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, 1997 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 3,479,133
- -------------------------------------- ------------------
Title of Class Number of Shares
Outstanding as of
March 31, 1997
Class C Common Stock, $.20 par value 4,913,533
- -------------------------------------- -------------------
Title of Class Number of Shares
Outstanding as of
March 31, 1997
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10Q
QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Consolidated Statements of Earnings - Three
months ended March 31, 1997 and 1996 . . . . . . . . 3
Consolidated Balance Sheets - March 31,
1997 and December 31, 1996 . . . . . . . . . . . . 4-5
Consolidated Statements of Cash Flows -
Three months ended March 31, 1997 and
March 31, 1996 . . . . . . . . . . . . . . . . . . 6-7
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . 8
Item 2 Management's Discussion and Analysis
of Summary of Earnings and
Financial Condition. . . . . . . . . . . . . . . .8-10
PART II - OTHER INFORMATION
Other Information. . . . . . . . . . . . . . . . . .11
Signature Page . . . . . . . . . . . . . . . . . . .12
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended March 31,
1997 1996
(Unaudited) (Unaudited)
----------- ----------
REVENUE:
Insurance premiums
and other considerations $1,472,623 $1,526,630
Net investment income 1,773,427 1,923,063
Net mortuary and cemetery sales 2,500,363 2,141,112
Realized gains on investments
and other assets 36,027 5,898
Mortgage fee income 1,626,119 2,519,360
Other 10,932 31,528
---------- -----------
Total Revenue 7,419,491 8,147,591
BENEFITS AND EXPENSES:
Death benefits 528,424 497,359
Surrenders and other policy benefits 266,454 315,464
Increase in future policy benefits 742,452 944,961
Amortization of deferred policy
acquisition costs and cost of
insurance acquired 314,828 334,267
General and administrative expenses:
Commissions 1,270,293 1,585,000
Salaries 1,266,044 1,082,819
Other 1,511,638 1,989,778
Interest expense 277,522 404,484
Cost of goods and services sold
of the mortuaries and cemeteries 731,862 588,736
----------- -----------
Total benefits and expenses 6,909,517 7,742,868
Earnings before income taxes 509,974 404,723
Income tax expense (117,294) (113,493)
----------- ----------
Net earnings $ 392,680 $ 291,230
=========== ==========
Earnings per share $0.10 $0.08
===== =====
Weighted average outstanding
common shares 4,030,707 3,839,648
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1997 December 31,
(Unaudited) 1996
Assets: --------------- ------------
Investments:
Fixed maturity securities
held to maturity, at amortized cost $47,024,952 $47,934,684
Equity securities available for sale,
at market 3,905,839 4,133,105
Mortgage loans on real estate 8,269,966 9,809,379
Real estate, net of accumulated
depreciation 7,726,486 7,808,255
Policy loans 2,993,995 3,021,155
Other loans 183,518 218,437
Short-term investments 3,831,872 2,258,283
Total insurance related investments 73,936,628 75,183,298
Restricted assets of cemeteries
and mortuaries 3,538,136 3,454,622
Cash 7,513,158 3,301,084
Receivables:
Trade contracts 4,484,690 4,514,010
Mortgage loans sold to investors 9,363,641 13,455,123
Receivable from agents 752,570 670,439
Other 295,047 292,680
Total receivables 14,895,948 18,932,252
Allowance for doubtful accounts (1,762,999) (1,862,599)
Net receivables 13,132,949 17,069,653
Land and improvements held for sale 8,468,736 8,456,302
Accrued investment income 1,049,627 1,040,242
Deferred policy acquisition costs 4,221,075 4,277,560
Property, plant and equipment, net 6,471,220 6,513,980
Cost of insurance acquired 3,683,867 3,748,654
Excess of cost over net assets
of acquired subsidiaries 1,371,635 1,370,708
Other 277,059 293,400
------------ ------------
Total Assets $123,664,091 $124,709,503
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
March 31, 1997 December 31,
(Unaudited) 1996
-------------- ---------------
Liabilities:
Future life, annuity, and other
policy benefits $ 77,097,955 $ 76,962,062
Line of credit for financing
of mortgage loans 1,211,890
Bank loans payable 6,526,376 6,768,119
Notes and contracts payable 4,431,652 4,509,921
Estimated future costs of
pre-need sales 5,873,307 5,874,387
Payable to endowment care fund 153,880 70,617
Accounts payable 1,152,458 1,199,920
Other liabilities and accrued expenses 1,869,437 1,902,046
Income taxes 2,858,255 2,742,513
----------- ------------
Total liabilities 99,963,320 101,241,475
Stockholders' Equity:
Common stock:
Class A: $2 par value, authorized
10,000,000 shares, issued 4,110,709
shares in 1997 and 1996 8,221,418 8,221,418
Class C: $0.20 par value, authorized
7,500,000 shares, issued 4,967,072
shares in 1997 and 1996 993,413 993,413
Total common stock 9,214,831 9,214,831
