UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2006 Commission File Number: 0-9341
- ------------------------------------ ------------------------------
SECURITY NATIONAL FINANCIAL CORPORATION
Exact Name of Registrant
UTAH 87-0345941
(State or other jurisdiction of I.R.S. Employer Identification Number
incorporation or organizationr
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 such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Securities Exchange Act
of 1934. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Securities Exchange Act of 1934): YES NO X
--- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common Stock, $2.00 par value 5,968,970
- ------------------------------------- -----------------------------------
Title of Class Number of Shares Outstanding as of
October 31, 2006
Class C Common Stock, $.20 par value 6,640,520
- ------------------------------------ -----------------------------------
Title of Class Number of Shares Outstanding as of
October 31, 2006
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2006
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements Page No.
- ------ --------
Condensed Consolidated Statements of Earnings -
Three and Nine Months Ended September 30, 2006
and 2005 (Unaudited)..................................................3
Condensed Consolidated Balance Sheets -
September 30, 2006, and December 31, 2005 (Unaudited)...............4-5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2006 and 2005 (Unaudited).............6
Notes to Condensed Consolidated Financial Statements (Unaudited)...7-14
Item 2 Management's Discussion and Analysis of Financial Condition
- ------ and Results of Operations.........................................15-19
Item 3 Quantitative and Qualitative Disclosures about Market Risk...........19
- ------
Item 4 Controls and Procedures..............................................19
- ------
PART II - OTHER INFORMATION
Other Information.................................................19-22
Signature Page.......................................................23
Certifications....................................................24-26
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
Revenues: 2006 2005 2006 2005
- -------- ---- ---- ---- ----
Insurance premiums and other
considerations $ 7,537,345 $ 6,437,047 $ 22,494,867 $ 20,329,776
Net investment income 5,742,427 5,475,357 16,321,485 14,918,458
Net mortuary and cemetery sales 2,864,920 2,472,330 9,073,938 8,203,514
Realized gains on sale of
investments and other assets 731,658 15,379 789,329 38,693
Mortgage fee income 21,602,097 21,055,796 56,161,784 51,321,888
Other 96,328 104,684 283,514 415,004
------------- ------------- ------------- -------------
Total revenues 38,574,775 35,560,593 105,124,917 95,227,333
------------- ------------- ------------- -------------
Benefits and expenses:
Death benefits 3,367,393 3,385,292 10,757,083 9,810,767
Surrenders and other policy benefits 405,824 226,244 1,403,185 1,049,121
Increase in future policy benefits 2,931,798 2,233,110 8,279,678 7,304,025
Amortization of deferred policy and
pre-need acquisition costs and costs of
insurance acquired 1,383,426 741,378 2,948,423 2,460,816
Selling, general and administrative
expenses:
Commissions 15,997,433 15,193,331 42,045,749 39,408,554
Salaries 4,469,881 3,960,552 12,959,734 11,709,035
Other 5,996,090 5,882,937 17,196,515 15,798,339
Interest expense 1,331,487 1,502,491 3,440,038 3,171,612
Cost of goods and services
sold mortuaries and cemeteries 557,908 479,794 1,765,953 1,594,750
------------- ------------- ------------- -------------
Total benefits and expenses 36,441,240 33,605,129 100,796,358 92,307,019
------------- ------------- ------------- -------------
Earnings before income taxes 2,133,535 1,955,464 4,328,559 2,920,314
Income tax expense (592,238) (628,751) (1,049,957) (762,218)
------------- ------------- ------------- -------------
Net earnings $ 1,541,297 $ 1,326,713 $ 3,278,602 $ 2,158,096
============= ============= ============= =============
Net earnings per common share $0.23 $0.22 $0.50 $0.35
===== ===== ===== =====
Weighted average outstanding
common shares 6,597,573 6,159,174 6,557,062 6,119,472
============= ============= ============= =============
Net earnings per common share
-assuming dilution $0.23 $0.22 $0.49 $0.35
===== ===== ===== =====
Weighted average outstanding
common shares- assuming dilution 6,723,103 6,159,919 6,690,938 6,143,984
============= ============= ============= =============
See accompanying notes to condensed consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2006 2005
------------- ------------
Assets:
Fixed maturity securities
held to maturity, at amortized cost $ 94,217,620 $ 89,780,942
Fixed maturity securities available
for sale, at estimated fair value 5,682,637 6,597,161
Equity securities available for sale,
at estimated fair value 5,026,596 12,346,939
Mortgage loans on real estate and construction loans,
net of allowances for losses 79,739,607 72,793,811
Real estate, net of accumulated
depreciation and allowances for losses 5,538,484 7,012,399
Policy, student and other loans net of allowance for
doubtful accounts 12,659,311 12,391,569
Short-term investments 12,510,843 3,211,590
------------- -------------
Total investments 215,375,098 204,134,411
