<PAGE>
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 September 30, 1995 Commission File Number: 000-9341
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
---------------
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 3,067,891
- -------------------------------------- -------------
Title of Class Number of Shares
Outstanding as of
September 30, 1995
Class C Common Stock, $.40 par value 2,250,764
- ------------------------------------- ---------------
Title of Class Number of Shares
Outstanding as of
September 30, 1995
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10Q
QUARTER ENDED SEPTEMBER 30, 1995
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Earnings -
Nine months ended September 30, 1995 and
1994 and three months ended September 30,
1995 and 1994. . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets - September 30,
1995 and December 31, 1994 . . . . . . . . . . . . 4-5
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1995 and
September 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Nine Months Ended Three Months Ended
September 30, September 30,
1995 1994 1995 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Insurance
premiums and
other
considerations $ 4,391,317 $ 3,723,909 $1,438,045 $1,199,993
Net investment
income 4,886,371 2,913,137 1,670,867 1,027,258
Realized gains
on investments
and other assets 51,437 387,066 50,893 293,620
Mortuary and
cemetery sales 5,914,821 4,433,622 2,055,374 1,466,185
Mortgage fee
income 2,901,492 879,925 1,706,669 92,927
Other 51,883 224,463 13,528 122,610
----------- ----------- ----------- ----------
Total Revenues 18,197,321 12,562,122 6,935,376 4,202,593
BENEFITS AND EXPENSES:
Death benefits 1,543,761 1,263,060 509,077 385,734
Surrenders and
other policy
benefits 1,783,610 722,924 543,250 287,106
Increase in future
policy benefits 1,170,835 1,428,450 474,894 496,704
Amortization of
deferred policy
acquisition costs 919,257 558,319 418,131 100,663
General and
administrative expenses:
Commissions 2,476,476 907,546 1,127,406 256,425
Salaries 2,528,023 2,205,861 936,367 705,377
Other 3,523,063 3,074,656 1,379,332 1,010,110
Interest expense 823,400 523,664 317,428 175,811
Cost of mortuaries
and cemeteries
goods and services
sold 1,663,030 1,324,755 532,129 473,724
------------ ----------- ---------- ----------
Total benefits
and expenses 16,431,455 12,009,235 6,238,014 3,891,655
------------ ----------- ---------- ----------
Earnings before
income taxes 1,765,866 552,887 697,362 310,938
Income tax (expense)
benefit (477,617) (154,808) (203,717) (84,643)
----------- ----------- ---------- ----------
Net earnings $ 1,288,249 $ 398,079 $ 493,645 $ 226,295
=========== =========== ========== ==========
Net earnings
per share $0.42 $0.12 $0.16 $0.07
===== ===== ===== =====
Weighted average
outstanding
common shares 3,037,224 3,270,899 3,058,770 3,270,899
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1995 December 31,
(Unaudited) 1994
------------------- ------------
<S> <C> <C>
Assets:
Investments:
Fixed maturity securities held
to maturity, at amortized cost $37,252,682 $39,397,628
Equity securities available for sale,
at market 4,566,968 4,149,713
Mortgage loans on real estate 13,047,008 14,681,293
Real estate, net of accumulated
depreciation 7,726,249 7,586,650
Policy loans 2,614,890 2,670,989
Other loans 572,621 677,334
Short-term investments 755,614 4,013,296
----------- -----------
Total insurance related
investments 66,536,032 73,176,903
Restricted assets of cemeteries
and mortuaries 2,772,291 2,482,068
Cash 6,003,154 2,060,876
Receivables:
Trade contracts 5,078,254 4,938,098
Receivable from agents 482,305 463,040
Other 12,185,723 336,801
----------- ------------
Total receivables 17,746,282 5,737,939
Allowance for doubtful accounts (2,051,675) (1,923,808)
----------- ------------
Net receivables 15,694,607 3,814,131
Land and improvements held for sale 8,586,629 6,920,208
Accrued investment income 1,041,672 996,845
Deferred policy acquisition
costs 4,592,725 4,860,865
Property, plant and equipment, net 6,098,521 4,899,873
Cost of insurance acquired 3,318,325 3,488,383
Excess of cost over net assets
of acquired subsidiaries 1,476,700 718,391
Other 404,264 339,714
------------ ------------
Total Assets $116,524,920 $103,758,257
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
