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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2020

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 000-55522

NATIONAL WESTERN LIFE GROUP, INC.
(Exact name of Registrant as specified in its charter)

Delaware  47-3339380
(State or Other Jurisdiction of Incorporation)  (IRS Employer Identification No.)
 
10801 N. Mopac Expy Bldg 3
Austin,Texas 
78759(512)836-1010
(Address of Principal Executive Offices) (Zip Code) (Telephone Number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:
Title of each class to be so registered:Trading Symbol Name of each exchange on which
each class is to be registered:
Class A Common Stock, $0.01 par valueNWLI The NASDAQ Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:   Yes    No  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). : Yes    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definition of "accelerated filer." "large accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer    Accelerated filer      Non-accelerated filer (Do not check if a smaller reporting company)    Smaller reporting company   Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No 
As of November 5, 2020, the number of shares of Registrant's common stock outstanding was: Class A – 3,436,020 and  Class B - 200,000.


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TABLE OF CONTENTS
 Page
September 30, 2020 (Unaudited) and December 31, 2019
For the Three Months Ended September 30, 2020 and 2019 (Unaudited)
For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)
For the Three Months Ended September 30, 2020 and 2019 (Unaudited)
For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)
For the Three Months Ended September 30, 2020 and 2019 (Unaudited)
For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)
For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)
2

Table of Contents
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

 (Unaudited) 
ASSETSSeptember 30,
2020
December 31,
2019
Investments:  
Debt securities held to maturity, at amortized cost, net of allowance for credit losses ($5,086 and $0; fair value: $7,378,399 and $7,407,703)
$6,822,053 7,106,245 
Debt securities available for sale, at fair value (cost: $3,156,486 and $3,206,120)
3,410,656 3,356,945 
Mortgage loans, net of allowance for credit losses ($2,357 and $675)
302,715 272,422 
Policy loans75,714 80,008 
Derivatives, index options93,367 157,588 
Equity securities, at fair value (cost: $15,157 and $16,894)
18,610 23,594 
Other long-term investments78,579 62,090 
Total investments10,801,694 11,058,892 
Cash and cash equivalents507,025 253,525 
Deferred policy acquisition costs633,349 723,972 
Deferred sales inducements86,104 104,359 
Value of business acquired132,426 138,071 
Accrued investment income93,330 93,298 
Federal income tax receivable802  
Other assets166,256 181,330 
Total assets$12,420,986 12,553,447 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
3

Table of Contents
NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

 (Unaudited) 
LIABILITIES AND STOCKHOLDERS’ EQUITYSeptember 30,
2020
December 31,
2019
LIABILITIES:  
Future policy benefits:  
Universal life and annuity contracts (Note 1)$9,013,661 9,303,233 
Traditional life reserves848,515 838,738 
Other policyholder liabilities136,392 127,607 
Deferred Federal income tax liability (Note 1)53,055 36,767 
Federal income tax payable 3,748 
Other liabilities154,133 126,924 
Total liabilities10,205,756 10,437,017 
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS’ EQUITY:  
Common stock:  
Class A - $0.01 par value; 7,500,000 shares authorized; 3,436,020 issued and outstanding in 2020 and 2019
34 34 
Class B - $0.01 par value; 200,000 shares authorized, issued, and outstanding in 2020 and 2019
2 2 
Additional paid-in capital41,716 41,716 
Accumulated other comprehensive income (loss)104,764 60,108 
Retained earnings (Note 1)2,068,714 2,014,570 
Total stockholders’ equity2,215,230 2,116,430 
Total liabilities and stockholders' equity$12,420,986 12,553,447 

Note:  The Condensed Consolidated Balance Sheet at December 31, 2019 has been derived from the audited Consolidated Financial Statements as of that date.

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).