------------- -------------
Restricted assets of cemeteries and mortuaries 5,380,154 5,240,099
------------- -------------
Cash and cash equivalents 22,999,288 16,632,966
------------- -------------
Receivables:
Trade contracts 7,208,798 5,733,142
Mortgage loans sold to investors 48,648,644 53,970,231
Receivable from agents 2,048,611 1,992,877
Other 1,618,902 958,851
------------- -------------
Total receivables 59,524,955 62,655,101
Allowance for loan losses and doubtful accounts (1,263,635) (1,191,106)
------------- -------------
Net receivables 58,261,320 61,463,995
------------- -------------
Policyholder accounts on deposit with reinsurer -- 6,572,756
Cemetery land and improvements held for sale 8,628,279 8,498,227
Accrued investment income 2,942,640 2,197,576
Deferred policy and pre-need
contract acquisition costs 27,591,082 24,048,638
Property and equipment, net 13,949,975 14,747,276
Cost of insurance acquired 12,132,803 12,663,221
Cemetery perpetual care trust investments 1,210,926 1,152,493
Goodwill 683,191 683,191
Other 2,119,633 1,610,624
------------- -------------
Total assets $ 371,274,389 $ 359,645,473
============= =============
See accompanying notes to condensed consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
September 30, 2006 December 31,
2006 2005
------------------ --------------
Liabilities:
Future life, annuity, and other benefits $ 266,873,282 $ 260,822,803
Unearned premium reserve 4,306,269 3,157,918
Bank loans payable 7,704,276 8,946,321
Notes and contracts payable 799,064 1,326,284
Deferred pre-need cemetery and mortuary
contract revenues 11,220,851 10,828,994
Accounts payable 1,718,496 1,533,065
Funds held under reinsurance treaties -- 1,129,747
Other liabilities and accrued expenses 10,866,430 9,427,644
Income taxes 15,456,360 14,601,029
------------- -------------
Total liabilities 318,945,028 311,773,805
------------- -------------
Commitments and contingencies -- --
------------- -------------
Non-controlling interest in perpetual
care trusts 2,259,105 2,173,250
------------- -------------
Stockholders' Equity:
Common stock:
Class A: $2.00 par value, authorized
10,000,000 shares, issued 7,107,188
shares in 2006 and 7,098,363 shares
in 2005 14,214,376 14,196,726
Class C: convertible, $0.20 par value,
authorized 7,500,000 shares, issued
6,778,658 shares in 2006 and 6,781,060
shares in 2005 1,355,732 1,356,212
------------- -------------
Total common stock 15,570,108 15,552,938
Additional paid-in capital 15,828,426 15,650,344
Accumulated other comprehensive income (loss)
and other items, net of deferred taxes 754,162 117,647
Retained earnings 20,699,548 17,460,024
Treasury stock at cost (1,138,218 Class A shares
and 138,138 Class C shares in 2006;
1,251,104 Class A shares and 138,138
Class C shares in 2005 held
by affiliated companies) (2,781,988) (3,082,535)
------------- -------------
Total stockholders' equity 50,070,256 45,698,418
------------- -------------
Total liabilities and stockholders'
equity $ 371,274,389 $ 359,645,473
============= =============
See accompanying notes to condensed consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
2006 2005
---- ----
Cash flows from operating activities:
Net cash provided by (used in)
operating activities $ 23,210,232 $ (1,921,090)
------------ ------------
Cash flows from investing activities:
Securities held to maturity:
Purchase - fixed maturity securities (8,308,157) (5,484,347)
Calls and maturities - fixed
maturity securities 2,802,159 7,381,707
Securities available for sale:
Purchase - fixed maturity securities (173,262) --
Sales (purchases) - equity securities 10,002,660 1,992,991
Purchases of short-term investments (9,299,253) (11,924,755)
Sales of short-term investments -- 14,127,733
Purchases of restricted assets (63,943) (169,310)
Change in assets for perpetual care trusts (58,433) (170,736)
Amount received for perpetual care trusts 85,855 72,585
Mortgage, policy, and other loans made (51,337,926) (58,817,295)
Payments received for mortgage,
policy, and other loans 44,156,058 57,737,641
Purchases of property and equipment (1,241,988) (1,403,476)
Disposal of property and equipment 679,769 --
Purchases of real estate (1,830,877) (2,995,748)
Sale of real estate 2,914,996 2,294,238
------------ ------------
Net cash provided by
(used in) investing activities (11,672,342) 2,641,228
------------ ------------
Cash flows from financing activities:
Annuity contract receipts 4,484,563 4,237,386
Annuity contract withdrawals (8,325,520) (7,111,885)
Sale of treasury stock 454,701 413,965
Repayment of bank loans and notes and
contracts payable (2,535,312) (2,575,517)
Proceeds from borrowing on notes and
Contracts 750,000 --
------------ ------------
Net cash used in financing activities (5,171,568) (5,036,051)
------------ ------------
Net change in cash and cash equivalents 6,366,322 (4,315,913)
Cash and cash equivalents at beginning of period 16,632,966 15,333,668
------------ ------------
Cash and cash equivalents at end of period $ 22,999,288 $ 11,017,755
============ ============
See accompanying notes to condensed consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2006 (Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and disclosures required by accounting principles generally
accepted in the United States of America for complete financial statements.