Additional paid-in capital 8,675,386 8,675,386
Unrealized appreciation of
investments 99,978 259,915
---------- ----------
Retained earnings 7,511,208 7,118,528
Treasury stock at cost (631,576 Class
A shares and 53,540 Class C shares
in 1997 and 1996, held by
affiliated companies) (1,800,632) (1,800,632)
Total Stockholders' Equity 23,700,771 23,468,028
------------ ------------
Total Liabilities and Stockholders'
Equity $123,664,091 $124,709,503
============ ============
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
1997 1996
(Unaudited) (Unaudited)
------------ ----------
Cash flows from operating activities:
Net earnings $ 392,680 $ 291,230
Adjustments to reconcile net earnings
to net cash (used in) provided by
operating activities:
Realized gains on investments and
other assets (36,027) (5,898)
Depreciation 184,914 494,490
Provision for losses on accounts
and loans receivable -- 26,968
Amortization of goodwill, premiums,
and discounts (12,343) 18,150
Income taxes 115,743 113,322
Policy acquisition costs deferred (193,555) (250,570)
Policy acquisition costs amortized 250,040 334,267
Cost of insurance acquired amortized 64,787 207,443
Change in assets and liabilities net of
effects from purchases and disposals of
subsidiaries:
Land and improvements held for sale (12,434) (171,229)
Future life and other benefits 521,370 376,649
Receivables for mortgage loans sold 4,091,482 3,350,961
Other operating assets and liabilities (145,711) (118,331)
---------- ----------
Net cash provided by operating
activities 5,220,946 4,667,452
Cash flows from investing activities:
Securities held to maturity:
Calls and maturities - fixed
maturity securities 1,024,503 876,517
Securities available for sale:
Purchases - equity securities -- (5,981)
Purchases of short-term investments (1,573,589) (2,227,307)
Sales of short-term investments -- 1,219,815
Purchases of restricted assets (83,514) (76,433)
Mortgage, policy, and other loans made (263,248) (155,330)
Payments received for mortgage, policy,
and other loans 1,864,740 242,102
Purchases of property, plant, and
equipment (60,385) (393,276)
Purchases of real estate -- (54,699)
Net cash provided by (used in)
investing activities 908,507 (574,592)
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Three Months Ended March 31,
1997 1996
(Unaudited) (Unaudited)
---------- ---------
Cash flows from financing activities:
Annuity receipts 580,740 786,349
Annuity withdrawals (966,217) (932,764)
Repayment of bank loans and
notes and contracts payable (320,012) (355,829)
Net change in line of credit for
financing of mortgage loans (1,211,890) (9,301,928)
Net cash used in financing activities (1,917,379) (9,804,172)
Net change in cash 4,212,074 (5,711,312)
------------ -----------
Cash at beginning of period 3,301,084 7,710,155
------------ ------------
Cash at end of period $ 7,513,158 $ 1,998,843
============ ===========
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(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, 1997, are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to
the consolidated financial statements and footnotes thereto
for the year ended December 31, 1996, included in the
Company's Annual Report on Form 10-K (file number 0-9341).
Reclassification to certain 1996 balances have been made to
conform with the 1997 presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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,
annuities, and limited pay accident policies; (ii) emphasis on
high margin cemetery and mortuary business; and (iii)
capitalizing on the strong economy in the intermountain west
by originating and refinancing mortgage loans.
First Quarter 1997 Compared to First Quarter 1996
- --------------------------------------------------
Total revenues decreased by $728,000, or 9.0%, to $7,420,000
for the three months ended March 31, 1997, from $8,148,000 for
the three months ended March 31, 1996. Contributing to this
reduction in total revenues was a $54,000 decrease in premiums
and other considerations, a $150,000 decrease in net
investment income, and an $893,000 decrease in mortgage fee
income. These decreases were partially offset by a $359,000
increase in net mortuary and cemetery sales.
Insurance premiums and other considerations decreased by
$54,000, or 3.5%, to $1,473,000 for the three months ended
March 31, 1997, from $1,527,000 for the comparable period in
1996. This decrease was primarily due to a decrease in
policies in force.
Net investment income decreased by $150,000, or 7.8%, to
$1,773,000 for the three months ended March 31, 1997, from
$1,923,000 for the comparable period in 1996. This decrease
was attributable to the Company maintaining larger cash and
short term investment balances and warehousing fewer mortgage
loans during the first quarter of 1997.
