SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2003 Commission File Number: 0-9341
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SECURITY NATIONAL FINANCIAL CORPORATION
Exact Name of Registrant.
UTAH 87-0345941
- ------------------------------ -------------------------
(State or other jurisdiction IRS Identification Number
of incorporation or organization)
5300 South 360 West, Salt Lake City, Utah 84123
- ----------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code (801) 264-1060
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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 XX NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common Stock, $2.00 par value 4,705,586
- ------------------------------------- ----------------------------------
Title of Class Number of Shares Outstanding as of
March 31, 2003
Class C Common Stock, $.20 par value 6,105,726
- ------------------------------------ ------------------------------------
Title of Class Number of Shares Outstanding as of
March 31, 2003
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2003
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements Page No.
- ------ --------
Consolidated Statement of Earnings - Three months ended
March 31, 2003 and 2002 (unaudited).............................3
Consolidated Balance Sheet - March 31, 2003 (unaudited)
and December 31, 2002 ........................................4-5
Consolidated Statement of Cash Flows -
Three months ended March 31, 2003 and 2002 (unaudited)..........6
Notes to Consolidated Financial Statements....................7-8
Item 2 Management's Discussion and Analysis......................9-12
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Item 3 Quantitative and Qualitative Disclosure of Market Risk......12
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Item 4 Controls and Procedures.....................................12
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PART II - OTHER INFORMATION
Other Information........................................12-16
Signature Page..............................................17
Certifications...........................................18-19
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Three Months Ended
March 31,
Revenues: 2003 2002
- -------- ---- ----
Insurance premiums and other considerations $5,864,427 $3,322,756
Net investment income 3,920,372 2,923,765
Net mortuary and cemetery sales 2,584,856 2,728,263
Realized gains on investments and other assets -- 719,417
Mortgage fee income 21,755,920 9,865,991
Other 124,122 41,347
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Total revenues 34,249,697 19,601,539
Benefits and expenses:
- ---------------------
Death benefits 3,818,319 1,668,670
Surrenders and other policy benefits 605,156 629,911
Increase in future policy benefits 1,416,571 747,186
Amortization of deferred policy acquisition costs
and cost of insurance acquired 958,895 834,527
General and administrative expenses:
Commissions 15,850,637 7,031,093
Salaries 3,222,391 2,608,950
Other 4,620,111 3,311,341
Interest expense 823,468 322,353
Cost of goods and services sold
of the mortuaries and cemeteries 560,867 600,325
------------ ------------
Total benefits and expenses 31,876,415 17,754,356
------------ ------------
Earnings before income taxes 2,373,282 1,847,183
Income tax expense (667,542) (456,372)
Minority interest (income) loss of subsidiary (20,690) (10,950)
------------ ------------
Net earnings $1,685,050 $1,379,861
============ ============
Net earnings per common share $.32 $.30
==== ====
Weighted average outstanding
common shares 5,284,966 4,673,385
============ ============
Net earnings per common
share-assuming dilution $.31 $.30
==== ====
Weighted average outstanding
common shares assuming-dilution 5,498,651 4,674,697
============ ============
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 2003 December 31,
(Unaudited) 2002
-------------- ------------
Assets:
Insurance-related investments:
Fixed maturity securities held
to maturity, at amortized cost $35,768,851 $33,015,097
Fixed maturity securities available
for sale, at market 17,998,141 18,514,943
Equity securities available for sale,
at market 2,625,370 2,642,093
Mortgage loans on real estate 19,505,387 21,016,008
Real estate, net of accumulated
depreciation and allowances for losses 9,336,433 9,331,248
Policy, student and other loans 10,918,857 10,974,165
Short-term investments 5,575,338 5,335,478
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Total insurance-related
investments 101,728,377 100,829,032
Restricted assets of cemeteries and mortuaries 5,431,699 5,332,736
Cash 30,294,752 38,199,041
Receivables:
Trade contracts 12,949,120 11,358,027
Mortgage loans sold to investors 100,657,578 89,455,105
Receivable from agents 1,764,138 2,054,071
Receivable from officers 62,790 70,290
Other 1,292,982 1,131,977
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Total receivables 116,726,608 104,069,470
Allowance for doubtful accounts (2,976,832) (2,385,309)
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Net receivables 113,749,776 101,684,161
