UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1995 Commission File Number: 000-9341
------------------------------- ---------------------------------
SECURITY NATIONAL FINANCIAL CORPORATION
Exact Name of Registrant.
UTAH 87-0345941
-------------------------------- -------------------
(State or other jurisdiction IRS Identification
of incorporation or organization) Number
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
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Sections 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for 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
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, net of treasury stock, as of
the close of the period covered by this report.
Class A Common Stock, $2.00 par value 3,026,391
-------------------------------------- -----------------
Title of Class Number of Shares
Outstanding as of
of June 30, 1995
Class C Common Stock, $.40 par value 2,250,764
------------------------------------- ----------------
Title of Class Number of Shares
Outstanding as of
June 30, 1995
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10Q
QUARTER ENDED JUNE 30, 1995
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Consolidated Statements of Earnings -
Six months ended June 30, 1995 and
1994 and three months ended June 30,
1995 and 1994. . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets - June 30,
1995 and December 31, 1994 . . . . . . . . . . . . 4-5
Consolidated Statements of Cash Flows -
Six months ended June 30, 1995 and
June 30, 1994. . . . . . . . . . . . . . . . . . . 6-7
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . 8
Item 2 Management's Discussion and Analysis
of Summary of Earnings and
Financial Condition. . . . . . . . . . . . . . . .9-18
PART II - OTHER INFORMATION
Other Information. . . . . . . . . . . . . . . . . .19
Signature Page . . . . . . . . . . . . . . . . . . .20
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Six Months Ended Three Months Ended
June 30, June 30,
1995 1994 1995 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ---------- ---------- ----------
REVENUES:
Insurance premiums
and other
considerations $ 2,953,272 $ 2,523,916 $ 1,459,922 $ 1,187,836
Net investment income 3,215,504 1,885,879 1,535,925 937,739
Realized gains on
investments and
other assets 544 93,446 (970) 30,320
Mortuary and
cemetery sales 3,859,447 2,967,437 2,310,127 1,573,508
Mortgage fee income 1,194,823 786,998 878,394 128,193
Other 38,355 101,853 (68,322) 80,845
----------- ---------- ---------- ----------
Total Revenues 11,261,945 8,359,529 6,115,076 3,938,441
BENEFITS AND EXPENSES:
Death benefits 1,034,684 877,326 521,513 377,617
Surrenders and
other policy benefits 1,240,360 435,818 519,148 201,676
Increase in future
policy benefits 695,941 931,746 373,509 593,195
Amortization of
deferred policy
acquisition costs 501,126 457,656 271,243 179,567
General and administrative
expenses:
Commissions 1,349,070 651,121 866,857 330,594
Salaries 1,591,656 1,500,484 849,996 698,498
Other 2,143,731 2,064,545 1,043,657 832,491
Interest expense 505,972 347,853 286,205 185,186
Cost of mortuary and
cemetery lots and
services 1,130,901 851,031 669,756 464,304
----------- ---------- ---------- ---------
Total benefits and
expenses 10,193,441 8,117,580 5,401,884 3,863,228
----------- ---------- ---------- ----------
Earnings before
income taxes 1,068,504 241,949 713,192 75,214
Income tax (expense)
benefit (273,900) (70,165) (181,935) (21,182)
----------- ----------- ----------- ----------
Net earnings $ 794,604 $ 171,784 $ 531,257 $ 54,031
=========== =========== =========== ==========
Net earnings per share $0.24 $0.05 $0.16 $0.02
===== ===== ===== =====
Weighted average outstanding
common shares 3,322,310 3,270,899 3,322,310 3,270,899
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1995 December 31,
(Unaudited) 1994
------------- ------------
Assets:
Investments:
Fixed maturity securities held
to maturity, at amortized cost $38,714,696 $39,397,628
Equity securities available for sale,
at market 4,479,654 4,149,713
Mortgage loans on real estate 20,134,945 14,681,293
Real estate, net of accumulated
depreciation 7,764,524 7,586,650