September 30, 1995 December 31,
(Unaudited) 1994
------------------ ------------
<S> <C> <C>
Liabilities:
Future life, annuity, and other
benefits $63,969,291 $ 61,895,251
Bank loans payable 13,892,544 7,440,576
Notes and contracts payable 4,260,148 2,768,546
Estimated future costs of pre-need
sales 6,435,946 6,284,421
Payable to endowment care fund 322,821 319,336
Accounts payable and accrued expenses 2,313,679 1,760,399
Other liabilities 1,270,042 1,438,889
Income taxes 2,349,911 1,872,294
---------- -------------
Total Liabilities 94,814,382 83,779,712
Stockholders' Equity:
Common stock:
Class A: $2 par value, authorized
10,000,000 shares, issued 3,599,906
shares in 1995 and 3,558,406 shares
in 1994 7,199,814 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 7,297,891 7,214,061
Unrealized appreciation of
investments 665,534 221,790
Retained earnings 7,276,113 6,154,694
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 21,710,538 19,978,545
------------ ------------
Total Liabilities and
Stockholders' Equity $116,524,920 $103,758,257
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1995 1994
(Unaudited) (Unaudited)
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $1,288,249 $398,079
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Net realized gain on sale
of investments (50,660) (96,838)
Depreciation 532,832 447,034
Provision for losses on accounts
and loans receivable 127,867 (4,493)
Amortization of goodwill, premiums,
and discounts (909,425) 3,575
Amortization of cost of insurance acquired 170,058 --
Deferred taxes 477,617 154,808
Policy acquisition costs deferred (651,117) (126,648)
Policy acquisition costs amortized 919,257 198,359
Change in assets and liabilities net of effects
from purchase of subsidiary:
Land and improvements held for sale (1,666,421) 203,348
Future life and other benefits 1,194,096 54,641
Other operating assets and liabilities (11,236,558) 2,817,888
------------ -----------
Net cash (used in) provided by operating
activities (9,804,205) 4,049,753
Cash flows from investing activities:
Securities held to maturity:
Purchases - fixed maturity securities -- (8,957,947)
Calls and maturities - fixed
maturity securities 2,307,113 1,443,765
Securities available for sale:
Sales - equity securities 61,907 221,854
Purchases - equity securities -- (209,275)
Net purchases and sales of short-term
investments and restricted assets of
cemeteries and mortuaries 2,967,459 3,837,521
Mortgage and other loans made (4,467,031) (17,845,771)
Payments received for mortgage and
other loans 6,233,761 14,608,676
Change in policy loans 56,099 19,745
Purchases of property, plant,
and equipment (1,513,626) (1,512,065)
Purchases of real estate (380,624) --
Purchase of subsidiary net of cash acquired (342,089) --
----------- -----------
Net cash (used in) provided by
investing activities 4,922,969 (8,393,497)
</TABLE>
<PAGE>
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1995 1994
(Unaudited) (Unaudited)
------------ -----------
<S> <C> <C>
Cash flows from financing activities:
Net increase in investment type contracts 879,944 40,266
Repayment of notes and contracts
payable (1,035,347) (1,308,483)
Proceeds from borrowings on notes
and contracts payable 8,978,917 980,116
----------- -----------
Net cash provided by (used in)
financing activities 8,823,514 (288,101)
----------- -----------
Net increase (decrease) in cash 3,942,278 (4,631,845)
Cash at beginning of period 2,060,876 6,831,051
----------- -----------
Cash at end of period $ 6,003,154 $ 2,199,206
</TABLE>
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 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 nine months ended September 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.
<PAGE>
4. Line of Credit Arrangement
--------------------------
Under a Line of Credit Arrangement entered into in August
1995, the Company may borrow up to $10 million to fund
mortgage loans until sold to secondary investors. This
arrangement does not have a termination date but is reviewed
annually for renewal. At September 30, 1995, the Company had
approximately $4 million outstanding under this agreement.
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.
<PAGE>
Three Months Ended September 30, 1995 as Compared to Three Months Ended
September 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 September 30, 1995.
