redemptions of:
Securities held to maturity 81,177 53,288
Securities available for sale 29,389 23,375
Purchases of:
Securities held to maturity (78,914) (220,276)
Securities available for sale (167,569) (10,514)
Other investments (3,822) (2,724)
Principal payments on mortgage loans 27,137 19,535
Cost of mortgage loans acquired (19,395) (14,622)
Decrease in policy loans 5,960 2,589
Decrease in assets of
discontinued operations 365 4,761
Decrease in liabilities of
discontinued operations (365) (4,761)
Other (179) (207)
Net cash used in investing activities (74,438) (116,888)
<FN>
(Continued on next page)
</FN>
</TABLE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from financing activities:
Deposits to account balances
for universal life
and investment annuity contracts $ 196,328 227,077
Return of account balances
on universal life
and investment annuity contracts (236,909) (217,236)
Net cash provided by (used in
financing activities (40,581) 9,841
Net increase (decrease) in cash
and short-term investments (5,134) 8,378
Cash and short-term investments
at beginning of year 11,358 10,024
Cash and short-term investments
at end of period $ 6,224 18,402
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
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 (Westcap), NWL
Investments, Inc., NWL Properties, Inc., NWL 806 Main, Inc., and NWL
Services, Inc. The Westcap Corporation ceased brokerage operations during
1995 and filed for reorganization under Chapter 11 of the U.S. Bankruptcy
Code in 1996. As a result, The Westcap Corporation is reflected as
discontinued operations in the accompanying financial statements. NWL
Services, Inc. is a newly incorporated subsidiary formed in June, 1997
primarily for investment related activities. All significant
intercorporate transactions and accounts have been eliminated in
consolidation.
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 September 30, 1997, and the results
of its operations for the three months and nine months ended September 30,
1997 and 1996 and its cash flows for the nine months ended September 30,
1997 and 1996. The results of operations for the three months and nine
months ended September 30, 1997 and 1996 are not necessarily indicative of
the results to be expected for the full year.
(2) DIVIDENDS
The Company paid no cash dividends on common stock during the nine months
ended September 30, 1997 and 1996.
(3) DISCONTINUED BROKERAGE OPERATIONS
As previously reported, National Western Life Insurance Company's brokerage
subsidiary, The Westcap Corporation, is currently in reorganization
bankruptcy. As a result of brokerage losses and the resulting bankruptcy,
National Western's investment in Westcap was completely written off during
1995. However, a $1,000,000 cash infusion was made to Westcap on March 18,
1997, for operational expenses incurred during its bankruptcy. This
contribution was reflected as a loss from discontinued operations in the
first quarter of 1997. No losses from discontinued brokerage operations
were recorded in 1996.
On September 29, 1997, the United States Bankruptcy Court, Southern
District of Texas, Houston, Texas, entered an order approving claims in the
amount of $56,173,000 against The Westcap Corporation and its wholly owned
subsidiary Westcap Enterprises, Inc. The claims were filed by the Board of
Trustees of Community College District No. 508, County of Cook, State of
Illinois. The Westcap Corporation and Westcap Enterprises, Inc. have
appealed this order. While The Westcap Corporation is a wholly owned
brokerage subsidiary of National Western Life Insurance Company, National
Western is not a party to the order or the bankruptcy proceeding, and the
order of the Bankruptcy Court does not have any direct effect upon National
Western.
Also as previously reported, National Western has agreed to participate in
the Westcap plan of reorganization by the contribution of $5,000,000 of
cash and $5,000,000 of income producing real estate properties in exchange
for a complete settlement and release of any claims by Westcap against
National Western and a continuing equity interest in the reorganized
entity. This reorganization plan is pending and subject to approval by
Westcap's creditors and the Bankruptcy Court. The Creditors' Committee,
the debtor Westcap, and National Western continue to discuss possible
settlement of all claims by the creditors of Westcap and the claims by
Westcap against National Western. No prediction can be made at this time
as to the outcome of such settlement discussions.
Any additional losses from discontinued operations will depend primarily on
results of Westcap bankruptcy proceedings and settlement discussions. Any
future settlements of the Company with Westcap would be reduced by the
$1,000,000 contribution described above.