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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
For the Three Months Ended September 30, 2020 and 2019
(Unaudited)
(In thousands, except per share amounts)

 20202019
Premiums and other revenues:  
Universal life and annuity contract charges$40,303 37,840 
Traditional life premiums22,693 24,099 
Net investment income (loss)129,679 108,456 
Other revenues3,977 3,273 
Net realized investment gains (losses):  
Total other-than-temporary impairment (“OTTI”) gains (losses)1 (1,943)
Portion of OTTI (gains) losses recognized in other comprehensive income(1)(2)
Net OTTI losses recognized in earnings (1,945)
Other net investment gains (losses)6,050 1,443 
Total net realized investment gains (losses)6,050 (502)
Total revenues202,702 173,166 
Benefits and expenses:  
Life and other policy benefits26,940 39,918 
Amortization of deferred policy acquisition costs and value of business acquired50,800 22,998 
Universal life and annuity contract interest85,879 59,445 
Other operating expenses25,754 25,813 
Total benefits and expenses189,373 148,174 
Earnings before Federal income taxes13,329 24,992 
Federal income taxes2,504 5,003 
Net earnings$10,825 19,989 
Basic earnings per share:  
Class A$3.06 $5.65 
Class B$1.53 $2.83 
Diluted earnings per share:  
Class A$3.06 $5.65 
Class B$1.53 $2.83 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).

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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
For the Nine Months Ended September 30, 2020 and 2019
(Unaudited)
(In thousands, except per share amounts)

 20202019
Premiums and other revenues:  
Universal life and annuity contract charges$112,478 112,703 
Traditional life premiums68,956 65,492 
Net investment income261,894 388,211 
Other revenues15,217 13,652 
Net realized investment gains (losses):  
Total other-than-temporary impairment (“OTTI”) gains (losses)5 (7,840)
Portion of OTTI (gains) losses recognized in other comprehensive income(5)(7)
Net OTTI losses recognized in earnings (7,847)
Other net investment gains (losses)12,660 11,549 
Total net realized investment gains (losses)12,660 3,702 
Total revenues471,205 583,760 
Benefits and expenses:  
Life and other policy benefits94,005 101,764 
Amortization of deferred policy acquisition costs and value of business acquired111,937 86,573 
Universal life and annuity contract interest119,625 200,500 
Other operating expenses74,730 77,196 
Total benefits and expenses400,297 466,033 
Earnings before Federal income taxes70,908 117,727 
Federal income taxes13,732 23,844 
Net earnings$57,176 93,883 
Basic earnings per share:  
Class A$16.17 $26.55 
Class B$8.08 $13.28 
Diluted earnings per share:  
Class A$16.17 $26.55 
Class B$8.08 $13.28 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).

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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended September 30, 2020 and 2019
(Unaudited)
(In thousands)

 20202019
Net earnings$10,825 19,989 
Other comprehensive income (loss), net of effects of deferred costs and taxes:  
Unrealized gains (losses) on securities:  
Net unrealized holding gains (losses) arising during period24,357 15,586 
Net unrealized liquidity gains (losses)1 1 
Reclassification adjustment for net amounts included in net earnings(702)1,380 
Net unrealized gains (losses) on securities23,656 16,967 
Foreign currency translation adjustments85 52 
Benefit plans:  
Amortization of net prior service cost and net gain (loss)(2,066)(504)
Other comprehensive income (loss)21,675 16,515 
Comprehensive income (loss)$32,500 36,504 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).

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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Nine Months Ended September 30, 2020 and 2019
(Unaudited)
(In thousands)

 20202019
Net earnings$57,176 93,883 
Other comprehensive income, net of effects of deferred costs and taxes:  
Unrealized gains (losses) on securities:  
Net unrealized holding gains (losses) arising during period53,569 93,730 
Net unrealized liquidity gains (losses)2 3 
Reclassification adjustment for net amounts included in net earnings(2,670)4,252 
Net unrealized gains (losses) on securities50,901 97,985 
Foreign currency translation adjustments(46)519 
Benefit plans:  
Amortization of net prior service cost and net gain (loss)(6,199)(1,512)
Other comprehensive income (loss)44,656 96,992 
Comprehensive income (loss)$101,832 190,875 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).