Policyholder accounts on deposit
with reinsurer 6,911,310 6,955,691
Land and improvements held for sale 8,449,302 8,429,215
Accrued investment income 1,255,826 928,287
Deferred policy and pre-need acquisition costs 16,645,397 15,917,257
Property, plant and equipment, net 10,792,093 10,921,635
Cost of insurance acquired 15,817,011 16,330,711
Excess of cost over net assets
of acquired subsidiaries 683,191 683,191
Other 998,556 945,805
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Total assets $312,757,290 $307,156,762
============= =============
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
March 31, 2003 December 31,
(Unaudited) 2002
-------------- --------------
Liabilities:
Future life, annuity, and other
policy benefits $217,568,462 $215,980,207
Unearned premium reserve 2,039,584 1,914,700
Bank loans payable 15,721,119 16,113,227
Notes and contracts payable 4,956,957 3,160,009
Deferred pre-need cemetery and funeral
contracts revenues and estimated future
of pre-need sales 10,187,181 10,002,396
Accounts payable 1,693,510 1,553,777
Funds held under reinsurance treaties 1,325,386 1,334,964
Other liabilities and accrued expenses 12,167,171 10,182,382
Income taxes 8,755,720 8,103,882
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Total liabilities 274,415,090 268,345,544
Commitments and Contingencies -- --
Minority interest 4,003,817 4,297,807
Stockholders' Equity:
- --------------------
Common stock:
Class A: $2 par value, authorized
10,000,000 shares, issued 5,858,802
shares in 2003 and 5,794,492 shares
in 2002 11,717,604 11,588,984
Class C: $0.20 par value, authorized
7,500,000 shares, issued 6,177,475
shares in 2003 and 6,182,669
shares in 2002 1,235,494 1,236,533
----------- -------------
Total common stock 12,953,098 12,825,517
Additional paid-in capital 11,516,683 11,280,842
Accumulated other comprehensive income
(loss) and other items, net
of deferred taxes (793,415) 1,191,863
Retained earnings 13,439,370 11,992,542
Treasury stock at cost (1,153,216 Class A
shares and 71,749 Class C shares in
2003; 1,151,811
Class A shares and 71,749 Class C
shares in 2002, held by affiliated
companies) (2,777,353) (2,777,353)
----------- -------------
Total stockholders' equity 34,338,383 34,513,411
----------- -------------
Total liabilities and stockholders'
equity $312,757,290 $307,156,762
============ =============
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
2003 2002
---- ----
Cash flows from operating activities:
Net cash provided by (used in)
operating activities $(4,971,582) $4,914,284
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Cash flows from investing activities:
Securities held to maturity:
Purchase - fixed maturity securities (5,030,844) --
Calls and maturities - fixed
maturity securities 2,287,170 2,277,722
Securities available for sale:
Calls and maturities - fixed
maturity securities 360,000 300,000
Purchases of short-term investments (3,158,367) (1,840,730)
Sales of short-term investments 2,918,507 --
Purchases of restricted assets (98,963) (85,994)
Mortgage, policy, and other loans made (2,023,372) (256,554)
Payments received for mortgage,
real estate, policy, and other loans 3,581,015 1,836,530
Purchases of property, plant,
and equipment (253,304) (346,650)
Purchases of real estate (313,750) (384,876)
Sale of real estate 230,085 --
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Net cash provided by
(used in) investing activities (1,501,823) 1,499,448
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Cash flows from financing activities:
Annuity receipts 1,454,211 2,504,928
Annuity withdrawals (2,432,515) (2,914,325)
Repayment of bank loans and notes and
contracts payable (477,780) (101,120)
Proceeds from borrowings on bank loans
and notes and contracts payable -- 186,594
Other 25,200 --
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Net cash (used in) provided by
financing activities (1,430,884) (323,923)
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Net change in cash (7,904,289) 6,089,809
Cash at beginning of period 38,199,041 8,757,246
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Cash at end of period $30,294,752 $14,847,055
=========== ===========
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003, (Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with 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 accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2003, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2003. For further information, refer to the consolidated financial statements
and footnotes thereto for the year ended December 31, 2002, included in the
Company's Quarterly Report on Form 10-K (file number 0-9341).
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
The estimates susceptible to significant change are those used in determining
the liability for future policy benefits and claims, those used in determining
valuation allowances for mortgage loans on real estate, and those used in
determining the estimated future costs for pre-need sales. Although some
variability is inherent in these estimates, management believes the amounts
provided are adequate.