(4) STOCK AND INCENTIVE PLAN
On April 11, 1997, the Board of Directors approved the issuance of an
additional 21,900 non-qualified stock options to selected officers of the
Company. The options were granted under the National Western Life
Insurance Company 1995 Stock and Incentive Plan (Plan).
The stock options begin to vest following three full years of service to
the Company after date of grant, with 20% of the options to vest at the
beginning of the fourth year of service, and with 20% thereof to vest at
the beginning of each of the next four years of service. The exercise
price of the stock options was set at the fair market value of the common
stock on the date of grant. Total outstanding stock options under the Plan
totaled 114,400 at September 30, 1997.
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 closely
manages its portfolio, which entails monitoring and reacting to all
components which affect changes in the price, value, or credit rating of
investments in debt and equity securities.
Investments in debt and equity securities are classified and reported as
either securities held to maturity or securities available for sale. The
Company does not maintain a portfolio of trading securities. 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. At September 30, 1997, approximately 24.2% of the
Company's total debt and equity securities, based on fair values, 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.
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 that are not classified as held to maturity are reported as
securities available for sale. 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 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. Review procedures are also 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. Additionally, the Company closely monitors
financial, economic, and interest rate conditions to manage prepayment and
extension risks in its mortgage-backed securities portfolio.
The Company's overall conservative investment philosophy is reflected in
the allocation of its investments which is detailed below as of September
30, 1997 and December 31, 1996. The Company emphasizes debt securities,
with smaller holdings in mortgage loans and real estate.
<TABLE>
<CAPTION>
Percent of Investments
September 30, December 31,
1997 1996
<S> <C> <C>
Debt securities 87.2% 86.0%
Mortgage loans 6.4 7.0
Policy loans 4.8 5.1
Real estate 0.6 0.6
Equity securities 0.5 0.6
Other 0.5 0.7
Totals 100.0% 100.0%
</TABLE>
Portfolio Analysis
The Company maintains 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 primarily
collateralized mortgage obligations (CMOs), but also include some U.S.
government and private issue mortgage-backed pass-through securities.
At September 30, 1997, the Company's debt and equity securities were
classified as follows:
<TABLE>
<CAPTION>
Gross
Fair Amortized Unrealized
Value Cost Gains
(In thousands)
<S> <C> <C> <C>
Securities held to maturity:
Debt securities $ 1,934,324 1,878,334 55,990
Securities available for sale:
Debt securities 604,017 578,092 25,925
Equity securities 13,208 10,111 3,097
Totals $ 2,551,549 2,466,537 85,012
</TABLE>
As detailed above, debt securities classified as held to maturity comprise
the majority of the Company's securities portfolio, while equity securities
continue to be a small component of the portfolio. Gross unrealized gains
totaling $85,012,000 on the securities portfolio at September 30, 1997, are
a reflection of market interest rates at quarter-end. The fair values, or
market values, of fixed income debt securities correlate to external market
interest rate conditions. Because the interest rates are fixed on almost
all of the Company's debt securities, market values typically increase when
market interest rates decline, and decrease when market interest rates
rise. An analysis of gross unrealized gains on the Company's securities
portfolio for the quarter ended September 30, 1997 is detailed below:
<TABLE>
<CAPTION>
Change in
Gross Unrealized Gains Unrealized
At At Gains During
September 30, June 30, 3rd Quarter
1997 1997 1997
(In thousands)
<S> <C> <C> <C>
Securities held to maturity:
Debt securities $ 55,990 19,027 36,963
Securities available for sale:
Debt securities 25,925 16,319 9,606
Equity securities 3,097 2,892 205
Totals $ 85,012 38,238 46,774
</TABLE>
Market interest rates of the ten year U.S. Treasury bond were approximately
40 basis points lower at September 30, 1997, than at June 30, 1997. As
reflected in the table above, such changes in interest rates have a
significant impact on the market values of the Company's debt securities,
as the Company's securities portfolio increased in value by over $46
million in the third quarter. The Company would expect similar results in
the future from any significant upward or downward movement in market
rates. However, because the majority of the Company's debt securities are
classified as held to maturity, which are recorded at amortized cost, the
changes in market values have relatively small effects on the Company's
financial statements. Also, the Company has the intent and ability to hold
these securities to maturity, and it is unlikely that sales of such
securities would be required which would realize market gains or losses.