Net mortuary and cemetery sales increased by $359,000, or
16.8%, to $2,500,000 for the three months ended March 31,
1997, from $2,141,000 for the comparable period in 1996. This
increase was primarily related to additional preneed sales
from the opening of Singing Hills Memorial Park Cemetery in
San Diego, California during the third quarter of 1996.
Preneed sales of cemetery and mortuary products also increased
at the Company's other cemeteries and mortuaries.
Mortgage fee income decreased by $893,000, or 35.5%, to
$1,626,000 for the three months ended March 31, 1997, from
$2,519,000 for the comparable period in 1996. This decrease
was primarily attributable to fewer loan originations during
the first quarter of 1997 as a result of higher interest rates
during that period. Although the Company experienced more
loan refinancing activity during 1996, it increased its volume
in the home purchase financing market during the first quarter
of 1997, which has a higher profit margin. The demand for
housing in the intermountain area remains strong.
Total benefits and expenses were $6,910,000, or 93.1% of total
revenues for the three months ended March 31, 1997, as
compared to $7,743,000, or 95.0% of total revenues for the
three months ended March 31, 1996. Death benefits, surrenders
and other policy benefits and increase in future policy
benefits decreased by $220,000, or 12.5%, to $1,538,000 for
the three months ended March 31, 1997, from $1,758,000 for the
comparable period in 1996. This decrease was primarily the
result of a decrease in annuity interest expense due to fewer
annuity policies in force, fewer health benefits incurred and
lower reserve increases in life products.
Amortization of deferred policy acquisition costs decreased by
$19,000, or 5.7%, to $315,000, for the three months ended
March 31, 1997, from $334,000 for the comparable period in
1996. This decrease was expected since policies in force are
essentially the same as a year ago.
General and administrative expenses decreased by $610,000, or
13.1%, to $4,048,000 for the three months ended March 31,
1997, from $4,658,000 for the comparable period in 1996. This
reduction in general and administrative expenses primarily
resulted from a decrease in commissions and other expenses due
to fewer mortgage loan originations made by the Company's
mortgage subsidiary.
Interest expense decreased by $127,000, or 31.4%, to $278,000
for the three months ended March 31, 1997, from $405,000 for
the comparable period in 1996. This decrease was primarily
due to fewer mortgage loan originations by the Company's
mortgage subsidiary.
Cost of goods and services sold of the mortuaries and
cemeteries increased by $143,000, or 24.3%, to $732,000 for
the three months ended March 31, 1997, from $589,000 for the
comparable period in 1996. This increase was consistent with
the increase in net mortuary and cemetery sales.
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.
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 $47,019,000, at amortized cost as of March 31,
1997 compared to $47,906,000 at amortized cost as of December
31, 1996. This represents 60% of the total insurance related
investments in 1996 as compared to 63% in 1996. 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, 1997 $1,877,596 or 4.0% and at December
31, 1996 $1,994,000 or 4.2% of the Company's total investment
in bonds were invested in bonds in rating categories three
through six which are considered non-investment grade.
The Company intends 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, 1996
and 1995, the life subsidiary exceeded the regulatory
criteria.
The Company's capitalization of stockholders' equity and long
term debt was $34,659,000 for the three months ended March 31,
1997 as compared to $34,278,000 for the three months ended
March 31, 1996. Stockholders' equity as a percent of
capitalization increased to 68.4% for the three months ended
March 31, 1997 from 64.1% for the three months ended March 31,
1996 and as a percent of assets increased to 19.2% from 17.1%.
Lapse rates measure the amount of insurance terminated during
a particular period. The Company's lapse rate for life
insurance for 1996 was 12% as compared to a rate of 10.5% for
1995. The 1997 lapse rate is approximately the same as 1996.
In February 1997, the Company purchased all of the outstanding
shares of common stock of Crystal Rose Funeral Home, Inc., an
Arizona based mortuary, for a total consideration of $547,000.
The purchase price included a note to the former owner in the
amount of $297,000.
At March 31, 1997, $9,969,000 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.
Part II Other Information:
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
NONE
(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: May 13, 1997 By: George R. Quist,
------------ ----------------
Chairman of the Board,
President and Chief Executive
Officer (Principal Executive
Officer)
DATED: May 13, 1997 By: Scott M. Quist
------------ ---------------
First Vice President, General
Counsel and Treasurer
(Principal Financial and
Accounting Officer)
7
3-MOS
DEC-31-1996
MAR-31-1997
47,024,952
0
0
3,905,839
8,269,966
7,726,486
73,936,628
7,513,158
0
4,221,075
123,664,091
74,476,015
0
713,201
1,908,739
10,958,028
9,214,831
0
0
14,485,940
123,664,091
1,472,623
1,773,427
36,027
4,137,414
1,537,330
314,828
0
509,974
117,294
392,680
0
0
0
392,680
.10
.10
0
0
0
0
0
0
0