Policy loans 2,571,713 2,670,989
Other loans 598,221 677,334
Short-term investments 1,420,072 4,013,296
----------- -----------
Total insurance related investments 75,683,825 73,176,903
Restricted assets of cemeteries
and mortuaries 2,805,907 2,482,068
Cash 1,087,780 2,060,876
Receivables:
Trade contracts 5,096,182 4,938,098
Receivable from agents 469,952 463,040
Other 269,658 336,801
----------- ----------
Total receivables 5,835,792 5,737,939
Allowance for doubtful accounts (2,069,683) (1,923,808)
----------- ----------
Net receivables 3,766,109 3,814,131
Land and improvements held for sale 8,119,441 6,920,208
Accrued investment income 975,577 996,845
Deferred policy acquisition
costs 4,695,030 4,860,865
Property, plant and equipment, net 6,547,830 4,899,873
Cost of insurance acquired 3,462,013 3,488,383
Excess of cost over net assets
of acquired subsidiaries 1,488,791 718,391
Other 381,610 339,714
------------ ------------
Total Assets $109,013,913 $103,758,257
============ ============
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
June 30, 1995 December 31,
(Unaudited) 1994
-------------- ------------
Liabilities:
Future life, annuity, and other
benefits $ 63,098,163 $ 61,895,251
Bank loans payable 8,006,615 7,440,576
Notes and contracts payable 4,471,758 2,768,546
Estimated future costs of pre-need sales 6,453,309 6,284,421
Payable to endowment care fund 313,397 319,336
Accounts payable and accrued expenses 2,094,272 1,760,399
Other liabilities 1,328,359 1,438,889
Income taxes 1,871,294 1,872,294
------------ ------------
Total Liabilities 87,637,167 83,779,712
Stockholders' Equity:
Common stock:
Class A: $2 par value, authorized
10,000,000 shares, issued 3,558,406
shares in 1995 and 3,558,406 shares
in 1994 7,116,814 7,116,814
Class C: $0.40 par value, authorized
7,500,000 shares, issued 2,275,045
shares in 1995 and 2,275,045 shares
in 1994 910,018 910,018
Additional paid-in capital 7,214,061 7,214,061
Unrealized appreciation of
investments 551,520 221,790
Retained earnings 7,223,165 6,154,694
------------ ------------
23,015,578 21,617,377
Treasury stock at cost (532,015 Class
A shares and 24,281 Class C shares
in 1995; 532,015 Class A shares and
24,281 Class C shares in 1994, held
by affiliated companies) (1,638,832) (1,638,832)
------------ ------------
Net Stockholders' Equity 21,376,746 19,978,545
------------ ------------
Total Liabilities and Stockholders'
Equity $109,013,913 $103,758,257
============ ============
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
1995 1994
(Unaudited) (Unaudited)
----------- -----------
Cash flows from operating activities:
Net earnings $ 794,604 $ 171,784
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Net realized gain on sale
of investments (544) (86,187)
Depreciation 356,098 298,327
Provision for losses on accounts
and loans receivable 145,875 180,154
Amortization of goodwill, premiums,
and discounts (868,795) 2,162
Amortization of cost of insurance
acquired 26,370 --
Deferred taxes 273,900 70,165
Policy acquisition costs deferred (335,291) 468,143
Policy acquisition costs amortized 501,126 (457,656)
Change in assets and liabilities net of effects
from purchase of subsidiary:
Land and improvements held for sale (1,199,233) (12,684)
Future life and other benefits 692,461 744,648
Other operating assets and liabilities 608,655 40,108
---------- ----------
Net cash provided by operating activities 995,226 1,419,000
Cash flows from investing activities:
Securities held to maturity:
Purchases - fixed maturity securities -- (6,374,816)
Calls and maturities - fixed
maturity securities 778,053 1,229,124
Securities available for sale:
Sales - equity securities 66,250 221,854
Purchases - equity securities (66,250) (209,275)
Net purchases and sales of short-term
investments and restricted assets of
cemeteries and mortuaries 2,269,386 2,396,554
Mortgage and other loans made (15,080,828) (13,097,591)
Payments received for mortgage and
other loans 9,726,801 12,512,751
Change in policy loans 99,276 45,919
Purchases of property, plant,
and equipment (1,866,999) (285,736)
Purchases of real estate (331,624) (1,131,565)
Purchase of subsidiary net
of cash acquired (342,089) --
------------ ------------