An important aspect of the Company's investment philosophy is managing the
cash flow stability of the portfolio. Because expected maturities of
securities may differ from contractual maturities due to prepayments,
extensions, and calls, the Company takes steps to manage and minimize such
risks. The Company continues to invest primarily in corporate debt
securities, most of which are non-callable, which helps reduce prepayment
and call risks. At September 30, 1997, corporate and public utility
securities represented about 63% of the entire debt securities portfolio.
While mortgage-backed securities are still an important component of the
Company's debt securities portfolio, holdings of these securities have been
reduced significantly over the past several years. This change in the
portfolio mix has provided even more stability in the Company's cash flow
management. Although holdings of mortgage-backed securities are subject to
prepayment and extension risks, both of these risks are addressed by
specific portfolio management strategies. The Company substantially
reduces both prepayment and extension risks of mortgage-backed securities
by investing primarily in collateralized mortgage obligations which have
more predictable cash flow patterns than pass-through securities. These
securities, known as planned amortization class I (PAC I) CMOs, are
designed to amortize in a more predictable manner than other CMO classes or
pass-throughs. Using this strategy, the Company can more effectively
manage and reduce prepayment and extension risks, thereby helping to
maintain the appropriate matching of the Company's assets and liabilities.
As of September 30, 1997, CMOs represent over 90% of the Company's
mortgage-backed securities, and PAC I CMOs account for approximately 90% of
this CMO portfolio. The CMOs that the Company purchases are modeled and
subjected to detailed, comprehensive analysis by the Company's investment
staff before any investment decision is made. The overall structure of the
entire CMO is evaluated, and an average life sensitivity analysis is
performed on the individual tranche being considered for purchase under
increasing and decreasing interest rate scenarios. This analysis provides
information used in selecting securities that fit appropriately within the
Company's investment philosophy and asset/liability management parameters.
The Company's investment mix between mortgage-backed securities and other
fixed income securities helps effectively balance prepayment, extension,
and credit risks.
In addition to managing prepayment, extension, and call risks, the Company
closely manages the credit quality of its investments in debt securities.
The Company continues to follow its conservative investment philosophy by
minimizing its holdings of below investment grade debt securities, as these
securities generally have greater default risk than higher rated corporate
debt. These issuers usually 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 below.
The increase in below investment grade debt securities from 1995 is due to
investment grade issuers that were downgraded to below investment grade
status.
<TABLE>
<CAPTION>
Below Investment
Grade Debt Securities
% of
Carrying Market Invested
Value Value Assets
(In thousands)
<S> <C> <C> <C>
September 30, 1997 $ 37,793 38,759 1.3%
December 31, 1996 $ 38,696 38,784 1.4%
December 31, 1995 $ 14,244 14,567 0.5%
</TABLE>
The Company's strong credit risk management and commitment to quality has
resulted in minimal defaults in the debt securities portfolio in recent
years. In fact, at September 30, 1997, no securities 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 seeks to minimize the credit and default risk in its mortgage
loan portfolio through strict underwriting guidelines and diversification
of underlying property types and geographic locations. In addition to
being secured by the property, mortgage loans with leases on the underlying
property are often guaranteed by the lessee, in which case the Company
approves the loan based on the credit strength of the lessee. This
approach has resulted in higher quality mortgage loans with fewer defaults.
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
also participates in several real estate joint ventures and limited
partnerships. The joint ventures and partnerships invest primarily in
income-producing retail properties. While not a significant portion of the
Company's investment portfolio, the investments have produced favorable
returns to date.
Portfolio Analysis
The Company held net investments in mortgage loans totaling $182,312,000
and $193,311,000, or 6.4% and 7.0% of total invested assets, at September
30, 1997, and December 31, 1996, respectively. The loans are real estate
mortgages, substantially all of which are related to commercial properties
and developments and have fixed interest rates.
The diversification of the mortgage loan portfolio by geographic regions of
the United States and by property type as of September 30, 1997, and
December 31, 1996, was as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
West South Central 51.9% 51.4%
Mountain 12.9 15.0
South Atlantic 12.4 8.7
Pacific 8.6 11.2
Other 14.2 13.7
Totals 100.0% 100.0%
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
Retail 68.4% 64.4%
Office 12.9 18.9
Hotel/Motel 7.9 7.8
Apartment 4.1 3.9
Other 6.7 5.0
Totals 100.0% 100.0%
</TABLE>
As of September 30, 1997, the allowance for possible losses on mortgage
loans was $4,640,000. No additions were made to the allowance in the
quarter ended September 30, 1997, 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 West South
Central region which includes Texas, Louisiana, Oklahoma, and Arkansas, as
this area contains the highest concentrations of the Company's mortgage
loans.