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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended September 30, 2020 and 2019
(Unaudited)
(In thousands)

 20202019
Common stock:  
Balance at beginning of period$36 36 
Shares exercised under stock option plan  
Balance at end of period36 36 
Additional paid-in capital:  
Balance at beginning of period41,716 41,716 
Shares exercised under stock option plan  
Balance at end of period41,716 41,716 
Accumulated other comprehensive income (loss):  
Unrealized gains (losses) on non-impaired securities:  
Balance at beginning of period97,909 50,730 
Change in unrealized gains (losses) during period, net of tax23,655 16,966 
Balance at end of period121,564 67,696 
Unrealized losses on impaired held to maturity securities:  
Balance at beginning of period(3)(5)
Cumulative effect of change in accounting principle  
Amortization1 2 
Other-than-temporary impairments, non-credit, net of tax  
Additional credit loss on previously impaired securities  
Change in shadow deferred policy acquisition costs (1)
Balance at end of period(2)(4)
Unrealized losses on impaired available for sale securities:  
Balance at beginning of period(2)(2)
Other-than-temporary impairments, non-credit, net of tax  
Change in shadow deferred policy acquisition costs  
Recoveries, net of tax  
Balance at end of period(2)(2)
Continued on Next Page
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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (continued)
For the Three Months Ended September 30, 2020 and 2019
(Unaudited)
(In thousands)
20202019
Foreign currency translation adjustments:  
Balance at beginning of period4,970 5,044 
Change in translation adjustments during period85 52 
Balance at end of period5,055 5,096 
Benefit plan liability adjustment:  
Balance at beginning of period(19,785)(12,305)
Amortization of net prior service cost and net loss, net of tax(2,066)(504)
Balance at end of period(21,851)(12,809)
Accumulated other comprehensive income (loss) at end of period104,764 59,977 
Retained earnings:  
Balance at beginning of period2,057,889 1,969,934 
Cumulative effect of change in accounting principle, net of tax  
Net earnings10,825 19,989 
Balance at end of period 2,068,714 1,989,923 
Total stockholders' equity$2,215,230 2,091,652 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).





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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 2020 and 2019
(Unaudited)
(In thousands)

 20202019
Common stock:  
Balance at beginning of period$36 36 
Shares exercised under stock option plan  
Balance at end of period36 36 
Additional paid-in capital:  
Balance at beginning of period41,716 41,716 
Shares exercised under stock option plan  
Balance at end of period
41,716 41,716 
Accumulated other comprehensive income:  
Unrealized gains (losses) on non-impaired securities:  
Balance at beginning of period70,665 (30,286)
Change in unrealized gains (losses) during period, net of tax50,899 97,982 
Cumulative effect of change in accounting principle, net of tax   
Balance at end of period121,564 67,696 
Unrealized losses on impaired held to maturity securities:  
Balance at beginning of period(4)(7)
Amortization4 6 
Other-than-temporary impairments, non-credit, net of tax  
Additional credit loss on previously impaired securities  
Change in shadow deferred policy acquisition costs(2)(3)
Balance at end of period(2)(4)
Unrealized losses on impaired available for sale securities:  
Balance at beginning of period(2)(2)
Other-than-temporary impairments, non-credit, net of tax  
Change in shadow deferred policy acquisition costs  
Recoveries, net of tax  
Balance at end of period(2)(2)
Continued on Next Page
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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (continued)
For the Nine Months Ended September 30, 2020 and 2019
(Unaudited)
(In thousands)
20202019
Foreign currency translation adjustments:  
Balance at beginning of period5,101 4,577 
Change in translation adjustments during period(46)519 
Balance at end of period5,055 5,096 
Benefit plan liability adjustment:  
Balance at beginning of period(15,652)(11,297)
Amortization of net prior service cost and net loss, net of tax(6,199)(1,512)
Balance at end of period(21,851)(12,809)
Accumulated other comprehensive income (loss) at end of period104,764 59,977 
Retained earnings:  
Balance at beginning of period2,014,570 1,896,040 
Cumulative effect of change in accounting principle, net of tax (Note 2)(3,032) 
Net earnings57,176 93,883 
Balance at end of period (Note 1)2,068,714 1,989,923 
Total stockholders' equity$2,215,230 2,091,652 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).