<TABLE>
<CAPTION>
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)
----------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Insurance premiums
and other
considerations $1,438,045 $259,018 -- $1,179,027 $1,199,993
Net investment
income 1,670,867 494,366 746 1,175,755 1,027,258
Realized gains
on investments
and other assets 50,893 -- -- 50,893 293,620
Mortuary and
cemetery sales 2,055,374 -- 491,103 1,564,271 1,466,185
Mortgage fee
income 1,706,669 -- -- 1,706,669 92,927
Other 13,528 160 3,357 10,011 122,610
----------- -------- ------- ----------- ---------
Total
Revenues 6,935,376 753,544 495,206 5,686,626 4,202,593
BENEFITS AND EXPENSES:
Death benefits 509,077 116,941 -- 3 92,136 385,734
Surrenders and
other policy
benefits 543,250 388,035 -- 155,215 287,106
Increase in future
policy benefits 474,894 (26,880) -- 501,774 496,704
Amortization of
deferred policy
acquisition costs 418,131 64,186 -- 353,945 100,663
General and
administrative expenses:
Commissions 1,127,406 19,396 (1,398) 1,109,408 256,425
Salaries 936,367 -- 115,918 820,449 705,377
Other 1,379,332 30,680 132,169 1,216,483 1,010,111
Interest expense 317,428 -- 39,721 277,707 175,811
Cost of mortuaries
and cemeteries
goods and services
sold 532,129 -- 150,878 381,251 473,724
---------- --------- -------- ---------- ----------
Total benefits
and expenses 6,238,014 592,358 437,288 5,208,368 3,891,655
---------- --------- -------- ---------- ----------
Earnings before
income taxes $ 697,362 $161,186 $ 57,918 $ 478,258 $ 310,938
========== ======== ========= ========== ==========
</TABLE>
The following management's discussion and analysis for the three months ended
September 30, 1995 and September 30, 1994, excludes the acquisition of
Capital Investors Life Insurance Company and Greer-Wilson Funeral Home.
<PAGE>
Three Months Ended September 30, 1995 as Compared to Three
Months Ended September 30, 1994
Total revenues increased by $1,484,000 (35%), from $4,203,000
for the three months ended September 30, 1994 to
$5,687,000 for the three months ended September 30, 1995.
Contributing to this increase in total revenues was a $148,000
increase in net investment income and a $98,000 increase in
mortuary and cemetery sales, and a $1,614,000 increase in
mortgage fee income.
Net investment income increased by $148,000, from $1,027,000
for the third quarter of 1994 to $1,175,000 for the third
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
$243,000, from a $294,000 gain for the third quarter of 1994
as compared to a $51,000 gain for the third quarter of 1995.
The 1994 amount included the results of the sale of 13.45
acres of land deemed not suitable for cemetery development at
Lake View Cemetery. On August 22, 1994, an agreement was
entered into wherein the land was sold to a development
company for $515,000. The net gain on the sale of the land,
after deducting the original cost of the land and related
fees, was approximately $278,000.
Mortuary and cemetery sales increased $98,000, from $1,466,000
for the third quarter 1994 to $1,564,000 for the third quarter
of 1995. This increase was primarily the result of a $187,000
increase in cemetery sales. There was an $89,000 decrease in
sales in the mortuary division in the third quarter of 1995
caused by a reduced case count for that period as compared to
the third quarter of 1994.
Mortgage fee income increased $1,614,000, from $93,000 for the
third quarter of 1994 to $1,707,000 for the third quarter of
1995. This increase was the result of lower interest rates
during the third quarter of 1995, which increased the
opportunity for refinancing and loan origination. In
addition, a strong economy and increased demand for housing in
the intermountain area had created increased activity for loan
originations.
Total benefits and expenses were $3,892,000 for the third
quarter of 1994, which was 93% of the total revenues of the
Company as compared to $5,208,000 or 92% of the total revenues
for the third quarter of 1995.
Death benefits, surrenders and other policy benefits and
increase in future policy benefits decreased in the aggregate
by $120,000, from $1,169,000 for the third quarter of 1994 to
$1,049,000 for the third quarter of 1995. These benefits are
in line with the actuarial assumptions and industry standards.
Amortization of deferred policy acquisition costs increased by
$253,000, from $101,000 for the third quarter of 1994 to
$354,000 for the third quarter of 1995. This increase was
primarily due to the maturing of the policies inforce.
General and administrative expenses increased by $1,174,000,
from $1,972,000 for the third quarter of 1994 to $3,146,000
for the third quarter of 1995. This increase was due to an
increase in commission expenses and salary expense and other
expenses. Commission expenses increased $853,000, from
$256,000 for the third quarter of 1994 to $1,109,000 for the
third quarter of 1995 as a result of the increased business
activity of Security National Mortgage Company and the
cemetery operations.
<PAGE>
Salary expense increased $115,000, from $705,000 for the third
quarter of 1994 to $820,000 for the third quarter of 1995,
primarily due to the additional administrative personnel
needed at the corporate level to meet the needs of the newly
acquired companies of Capital Investors Life Insurance Company
and Greer-Wilson Funeral Home.