The Company currently places all loans past due three months or more 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 September 30, 1997 and
1996, the reductions in interest income due to non-accrual and restructured
mortgage loans were not significant.
The Company owns real estate that was acquired through foreclosure and
through direct investment totaling approximately $16,343,000 and
$15,209,000 at September 30, 1997, and December 31, 1996, 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 operating gains on these properties
of approximately $124,000 and $114,000 for the three months ended September
30, 1997, and 1996. 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 September 30,
1997 and 1996, respectively. The Company makes repairs and capital
improvements to keep the properties in good condition and will continue
this maintenance as needed.
RESULTS OF OPERATIONS
Summary of Consolidated Operations
A summary of operating results for the three months and nine months ended
September 30, 1997 and 1996 is provided below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(In thousands except per share data)
<S> <C> <C> <C> <C>
Revenues:
Insurance revenues
excluding
realized gains
(losses) on
investments $ 75,686 77,171 232,305 230,429
Realized gains
(losses)
on investments 408 (446) (2,371) 1,275
Total revenues $ 76,094 76,725 229,934 231,704
Earnings:
Earnings from
insurance operations $ 9,264 12,850 29,620 32,315
Losses from
discontinued
brokerage operations - - (1,000) -
Net realized
gains (losses)
on investments 265 (290) (1,541) 829
Net earnings $ 9,529 12,560 27,079 33,144
Earings Per Share:
Earnings from
insurance operations $ 2.66 3.68 8.49 9.26
Losses from
discontinued
brokerage operations - - (0.29) -
Net realized gains
(losses)
on investments 0.07 (0.09) (0.44) 0.23
Net earnings $ 2.73 3.59 7.76 9.49
</TABLE>
Significant changes and fluctuations in income and expense items between
the three months ended September 30, 1997 and 1996 are described in detail
for insurance operations as follows:
Insurance Operations
Insurance Operations Net Earnings: Earnings from insurance operations for
the quarter ended September 30, 1997, were $9,264,000 compared to
$12,850,000 for the third quarter of 1996. Third quarter 1997 earnings
would have been comparable to 1996 earnings except for non-recurring gains
in 1996 and other fluctuations described as follows: (1) Net investment
income for 1996 was significantly higher than other quarters as it included
non-recurring gains totaling $1.5 million, net of taxes, from several of
the Company's investments in real estate joint ventures. (2) Net
investment income for the third quarter of 1997 was lower due to yield and
amortization adjustments on mortgage-backed securities totaling $900,000,
net of taxes. (3) Life insurance benefit claims, which can fluctuate
significantly from quarter to quarter, were $1,085,000 higher in 1997, net
of taxes.
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, surrender charges, policy
administration fees, and other miscellaneous revenues. These revenues
increased slightly from $19,155,000 for the quarter ended September 30,
1996, to $19,303,000 for the same 1997 period. Increases in cost of
insurance revenues of $653,000 were offset by decreases in surrender charge
revenues of $748,000. Although total life and annuity surrenders were up
4.8% when comparing the third quarters of 1997 and 1996, surrender charge
revenues actually declined in 1997 primarily due to changes in the types of
surrenders. Single-tier annuities accounted for the increase in surrenders
and these annuities typically have lower surrender charges than two-tier
annuities. Surrenders of two-tier annuities also declined in the third
quarter of 1997 compared to the same 1996 period.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
(In thousands)
<S> <C> <C>
Cost of insurance revenues $ 8,759 8,106
Surrender charges 7,952 8,700
Policy fees and other revenues 2,592 2,349
Totals $ 19,303 19,155
</TABLE>
Actual universal life and investment annuity deposits collected for the
quarters ended September 30, 1997 and 1996, 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.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
(In thousands)
<S> <C> <C>
Investment annuities:
First year and single premiums $ 56,071 55,532
Renewal premiums 4,981 6,283
Total annuities 61,052 61,815
Universal life insurance:
First year and single premiums 5,001 3,576
Renewal premiums 12,863 12,838
Total universal life insurance 17,864 16,414
Totals $ 78,916 78,229
</TABLE>
Annuities sold include flexible premium deferred annuities, single premium
deferred annuities, and single premium immediate annuities. These products
can be tax-qualified or non-qualified annuities. In recent years the
majority of annuities sold have been non-qualified single premium deferred
annuities. The Company also continues to collect additional premiums on
existing two-tier annuities, as a large portion of the two-tier block of
business were flexible premium annuities on which renewal premiums continue
to be collected.