2. Comprehensive Income
For the three months ended March 31, 2003 and 2002, total comprehensive income
amounted to $1,682,392 and $1,307,811, respectively.
3. Stock-Based Compensation
The Company accounts for stock-based compensation under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. The Company has adopted SFAS No. 123,
"Accounting for Stock-Based Compensation". In accordance with the provisions of
SFAS 123, the Company has elected to continue to apply Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion
No. 25"), and related interpretations in accounting for its stock option plans.
In accordance with APB Opinion No. 25, no compensation cost has been recognized
for these plans. Had compensation cost for these plans been determined based
upon the fair value at the grant date consistent with the methodology prescribed
under SFAS No. 123, the Company's net earnings would have been reduced by the
following:
Three Months Ended March 31,
2003 2002
---- ----
Net earnings as reported $1,685,050 $1,379,861
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related
tax effects (133,000) --
----------- -----------
Pro forma net earnings $1,552,050 $1,379,861
=========== ===========
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
Net earnings per common share:
Basic - as reported $0.32 $0.30
===== =====
Basic - pro forma $0.29 $0.30
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Diluted - as reported $0.31 $0.30
===== =====
Diluted - pro forma $0.28 $0.30
===== =====
4. Earnings Per Share
--------------------
In accordance with SFAS 128, the basic and diluted earnings per share amounts
were calculated as follows:
Three Months Ended March 31,
2003 2002
---- ----
Numerator:
Net income $1,685,050 $1,379,861
========== ==========
Denominator:
Denominator for basic earnings per share-
weighted-average shares 5,284,966 4,673,385
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Effect of dilutive securities:
Employee stock options 208,961 1,312
Stock appreciation rights 4,724 --
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Dilutive potential common shares 213,685 1,312
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Denominator for diluted earnings per share-
adjusted weighted-average shares and
assumed conversions 5,498,651 4,674,697
========== ==========
Basic earnings per share $.32 $.30
==== ====
Diluted earnings per share $.31 $.30
==== ====
5. Business Segment
Life Cemetery/ Reconciling
Insurance Mortuary Mortgage Items Consolidated
--------- --------- -------- ------------ ------------
For the Three Months Ended
March 31, 2003
Revenues from
external customers $7,436,122 $2,840,813 $23,972,762 $ -- $34,249,697
Intersegment revenues 2,815,728 -- -- (2,815,728) --
Segment profit (loss) (112,461) (97,279) 2,583,022 -- 2,373,282
Identifiable assets 296,535,351 42,785,025 18,071,543 (44,634,629) 312,757,290
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
For the Three Months Ended
March 31, 2002
Life Cemetery/ Reconciling
Insurance Mortuary Mortgage Items Consolidated
--------- --------- -------- ------------ ------------
Revenues from
external customers $4,873,742 $3,688,908 $11,038,889 $ -- $19,601,539
Intersegment revenues 1,206,072 -- -- (1,206,072) --
Segment profit 335,851 970,842 540,490 -- 1,847,183
Identifiable assets 201,181,785 39,813,986 5,774,218 (32,523,293) 214,246,696
6. Recent Acquisition
On December 23, 2002, the Company completed an asset purchase transaction with
Acadian Life Insurance Company, a Louisiana domiciled life insurance company
("Acadian"), in which it acquired from Acadian $75,000,000 in assets and
$75,000,000 in insurance reserves through its wholly owned subsidiary, Security
National Life Insurance Company, a Utah domiciled life insurance company. The
acquired assets consist primarily of approximately 275,000 funeral insurance
policies in force in the state of Mississippi. The assets were originally
acquired by Acadian from Gulf National Life Insurance Company ("GNLIC") on June
6, 2001, consisting of all of GNLIC's insurance policies in force and in effect
on June 1, 2001.
Item 2. Management's Discussion and Analysis
Overview
The Company's operations over the last several years generally reflect three
trends or events which the Company expects to continue: (i) increased attention
to "niche" insurance products, such as the Company's funeral plan policies and
traditional whole-life products; (ii) emphasis on cemetery and mortuary
business; and (iii) capitalizing on lower interest rates by originating and
refinancing mortgage loans.