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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2020 and 2019
(Unaudited)
(In thousands)
 20202019
Cash flows from operating activities:  
Net earnings$57,176 93,883 
Adjustments to reconcile net earnings to net cash from operating activities:  
Universal life and annuity contract interest119,625 200,500 
Surrender charges and other policy revenues(21,219)(25,608)
Realized (gains) losses on investments(12,660)(3,702)
Accretion/amortization of discounts and premiums, investments1,580 1,798 
Depreciation and amortization8,892 8,501 
Increase (decrease) in estimated credit losses on investments2,930  
(Increase) decrease in value of equity securities3,107 (2,639)
(Increase) decrease in value of derivatives34,866 (63,127)
(Increase) decrease in deferred policy acquisition and sales inducement costs, and value of business acquired75,604 53,837 
(Increase) decrease in accrued investment income(32)3,837 
(Increase) decrease in other assets8,746 1,831 
Increase (decrease) in liabilities for future policy benefits(5,288)6,960 
Increase (decrease) in other policyholder liabilities8,785 (19,847)
Increase (decrease) in Federal income tax liability(4,550)6,486 
Increase (decrease) in deferred Federal income tax5,224 (17,502)
Increase (decrease) in other liabilities(3,391)(1,045)
Net cash provided by operating activities279,395 244,163 
Cash flows from investing activities:  
Proceeds from sales of:  
Debt securities available for sale 80,528 
Other investments5,786 29,960 
Proceeds from maturities, redemptions, and prepayments of:  
Debt securities held to maturity619,984 486,344 
Debt securities available for sale240,398 189,944 
  Other investments9,753 5,911 
Derivatives, index options84,778 28,457 
Purchases of:  
Debt securities held to maturity(318,138)(161,617)
Debt securities available for sale(181,162)(127,811)
Equity securities(1,019)(977)
Derivatives, index options(51,318)(57,443)
Other investments(23,268)(7,314)
Property, equipment, and other productive assets(7,223)(4,364)
Payment to acquire businesses, net of cash acquired (189,121)
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Continued on Next Page

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Nine Months Ended September 30, 2020 and 2019
(Unaudited)
(In thousands)
20202019
Principal payments on mortgage loans6,022 22,384 
Cost of mortgage loans acquired(41,530)(47,744)
Decrease (increase) in policy loans4,294 2,580 
Net cash provided by (used in) investing activities347,357 249,717 
Cash flows from financing activities:  
Deposits to account balances for universal life and annuity contracts348,583 292,551 
Return of account balances on universal life and annuity contracts(721,496)(747,260)
Borrowings under line of credit agreement 75,000 
Principal payments on line of credit borrowings (75,000)
Principal payments under finance lease obligation(280)(295)
Net cash provided by (used in) financing activities(373,193)(455,004)
Effect of foreign exchange(59)657 
Net increase (decrease) in cash, cash equivalents, and restricted cash253,500 39,533 
Cash, cash equivalents, and restricted cash at beginning of period253,525 131,976 
Cash, cash equivalents and restricted cash at end of period$507,025 171,509 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:  
Cash paid (received) during the period for:  
Interest$56 252 
Income taxes$13,229 34,758 
Noncash operating activities:
Net deferral and amortization of sales inducements$(12,755)(13,501)
Noncash investing and financing activities:
Contingent consideration to acquire businesses$ 3,700 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).


