<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 March 31, 1996 Commission File Number: 0-9341
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 3,218,801
- -------------------------------------- ---------------
Title of Class Number of Shares
Outstanding as of
March 31, 1996
Class C Common Stock, $.40 par value 2,362,545
- ------------------------------------ -----------------
Title of Class Number of Shares
Outstanding as of
March 31, 1996
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<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10Q
QUARTER ENDED MARCH 31, 1996
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Earnings - Three
months ended March 31, 1996 and 1995 . . . . . . . . 3
Consolidated Balance Sheets - March 31,
1996 and December 31, 1995 . . . . . . . . . . . . 4-5
Consolidated Statements of Cash Flows -
Three months ended March 31, 1996 and
March 31, 1995 . . . . . . . . . . . . . . . . . . 6-7
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . 8
Item 2 Management's Discussion and Analysis
of Summary of Earnings and
Financial Condition. . . . . . . . . . . . . . . .8-12
PART II - OTHER INFORMATION
Other Information. . . . . . . . . . . . . . . . . .12
Signature Page . . . . . . . . . . . . . . . . . . .13
</TABLE>
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<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended March 31,
1996 1995
(Unaudited) (Unaudited)
---------- ----------
<S> <C> <C>
REVENUES:
Insurance premiums and
other considerations $1,526,630 $1,493,350
Net investment income 1,923,063 1,679,579
Net mortuary and
cemetery sales 2,141,112 1,549,320
Realized gains on
investments and
other assets 5,898 1,514
Mortgage fee income 2,519,360 316,429
Other 31,528 106,677
---------- ----------
Total Revenues $8,147,591 $5,146,869
BENEFITS AND EXPENSES:
Death benefits $497,359 $513,171
Surrenders and other
policy benefits 974,094 721,212
Increase in future
policy benefits 376,331 322,432
Amortization of
deferred policy
acquisition costs
and cost of insurance
acquired 244,267 229,883
General and administrative
expenses:
Commissions 1,585,000 482,213
Salaries 1,082,819 741,660
Other 1,989,778 1,100,074
Interest expense 404,484 219,767
Cost of goods and
services sold
of the mortuaries
and cemeteries 588,736 461,145
---------- ----------
Total benefits and
expenses $7,742,868 $4,791,557
---------- ----------
Earnings before
income taxes $ 404,723 $ 355,312
Income tax expense (113,493) (91,965)
---------- ----------
Net earnings $ 291,230 $ 263,347
========== ==========
Earnings per share $0.08 $0.08
===== =====
Weighted average
outstanding common
shares 3,839,648 3,322,310
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1996 December 31,
(Unaudited) 1995
--------------- ------------
<S> <C> <C>
Assets:
Investments:
Fixed maturity securities
held to maturity,
at amortized cost $50,277,144 $51,143,361
Equity securities
available for sale,
at market 4,504,413 4,556,565
Mortgage loans on real estate 10,402,846 10,434,844
Real estate, net of accumulated
depreciation 7,643,207 7,669,296
Policy loans 2,986,980 3,007,596
Other loans 268,411 294,165
Short-term investments 1,730,085 722,593
----------- -----------
Total insurance related
investments 77,813,086 77,828,420
Restricted assets of cemeteries
and mortuaries 3,063,091 2,986,658
Cash 1,998,843 7,710,155
Receivables:
Trade contracts 5,488,086 5,552,888
Mortgage loans sold to investors 16,488,696 19,839,657
Receivable from agents 497,472 471,937
Other 207,319 623,628
----------- -----------
Total receivables 22,681,573 26,488,110
Allowance for doubtful accounts (2,338,418) (2,311,450)
------------ -----------
Net receivables 20,343,155 24,176,660
Land and improvements held for sale 7,739,245 7,568,016
Accrued investment income 1,133,700 1,113,945
Deferred policy acquisition costs 4,426,277 4,509,974
Property, plant and equipment, net 6,405,305 6,432,615
Cost of insurance acquired 3,800,361 4,007,804
Excess of cost over net assets
of acquired subsidiaries 1,436,953 1,461,025
Other 472,173 417,409
------------ ------------
Total Assets $128,632,189 $138,212,681
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
March 31, 1996 December 31,
(Unaudited) 1995
--------------- --------------
<S> <C> <C>
Liabilities:
Future life, annuity,
and other benefits $77,097,919 $76,867,685
Line of credit of financing
of mortgage loans 5,166,426 14,468,354
Bank loans payable 7,267,510 7,485,391
Notes and contracts payable 5,037,369 5,175,317
Estimated future costs
of pre-need sales 5,985,256 6,065,875