Net cash used in investing activities (4,748,024) (4,692,781)
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Six Months Ended June 30,
1995 1994
(Unaudited) (Unaudited)
----------- -----------
Cash flows from financing activities:
Net increase in annuity contracts 510,451 490,317
Repayment of notes and contracts
payable (676,502) (666,357)
Proceeds from borrowings on notes
and contracts payable 2,945,753 970,658
----------- -----------
Net cash provided by financing
activities 2,779,702 794,618
----------- -----------
Net decrease in cash (973,096) (2,479,163)
Cash at beginning of period 2,060,876 6,831,051
----------- -----------
Cash at end of period $1,087,780 $4,351,888
=========== ===========
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1995 and 1994
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles 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 generally accepted
accounting principles 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 and six months ended June 30, 1995, are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1995. For further information, refer to
the consolidated financial statements and footnotes thereto
for the year ended December 31, 1994, included in the
Company's Annual Report on Form 10-K (file number 0-9341).
2. Acquisition of San Diego Property
On February 3, 1995, the Company purchased approximately 100
acres of real property located in San Diego, California, of
which approximately 35 acres will be used for the development
of a cemetery. In purchasing the property the Company
incurred a debt of $1,062,000. This debt carries an interest
rate of 9% per annum and will be paid in twelve monthly
installments of $5,000. Thereafter, equal monthly payments of
$10,000 will be made, however interest shall not accrue on any
part of the principal balance until February 3, 1996.
3. Acquisition of Greer-Wilson Funeral Home
On March 8, 1995, the Company was issued 97,800 shares of
common stock of Greer-Wilson Funeral Home, Inc. ("Greer-
Wilson"), representing 97.8% of the total issued and out-
standing shares of common stock of Greer-Wilson after the
issuance of such shares. In consideration for the purchase of
such shares, the Company agreed to contribute $430,000 to
Greer-Wilson for the payment of its accounts payable, or to
assume payment of the accounts payable, and to pay or
refinance Greer-Wilson's existing mortgage loan indebtedness;
and to pay the former President, Mr. Greer, and his wife
$6,000 per month over a ten year period for providing
consulting services. The Company also loaned the former
President and his wife the sum of $200,000 to be paid on March
8, 2005, together with interest thereon at the rate of seven
percent (7%) per annum. This obligation is collateralized by
a pledge of the remaining 2,200 shares of Greer-Wilson's
common stock that is currently owned by Mr. Greer. The
acquisition was accounted for using the purchase method.
Assets, liabilities, and operations of Greer-Wilson are
included in the consolidated financial statements of the
Company beginning April 1, 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Results of Operations
Overview
The Company's operations over the last three 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, (ii)
decreased general and administrative costs as a percentage of
revenue through efforts to reduce operating costs and through
eliminating unnecessary duplication of costs at acquired
companies; and (iii) emphasis on high margin cemetery and
mortuary business.
The Company maintains a diversified investment portfolio
consisting of common stock, preferred stock, municipal bonds,
investment grade and non-investment grade bonds, mortgage
loans, short term and other securities and investments. The
Company's investment goals are to maintain safety and
liquidity, enhance principal values and achieve increased
rates of return consistent with regulatory restraints. The
Company's interest sensitive type products, primarily
annuities and interest sensitive whole life, compete with
other financial products such as bank certificates of deposit,
brokerage sponsored money market funds as well as competing
life insurance company products.