Subsequent to discontinuing two-tier annuity sales, the Company developed
new annuity products in 1994 and diversified its distribution system by
contracting new marketing organizations with extensive experience,
financial resources, and success in marketing life and annuity products.
The new products and new marketing organizations resulted in significant
increases in annuity production in 1994 and 1995. However, annuity
production slowed in 1996 and has continued to decrease in 1997, but sales
still continue to be higher under this more diversified distribution
system.
In efforts to increase annuity production again, the Company has further
diversified its annuity products offered to customers by introducing an
equity indexed annuity in the third quarter of 1997. This product is a
flexible premium deferred annuity which combines the features associated
with traditional fixed annuities with the option to have interest rates
that are linked in part to an equity index, the S&P 500 Composite Stock
Price Index*. This new annuity is a long-term contract designed as a
planning vehicle for retirement security. The Company anticipates that
this product will be attractive to customers as it has guaranteed minimum
interest rates, coupled with the potential for significantly higher returns
based on an equity index component. The Company has implemented an
investment hedging program to provide the potential higher returns required
to be paid on these products. Specifically, the Company purchases index
options from high rated banks and brokerage firms. These index options act
as hedges to match closely the returns based on the S&P 500 Composite Stock
Price Index* which may be paid to policyholders. As the equity indexed
annuity was just recently introduced, no significant sales of the new
product have been made as of September 30, 1997.
(* "Standard & Poor's" "S&P", "S&P 550", "Standard & Poor's 500", and "500"
are trade marks of The McGraw-Hill Companies, Inc. and have been licensed
for use by National Western Life Insurance Company. National Western's
equity indexed annuity is not sponsored, endorsed, sold or promoted by
Standard & Poor's, and Standard & Poor's, makes no represenations regarding
the advisability of purchasing this product.)
The majority of the Company's universal life insurance production is from
the international market, primarily Central and South American countries.
The Company continues to see increased competition in the Central and South
American market. However, the Company has been accepting policies from
foreign nationals for over thirty years and has developed strong
relationships with carefully selected brokers in the foreign countries.
This experience and strong broker relations have enabled the Company to
meet the challenges of the increased competition. The Company's strategic
plans for the international market include the continued development of
additional life insurance products to complement the universal life
portfolio and acceptance of new broker/agents from existing agencies in
Latin America.
Sales of life insurance have also been slow in the U.S. domestic market.
In response, the Company is committed to allocating additional resources to
increase domestic life insurance sales and to enhancing and developing new
life insurance products. Additional resources have included recent
personnel additions and increased marketing efforts.
Net Investment Income: Net investment income decreased 3.4% from the third
quarter of 1996. There were two primary reasons for the lower income.
Third quarter 1996 net investment income was higher than other quarters as
it included non-recurring gains totaling $2.3 million from sales of several
real estate joint venture interests. Additionally, the increase in net
investment income from debt securities was lower in the third quarter of
1997 due to yield and amortization adjustments on mortgage-backed securities
totaling $1.4 million. The yield and amortization adjustments were made
in accordance with Statement of Financial Accounting Standards No. 91,
"Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases." The adjustments are
made to reflect changes in mortgage-backed securities prepayment levels,
caused by changes in market interest rates, which affect average lives,
yields and amortization periods of the securities. A detail of net
investment income is provided below:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
(In thousands)
<S> <C> <C>
Investment income:
Debt securities $ 45,627 44,575
Mortgage loans 4,633 5,062
Policy loans 2,458 2,503
Other 598 3,452
Total investment income 53,316 55,592
Investment expenses 408 814
Net investment income $ 52,908 54,778
</TABLE>
Realized Gains and Losses on Investments: The Company recorded realized
gains of $408,000 in 1997 compared to realized losses of $446,000 in 1996.