These financial statements should be read in conjunction with the consolidated
financial statements of the Company and notes thereto for the year ended
December 31, 2005, included in the Company's Annual Report on Form 10-K (file
number 0-9341). 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, 2006 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2006.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
The estimates susceptible to significant change are those used in determining
the liability for future policy benefits and claims, those used in determining
valuation allowances for mortgage loans on real estate, and those used in
determining the estimated future costs for pre-need sales. Although some
variability is inherent in these estimates, management believes the amounts
provided are fairly stated in all material respects.
Certain 2005 amounts have been reclassified to bring them into conformity with
the 2006 presentation.
2. Recent Accounting Pronouncements
In September 2005, the AICPA issued Statement of Position 05-1, Accounting by
Insurance Enterprises for Deferred Acquisition Costs ("DAC") in Connection with
Modifications or Exchanges of Insurance Contracts, ("SOP 05-1"). SOP 05-1
provides guidance on accounting by insurance enterprises for DAC on internal
replacements of insurance and investment contracts. An internal replacement is a
modification in product benefits, features, rights or coverages that occurs by
the exchange of a contract for a new contract, or by amendment, endorsement, or
rider to a contract, or by the election of a feature or coverage within a
contract. Modifications that result in a replacement contract that is
substantially changed from the replaced contract should be accounted for as an
extinguishment of the replaced contract. Unamortized DAC, unearned revenue
liabilities and deferred sales inducements from the replaced contract must be
written-off. Modifications that result in a contract that is substantially
unchanged from the replaced contract should be accounted for as a continuation
of the replaced contract. SOP 05-1 is effective for internal replacements
occurring in fiscal years beginning after December 15, 2006, with earlier
adoption encouraged. Initial application of SOP 05-1 should be as of the
beginning of the entity's fiscal year. The Company is expected to adopt SOP 05-1
effective January 1, 2007. Adoption of this statement is not expected to have an
impact on the Company's consolidated financial statements; however, the impact
has not yet been determined.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2006, (Unaudited)
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments -- an amendment of FASB Statements No. 133 and 140 (SFAS
155). SFAS 155 amends SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities and SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities and related interpretations.
SFAS 155 permits fair value remeasurement for any hybrid financial instrument
that contains an embedded derivative that otherwise would require bifurcation
and clarifies which interest-only strips and principal-only strips are not
subject to recognition as liabilities. SFAS 155 eliminates the prohibition on a
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. SFAS 155 is effective for the Company for all financial instruments
acquired or issued beginning January 1, 2007. The impact of adoption of this
statement on the Company's consolidated financial statements, if any, has not
yet been determined.
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of
Financial Assets - an amendment of FASB Statement No. 140 (SFAS 156). SFAS 156
amends SFAS 140 Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities and related interpretations. SFAS 156 requires an
entity to recognize a servicing asset or servicing liability each time it
undertakes an obligation to service a financial asset. It also requires all
separately recognized servicing assets and servicing liabilities to be initially
measured at fair value, if practicable. SFAS 156 permits an entity to use either
the amortization method or the fair value measurement method for each class of
separately recognized servicing assets and servicing liabilities. SFAS 156 is
effective for the Company as of January 1, 2007. The impact of adoption of this
statement on the Company's consolidated financial statements, if any, has not
yet been determined.
In June 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No 109 (FIN 48). FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. The interpretation is effective for the fiscal years beginning after
December 15, 2006. The impact of adoption of this interpretation on the
Company's consolidated financial statements, if any, has not yet been
determined.
In September 2006, the FASB issued SFAS No. 158, Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106, and 132(R) ("SFAS 158"). Under SFAS 158, companies
must recognize a net liability or asset to report the funded status of their
defined benefit pension and other postretirement benefit plans on their balance
sheets. The effective date of the recognition and disclosure provisions for
calendar-year public companies is for calendar years ending after December 15,
2006. The Company is currently evaluating the impact of this new standard but it
is not expected to have a significant effect on the consolidated financial
statements for the year ending December 31, 2006.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS
157"). SFAS 157 defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. SFAS 157 will be
applied prospectively and is effective for fiscal years beginning after November
15, 2007, and interim periods within those fiscal years. SFAS 157 is not
expected to have a material impact on the Company's consolidated financial
statements.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2006, (Unaudited)
In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 108 ("SAB 108"). SAB 108 was issued to provide
interpretive guidance on how the effects of the carryover or reversal of prior
year misstatements should be considered in quantifying a current year
misstatement. The provisions of SAB 108 are effective for the Company for its
December 31, 2006 year-end. The adoption of SAB 108 is not expected to have a
material impact on the Company's consolidated financial statements.
3. Comprehensive Income
For the three months ended September 30, 2006 and 2005, total comprehensive
income amounted to $1,254,000 and $2,587,000, respectively. This decrease of
$1,332,000 was primarily the result of an increase in net income of $215,000, a
decrease in derivatives of $465,000, and a $1,082,000 decrease in unrealized
gains and losses in securities available for sale.