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

(1) CONSOLIDATION AND BASIS OF PRESENTATION

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements contain all adjustments necessary to present fairly the financial position of National Western Life Group, Inc. ("NWLGI") and its wholly owned subsidiaries (“Company”) as of September 30, 2020, and the results of its operations and its cash flows for the three and nine months ended September 30, 2020 and September 30, 2019. Such adjustments are of a normal recurring nature. The results of operations for the nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year. It is recommended that these Condensed Consolidated Financial Statements be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 which is accessible free of charge through the Company's internet site at www.nwlgi.com or the Securities and Exchange Commission internet site at www.sec.gov. The Condensed Consolidated Balance Sheet at December 31, 2019 has been derived from the audited consolidated financial statements as of that date.

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of NWLGI and its wholly owned subsidiaries: National Western Life Insurance Company ("NWLIC" or "National Western"), Regent Care San Marcos Holdings, LLC, NWL Services, Inc., and N.I.S. Financial Services, Inc. ("NIS"). National Western's wholly owned subsidiaries include The Westcap Corporation, NWL Financial, Inc., NWLSM, Inc., Braker P III, LLC, and Ozark National Life Insurance Company ("Ozark National"). The results of operations for Ozark National and NIS include their respective business activity subsequent to their acquisition effective January 31, 2019 and all references herein to results for the nine months ended September 30, 2019 for Ozark National and NIS refer to their eight month activity February 1, 2019 through September 30, 2019. All significant intercorporate transactions and accounts have been eliminated in consolidation.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates in the accompanying Condensed Consolidated Financial Statements include: (1) liabilities for future policy benefits, (2) valuation of derivative instruments, (3) recoverability and amortization of deferred policy acquisition costs ("DPAC"), deferred sales inducements ("DSI") and the value of business acquired ("VOBA"), (4) valuation allowances for deferred tax assets, (5) goodwill, (6) allowances for credit losses and other-than-temporary impairment losses on debt securities, (7) commitments and contingencies, and (8) credit loss and valuation allowances for mortgage loans and real estate. During the first quarter of 2019, the Company incorporated accounting estimates for business combinations, value of business acquired, and fair value measurement as a result of its acquisition of Ozark National and NIS.

Revision of Prior Period Consolidated Financial Statements

During the first quarter of 2020, management identified an understatement of an excess benefit reserve on a specific block of policies that dated back to the first quarter of 2004 with the adoption of the Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts (SOP 03-1). Management concluded that this error was not material to previously issued consolidated financial statements and would be corrected through a revision to the comparative consolidated balance sheet presented for the year ended December 31, 2019. The impact of this revision as of December 31, 2019 was an increase to the future policy benefits liability of $15.0 million, a decrease to deferred federal income tax liability of $3.2 million, and a decrease to retained earnings of $11.8 million.

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Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The table below shows the unrealized gains and losses on available-for-sale securities that were reclassified out of accumulated other comprehensive income for the three and nine months ended September 30, 2020 and September 30, 2019.

Affected Line Item in the
Statements of Earnings
Amount Reclassified From Accumulated Other Comprehensive Income
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(In thousands)
Other net investment gains (losses)$889 198 3,380 2,465 
Net OTTI losses recognized in earnings (1,945) (7,847)
Earnings before Federal income taxes889 (1,747)3,380 (5,382)
Federal income taxes187 (367)710 (1,130)
Net earnings$702 (1,380)2,670 (4,252)


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

Recent accounting pronouncements not yet adopted

In August 2018, the FASB issued ASU 2018-12 Financial Services-Insurance (Topic 944) - Targeted Improvements to the Accounting for Long-Duration Contracts. This update is aimed at improving the Codification as it relates to long-duration contracts which will improve the timeliness of recognizing changes in the liability for future policy benefits, simplify accounting for certain market-based options, simplify the amortization of deferred acquisition costs, and improve the effectiveness of required disclosures. Amendments include the following:

A. Require insurance entity to (1) review and update assumptions used to measure cash flows at least annually (with changes recognized in net income) and (2) update discount rate assumption at each reporting date (with changes recognized in other comprehensive income).