The gains in 1997 were primarily from sales of debt securities and mortgage
loan prepayment penalties. The losses in 1996 were primarily from sales of
debt securities and preferred stock for tax planning purposes. No
significant write-downs on investments were recorded in 1997 or 1996.
Life and Other Policy Benefits: Expenses in 1997 and 1996 were $9.4
million and $8.9 million, respectively. The increase in expenses is due to
higher life insurance benefit claims offset partially by a decrease in
surrenders of traditional life insurance products. Mortality claims were
$1.7 million higher in the third quarter of 1997 than in 1996. Conversely,
traditional life insurance surrenders decreased $1.2 million in 1997 over
the comparable 1996 period. However, much of this decrease in surrender
expense is offset by corresponding changes in liabilities for future policy
benefits.
Amortization of Deferred Policy Acquisition Costs: This expense item
represents the amortization of the costs of acquiring or producing new
business, which consists primarily of agents' commissions. The majority of
such costs are amortized in direct relation to the anticipated future gross
profits of the applicable blocks of business. Amortization is also
impacted by the level and types of policy surrenders. Amortization for
1997 was $9,785,000 compared to $5,945,000 for 1996. Increases in
anticipated future gross profits resulted in retrospective adjustments to
deferred policy acquisition costs which lowered the amortization in the
third quarter of 1996. Also, policy surrenders were higher in 1997 which
increased amortization of deferred policy acquisition costs.
Significant changes and fluctuations in income and expense items between
the nine months ended September 30, 1997 and 1996 are described in detail
for insurance operations and discontinued brokerage operations as follows:
Insurance Operations
Insurance Operations Net Earnings: Earnings from insurance operations for
the first nine months of 1997 were lower by $2,695,000, or $0.77 per share,
compared to the same period of 1996. Earnings for the nine months ended
September 30, 1997, were lower for the same reasons as previously described
for the third quarter of 1997. Also, first quarter 1996 earnings included
nonrecurring income totaling $552,000, net of taxes, from a lawsuit
settlement.
Universal Life and Investment Annuity Contract Revenues: These revenues
increased from $57,998,000 for the nine months ended September 30, 1996, to
$59,984,000 for the same 1997 period. Increases in cost of insurance and
other revenues resulted in the majority of the increase in these contract
revenues. Increases in other revenues are primarily from recognition of
deferred revenues relating to immediate annuities. Surrender charge
revenues declined in 1997 primarily due to lower two-tier annuity
surrenders. The Company's two-tier annuities typically have higher
surrender charges compared to other Company annuity and life insurance
products.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
(In thousands)
<S> <C> <C>
Cost of insurance revenues $ 25,757 23,995
Surrender charges 25,605 27,028
Policy fees and other revenues 8,622 6,975
Totals $ 59,984 57,998
</TABLE>
Actual universal life and investment annuity deposits collected for the
nine months ended September 30, 1997 and 1996, 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.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
(In thousands)
<S> <C> <C>
Investment annuities:
First year and single premiums $ 159,417 181,567
Renewal premiums 17,602 22,729
Total annuities 177,019 204,296
Universal life insurance:
First year and single premiums 12,040 13,502
Renewal premiums 36,404 36,353
Total universal life insurance 48,444 49,855
Totals $ 225,463 254,151
</TABLE>
Net Investment Income: Net investment income increased $958,000 from
$159,461,000 in 1996 to $160,419,000 in 1997, primarily due to increases in
invested assets, as investment yields have remained relatively stable. The
increase in invested assets and related investment income was primarily
from debt securities. The increase in 1997 was lower than anticipated due
to yield and amortization adjustments on mortgage-backed securities
totaling $1.4 million. A detail of net investment income is provided
below:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
(In thousands)
<S> <C> <C>
Investment income:
Debt securities $ 137,473 131,641
Mortgage loans 14,144 14,891
Policy loans 7,306 7,942
Other 3,461 7,138
Total investment income 162,384 161,612
Investment expenses 1,965 2,151
Net investment income $ 160,419 159,461
</TABLE>
Other Income: Other income totaled only $220,000 in 1997 compared to
$1,171,000 in 1996. The higher income in 1996 was due to proceeds received
from a lawsuit settlement totaling $850,000. The lawsuit related to the
Company's previous investment in a mortgage loan.