Payable to endowment
care fund 123,977 12,520
Accounts payable 913,486 1,193,859
Other liabilities
and accrued expenses 2,331,305 2,402,842
Income taxes 2,735,567 2,622,245
------------ ------------
Total Liabilities 106,658,815 116,294,088
Stockholders' Equity:
Common stock:
Class A: $2 par value,
authorized 10,000,000
shares, issued 3,819,415
shares in 1996 and 3,819,415
shares in 1995 7,638,830 7,638,830
Class C: $0.40 par value,
authorized 7,500,000 shares,
issued 2,388,040 shares in
1996 and 2,388,040 shares
in 1995 955,216 955,216
----------- -----------
Total common stock 8,594,046 8,594,046
Additional paid-in capital 7,879,578 7,879,578
Unrealized appreciation of
investments 248,180 484,629
Retained earnings 7,051,202 6,759,972
Treasury stock at cost
(600,614 Class A shares
and 25,495 Class C shares
in 1996; 598,614 Class A shares
and 25,495 Class C shares
in 1995, held by affiliated
companies) (1,799,632) (1,799,632)
------------ ------------
Total Stockholders' Equity 21,973,374 21,918,593
------------ ------------
Total Liabilities and
Stockholders' Equity $128,632,189 $138,212,681
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
1996 1995
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $291,230 $263,347
Adjustments to reconcile net
earnings to net cash (used in)
provided by operating activities:
Realized gains on investments
and other assets (5,898) (1,514)
Depreciation 494,490 164,360
Provision for losses on accounts
and loans receivable 26,968 8,951
Amortization of goodwill, premiums,
and discounts 18,150 (38,259)
Income taxes 113,322 92,381
Policy acquisition costs
deferred (250,570) (199,636)
Policy acquisition costs
amortized 334,267 229,883
Cost of insurance acquired
amortized 207,443 56,686
Change in assets and liabilities:
Land and improvements held
for sale (171,229) (1,218,290)
Future life and other benefits 376,649 455,635
Receivables for mortgage
loans sold (3,350,961) (86,832)
Other operating assets and
liabilities 6,583,591 (405,186)
----------- ----------
Net cash provided by (used in)
operating activities 4,667,452 (678,474)
Cash flows from investing activities:
Securities held to maturity:
Calls and maturities -
fixed maturity securities 876,517 504,416
Securities available for sale:
Purchases - equity securities (5,981) --
Purchases of short-term investments (2,227,307) (283,034)
Sales of short-term investments 1,219,815 1,601,015
Purchases of restricted assets (76,433) (99,657)
Mortgage, policy, and other
loans made (155,330) (5,303,376)
Payments received for
mortgage, policy, and
other loans 242,102 3,255,822
Purchases of property,
plant, and equipment (393,276) (16,601)
Purchases of real estate (54,699) (254,118)
--------- -----------
Net cash used in investing
activities (574,592) (595,533)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Three Months Ended March 31,
1996 1995
(Unaudited) (Unaudited)
----------- ----------
<S> <C> <C>
Cash flows from financing activities:
Annuity receipts 786,349 558,564
Annuity withdrawal (932,764) (465,191)
Repayment of bank loans and
notes and contracts payable (355,829) (280,566)
Proceeds from borrowings on bank
loans and notes and contracts
payable -- 1,078,947
Net decrease in line of credit for
financing of mortgage loans (9,301,928) --
----------- -----------
Net cash (used in) provided by
financing activities (9,804,172) 891,754
----------- -----------
Net decrease in cash (5,711,312) (382,253)
Cash at beginning of year 7,710,155 2,060,876
Cash at end of year $ 1,998,843 $ 1,678,623
=========== ===========
</TABLE>
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996 and 1995
(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 months ended March 31, 1996, are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1996. For further information, refer to
the consolidated financial statements and footnotes thereto
for the year ended December 31, 1995, included in the
Company's Annual Report on Form 10-K (file number 0-9341).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Results of Operations
Overview
The Company's operations over the last three years generally
reflect four trends or events which the Company expects to
continue: (i) increased attention to "niche" insurance
products, such as the Company's funeral plan policies,
annuities, and limited pay accident 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; (iii) emphasis on high margin cemetery and mortuary
business; and (iv) capitalizing on the strong economy in the
intermountain west by originating and refinancing mortgage
loans.