B. Require insurance entity to measure all market risk benefits associated with deposit (i.e. account balance) contracts at fair value, with change in fair value attributable to change in instrument-specific credit risk recognized in other comprehensive income.

C. Simplify amortization of deferred acquisition costs and other balances amortized in proportion to premiums, gross profits, or gross margins and require those balances be amortized on constant level basis over expected term of related contract. Deferred acquisition costs are required to be written off for unexpected contract terminations but are not subject to impairment test.

D. Require insurance entity to add disclosures of disaggregated rollforwards of beginning to ending balances of the liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities, and deferred acquisition costs. Insurance entity must also disclose information about significant inputs, judgments, assumptions, and methods used in measurement, including changes in those inputs, judgments, and assumptions, and the effect of those changes on measurement.

These updates are required to be applied retrospectively to the earliest period presented in the financial statements for fiscal periods beginning after December 15, 2022, with early adoption permitted. The Company has performed a preliminary gap analysis and created a roadmap for implementation of this standard by the effective date and is evaluating the impact of the new guidance on its Consolidated Financial Statements.

In December 2019, the FASB issued ASU 2019-12 Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740), which simplifies various aspects of the income tax accounting guidance and will be applied using different approaches depending on the specific amendment. The amendments will be effective for fiscal periods beginning after December 15, 2020. Early adoption is permitted. The Company does not expect this guidance to have a material impact on the Consolidated Financial Statements and related disclosures upon adoption.

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Table of Contents

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

In June 2016, the FASB released ASU 2016-13, Financial Instruments-Credit Losses, which revises the credit loss recognition criteria for certain financial assets measured at amortized cost. The new guidance replaces the existing incurred loss recognition model with an expected loss recognition model (“CECL”). The objective of the CECL model is for the reporting entity to recognize its estimate of current expected credit losses for affected financial assets in a valuation allowance deducted from the amortized cost basis of the related financial assets that results in presenting the net carrying value of the financial assets at the amount expected to be collected. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments in this Update add clarification and correction to ASU 2016-13 around accrued interest, transfers between classifications or categories for loans and debt securities, consideration of recoveries in estimating allowances, reinsurance recoveries, consideration of prepayments and estimated costs to sell when foreclosure is probable. In November, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The amendments in this Update add clarification and correction to ASU 2016-13 around expected recoveries for purchased financial assets with credit deterioration, transition relief for troubled debt restructurings, disclosures related to accrued interest receivables, and financial assets secured by collateral maintenance provisions. The guidance for these pronouncements was effective for interim and annual periods beginning after December 15, 2019, and for most affected instruments must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to beginning retained earnings. Effective January 1, 2020, the Company adopted the expected loss recognition model related to mortgage loans, debt securities held to maturity and reinsurance recoverable. The change in accounting, net of tax, of $3.0 million was recorded as a charge to retained earnings in the first quarter of 2020 reflecting initial allowance for estimated credit losses balances of $1.2 million on mortgage loans and $3.3 million on debt securities held to maturity. The estimated credit losses for the reinsurance recoverable were immaterial to the financial statements, but are monitored on a quarterly basis for any changes. Refer to Note (9) Investments for more information. Certain disclosures required by ASU 2016-13 are not included in the Consolidated Financial Statements as the impact of this standard was not material.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future Consolidated Financial Statements.