Other expenses increased $206,000, from $1,010,000 for the
third quarter of 1994 to $1,216,000 for the third quarter of
1995. This increase was the result of increased operating
expenses at Security National Mortgage Company. This increase
was partially off-set by the decrease in amortization expenses
arising from the 1989 acquisition of a funeral planning sales
agency. The acquisition expenses were capitalized and
amortized over a five-year period ending December 31, 1994.
Interest expenses increased $102,000, from $175,000 for the
third quarter of 1994 to $277,000 for the third quarter of
1995. This increase was primarily due to the interest on the
debt incurred as a result of 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 mortuaries and cemeteries goods and services sold was
consistent with the products sold during the third quarter
1995.
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1995 Compared to Nine Months Ended
September 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 nine months ended September 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)
<S> <C> <C> <C> <C> <C>
REVENUES:
Insurance
premiums
and other
considerations $ 4,391,317 $ 731,145 $ -- $ 3,660,172 $ 3,723,909
Net investment
income 4,886,371 1,452,188 746 3,433,437 2,913,137
Realized gains
on investments
and other assets 51,437 -- -- 51,437 387,066
Mortuary and
cemetery sales 5,914,821 -- 1,013,005 4,901,816 4,433,622
Mortgage fee
income 2,901,492 -- -- 2,901,492 879,925
Other 51,883 10,433 5,727 35,723 224,463
----------- ----------- ---------- ----------- -----------
Total Revenues 18,197,321 2,193,766 1,019,478 14,984,077 12,562,122
BENEFITS AND EXPENSES:
Death benefits 1,543,761 317,230 -- 1,226,531 1,263,060
Surrenders and
other policy
benefits 1,783,610 1,247,160 -- 536,450 722,924
Increase in
future policy
benefits 1,170,835 (413,874) -- 1,584,709 1,428,450
Amortization of
deferred policy
acquisition costs 919,257 192,558 -- 726,699 558,319
General and administrative
expenses:
Commissions 2,476,476 43,457 -- 2,433,019 907,546
Salaries 2,528,023 -- 204,265 2,323,758 2,205,861
Other 3,523,063 290,734 239,849 2,992,480 3,074,656
Interest expense 823,400 -- 85,162 738,238 523,664
Cost of mortuaries
and cemeteries
goods and services
sold 1,663,030 -- 283,406 1,379,624 1,324,755
----------- ---------- --------- ----------- ----------
Total benefits
and expenses 16,431,455 1,677,265 812,682 13,941,508 12,009,235
----------- ---------- -------- ----------- -----------
Earnings before
income taxes $ 1,765,866 $ 516,501 $ 206,796 $ 1,042,56 $ 552,887
=========== ========== ========= ========== ===========
</TABLE>
The following management's discussion and analysis for the nine months ended
September 30, 1995 and September 30, 1994, excludes the acquisition of Capital
Investors Life Insurance Company and Greer-Wilson Funeral Home.<PAGE>
Nine Months
Ended September 30, 1995 as Compared to Nine Months Ended September 30, 1994.
<PAGE>
Total revenues increased by $2,422,000 (19%), from $12,562,000
for the nine months ended September 30, 1994 to $14,984,000
for the nine months ended September 30, 1995. Contributing to
this increase in total revenues was a $520,000 increase in net
investment income, a $468,000 increase in mortuary and
cemetery sales, and a $2,021,000 increase in mortgage fee
income.
Net investment income increased by $520,000, from $2,913,000
for the nine months ended September 30, 1994 to $3,433,000 for
the nine months ended September 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.
Realized gains on investments and other assets decreased by
$336,000, from $387,000 for the nine months ended September
30, 1994, to $51,000 for the nine months ended September 30,
1995. The 1994 amount included the results of the sale of
13.45 acres of land deemed not suitable for cemetery
development at Lake View Cemetery. On August 22, 1994, an
agreement was entered into wherein the land was sold to a
development company for $515,000. The net gain on the sale of
the land, after deducting the original cost of the land and
related fees was approximately $278,000. The remaining
decrease in realized gains on investments and other assets was
a result of fewer bond redemptions during the nine months
ended September 30, 1995.
Mortuary and cemetery sales increased by $468,000, from
$4,434,000 for the nine months ended September 30, 1994, to
$4,902,000 for the nine months ended September 30, 1995.
This increase was the result of a $69,000 increase in mortuary
sales and a $399,000 increase in cemetery sales for the nine
months ended September 30, 1995.