Three Months Ended June 30, 1995 as Compared to Three Months Ended June 30, 1994
The following schedule summarizes the effect the acquisition of Capital
Investors Life Insurance Company and Greer-Wilson Funeral Home had on the
consolidated statements for the three months ended June 30, 1995.
Consolidated
Without the
Effects of
Capital
Capital Investors
Investors Life and
Consolidated Life Greer-Wilson Greer-Wilson Consolidated
1995 1995 1995 1995 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ---------- ---------- -----------
REVENUES:
Insurance premiums
and other
considerations $ 1,459,922 $ 239,616 $ -- $ 1,220,306 $ 1,187,836
Net investment
income 1,535,925 480,821 -- 1,055,104 937,739
Realized gains on
investments and
other assets (970) -- -- (970) 30,320
Mortuary and
cemetery sales 2,310,127 -- 521,902 1,788,225 1,573,508
Mortgage fee income 878,394 -- -- 878,394 128,193
Other (68,322) (81,261) 2,370 10,569 80,845
---------- ------- -------- ----------- ----------
Total Revenues 6,115,076 639,176 524,272 4,951,628 3,938,441
BENEFITS AND EXPENSES:
Death benefits 521,513 125,274 -- 396,239 377,617
Surrenders and other
policy benefits 519,148 322,206 -- 196,942 201,676
Increase in future
policy benefits 373,509 (200,624) -- 574,133 593,195
Amortization of
deferred policy
acquisition costs 271,243 71,686 -- 199,557 179,567
General and
administrative
expenses:
Commissions 866,857 (8,186) 1,398 873,645 330,594
Salaries 849,996 -- 88,347 761,649 698,498
Other 1,043,657 43,689 107,680 892,288 832,491
Interest expense 286,205 -- 45,441 240,764 185,186
Cost of mortuary and
cemetery lots and
services 669,756 -- 132,528 537,228 464,403
---------- ------- --------- --------- ----------
Total benefits
and expenses 5,401,884 354,045 375,394 4,672,445 3,863,227
---------- -------- --------- ---------- ----------
Earnings before
income taxes $ 713,192 $ 285,131 $ 148,878 $ 279,183 $ 75,214
========== ========= ========= ========== ==========
The following management's discussion and analysis for the three months ended
June 30, 1995 and June 30, 1994, excludes the acquisition of Capital Investors
Life Insurance Company and Greer-Wilson Funeral Home.
Three Months Ended June 30, 1995 as Compared to Three Months
Ended June 30, 1994
Total revenues increased by $1,013,000 (25.7%), from
$3,938,000 for the three months ended June 30, 1994 to
$4,951,000 for the three months ended June 30, 1995.
Contributing to this increase in total revenue was a $117,000
increase in net investment income, a $215,000 increase in
mortuary and cemetery sales, and a $750,000 increase in
mortgage fee income.
Net investment income increased by $117,000, from $938,000 for
the second quarter of 1994 to $1,055,000 for the second
quarter of 1995. This increase was attributable to the
Company's emphasis on investing its cash and short-term
investments in higher-yielding long-term investments. Also,
the life insurance companies and the cemeteries and mortuaries
have participated in warehousing many of the mortgage loans
generated by the Company's mortgage company, Security National
Mortgage Company.
Realized gains on investment and other assets decreased by
$31,000, from a $30,000 gain for the second quarter of 1994 as
compared to a $1,000 loss for the second quarter of 1995.
This decrease was a result of fewer bond redemptions during
the second quarter of 1995. Bond redemptions occurred during
the second quarter of 1994, due to lower interest rates and
improved performance of the stock market.
Mortuary and cemetery sales increased $215,000, from
$1,574,000 for the second quarter 1994 to $1,789,000 for the
second quarter of 1995. This increase was primarily the
result of a $52,000 increase in the mortuary division and a
$178,000 increase in the pre-need sales of the cemeteries.