For the nine months ended September 30, 2006 and 2005, total comprehensive
income amounted to $3,915,000 and $3,292,000 respectively. This increase of
$623,000 was primarily the result of an increase in net income of $1,121,000, a
decrease in derivatives of $848,000, and an increase of $350,000 in unrealized
gains and losses in securities available for sale.
4. Stock-Based Compensation
Stock-Based Compensation
Effective January 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123R, "Share-Based Payment" ("FAS 123R") for
its stock-based compensation plans. The Company previously accounted for these
plans under the recognition and measurement principles of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations and disclosure requirements established by SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") as amended by SFAS No.
148, "Accounting for Stock Based Compensation - Transition and Disclosure."
Under APB 25, no compensation expense was recorded in earnings for the Company's
stock-based options granted under its compensation plans. The pro forma effects
on net income and earnings per share for the options and awards granted under
the plans were instead disclosed in a note to the consolidated financial
statements. Under SFAS 123R, all stock-based compensation is measured at the
grant date, based on the fair value of the option or award, and is recognized as
an expense in earnings over the requisite service, which is typically through
the date the options vest.
The Company adopted SFAS 123R using the modified prospective method. Under this
method, for all stock-based options and awards granted prior to January 1, 2006
that remain outstanding as of that date, compensation cost is recognized for the
unvested portion over the remaining requisite service period, using the
grant-date fair value measured under the original provisions of SFAS 123 for pro
forma and disclosure purposes. Furthermore, compensation costs will also be
recognized for any awards issued, modified, repurchased or cancelled after
January 1, 2006.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2006, (Unaudited)
The Company utilized the Black-Scholes-Merton model for calculating the fair
value pro forma disclosures under SFAS 123 and will continue to use this model,
which is an acceptable valuation approach under SFAS 123R. The following table
summarizes the Black-Scholes-Merton option-pricing model assumptions used to
compute the weighted-average fair value of stock options granted during the
periods below:
Nine Months Ended
September 30,
2006 2005
----- ----
Dividend yield N/A* 5%
Expected volatility N/A* 39%
Risk-free interest rate N/A* 3.4%
Expected holding period (in years) N/A* 7.5
Weighted-average fair value of options granted N/A* $1.92
- ----------------
* Not applicable as there were no options granted during the period.
No options were granted for the nine months ended September 30, 2006. Total
compensation costs relating to stock-based compensation was not material during
the nine months ended September 30, 2006, including the effects from adoption of
SFAS 123R, which would have previously been presented in a pro forma disclosure,
as discussed above.
The following table illustrates the effect on net income and earnings per share
as if the Company had applied the fair-value recognition provisions of SFAS 123
to all of its stock-based compensation awards for periods prior to adoption of
SFAS 123R, and the actual effect on net income and earnings per share for the
period subsequent to the adoption of SFAS 123R:
Nine Months Ended
September 30,
2006 2005
----- ----
Net earnings, as reported $3,278,602 $2,158,096
Total stock-based employee compensation recognized -- --
Total stock-based employee compensation expense
determined under fair value based method
for all awards -- --
---------- ----------
Pro forma net earnings $3,278,602 $2,158,096
========== ==========
Basic earnings per share, as reported $.50 $.35
Diluted earnings per share as reported $.49 $.35
Basic earnings per share, pro forma $.50 $.35
Diluted earnings per share, pro forma $.49 $.35
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2006, (Unaudited)
5. Earnings Per Share
The basic and diluted earnings per share amounts were calculated as follows:
Three Months Ended
September 30,
2006 2005
---- ----
Numerator:
Net income $1,541,297 $ 1,326,713
========== ===========
Denominator:
Denominator for basic earnings per share-
weighted-average shares 6,597,573 6,159,174
---------- -----------
Effect of dilutive securities:
Employee stock options 124,490 168
Stock appreciation rights 1,040 577
------------ -----------
Dilutive potential common shares 125,530 745
------------ -----------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions* 6,723,103 6,159,919
=========== ===========
Basic earnings per share $.23 $.22
==== ====
Diluted earnings per shar $.23 $.22
==== ====
Earnings per share amounts have been adjusted for the effect of annual stock
dividends.
Nine Months Ended
September 30,
2006 2005
---- ----
Numerator:
Net income $3,278,602 $2,158,096
========== ==========
Denominator:
Denominator for basic earnings per share-
weighted-average shares 6,557,062 6,119,472
----------- ----------
Effect of dilutive securities:
Employee stock options 132,795 23,971
Stock appreciation rights 1,081 541
------------ -----------
Dilutive potential common shares 133,876 24,512
----------- -----------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions* 6,690,938 6,143,984
=========== ===========
Basic earnings per share $.50 $.35
==== ====
Diluted earnings per share $.49 $.35
==== ====
*The Company has two classes of common stock outstanding, Class A and Class C.
The Class C share in distribution of earnings on a 10-for-1 basis with the Class
A shares; therefore, earnings per share for the Class C shares are converted to
Class A shares on a 10-for-1 basis.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2006 (Unaudited)
Earnings per share amounts have been adjusted for the effect of annual stock
dividends.