During the three months ended March 31, 2003, Security National Mortgage Company
("SNMC") experienced increases in revenue and expenses due to the increase in
loan volume of its operations. SNMC is a mortgage lender incorporated under the
laws of the State of Utah. SNMC is approved and regulated by the Federal Housing
Administration (FHA), a department of the U.S. Department of Housing and Urban
Development (HUD), to originate mortgage loans that qualify for government
insurance in the event of default by the borrower. SNMC obtains loans primarily
from independent brokers and correspondents. SNMC funds the loans from internal
cash flows and lines of credit from financial institutions. SNMC receives fees
from the borrowers and other secondary fees from third party investors who
purchase the loans from SNMC. SNMC sells all of its loans to third party
investors and does not retain servicing to these loans. SNMC pays the brokers
and correspondents a commission for loans that are brokered through SNMC. SNMC
originated and sold 4,126 ($599,517,000) and 2,194 ($311,000,000) loans
respectively for the three months ended March 31, 2003 and 2002.
On December 23, 2002, the Company completed an asset purchase transaction with
Acadian Life Insurance Company, a Louisiana domiciled life insurance company
("Acadian"), in which it acquired from Acadian $75,000,000 in assets and
$75,000,000 in insurance reserves through its wholly owned subsidiary, Security
National Life Insurance Company, a Utah domiciled life insurance company. The
acquired assets consist primarily of approximately 275,000 funeral insurance
policies in force in the state of Mississippi. The assets were originally
acquired by Acadian from Gulf National Life Insurance Company ("GNLIC") on June
6, 2001, consisting of all of GNLIC's insurance policies in force and in effect
on June 1, 2001.
Results of Operations
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Total revenues increased by $14,648,000, or 74.7%, to $34,250,000 for the three
months ended March 31, 2003, from $19,602,000 for the three months ended March
31, 2002. Contributing to this increase in total revenues was an $11,890,000
increase in mortgage fee income, a $2,541,000 increase in insurance premiums and
other considerations, and a $996,000 increase in net investment income.
Insurance premiums and other considerations increased by $2,541,000, or 76.5%,
to $5,864,000 for the three months ended March 31, 2003, from $3,323,000 for the
comparable period in 2002. This increase was primarily due to the additional
insurance premiums from the policies acquired in the asset purchase transaction
with Acadian Life.
Net investment income increased by $996,000, or 34.1%, to $3,920,000 for the
three months ended March 31, 2003, from $2,924,000 for the comparable period in
2002. This increase was primarily attributable to the additional investment
income from the assets acquired in the asset purchase transaction with Acadian
Life.
Net mortuary and cemetery sales decreased by $143,000, or 5.3%, to $2,585,000
for the three months ended March 31, 2003, from $2,728,000 for the comparable
period in 2002. This decrease was primarily due to fewer at-need mortuary sales.
Realized gains on investments and other assets decreased by $719,000 or 100.0%,
to $-0- for the three months ended March 31, 2003, from $719,000 for the
comparable period in 2002. This decrease was the result of gains on sale of real
estate in 2002.
Mortgage fee income increased by $11,890,000 or 120.5%, to $21,756,000 for the
three months ended March 31, 2003, from $9,866,000 for the comparable period in
2002. This increase was primarily attributable to a greater number of loan
originations during the three months of 2003 due to lower interest rates
resulting in more borrowers refinancing their mortgage loans.
Total benefits and expenses were $31,876,000, or 93.1%, of total revenues for
the three months ended March 31, 2003, as compared to $17,754,000, or 90.6%, of
total revenues for the comparable period in 2002.
Death benefits, surrenders and other policy benefits, and increase in future
policy benefits increased by an aggregate of $2,794,000, or 91.7%, to $5,840,000
for the three months ended March 31, 2003, from $3,046,000 for the comparable
period in 2002. This increase was primarily due to the additional death
benefits, surrenders and other policy benefits from the policies acquired in the
asset purchase transaction with Acadian Life.
Amortization of deferred policy acquisition costs and cost of insurance acquired
increased by $124,000, or 14.9%, to $959,000 for the three months ended March
31, 2003, from $835,000 for the comparable period in 2002. This increase was
primarily due to the additional amortization of deferred policy acquisition
costs and cost of insurance acquired from the additional policies acquired in
the asset purchase transaction with Acadian Life.