Mortgage fee income increased $750,000, from $128,000 for the
second quarter of 1994 to $878,000 for the second quarter of
1995. This increase was the result of lower interest rates
during the second quarter of 1995, thereby increasing the
opportunity for refinancing and loan origination.
Total benefits and expenses were $3,863,000 for the second
quarter of 1994, which was 98% of the total revenues of the
Company as compared to $4,672,000 or 94% of the total revenues
for the second quarter of 1995.
Death benefits, surrenders and other policy benefits and
increase in future policy benefits decreased in the aggregate
by $5,000, from $1,172,000 for the second quarter of 1994 to
$1,167,000 for the second quarter of 1995. These benefits are
in line with the actuarial assumptions and industry standards.
Amortization of deferred policy acquisition costs increased by
$20,000, from $180,000 for the second quarter of 1994 to
$200,000 for the second quarter of 1995. This increase was
primarily due to the maturing of the policies inforce.
General and administrative expenses increased by $666,000,
from $1,862,000 for the second quarter of 1994 to $2,528,000
for the second quarter of 1995. This increase was primarily
due to an increase in commission expenses and other expenses.
Commission expenses increased $543,000, from $331,000 for the
second quarter of 1994 to $874,000 for the second quarter of
1995. This increase was due to increased business activity by
Security National Mortgage Company.
Other expenses increased $60,000, from $832,000 for the second
quarter of 1994 to $892,000 for the second quarter of 1995.
This increase was the result of increased operating expenses
at Security National Mortgage and increased allowance for
accounts receivable in the cemeteries and mortuaries. This
increase was partially off-set by the decrease in amortization
of the expenses associated with an acquisition in 1989 of a
large funeral planning sales agency. The acquisition expenses
were capitalized and amortized over a five-year period ending
December 31, 1994.
Interest expenses increased $56,000, from $185,000 for the
second quarter of 1994 to $241,000 for the second quarter of
1995. This increase was primarily due to the interest on the
debt acquired for the acquisitions of Capital Investors Life
Insurance Company and Greer-Wilson Funeral Home, which were
completed on December 21, 1994 and April 1, 1995,
respectively.
Cost of mortuary and cemetery lots and services increased by
$73,000, from $464,000 for the second quarter of 1994, to
$537,000 for the second quarter of 1995. This increase in
cost was consistent with the recent increase in sales of the
mortuaries and cemeteries.
Six Months Ended June 30, 1995 Compared to Six Months Ended June 30, 1994
The following schedule summarizes the effect the acquisition of Capital
Investors Life Insurance Company and Greer-Wilson Funeral Home had on the
consolidated statements for the six months ended June 30, 1995.
Consolidated
Without the
Effects of
Capital
Capital Investors
Investors Life and
Consolidated Life Greer-Wilson Greer-Wilson Consolidated
1995 1995 1995 1995 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ------------ ------------ ------------
REVENUES:
Insurance premiums
and other
considerations $ 2,953,272 $ 472,127 $ -- $ 2,481,145 $ 2,523,916
Net investment
income 3,215,504 957,822 -- 2,257,682 1,885,879
Realized gains
on investments
and other assets 544 -- -- 544 93,446
Mortuary and cemetery
sales 3,859,447 -- 521,902 3,337,545 2,967,437
Mortgage fee
income 1,194,823 -- -- 1,194,823 786,998
Other 38,355 10,273 2,370 25,712 101,853
----------- ---------- -------- ---------- -----------
Total Revenues 11,261,945 1,440,222 524,272 9,297,451 8,359,529
BENEFITS AND EXPENSES:
Death benefits 1,034,684 200,289 -- 834,395 877,326
Surrenders and
other policy
benefits 1,240,360 859,125 -- 381,235 435,818
Increase in future
policy benefits 695,941 (386,994) -- 1,082,935 931,746
Amortization of
deferred policy
acquisition costs 501,126 128,372 -- 372,754 325,417
General and
administrative
expenses:
Commissions 1,349,070 24,061 1,398 1,323,611 651,121
Salaries 1,591,656 -- 88,347 1,503,309 1,500,484
Other 2,143,731 260,054 107,680 1,775,997 2,196,684
Interest expense 505,972 -- 45,441 460,531 347,853
Cost of mortuary
and cemetery
lots and
services 1,130,901 -- 132,528 998,373 851,131
------------ ---------- -------- ---------- ----------
Total benefits
and
expenses 10,193,441 1,084,907 375,394 8,733,140 8,117,580
------------ ---------- -------- ---------- ----------
Earnings before
income taxes $ 1,068,504 $ 355,315 $148,878 $ 564,311 $ 241,949
============ ========== ======== ========== ==========
The following management's discussion and analysis for the six months ended
June 30, 1995 and June 30, 1994, excludes the acquisition of Capital Investors
Life Insurance Company and Greer-Wilson Funeral Home.