First Quarter 1996 Compared to First Quarter 1995
Total revenues increased by $3,001,000 (58%), from $5,147,000
for the three months ended March 31 1995, to $8,148,000 for
the three months ended March 31, 1996. Contributing to this
increase in total revenues was a $34,000 increase in insurance
premiums and other considerations, a $243,000 increase in net
investment income, a $592,000 increase in net mortuary and
cemetery sales, and a $2,203,000 increase in mortgage fee
income.
Net investment income increased by $243,000, from $1,680,000
for the three months ended March 31, 1995, to $1,923,000 for
the three months ended March 31, 1996. This increase was
attributable to the Company's emphasis on investing its cash
and short-term investments in higher-yielding long term
investments.
Mortuary and cemetery sales increased by $592,000, from
$1,549,000 for the three months ended March 31, 1995 to
$2,141,000 for the three months ended March 31, 1996. This
increase was primarily related to the acquisition of Greer-
Wilson Funeral Home in April 1995.
<PAGE>
Mortgage fee income increased $2,203,000, from $316,000 for
the three months ended March 31, 1995, to $2,519,000 for the
three months ended March 31, 1996. This increase was the
result of a strong economy, and an increased demand for
housing in the intermountain area which has created activity
for loan originations.
Total benefits and expenses were $4,792,000 for the three
months ended March 31, 1995, which is 93% of total revenue of
the Company, as compared to $7,743,000, or 95% of total
revenues for the three months ended March 31, 1996. Death
benefits, surrenders and other policy benefits and increase in
future policy benefits increased by $291,000, from $1,557,000
for the three months ended March 31, 1995, to $1,848,000 for
the three months ended March 31, 1996. This increase is
primarily due to the maturing of the policies in force and the
acquisition of Civil Service Employees Life Insurance Company
in December 1995.
Amortization of deferred policy acquisition costs has
increased by $14,000, from $230,000 for the three months ended
March 31, 1995, to $244,000 for the three months ended March
31, 1996. This increase was also due to the maturing of the
policies in force.
The increase in general and administrative expenses resulted
from an increase in operations at Security National Mortgage,
the acquisitions of Greer-Wilson Funeral Home in April 1995
and Civil Service Employees Life Insurance Company in December
1995.
Interest expense increased by $185,000, from $220,000 for the
three months ended March 31, 1995, to $405,000 for the three
months ended March 31, 1996. This increase was primarily due
to the acquisitions of Greer-Wilson Funeral Home in April 1995
and Civil Service Employees Life Insurance Company in December
1995.
Cost of goods and services sold of the mortuaries and
cemeteries increased by $128,000, from $461,000 for the three
months ended March 31, 1995, to $589,000 for the three months
ended March 31, 1996. This increase of goods and services
sold is consistent with the increase in sales at the
cemeteries and mortuaries.
Liquidity and Capital Resources
The Company's life insurance subsidiary 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 to meet operating expenses.
<PAGE>
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 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 $50,277,000, at amortized cost as of March 31,
1996 compared to $51,143,000 at amortized cost as of December
31, 1995. This represents 65% of the total insurance related
investments in 1996 as compared to 66% in 1995. Generally all
bonds owned by the life insurance subsidiary are rated by the
National Association of Insurance Commissioners (NAIC). Under
this rating system, there are six categories used for rating
bonds. At March 31, 1996, 3.67% ($1,845,000) and at December
31, 1995, 3.61 ($1,851,000) of the Company's total investment
in bonds were invested in bonds in rating categories three
through six which are considered non-investment grade.
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 short-term
investment grade securities before liquidating high-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 December 31, 1995
and 1994, the life subsidiary exceeded the regulatory
criteria.
Stockholders' equity as a percent of assets is one measure of
capital strength. At March 31, 1996 the Company's ratio
increased to 17% up from 16% at December 31, 1995. This
increase is primarily due to the mortgage company utilizing
less of the warehouse line of credit, by financing the
mortgage loans through bank debt, and then selling them to
investors within 45 days, and repaying the debt. This
transaction results in a receivable for mortgage loans sold to
investors which are offset by a bank loan payable.