General and administrative expenses increased by $10,742,000 or 82.9%, to
$23,693,000 for the three months ended March 31, 2003, from $12,951,000 for the
comparable period in 2002. This increase primarily resulted from an increase in
commissions and other expenses due to additional mortgage loan originations
having been made by the Company's mortgage subsidiary during the three months of
2003.
Interest expense increased by $501,000, or 155.5% to $823,000 for the three
months ended March 31, 2003, from $322,000 for the comparable period in 2002.
This increase was primarily due to additional warehouse lines of credit required
for the additional mortgage loan originations by the Company's mortgage
subsidiary.
Cost of goods and services sold of the mortuaries and cemeteries decreased by
$39,000, or 6.6%, to $561,000 for the three months ended March 31, 2003, from
$600,000 for the comparable period in 2002. This decrease was primarily due to
fewer at-need mortuary sales.
Liquidity and Capital Resources
The Company's life insurance subsidiaries and cemetery and mortuary subsidiaries
realize cash flow from premiums, contract payments and sales on personal
services rendered for cemetery and mortuary business, from interest and
dividends on invested assets, and from the proceeds from the maturity of
held-to-maturity investments, or sale of other investments. The mortgage
subsidiary realizes cash flow from fees generated by originating and refinancing
mortgage loans and interest earned on mortgages sold to investors. The Company
considers these sources of cash flow to be adequate to fund future policyholder
and cemetery and mortuary liabilities, which generally are long-term, and
adequate to pay current policyholder claims, annuity payments, expenses on the
issuance of new policies, the maintenance of existing policies, debt service,
and operating expenses.
The Company attempts to match the duration of invested assets with its
policyholder and cemetery and mortuary liabilities. The Company may sell
investments other than those held-to-maturity in the portfolio to help in this
timing; however, to date, that has not been necessary. The Company purchases
short-term investments on a temporary basis to meet the expectations of
short-term requirements of the Company's products. The Company's investment
philosophy is intended to provide a rate of return which will persist during the
expected duration of policyholder and cemetery and mortuary liabilities
regardless of future interest rate movements.
The Company's investment policy is to invest predominantly in fixed maturity
securities, mortgage loans, and warehouse mortgage loans on a short-term basis
before selling the loans to investors in accordance with the requirements and
laws governing the life insurance subsidiaries. Bonds owned by the life
insurance subsidiaries amounted to $53,767,000 as of March 31, 2003, compared to
$51,530,000 as of December 31, 2002. This represents 53% and 51% of the total
insurance-related investments as of March 31, 2003, and December 31, 2002,
respectively. Generally, all bonds owned by the life insurance subsidiaries are
rated by the National Association of Insurance Commissioners. Under this rating
system, there are nine categories used for rating bonds. At March 31, 2003 and
December 31, 2002, 4% ($1,903,000) of the Company's total investment in bonds
were invested in bonds in rating categories three through nine, which are
considered non-investment grade.
The Company has classified certain of its fixed income securities, including
high-yield securities, in its portfolio as available for sale, with the
remainder classified as held to maturity. However, in accordance with Company
policy, any such securities purchased in the future will be classified as held
to maturity. Business conditions, however, may develop in the future which may
indicate a need for a higher level of liquidity in the investment portfolio. In
that event the Company believes it could sell short-term investment grade
securities before liquidating higher-yielding longer-term securities.
The Company is subject to risk based capital guidelines established by statutory
regulators requiring minimum capital levels based on the perceived risk of
assets, liabilities, disintermediation, and business risk. At March 31, 2003,
and December 31, 2002, the life insurance subsidiary exceeded the regulatory
criteria.
The Company's total capitalization of stockholders' equity and bank debt and
notes payable was $55,116,000 as of March 31, 2003, as compared to $53,787,000
as of December 31, 2002. Stockholders' equity as a percent of capitalization
increased to 66% as of March 31, 2003, from 64% as of December 31, 2002.
Lapse rates measure the amount of insurance terminated during a particular
period. The Company's lapse rate for life insurance in 2002 was 10.7% as
compared to a rate of 13.2% for 2001. The 2003 lapse rate is approximately the
same as 2002.
At March 31, 2003, $21,829,000 of the Company's consolidated stockholders'
equity represents the statutory stockholders' equity of the Company's life
insurance subsidiaries. The life insurance subsidiaries cannot pay a dividend to
its parent company without the approval of insurance regulatory authorities.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
There have been no significant changes since the quarterly report Form 10-K
filed for the year ended December 31, 2002.