Six Months Ended June 30, 1995 as Compared to Six Months Ended June 30, 1994
Total revenues increased by $938,000 (11.2%), from $8,360,000
for the six months ended June 30, 1994 to $9,298,000 for the
six months ended June 30, 1995. Contributing to this increase
in total revenues was a $372,000 increase in net investment
income, a $370,000 increase in mortuary and cemetery sales,
and a $408,000 increase in mortgage fee income.
Net investment income increased by $372,000, from $1,886,000
for the six months ended June 30, 1994 to $2,258,000 for the
six months ended June 30, 1995. This increase was attributed
to the Company's emphasis in fiscal 1995 on investing its cash
and short-term investments in higher-yielding long-term
investments. Also, the life insurance companies and the
cemeteries and mortuaries participated in warehousing many of
the mortgage loans generated by Security National Mortgage
Company.
Realized gains on investments and other assets decreased by
$93,000, from $93,500 for the six months ended June 30, 1994,
to $500 for the six months ended June 30, 1995. This decrease
was a result of fewer bond redemptions during the first six
months of 1995. Bond redemptions occurred during the first
six months of 1994, due to lower interest rates and improved
performance of the stock market.
Mortuary and cemetery sales increased by $370,000, from
$2,967,000 for the six months ended June 30, 1994, to
$3,337,000 for the six months ended June 30, 1995. The
mortuary sales increased by $159,000 whereas the cemetery pre-
need sales increased by $281,000.
Mortgage fee income increased $408,000, from $787,000 for the
six months ended June 30, 1994 to $1,195,000 for the six
months ended June 30, 1995. This increase was a result of
lower interest rates for the second quarter of 1995, thereby
increasing the opportunity for refinancing and loan
originations.
Total benefits and expenses were $8,118,000 for the six months
ended June 30, 1994, which is 97% of the total revenues of the
Company, as compared to $8,773,000, or 94% of the total
revenues for the six months ended June 30, 1995.
Death benefits, surrenders and other policy benefits and
increase in future policy benefits decreased by $54,000, from
$2,245,000 for the six months ended June 30, 1994, to
$2,299,000 for the six months ended June 30, 1995. These
benefits are in line with the actuarial assumption and
industry standards.
Amortization of deferred policy acquisition costs increased by
$47,000, from $325,000 for the six months ended June 30, 1994,
to $373,000 for the six months ended June 30, 1995. This
increase was primarily due to the maturing of the policies in
force.
General and administrative expenses increased by $255,000,
from $4,348,000 for the six months ended June 30, 1994 to
$4,603,000 for the six months ended June 30, 1995. This
increase was primarily due to an increase in commission
expenses off-set by a smaller decrease in other expenses.
Commission expenses increased $673,000, from $651,000 for the
six months ended June 30, 1994 to $1,324,000 for the six
months ended June 30, 1995. This increase was due to
increased business activity by Security National Mortgage
Company.
Other expenses decreased $421,000, which was primarily due to
the Company's acquisition in 1989 of a large funeral planning
sales agency. The acquisition expenses were capitalized and
amortized over a five year period ending December 31, 1994.