Realized Gains and Losses on Investments: The Company recorded realized
losses of $2,371,000 in 1997 compared to realized gains of $1,275,000 in
1996. The losses in 1997 were primarily from net losses on debt securities
totaling $1.7 million. The Company also incurred net losses totaling
$485,000 on mortgage loans primarily relating to a foreclosure during the
first quarter of 1997. The gains in 1996 were primarily from debt
securities that were called and from sales of real estate.
Life and Other Policy Benefits: Expenses in 1997 and 1996 were $29.4
million and $26.4 million, respectively. The significant increase in
expenses is due to higher life insurance benefit claims as previously
described for the three months ended September 30, 1997. Mortality claims
experience fluctuates from period to period and such deviations are not
uncommon in the life insurance industry. Over extended periods of time,
higher claims experience tends to be offset by periods of lower claims
experience. Also, the Company utilizes reinsurance to help minimize its
exposure to adverse mortality experience. The Company's general policy is
to reinsure amounts in excess of $200,000 on the life of any one
individual.
Amortization of Deferred Policy Acquisition Costs: Amortization was up
$8,937,000 from $21,733,000 in 1996 to $30,670,000 in 1997 for the same
reasons as previously described for the three months ended September 30,
1997.
Federal Income Taxes: Federal income taxes for 1996 reflect an effective
tax rate of 35% which is the current federal rate. However, the 1997 taxes
reflect a lower effective tax rate of 33.2%. Federal income taxes for the
nine months ended September 30, 1997, include a tax benefit of $350,000
resulting from the Company's subsidiary brokerage operations losses. This
tax benefit was reflected in earnings from continuing operations in
accordance with the Company's tax allocation agreement with its
subsidiaries.
Discontinued Brokerage Operations
As more fully described in note 3 to the accompanying financial statements,
National Western Life Insurance Company's brokerage subsidiary, The Westcap
Corporation, is currently in reorganization bankruptcy. A $1,000,000 cash
infusion was made by the Company to Westcap on March 18, 1997, for
operational expenses incurred during its bankruptcy. This contribution was
reflected as losses from discontinued operations in the first quarter of
1997. No losses from discontinued brokerage operations were recorded in
1996. Additional losses from discontinued operations will depend primarily
on results of Westcap bankruptcy proceedings and settlement discussions.
Any future settlements of the Company with Westcap would be reduced by the
$1,000,000 contribution described above.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
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 cash needs are the Company's
securities available for sale portfolio, net cash provided by operations,
and bank line of credit. The Company's investments consist primarily of
marketable debt securities that could be readily converted to cash for
liquidity needs. The Company may also borrow up to $60 million on its bank
line of credit for short-term cash needs.
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.
In the past, cash flows from the Company's insurance operations have been
more than adequate to meet current needs. Cash flows from operating
activities were $109.9 million and $115.4 million for the nine months ended
September 30, 1997 and 1996, respectively. Additionally, net cash flows
from the Company's deposit product operations, which includes universal
life and investment annuity products, totaled $9.8 million for the first
nine months of 1996, but reflected a net cash outflow totaling $40.6
million for the same period of 1997. The decrease in cash flows from the
deposit product operations was due to lower universal life insurance and
annuity deposits and higher surrenders.
The Company also has significant cash flows from both scheduled and
unscheduled investment security maturities, redemptions, and prepayments.
These cash flows totaled $110.6 million and $76.7 million for the nine
months ended September 30, 1997 and 1996, respectively. The Company
expects significant cash flows to continue from these sources throughout
the remainder of 1997.
Capital Resources
The Company relies on stockholders' equity for its capital resources, as
there has been no long-term debt outstanding in 1997 or recent years. The
Company does not anticipate the need for any long-term debt in the near
future. There are also no current or anticipated material commitments for
capital expenditures in 1997.