6. Business Segment
Life Cemetery/ Reconciling
Insurance Mortuary Mortgage Items Consolidated
For the Three Months Ended ---------- ----------- --------- ------------ -------------
September 30, 2006
- --------------------------
Revenues from
external customers $10,932,078 $3,908,464 $23,734,233 $ -- $38,574,775
Intersegment revenues 1,119,078 23,001 103,139 (1,245,218) --
Segment profit (loss)
before income taxes 993,541 662,308 477,686 -- 2,133,535
For the Three Months Ended
September 30, 2005
- --------------------------
Revenues from
external customers $8,927,439 $2,796,506 $23,836,648 $ -- $35,560,593
Intersegment revenues 1,297,110 30,668 92,743 (1,420,521) --
Segment profit (loss)
before income taxes 470,689 (23,454) 1,508,229 -- 1,955,464
For the Nine Months Ended
September 30, 2006
- -------------------------
Revenues from
external customers $32,541,462 $10,677,636 $61,905,819 -- $105,124,917
Intersegment revenues 3,773,545 69,003 315,757 (4,158,305) --
Segment profit (loss)
before income taxes 3,046,942 1,267,436 14,181 -- 4,328,559
Identifiable assets 356,839,984 54,111,387 19,571,930 (59,248,912) 371,274,389
For the Nine Months Ended
September 30, 2005
- -------------------------
Revenues from
external sources $28,505,978 $9,130,423 $57,590,932$ -- $95,227,333
Intersegment revenues 3,666,646 69,003 255,783 (3,991,432) --
Segment profit (loss)
before income taxes 1,806,834 398,433 715,047 -- 2,920,314
Identifiable assets 309,087,308 49,244,698 18,645,032 (52,398,603) 324,578,435
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2006, (Unaudited)
7. Merger and Acquisition Transactions
Southern Security Life
As of December 31, 2004, the Company's wholly owned subsidiary, Security
National Life Insurance Company ("Security National Life"), and its wholly owned
subsidiary, SSLIC Holding, owned approximately 77% of the outstanding shares of
common stock of Southern Security Life.
On January 1, 2005, Security National Life and SSLIC Holding Company completed a
merger transaction with Southern Security Life Insurance Company ("Southern
Security Life"). Under the terms of the merger and pursuant to the Agreement and
Plan of Reorganization, dated August 25, 2004, including the amendment thereto
dated December 27, 2004, SSLIC Holding Company was merged with and into Southern
Security Life. The merger transaction resulted in Southern Security Life
becoming a wholly owned subsidiary of Security National Life, and the
unaffiliated stockholders of Southern Security Life, holding an aggregate of
490,816 shares of common stock, or approximately 23% of the outstanding common
shares of Southern Security Life, becoming entitled to receive $3.84 in cash for
each issued and outstanding share of their common stock of Southern Security
Life, or an aggregate of $1,884,733. This consideration was primarily paid to
those unaffiliated stockholders during 2005.
Memorial Insurance Company of America
On December 29, 2005, Security National Life and Southern Security Life
completed a stock purchase transaction with Memorial Insurance Company of
America, an Arkansas domiciled insurance company ("Memorial Insurance Company"),
to purchase all of the outstanding shares of common stock of Memorial Insurance
Company. Under the terms of the transaction, the stockholders of Memorial
Insurance Company received a total purchase consideration of $13,500,000 for all
of the outstanding common shares of Memorial Insurance Company, with each
shareholder having received a pro-rata share of the total amount of the purchase
consideration based upon the number of shares each shareholder owned. As of
December 31, 2005, Memorial Insurance Company had 116,116 policies in force and
approximately 50 agents.
The unaudited consolidated pro forma results of operations assuming consummation
of the purchase of Memorial Insurance Company as of January 1, 2005, are
summarized as follows:
Unaudited Pro Forma
Three Months Ended Nine Months Ended
September 30, 2005 September 30, 2005
------------------ ------------------
In thousands except earnings per share
Total revenue $36,476 $97,972
Net earnings $ 1,536 $ 2,786
Basic earnings per share $.25 $.46
Diluted earnings per share $.25 $.45
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2006, (Unaudited)
8. Other Business Activity
The City of Phoenix (in Arizona) began condemnation proceedings during 2004 on
the property where the Camelback Funeral Home was located for purposes of
constructing a light rail facility. The city placed $1,200,000 in escrow to pay
the Company for the property that was condemned. The carrying amount on the
Company's financial statements for the land and building of the Camelback
Funeral Home at December 31, 2005 was $678,889. The Company has had an
independent appraisal and negotiated a higher sales price with the city. In July
2006, the Company settled with the City of Phoenix for a sales price of
$1,440,000. As a result of the sale, the Company recognized a gain of $760,231
during the third quarter of 2006. The first payment of $1,200,000 was made by
the City of Phoenix in August 2006 with the remaining amount to be received
within 30 days of the city council's approval of the sales price.
The Company received a letter dated November 29, 2004 on behalf of Roger
Gornichec, who the Company recognizes as having been an independent contractor.