Item 4. Controls and Procedures
The Company's Chief Executive Officer and its Chief Financial Officer (the
"Certifying Officers"), are responsible for establishing and maintaining
disclosure controls and procedures for the Company. The Certifying Officers have
concluded (based on their evaluation of these controls and procedures as of a
date within 90 days of the filing of this report) that the design and operation
of the Company's disclosure controls and procedures (as defined in Rule
13a-14(c) under the Securities Exchange Act of 1934) are effective. No
significant changes were made in the Company's internal controls or in other
factors that could significantly affect those controls subsequent to the date of
the evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Part II Other Information:
Item 1. Legal Proceedings
An action was brought against Southern Security Life Insurance Company in July
1999 by Dorothy Ruth Campbell in the Circuit Court of Escambia County, Alabama.
The action arose out of a denial of coverage under a $10,000 insurance policy.
The claims were for breach of contract, bad faith and fraudulent
misrepresentation. In the action, Campbell sought compensatory and punitive
damages plus interest. The case was dismissed by order of summary judgment on
January 21, 2003. The appeal time, if appeal is taken, is 42 days.
An action was brought against the Company in May 2001, by Glenna Brown Thomas
individually and as personal representative of the Estate of Lynn W. Brown in
the Third Judicial Court, Salt Lake County, Utah. The action asserts that
Memorial Estates delivered to Lynn W. Brown six stock certificates representing
2,000 shares in 1970 and 1971. Mr. Brown died in 1972. It is asserted that at
the time the 2,000 shares were issued and outstanding, such represented a 2%
ownership of Memorial Estates. It is alleged Mr. Brown was entitled to
preemptive rights and that after the issuance of the stock to Mr. Brown there
were further issuances of stock without providing written notice to Mr. Brown or
his estate with respect to an opportunity to purchase more
stock. It is asserted among other things that the plaintiff "has the right to a
transfer of Brown's shares to Thomas on defendants' (which includes Security
National Financial Corporation as well as Memorial Estates, Inc.) books and to
restoration of Brown's proportion of share ownership in Memorial at the time of
his death by issuance and delivery to Thomas of sufficient shares of defendant's
publicly traded and unrestricted stock in exchange for the 2,000 shares of
Memorial stock and payment of all dividends from the date of Thomas's demand, as
required by Article XV of the Articles of Incorporation." Based on present
information, the Company intends to vigorously defend the matter, including an
assertion that the statute of limitations bars the claims.
An action was brought against Southern Security Life Insurance Company by
National Group Underwriters, Inc. ("NGU") in state court in the State of Texas.
The case was removed by the Company to the United States District Court for the
Northern District of Texas, Fort Worth Division, with Civil No. 4:01-CV-403-E.
An Amended Complaint was filed on or about July 18, 2001. The Amended Complaint
asserts that NGU had a contract with the Company wherein NGU would submit
applications for certain policies of insurance to be issued by the Company. It
is alleged that disputes have arisen between NGU and the Company with regard to
the calculation and payment of certain advanced commissions as well as certain
production bonuses.
NGU alleged that it has been damaged far in excess of the $75,000 minimum
jurisdictional limits of this Court. NGU also seeks attorney's fees and costs as
well as prejudgment and postjudgment interest. A second amended complaint and a
third amended complaint which included a fraud claim were filed. A motion was
filed by the Company to dismiss the third amended complaint, including the fraud
claim. The court denied the motion. The Company has counterclaimed for what it
claims to be a debit balance owing to it pursuant to the relationship between
the parties with said counterclaim seeking a substantial amount from NGU (the
amount subject to reduction as premiums are received). The Company is also
seeking to recover attorney's fees and costs, as well as punitive damages on
three of its causes of action. The change of venue motion of the Company was
denied. Certain discovery has taken place. The federal case was dismissed per
stipulation. The matter was refiled in Texas state court, Tarrant County, Case
No. 348 195490 02. The claims of the respective parties are essentially the same
as set forth above which claims include fraudulent inducement relative to
entering into a contract, fraud, breach of contract, breach of duty of good
faith and fair dealing, attorneys' fees and exemplary damages. Further discovery
involving the parties is anticipated. The Company intends to vigorously defend
the matter as well as prosecute its counterclaim.