Mortgage fee income increased $2,021,000, from $880,000 for
the nine months ended September 30, 1994 to $2,901,000 for the
nine months ended September 30, 1995. This increase was a
result of lower interest rates during the nine months ended
September 30, 1995, which increased the opportunity for
refinancing and loan originations. In addition, a strong
economy and increased demand for housing in the intermountain
area had created increased activity for loan originations.
Total benefits and expenses were $12,009,000 for the nine
months ended September 30, 1994, which is 96% of the total
revenues of the Company, as compared to $13,942,000, or 93% of
the total revenues for the nine months September 30, 1995.
Death benefits, surrenders and other policy benefits and
increase in future policy benefits decreased by $67,000, from
$3,414,000 for the nine months ended September 30, 1994, to
$3,347,000 for the nine months ended September 30, 1995.
These benefits are in line with the actuarial assumption and
industry standards.
Amortization of deferred policy acquisition costs increased by
$168,000, from $558,000 for the nine months ended September
30, 1994, to $726,000 for the nine months ended September 30,
1995. This increase was primarily due to the maturing of the
policies in force.
<PAGE>
General and administrative expenses increased by $1,561,000, from
$6,189,000 for the nine months ended September 30, 1994
to $7,750,000 for the nine months ended September 30, 1995.
This increase was primarily due to an increase in commission
and salary expenses off-set by a smaller decrease in other
expenses. Commission expenses increased $1,525,000, from
$908,000 for the nine months ended September 30, 1994 to
$2,433,000 for the nine months ended September 30, 1995, due
to increased business activity of Security National Mortgage
Company and the cemetery operations. Salary expense increased
$118,000 for the nine months ended September 30, 1995, as
compared to the nine months ended September 30, 1994,
primarily due to the additional administrative personnel
required at the corporate level to meet the needs of the newly
acquired companies of Capital Investors Life Insurance Company
and Greer-Wilson Funeral Home.
Other expenses decreased $82,000, during the nine months ended
September 30, 1995. This decrease was primarily the result of
the decrease in amoritzation expenses arising from the 1989
acquisition of a funeral planning sales agency. The
acquisition expenses were capitalized and amortized over a
five year period ending December 31, 1994.
Interest expense increased by $215,000, from $524,000 for the
nine months ended September 30, 1994, to $739,000 for the nine
months ended September 30, 1995. This increase was primarily
due to interest on the debt incurred as a result of 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 mortuaries and cemeteries goods and services sold was
consistent with the products sold during the nine months ended
September 30, 1995.
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.
<PAGE>
The Company's investment policy is to invest predominately in
fixed maturity securities 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 subsidiary. Bonds owned by the insurance subsidiary
amounted to $37,253,000, at amortized cost as of September 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 September 30, 1995,
4.39% ($1,639,000) and at September 30, 1994, 4.71% ($909,000)
of the Company's total investment in bonds were in rating
categories three through six which are considered
non-investment grade. Total invested assets of the Company is
$69,308,000 as of September 30, 1995.
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 1995 and 1994 was 8%. 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 September 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.<PAGE>
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 $2,172,000
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, 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.
<PAGE>
At September 30, 1995, $9,526,956 of the Company's
consolidated stockholders' equity represents the statutory
stockholder's 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.<PAGE>
Part II Other Information:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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: November 13, 1995
By: Scott M. Quist,
First Vice President, General
Counsel, Treasurer and Principal
Accounting Officer
DATED: November 13, 1995
By: George R. Quist
President
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 37,252,682
<DEBT-MARKET-VALUE> 0
<EQUITIES> 4,566,968
<MORTGAGE> 13,047,008
<REAL-ESTATE> 7,726,249
<TOTAL-INVEST> 66,536,032
<CASH> 6,003,154
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 4,592,725
<TOTAL-ASSETS> 116,524,920
<POLICY-LOSSES> 61,467,958
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 716,722
<POLICY-HOLDER-FUNDS> 1,784,611
<NOTES-PAYABLE> 18,152,692
<COMMON> 8,109,832
0
0
<OTHER-SE> 13,600,706
<TOTAL-LIABILITY-AND-EQUITY> 116,524,920
4,391,317
<INVESTMENT-INCOME> 4,886,371
<INVESTMENT-GAINS> 51,437
<OTHER-INCOME> 8,868,196
<BENEFITS> 4,498,206
<UNDERWRITING-AMORTIZATION> 919,257
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 1,765,866
<INCOME-TAX> 477,617
<INCOME-CONTINUING> 1,288,249
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,280,249
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