Gornichec had concluded his services as an agent selling insurance in the spring
of 2003 and his license to sell cemetery plots was not renewed in the summer of
2004. Gornichec asserted that he was an employee contrary to the Company's
position.
The claims made in the letter on behalf of Gornichec included but were not
limited to, wrongful termination in violation of public policy,
misrepresentation, age discrimination, whistle-blower retaliation, interference
with economic advantage, breach of contract, breach of the covenant of good
faith and fair dealing, and infliction of emotional distress. Gornichec also
claimed he was owed a certain amount from a retirement plan. The letter from
Gornichec's attorney proposed a settlement in the amount of $420,000. Based on
its investigation, the Company believes Gornichec was an independent contractor
rather than an employee, and there was no justification for the claims and the
settlement amount sought. The Company reached a settlement with Gornichec, which
resulted in the Company paying $27,000 to Gornichec during the second quarter of
2006.
The Company received a letter dated November 9, 2004 on behalf of Charles Hood,
who worked at Singing Hills Memorial Park in El Cajon, California. Hood was
hired in early 2003 as a groundskeeper with his work concluding on October 30,
2003. Hood claims he wrote a letter to the Company expressing his concerns
regarding the operation of the cemetery, and that the next day he was
terminated, even though he recognizes his relationship was as an at-will
employee. Hood's claims against the Company also include, but are not limited
to, violation of labor laws, whistleblower retaliation and infliction of
emotional distress. The letter proposed a settlement in the amount of $275,000.
On November 23, 2005, Hood filed a complaint in the Superior Court of the State
of California for the County for San Diego (Case No. GIE 028978) against Singing
Hills Memorial Park and California Memorial Estates, Inc, wholly owned
subsidiaries of the Company. The claims in the complaint include wrongful
termination in violation of public policy, retaliation in violation of public
policy, race discrimination in violation of the California Fair Employment and
Housing Act, retaliation in violation of the California Fair Employment and
Housing Act, intentional infliction of emotional distress, plus punitive
damages, attorney's fees and costs of the lawsuit. There are no specific amounts
requested in the complaint, but damages are in an amount to be proven at a jury
trial. The Company contends that Hood voluntarily quit and was not terminated.
The trial was set for November 2006. The Company reached a settlement with Hood,
which resulted in the Company paying $30, 000 to Hood, during the third quarter
of 2006.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
------------------------------------------------------------------------
Overview
The Company's operations over the last several years generally reflect three
trends or events which the Company expects to continue: (i) increased attention
to "niche" insurance products, such as the Company's funeral plan policies and
traditional whole-life products; (ii) emphasis on cemetery and mortuary
business; and (iii) originating and refinancing mortgage loans.
During the nine months ended September 30, 2006, SecurityNational Mortgage
Company ("SNMC") experienced an increase in revenue and expenses due to the
increase in loan volume of its operations. SNMC is a mortgage lender
incorporated under the laws of the State of Utah. SNMC is approved and regulated
by the Federal Housing Administration (FHA), a department of the U.S. Department
of Housing and Urban Development (HUD), to originate mortgage loans that qualify
for government insurance in the event of default by the borrower. SNMC obtains
loans primarily from independent brokers and correspondents. SNMC funds the
loans from internal cash flows and lines of credit from financial institutions.
SNMC receives fees from the borrowers and other secondary fees from third party
investors who purchase the loans from SNMC. SNMC primarily sells all of its
loans to third party investors and does not retain servicing to these loans.
SNMC pays the brokers and correspondents a commission for loans that are
brokered through SNMC. SNMC originated and sold 9,665 ($1,607,842,000) and 9,421
(1,516,694,000) loans, respectively, for the nine months ended September 30,
2006 and 2005.
Results of Operations
Third Quarter of 2006 Compared to Third Quarter of 2005
Total revenues increased by $3,014,000, or 8.5%, to $38,575,000 for the three
months ended September 30, 2006, from $35,561,000 for the three months ended
September 30, 2005. Contributing to this increase in total revenues was an
$546,000 increase in mortgage fee income, a $1,100,000 increase in insurance
premiums and other considerations, a $267,000 increase in net investment income,
a $393,000 increase in net mortuary and cemetery sales, and a $716,000 increase
in realized gains on investments and other assets.
Insurance premiums and other considerations increased by $1,100,000, or 17.1%,
to $7,537,000 for the three months ended September 30, 2006, from $6,437,000 for
the comparable period in 2005. This increase was primarily due to additional
premiums realized from new insurance sales and from the acquisition of Memorial
Insurance Company on December 29, 2005.
Net investment income increased by $267,000, or 4.9%, to $5,742,000 for the
three months ended September 30, 2006, from $5,475,000 for the comparable period
in 2005. This increase was primarily attributable to additional interest income
from increased long-term bond and mortgage purchases over the comparable period
in 2005 and additional investment income from the assets received from the
acquisition of Memorial Insurance Company.
Net mortuary and cemetery sales increased by $393,000, or 15.9%, to $2,865,000
for the three months ended September 30, 2006, from $2,472,000 for the
comparable period in 2005. This increase was due to increased at-need sales in
cemetery and mortuary operations and increased pre-need land sales in cemetery
operations.