Computation of the ratio without this transaction results in
the Company's debt to total assets at 11% as of March 31, 1996
and 11% at December 31, 1995 and the Company's equity to total
assets to 20% as of March 31, 1996 and 18% at December 31,
1995.
Lapse rates measure the amount of insurance terminated during
a particular period. The Company's lapse rate for life
insurance in 1995 was 10.5%, as compared to a rate of 8% in
1994.
<PAGE>
In February 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 per annum, to be paid in 12
monthly payments of $5,000, thereafter in equal monthly
payments of $10,000; however, interest does not accrue on any
part of the principal balance until February 3, 1996. A
principal payment of $100,000 was made in December 1995. The
Company has obtained approval from the federal government and
the California Cemetery Board to operate a cemetery on the
property. The development of the cemetery will be financed
internally. Initial development of 35 acres to operate as a
cemetery is estimated to cost approximately $560,000.
In November 1995, the Company entered into a purchase sale
agreement with Myers Mortuary for the sale of the Company's
65% interest in Evergreen Memorial Partnership and the
Company's 50% interest in Evergreen Management Corporation.
As consideration for the sale of these entities, Myers
Mortuary paid $746,123 in satisfaction of the indebtedness
that Evergreen Memorial Partnership owes to the Company.
Myers Mortuary has also agreed to pay $200,000 to the Company
in four equal annual installments of $50,000, beginning as of
October 31, 1996. In addition, Myers Mortuary will pay a
$10.00 royalty to the Company for each adult space sold in
Evergreen Memorial Park over the next ten years, beginning as
of January 1, 1996.
In December 1995, the Company purchased all of the outstanding
shares of common stock of Civil Service Employees Life
Insurance Company from Civil Service Employees Insurance
Company for a total cost of $5,200,000, which included a
promissory note in the amount of $1,063,000. Interest on the
promissory note accrues at 7% per annum. Principal payments
are to be made in seven equal annual installments of $151,857,
beginning on December 29, 1996. Accrued interest will be
payable annually beginning on December 29, 1996.
In March 1995, the Company purchased 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 for a total consideration of
$1,218,000, which included a note to the former owners for
$588,000.
At March 31, 1996, $9,513,000 of the Company's consolidated
stockholders' equity represents the statutory stockholders'
equity of the Company's insurance subsidiary. The life
insurance subsidiary cannot pay a dividend to its parent
company without the approval of insurance regulatory
authorities.
<PAGE>
<TABLE>
<CAPTION>
Part II Other Information:
<S> <C> <S>
Item 1. Legal Proceedings
NONE
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
The Company filed a report on Form 8-K with the
Securities and Exchange Commission on January 16,
1996. The report supplied information under
Section 2 thereof, captioned "Acquisition or
Disposition of Assets," which was related to the
acquisition of Civil Service Employees Life
Insurance Company.
</TABLE>
<TABLE>
<CAPTION>
(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
<C> <S>
(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: May 22, 1996 By: George R. Quist,
Chairman of the Board,
President and Chief Executive
Officer (Principal Executive
Officer)
DATED: May 22, 1996 By: Scott M. Quist
First Vice President, General
Counsel and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 50,277,144
<DEBT-MARKET-VALUE> 0
<EQUITIES> 4,504,413
<MORTGAGE> 10,402,846
<REAL-ESTATE> 7,643,207
<TOTAL-INVEST> 77,813,086
<CASH> 1,998,843
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 4,426,277
<TOTAL-ASSETS> 128,632,189
<POLICY-LOSSES> 74,628,874
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 597,318
<POLICY-HOLDER-FUNDS> 1,871,727
<NOTES-PAYABLE> 17,471,305
<COMMON> 8,594,046
0
0
<OTHER-SE> 13,379,328
<TOTAL-LIABILITY-AND-EQUITY> 128,632,189
1,526,630
<INVESTMENT-INCOME> 1,923,063
<INVESTMENT-GAINS> 5,898
<OTHER-INCOME> 4,692,000
<BENEFITS> 1,847,784
<UNDERWRITING-AMORTIZATION> 244,267
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 404,723
<INCOME-TAX> 113,493
<INCOME-CONTINUING> 291,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 291,230
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
