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National Western Life Group, Inc. Message Board

  • BenGrahamMan BenGrahamMan Oct 18, 2011 10:11 AM Flag

    Further update to our NWLI notes

    Please make sure you read and understand our disclaimer in these notes. I wanted to share some of the recent actions or work we performed in regards to NWLI.

    http://rbcpa.com/companies/NWLI_Notes.pdf

    We updated our notes with the following.

    1. Letter to BOD regarding: request for comment on potential of a share buyback

    2. Some discussion On Moody National Bank

    "October 14, 2011 Moody National Bank

    I have read the financials at www.fdic.gov on Moody National Bank. I also verified that they are
    under the regulatory authority of The Office of the Comptroller of the Currency (OCC), since they are
    a national bank. After many contacts I was given the information that the independent auditing firm
    is DRDA, PLLC 1120 Bay Area Blvd Houston, Texas 77058 (281) 488-2022 www.drdacpa.com
    It is my understanding NWLI owns 9.5% of Moody National Bank. I wanted to find the auditor, just
    for a higher level of assurance on our NWLI research. I was able to determine that BBB rates DRDA
    an ‘A+.’ Also, they are a member of good standing with Texas Board of Accountancy. Financial
    position looks fairly strong according to filings. Tier 1 ratio is 9.5%."

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    • >>Something looks fishy with the number. Hard to increase 660,000 shares in a quarter when average volume is 7,000 a day. Also who would be selling 20% of the company. <<

      I think you are right. I looked at their 13-F, and they may have made some errors with commas and periods, whereas they are being shown as unusually high numbers. I think there ownership remained unchanged from 6/30/11.

      I think their error may have been that they inverted commas for periods. Hence, rather than showing 6,666.00, they showed, 6.666,00. I think that screwed up the aggregating programs.

    • Dear Ben,

      Congratulations on your report. I really liked it.

      However as you would expect, it raises more questions then giving answers, And I mean what your firm does.

      When I was an active asset manager and came to a conclusion of a company I would be on the phone asking questions in person and/or be making trips to discuss with management the points you raise here. not writing letters that management does not want to answer on paper

      In my opinion I have to ask myself the questions after reading everything your report presents. WHY would Tweedy, Brown and Third ave investors be selling shares if everything in your report were correct (which I think it is). especially since both have been large shareholders really for years and years.

      This simple question would make me want to find out WHY if everything esle you write is correct they would be selling here

      My answer is and does not come from the facts but from the hdden factor in each and every investment decision - management.

      If management of NWLI were trusted, If management was liked to build and deliver shareholder value.
      these grade A managers (my opinion) would be buying NWLI not selling the shares.

      Did you write the right questions yes you did and in about 10 years you might enen get an answer - but in the mean time you should have asked the questions befoe you bought the stock to protect your clients.

      Anyway i will own my few shares just to see what happens and hope you are right. only problem is i can't say I trust you are right

      • 3 Replies to denniscloeser
      • >>In my opinion I have to ask myself the questions after reading everything your report presents. WHY would Tweedy, Brown and Third ave investors be selling shares if everything in your report were correct (which I think it is). especially since both have been large shareholders really for years and years.<<

        Would like to hear a rebuttal to my answer to your post from several weeks ago.

        In the meantime, here is more info.

        SPARINVEST ASSET MANAGEMENT A/S as of 9/30/11 owns 666,600 shares or >19% of the company.

        Tweedy Brown owns 3.25% of the company with 111,761 shares. They increased their ownership by 6,129 shares at 9/30/11. Why did they buy, you might ask.

        Vanguard owns 3% as of 9/30/11, and they increased their shares by 464 shares.

        Third Ave has not yet filed.

      • Thanks for reading and commenting. I wrote a long and detailed response, and either I messed up, or it never posted. Anyway, here is real quick response.

        Institutional ownership is still fairly strong and stable. FMR and Westport have not sold shares. Tweedy sold just a few, and Third Ave has sold more, but still owns a material stake, at least as of 6/30/11. I think, and could be wrong, that Third Ave has had a bit of redemptions the last few years, and this year. Look at their most recent 13-F and you will see lots of shares sold during quarter 6/30/11. Institutions aren't always correct. Also, Third Ave's total ownership of NWLI is less than 0.60% of their Total base. Hence, get rid of what is immaterial and small. Dont forget NWLI has a market cap of $500M.

        In regards to management. I think the long term growth of the company both operationally, balance sheet, earnings and earnings retention has been exceptional. Moody's appear to be focused on good business, strength of balance sheet, and perhaps not caring of the stock price. I am cool with that. I am patient, and don't mind waiting.

        I don't really have many questions in regards to NWLI, other than always looking for answers. I know NWLI fairly well, and am quite okay having my and my clients money there.

        I think Moody's via their ownership will be careful of the balance sheet.

        I do speak with NWLI when necessary. I'm not one to visit companies, but I feel I learn companies fairly closely. Visiting a company isn't typically going to tell me a lot, plus it could pollute you with bias. To each their own. My analysis and interview process has always been either in writing or an open documented forum. You can read about me and Countrywide Financial and read some cool exchanges I had with Angelo Mozilo. Anyay, we all research and due our diligence in different fashions.

        I was informed today that the board considered my letter, but will refrain from share buy backs. The reasoning is to keep focusing on balance sheet strength.

        There is a long track record here, and perhaps we could discuss where you feel they have failed the shareholder, other than a non-defense of the stock price. Selfishly, I am cool buying shares at 39% of book value.

        Yet, inverting the situation, perhaps management is refraining from buying shares because of cash flow concerns, or some type of business going concern we are not aware of.

    • Good luck with the board - makes a ton of sense to buy stock back down here, but they say that it is better to maintain a strong balance sheet to grow the business.

      Re Moody's National bank, NWLI filed an 8-k back in 2008 confirming this ownership:

      https://www.nationalwesternlife.com/pdf/NWL%20Form%208-K%20MNB%20Related%20Party%20Transaction%206-25-08.pdf

      The question I would ask, if you get the opportunity, is what is the book value of this holding. I would think it is quite small as they have owned this for a long time. We could then estimate the value of this holding based on comparable public banks and see if there is a higher discount to real book value here.

      • 1 Reply to bbarberayr
      • >>The question I would ask, if you get the opportunity, is what is the book value of this holding. I would think it is quite small as they have owned this for a long time. We could then estimate the value of this holding based on comparable public banks and see if there is a higher discount to real book value here.<<

        You would have to look at the banks balance sheet. I think most of the assets are shorter term, and/or marked to market. I would guess that the value to NWLI of the bank, using conservative metrics would be the following:

        Tangible Book Value of Moody National Bank * (use a range you are comfortable with,say 60% to 115% of TBV).

        TBV of Moody National Bank as of 6/30/11 is $86M, total assets are $944M.

        You also have HomeTown Bank, National Association, which has $344M in assets and around $2.4M in equity. Their tier 1 ratio is around 8.75%. I am not sure of the ownership here.

        I would gather that NWLI's interest in Moody National Bank is worth around $9M. Not a real material amount. Perhaps I am wrong, and perhaps HomeTown Bank is owned or not owned by NWLI. With that said, you could have a value of somewhere between $7M to $12M on that asset. Again, not real material.

        My only concern with the banks would be a properly audited, and proper segregation of assets, liabilities and equity b/w NWLI and all related party banking affiliates.

 
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