Realized gains on investments and other assets increased by $716,000 to $731,000
for the three months ended September 30, 2006 from $15,000 for the comparable
period in 2005. This was due primarily to a gain of $760,000 from the sale of
the Camelback Funeral Home to the city of Phoenix pursuant to condemnation
proceedings to construct a light rail facility.
Mortgage fee income increased by $546,000, or 2.6%, to $21,602,000 for the three
months ended September 30, 2006, from $21,056,000 for the comparable period in
2005. This increase was primarily attributable to an increase in the number of
loan originations during the third quarter of 2006 due to the opening of
additional mortgage offices and increased production in existing mortgage
offices, which resulted in financing a greater number of mortgage loans.
Total benefits and expenses were $36,441,000, or 94.5% of total revenues, for
the three months ended September 30, 2006, as compared to $33,605,000, or 94.5%
of total revenues, for the comparable period in 2005. This increase primarily
resulted from increased loan costs at SecurityNational Mortgage Company due to a
greater number of loan originations and additional expenses from the operations
of Memorial Insurance Company, which the Company acquired on December 29, 2005.
Death benefits, surrenders and other policy benefits, and increase in future
policy benefits increased by an aggregate of $860,000, or 14.7%, to $6,705,000
for the three months ended September 30, 2006, from $5,845,000 for the
comparable period in 2005. This increase was primarily the result of an increase
in death benefits and surrenders and other policy benefits.
Amortization of deferred policy and pre-need acquisition costs and costs of
insurance acquired increased by $642,000, or 86.6%, to $1,383,000 for the three
months ended September 30, 2006, from $741,000 for the comparable period in
2005. This increase was primarily due to increased business and to adjustments
in actuarial assumptions.
Selling, general and administrative expenses increased by $1,427,000, or 5.7%,
to $26,464,000 for the three months ended September 30, 2006, from $25,037,000
for the comparable period in 2005. This increase primarily resulted from an
increase in commissions due to a greater number of mortgage loan originations
made by SecurityNational Mortgage Company during the third quarter of 2006,
additional expenses from the operations of Memorial Insurance Company, which the
Company purchased on December 29, 2005, and increased salaries of existing
employees and an increase in the number of employees.
Interest expense decreased by $171,000, or 11.4%, to $1,331,000 for the three
months ended September 30, 2006, from $1,502,000 for the comparable period in
2005. This decrease was primarily due to a reduction in warehouse lines of
credit required for a fewer number of warehoused mortgage loans made by
SecurityNational Mortgage Company.
Cost of goods and services sold of the mortuaries and cemeteries increased by
$78,000, or 16.3%, to $558,000 for the three months ended September 30, 2006,
from $480,000 for the comparable period in 2005. This increase was primarily due
to increased pre-need cemetery land sales.
Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30,
2005
Total revenues increased by $9,898,000, or 10.4%, to $105,125,000 for the nine
months ended September 30, 2006, from $95,227,000 for the nine months ended
September 30, 2005. Contributing to this increase in total revenues was a
$4,840,000 increase in mortgage fee income, a $2,165,000 increase in insurance
premiums and other considerations, a $1,403,000 increase in net investment
income, a $870,000 increase in net mortuary and cemetery sales and a $750,000
increase in realized gains on investments and other assets. This increase was
partially offset by a $131,000 decrease in other revenues.
Insurance premiums and other considerations increased by $2,165,000, or 10.6%,
to $22,495,000 for the nine months ended September 30, 2006, from $20,330,000
for the comparable period in 2005. This increase was primarily due to additional
premiums realized from new insurance sales and from the acquisition of Memorial
Insurance Company on December 29, 2005.
Net investment income increased by $1,403,000, or 9.4%, to $16,321,000 for the
nine months ended September 30, 2006, from $14,918,000 for the comparable period
in 2005. This increase was primarily attributable to additional interest income
from increased long-term bond and mortgage purchases over the comparable period
in 2005 and additional investment income from the assets received as a result of
the acquisition of Memorial Insurance Company.
Net mortuary and cemetery sales increased by $870,000, or 10.6% to $9,074,000
for the nine months ended September 30, 2006, from $8,204,000 for the comparable
period in 2005. This increase was due to increased at-need sales at the cemetery
and mortuary operations and increased pre-need land sales in cemetery
operations.
Realized gains on investments and other assets increased by $750,000 to $789,000
for the three months ended September 30, 2006 from $39,000 for the comparable
period in 2005. This was primarily due to a gain of $760,000 from the sale of
the Camelback Funeral Home to the city of Phoenix pursuant to condemnation
proceedings to construct a light rail facility.
Mortgage fee income increased by $4,840,000, or 9.4%, to $56,162,000 for the
nine months ended September 30, 2006, from $51,322,000 for the comparable period
in 2005. This increase was primarily attributable to an increase in the number
of loan originations during the first nine months of 2006 due to the opening of
additional mortgage offices and increased production in existing mortgage
offices, which resulted in financing a greater number of mortgage loans.