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

Robert L. Moody, Sr., through the Robert L. Moody Revocable Trust, controls 99.0% of the total outstanding shares of the Company's Class B common stock as of September 30, 2020. Holders of the Company's Class A common stock elect one-third of the Board of Directors of the Company, and holders of the Class B common stock elect the remainder. Any cash or in-kind dividends paid on each share of Class B common stock are to be only one-half of the cash or in-kind dividends paid on each share of Class A common stock. In the event of liquidation of the Company, the Class A stockholders will receive the par value of their shares; then the Class B stockholders shall receive the par value of their shares; and the remaining net assets of the Company shall be divided between the stockholders of both Class A and Class B stock based upon the number of shares held.

National Western is restricted by state insurance laws as to dividend amounts which may be paid to stockholders without prior approval from the Colorado Division of Insurance. The restrictions are based on the lesser of statutory earnings from operations, excluding capital gains, or 10% of statutory surplus of National Western as of the previous year-end. Under these guidelines the maximum dividend payment which may be made without prior approval in 2020 is $152.8 million. As the sole owner of NWLIC, all dividends declared by National Western are payable entirely to NWLGI and are eliminated in consolidation.

Ozark National is similarly restricted under the state insurance laws of Missouri as to dividend amounts which may be paid to stockholders without prior approval to the greater of 10.0% of the statutory surplus of the company from the preceding year-end or the company's net gain from operations, excluding capital gains, from the prior calendar year. Based upon this restriction, the maximum dividend payment which may be made in 2020 without prior approval is $17.2 million.

As part of the Stock Purchase Agreement dated October 3, 2018, by and between NWLIC and Ozark National's previous owner, the Missouri Department of Commerce and Insurance granted approval for an extraordinary dividend of $102.7 million to be paid to the prior owner concurrent with the closing of the transaction effective January 31, 2019. All dividends declared by Ozark National thereafter are payable entirely to NWLIC as the sole owner and are eliminated in consolidation.
National Western did not declare or pay cash dividends to NWLGI in the nine months ended September 30, 2020. In the first quarter of 2019, National Western declared and paid a $32.0 million dividend to NWLGI, the proceeds of which were used as part of the cash purchase of NIS. In the third quarter of 2019, National Western declared a $4.0 million dividend to NWLGI which was subsequently paid on October 17, 2019.

NWLGI did not declare or pay cash dividends on its common shares during the nine months ended September 30, 2020 and 2019.


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

Basic earnings per share of common stock are computed by dividing net earnings available to each class of common stockholders on an as if distributed basis by the weighted-average number of common shares outstanding for the period. Diluted earnings per share, by definition, reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock, that then shared in the distributed earnings of each class of common stock. U.S. GAAP requires a two-class presentation for the Company's two classes of common stock. The Company currently has no share-based compensation awards outstanding that could be redeemed for shares of common stock.

Net earnings for the periods shown below is allocated between Class A shares and Class B shares based upon (1) the proportionate number of shares issued and outstanding as of the end of the period, and (2) the per share dividend rights of the two classes under the Company's Restated Certificate of Incorporation (the Class B dividend per share is equal to one-half the Class A dividend per share).

 Three Months Ended September 30,
 20202019
 Class AClass BClass AClass B
 (In thousands except per share amounts)
Numerator for Basic and Diluted Earnings Per Share:    
Net earnings$10,825  19,989  
Dividends - Class A shares    
Dividends - Class B shares    
Undistributed earnings$10,825  19,989  
Allocation of net earnings:    
Dividends$    
Allocation of undistributed earnings10,519 306 19,424 565 
Net earnings$10,519 306 19,424 565 
Denominator:    
Basic earnings per share - weighted-average shares3,436 200 3,436 200 
Effect of dilutive stock options    
Diluted earnings per share - adjusted weighted-average shares for assumed conversions3,436 200 3,436 200 
Basic earnings per share$3.06 1.53 5.65 2.83 
Diluted earnings per share$3.06 1.53 5.65 2.83 

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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Nine Months Ended September 30,
 20202019
 Class AClass BClass AClass B
(In thousands except per share amounts)
Numerator for Basic and Diluted Earnings Per Share:    
Net earnings$57,176