An action was brought by Bernice Johnson against Southern Security Life
Insurance Company in May, 2002 in the Circuit Court of Jefferson County,
Alabama, Civil Action No. CV02 2963. The face amount of coverage under the
policy is $15,000. The insured died in July 2001. Claims are made for
non-payment of the policy amount. The claims for relief include
misrepresentation, mental anguish and emotional distress, fraud, intentional and
bad faith non payment of the benefit, intentional and bad faith failure to
investigate the claim for benefits, reckless and negligent and wanton action
relative to misrepresentation and/or concealment of facts, negligence and the
wanton hiring, training and supervision of agent. Compensatory and punitive
damages are sought along with interest and costs. An answer has been filed by
the Company and discovery is in process. A trial has been set in June, 2003.
The Company is not a party to any other legal proceedings outside the ordinary
course of the Company's business or to any other legal proceedings which, if
adversely determined, would have a material adverse effect on the Company or its
business.
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a)(3) Exhibits:
3.A. Articles of Restatement of Articles of Incorporation (8)
B. Bylaws (1)
4.A. Specimen Class A Stock Certificate (1)
B. Specimen Class C Stock Certificate (1)
C. Specimen Preferred Stock Certificate and Certificate of Designation of
Preferred Stock (1)
10.A. Restated and Amended Employee Stock Ownership Plan and
Trust Agreement (1)
B. Deferred Compensation Agreement with George R. Quist (2)
C. 1993 Stock Option Plan (3)
D. 2000 Director Stock Option Plan (5)
E. Deferred Compensation Agreement with William C. Sargent (4)
F. Employment Agreement with Scott M. Quist. (4)
G. Promissory Note with George R. Quist (6)
H. Deferred Compensation Plan (7)
I. Coinsurance Agreement between Security National Life and Acadian (8)
J. Assumption Agreement among Acadian, Acadian Financial Group, Inc.,
Security National Life and the Company (8)
K. Asset Purchase Agreement between Acadian, Acadian Financial Group,
Inc., Security National Life and the Company (8)
L. Promissory Note with Key Bank of Utah (9)
M. Loan and Security Agreement with Key Bank of Utah (9)
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
(1) Incorporated by reference from Registration Statement on Form
S-1, as filed on June 29, 1987.
(2) Incorporated by reference from Quarterly Report on Form 10-K, as
filed on March 31, 1989.
(3) Incorporated by reference from Quarterly Report on Form 10-K, as
filed on March 31, 1994.
(4) Incorporated by reference from Quarterly Report on Form 10-K, as
filed on March 31, 1998.
(5) Incorporated by reference from Schedule 14A Definitive Proxy
Statement, filed August 29, 2000, relating to the Company's
Quarterly Meeting of Shareholders.
(6) Incorporated by reference from Report on Form 10-K, as filed on
April 16, 2001.
(7) Incorporated by reference from Report on Form 10-K, as filed on
April 3, 2002.
(8) Incorporated by reference from Report on Form 8-K-A as filed on
January 8, 2003.
(9) Incorporated by reference from Report on Form 10-K, as filed on
April 15, 2003.
Subsidiaries of the Registrant
(b) Reports on Form 8-K:
Report on Form 8-K, as filed on January 7, 2003 Report on Form 8-K/A,
as filed on January 8, 2003 Report on Form 8-K /A-2, as filed on March
10, 2003
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.
REGISTRANT
SECURITY NATIONAL FINANCIAL CORPORATION
Registrant
DATED: May 20, 2003 By: George R. Quist,
----------------
Chairman of the Board and Chief
Executive Officer (Principal
Executive Officer)
DATED: May 20, 2003 By: Stephen M. Sill
---------------
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
CERTIFICATIONS
I, George R. Quist, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Security National
Financial Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 20, 2003
By: George R. Quist
Chairman of the Board and
Chief Executive Officer
CERTIFICATIONS
I, Stephen M. Sill, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Security National
Financial Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 20, 2003
By: Stephen M. Sill
Vice President, Treasurer and
Chief Financial Officer
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Security National Financial
Corporation (the "Company") on Form 10K for the period ending December 31, 2002,
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, George R. Quist, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
George R. Quist
Chief Executive Officer
May 20, 2003
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Security National Financial
Corporation (the "Company") on Form 10K for the period ending December 31, 2002,
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Stephen M. Sill, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
Stephen M. Sill
Chief Financial Officer
May 20, 2003