Interest expense increased by $113,000, from $348,000 for the
six months ended June 30, 1994, to $461,000 for the six months
ended June 30, 1995. This increase was primarily due to the
interest on the debt acquired for the acquisitions of Capital
Investors Life Insurance Company and Greer Wilson Funeral
Home, which were completed on December 21, 1994 and April 1,
1995, respectively.
Cost of mortuary and cemetery lots and services have increased
by $147,000, from $851,000 for the six months ended June 30,
1994, to $998,000 for the six months ended June 30, 1995.
This increase in cost was consistent with the recent increase
in sales of the mortuaries and cemeteries.
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 investment, or sale of other investments.
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 and the maintenance of existing
policies.
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 predominately in
fixed maturity securities in accordance with the requirements
and laws governing the life insurance subsidiary. Bonds owned
by the insurance subsidiary amounted to $38,714,696, at
amortized cost as of June 30, 1995. Generally all bonds owned
by life insurance companies are rated by the National
Association of Insurance Commissioners (NAIC). Under this
rating system, there are six categories used for rating bonds.
At June 30, 1995, 2.3% ($1,738,000) and at June 30, 1994, 1.5%
($739,000) of the Company's total invested assets were
invested in bonds in rating categories three through six which
are considered non-investment grade.
The Company's interest sensitive type products, primarily
annuities and interest sensitive whole life, compete with
other financial products such as bank certificates of deposit,
brokerage sponsored money market funds as well as competing
life insurance company products. Based on preliminary
information, the Company plans to hold its fixed income
securities, including high-yield securities, in its portfolio
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 cash equivalents in investment
grade securities before liquidating high-yield securities.
Lapse rates measure the amount of insurance terminated during
a particular period. The Company's lapse rate for life
insurance in 1994 was 8%, as compared to a rate of 9% in 1993.
The Company's primary needs for liquidity are for debt
service, maintenance of statutory capital and surplus for its
life insurance subsidiaries and administrative expenses and
cost of cemetery and mortuary services to be rendered.
On February 12, 1993, Security National Life Insurance Company
entered into a purchase and sale agreement for the Pinehill
Business Park located in Murray, Utah. The purchase price was
$2,150,000 with debt financing of $1,500,000 through a local
bank. As of June 30, 1995, about 95% of the available space
was occupied.
On July 31, 1993, the Company contributed assets of
approximately $268,000 to its new wholly-owned subsidiary,
Security National Mortgage Company. Security National
Mortgage Company operates in two principal markets:
refinancing of mortgage loans and origination of mortgage
loans. These loans are sold on the secondary market to
investors with servicing obligations released. Security
National Life Insurance Company intends to act as a warehouse
lender for the mortgage loans. By becoming a warehouse
lender, Security National Life Insurance Company can obtain a
long term interest rate on its assets without committing the
funds for a long period of time.
On January 10, 1994, the Company acquired Sunset Funeral Home,
Inc. ("Sunset"), which owns and operates a mortuary in
Phoenix, Arizona, known as Camelback Sunset Funeral Home. As
consideration for the purchase, the Company paid $140,000 in
cash, issued 25,000 shares of Class A Common Stock, assumed an
existing debt of $588,000, and entered into an agreement to
pay the seller the sum of $3,500 in monthly installments
during his lifetime up to a maximum of $560,000. In the event
of the death of the seller prior to the payment of $560,000,
the remaining unpaid balance of such amount would be paid to
his daughter.