Stockholders' equity totaled $384.3 million at September 30, 1997,
reflecting an increase of $31.4 million from December 31, 1996. The
increase in capital is primarily from net earnings of $27.1 million. A
foreign currency translation adjustment of $2.3 million and an increase in
net unrealized gains on investment securities totaling $2.0 million also
contributed to the rise in stockholder's equity. Book value per share at
September 30, 1997, was $110.06.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As more fully described in note 3 to the accompanying financial statements,
on September 29, 1997, the United States Bankruptcy Court, Southern
District of Texas, Houston, Texas, entered an order approving claims in the
amount of $56,173,000 against The Westcap Corporation and its wholly owned
subsidiary Westcap Enterprises, Inc. The claims were filed by the Board of
Trustees of Community College District No. 508, County of Cook, State of
Illinois. The Westcap Corporation and Westcap Enterprises, Inc. have
appealed this order. While The Westcap Corporation is a wholly owned
brokerage subsidiary of National Western Life Insurance Company, National
Western is not a party to the order or the bankruptcy proceeding, and the
order of the Bankruptcy Court does not have any direct effect upon National
Western.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
(filed on pages __ and __ of this report).
Exhibit 27 - Financial Data Schedule
(filed electronically pursuant to Regulation S-K).
(b) Reports on Form 8-K
A report on Form 8-K dated September 29, 1997, was filed by the Company
disclosing an order entered by the United States Bankruptcy Court approving
claims against The Westcap Corporation and its wholly owned subsidiary
Westcap Enterprises, Inc., as previously described in note 3 to the
accompanying financial statements and Item 1 above.
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: November 12, 1997 /S/ Ross R. Moody
Ross R. Moody
President,
Chief Operating Officer,
and Director
Date: November 12, 1997 /S/ Robert L. Busby, III
Robert L. Busby, III
Senior Vice President -
Chief Administrative Officer,
Chief Financial Officer
and Treasurer
Date: November 12, 1997 /S/ Vincent L. Kasch
Vincent L. Kasch
Vice President - Controller
and Assistant Treasurer
EXHIBIT 11
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
For the Three Months Ended September 30, 1997 and 1996
(Unaudited)
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Earnings applicable to common
stock shares:
Net earnings $ 9,529 12,560
Weighted average common stock
shares outstanding 3,491 3,491
Primary and fully diluted earnings
per common stock share:
Net earnings $ 2.73 3.59
</TABLE>
EXHIBIT 11
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Earnings (losses) applicable to common
stock shares:
Earnings from continuing operations $ 28,079 33,144
Losses from discontinued operations (1,000) -
Net earnings $ 27,079 33,144
Weighted average common stock
shares outstanding 3,491 3,491
Primary and fully diluted earnings
(losses) per common stock share:
Earnings from continuing operations $ 8.05 9.49
Losses from discontinued operations (0.29) -
Net earnings $ 7.76 9.49
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from
the National Western Life Insurance Company and subsidiaries consolidated
financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 604,017
<DEBT-CARRYING-VALUE> 1,878,334
<DEBT-MARKET-VALUE> 1,934,324
<EQUITIES> 13,208
<MORTGAGE> 182,312
<REAL-ESTATE> 16,343
<TOTAL-INVEST> 2,846,999
<CASH> 6,224
<RECOVER-REINSURE> 2,121
<DEFERRED-ACQUISITION> 290,480
<TOTAL-ASSETS> 3,192,974
<POLICY-LOSSES> 2,737,554
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 16,193
<POLICY-HOLDER-FUNDS> 9,356
<NOTES-PAYABLE> 2,664
0
0
<COMMON> 3,491
<OTHER-SE> 380,777
<TOTAL-LIABILITY-AND-EQUITY> 3,192,974
71,666<F1>
<INVESTMENT-INCOME> 160,419
<INVESTMENT-GAINS> (2,371)
<OTHER-INCOME> 220
<BENEFITS> 137,455<F2>
<UNDERWRITING-AMORTIZATION> 30,670
<UNDERWRITING-OTHER> 19,750
<INCOME-PRETAX> 42,059
<INCOME-TAX> 13,980
<INCOME-CONTINUING> 28,079
<DISCONTINUED> (1,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,079
<EPS-PRIMARY> 7.76
<EPS-DILUTED> 7.76
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Consists of $11,682 revenues from traditional contracts subject to FAS 60
accounting treatment and $59,984 revenues from universal life and investment
annuity contracts subject to FAS 97 accounting treatment.
<F2>Consists of $29,371 benefits paid to policyholders, $(2,096) decrease in
reserves on traditional contracts and $110,180 interest on universal life and
investment annuity contracts.
</FN>
</TABLE>