On December 21, 1994, the Company purchased all of the
outstanding shares of common stock of Capital Investors Life
Insurance Company ("Capital Investors Life") from Suncoast
Financial Corporation ("Suncoast Financial"). As
consideration for the purchase of the shares, the Company paid
$5,231,000 in cash, issued 40,000 shares of its Class A Common
Stock, and entered into a profit sharing agreement providing
for 33-1/3% of the profits from new post-closing sales of
existing Capital Investors Life plans of insurance to be paid
as earned. An aggregate of $2,700,000 of the cash
consideration was borrowed by the Company from Key Bank,
Crossroads Office, Salt Lake City, Utah, and is payable by the
Company in accordance with the terms of a Promissory Note
dated December 16, 1994, bearing interest at one-half percent
per annum above the bank's prime rate, and payable in monthly
payments in the amount of $36,420, with the unpaid principal
balance, together with accrued interest and other charges, due
and payable on December 16, 1999. The remainder of the
purchase price came from the Company's internal funds.
On February 3, 1995, the Company purchased approximately 100
acres of real property (the "Property") located in San Diego,
California, approximately 35 acres of which will be used for
the development of a cemetery. The purchase price of the
property was $1,162,000, $100,000 of which was paid in cash
and the balance of $1,062,000, together with interest thereon
at the rate of nine percent (9%) per annum, will be paid in 12
monthly payments of $5,000, thereafter in equal monthly
payments of $10,000; however, interest shall not accrue on any
part of the principal balance until February 3, 1996, and a
principal payment of $100,000 is to be made 15 days after the
date the California Cemetery Board approves the Company's
application for Certificate of Authority, or February 3, 1996,
whichever occurs first.
The Company has invested and deferred approximately $2,090,000
in option fees and costs of various regulatory studies,
including environmental, water, and archaeological studies.
The Company has been given approval from the federal
government and the California Cemetery Board to operate a
cemetery. The development of the cemetery will be financed
internally as well as through a private offering. Initial
development of 35 acres to operate as a cemetery would cost
approximately $500,000.
On March 8, 1995, the Company was issued 97,800 shares of
common stock of Greer-Wilson Funeral Home, Inc. ("Greer-
Wilson"), representing 97.8% of the total issued and
outstanding shares of common stock of Greer-Wilson after the
issuance of such shares. In consideration for the purchase of
such shares, the Company agreed to contribute $430,000 to
Greer-Wilson for the payment of its accounts payable, or to
assume payment of the accounts payable, and to pay or
refinance Greer-Wilson's existing mortgage loan indebtedness;
and to pay the former President and his wife $6,000 per month
over a ten year period for providing consulting services. The
Company also loaned the former President, Mr. Greer, and his
wife the sum of $200,000 to be paid on March 8, 2005, together
with interest thereon at the rate of seven percent (7%) per
annum. This obligation is collateralized by a pledge of the
remaining 2,200 shares of Greer-Wilson's common stock that is
currently owned by Mr. Greer.
At June 30, 1995, $9,034,417 of the Company's consolidated
stockholders' equity represents the statutory stockholders'
equity of the Company's insurance subsidiary Security National
Life and Capital Investors Life. Security National and
Capital Investors are restricted to the amount of dividends
they may pay depending upon their earnings and surplus.
Generally, Security National's and Capital Investors' excess
surplus as calculated under the Utah Insurance Code is not
restricted except for prior notification to the Department of
Insurance if the dividend exceeded the preceding year's
earnings.
Part II Other Information:
Item 1.NONE
Item 2.NONE
Item 3.NONE
Item 4.NONE
Item 5.NONE
Item 6. The Company filed a report on Form 8-K with the
Securities and Exchange Commission on May 3, 1995.
The reports supplied information under Section 2
thereof, captioned "Acquisition or Disposition of
Assets," which was related to the acquisition of
Greer-Wilson Funeral Home, Inc.
(a)(3) Exhibits
The following Exhibits are filed herewith pursuant to Rule
601 of Regulation S-K or are incorporated by reference to
previous filings.
Exhibit
Table No Document
(a)(3) Exhibits:
EX-27
SIGNATURES
Pursuant to the requirements of the Securities and 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: August 11, 1995 By: Scott M. Quist
First Vice President, General
Counsel, Treasurer and Principal
Accounting Officer
DATED: August 11, 1995 By: George R. Quist
President