Other revenues decreased by $131,000, or 31.6%, to $284,000 for the nine months
ended September 30, 2006 from $415,000 for the comparable period in 2005. This
decrease was due to a reduction in other revenues from the Company's mortuary
operations.
Total benefits and expenses were $100,796,000, or 95.9% of total revenues, for
the nine months ended September 30, 2006, as compared to $92,307,000, or 96.9%
of total revenues, for the comparable period in 2005. This increase primarily
resulted from increased loan costs at SecurityNational Mortgage Company due to a
greater number of loan originations and additional expenses from the operations
of Memorial Insurance Company, which the Company acquired on December 29, 2005.
Death benefits, surrenders and other policy benefits, and increase in future
policy benefits increased by an aggregate of $2,276,000, or 12.5%, to
$20,440,000 for the nine months ended September 30, 2006, from $18,164,000 for
the comparable period in 2005. This increase was primarily due to increased
business and to adjustments in actuarial assumptions.
Amortization of deferred policy and pre-need acquisition costs and costs of
insurance acquired increased by $488,000, or 19.8%, to $2,949,000 for the nine
months ended September 30, 2006, from $2,461,000 for the comparable period in
2005. This increase was primarily due to the realization of improvements in
persistency and to expenses.
Selling, general and administrative expenses increased by $5,286,000, or 7.9%,
to $72,202,000 for the nine months ended September 30, 2006, from $66,916,000
for the comparable period in 2005. This increase primarily resulted from an
increase in commissions due to a greater number of mortgage loan originations
made by SecurityNational Mortgage Company during the first nine months of 2006,
additional expenses from the operations of Memorial Insurance Company, which the
Company purchased on December 29, 2005, and increased salaries of existing
employees and an increase in the number of employees.
Interest expense increased by $268,000, or 8.4%, to $3,440,000 for the nine
months ended September 30, 2006, from $3,172,000 for the comparable period in
2005. This increase was primarily due to increased warehouse lines of credit
required for a greater number of warehoused mortgage loans made by
SecurityNational Mortgage Company.
Cost of goods and services sold of the mortuaries and cemeteries increased by
$171,000, or 10.7%, to $1,766,000 for the nine months ended September 30, 2006,
from $1,595,000 for the comparable period in 2005. This increase was primarily
due to increased cemetery and mortuary sales.
Liquidity and Capital Resources
The Company's life insurance subsidiaries and cemetery and mortuary subsidiaries
realize cash flow from premiums, contract payments and sales on personal
services rendered for cemetery and mortuary business, from interest and
dividends on invested assets, and from the proceeds from the maturity of
held-to-maturity investments or sale of other investments. The mortgage
subsidiary realizes cash flow from fees generated by originating and refinancing
mortgage loans and interest earned on mortgages sold to investors. The Company
considers these sources of cash flow to be adequate to fund future policyholder
and cemetery and mortuary liabilities, which generally are long-term, and
adequate to pay current policyholder claims, annuity payments, expenses on the
issuance of new policies, the maintenance of existing policies, debt service,
and 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 predominantly in fixed maturity
securities, mortgage loans, and warehousing of mortgage loans on a short-term
basis before selling the loans to investors in accordance with the requirements
and laws governing the life insurance subsidiaries. Bonds owned by the life
insurance subsidiaries amounted to $99,900,000 as of September 30, 2006,
compared to $96,378,000 as of December 31, 2005. This represents 45.3% and 46.0%
of the total insurance-related investments as of September 30, 2006, and
December 31, 2005, respectively. Generally, all bonds owned by the life
insurance subsidiaries are rated by the National Association of Insurance
Commissioners. Under this rating system, there are six categories used for
rating bonds. At September 30, 2006 and December 31, 2005, 2% ($1,575,000) and
4% ($3,431,000) of the Company's total bond investments were invested in bonds
in rating categories three through six, which are considered non-investment
grade.
The Company has classified certain of its fixed income securities, including
high-yield securities, in its portfolio as available for sale, with the
remainder classified as held to maturity. However, in accordance with Company
policy, any such securities purchased in the future will be classified as held
to maturity. Business conditions, however, may develop in the future which may
indicate a need for a higher level of liquidity in the investment portfolio. In
that event the Company believes it could sell short-term investment grade
securities before liquidating higher-yielding longer-term securities.
The Company is subject to risk based capital guidelines established by statutory
regulators requiring minimum capital levels based on the perceived risk of
assets, liabilities, disintermediation, and business risk. At September 30, 2006
and December 31, 2005, the capital levels of the life insurance subsidiary
exceeded the regulatory criteria.
The Company's total capitalization of stockholders' equity and bank debt and
notes payable was $58,574,000 as of September 30, 2006, as compared to
$55,971,000 as of December 31, 2005. Stockholders' equity as a percent of total
capitalization was 85% and 82% as of September 30, 2006 and December 31, 2005,
respectively.
Lapse rates measure the amount of insurance terminated during a particular
period. The Company's lapse rate for life insurance in 2005 was 7.9% as compared
to a rate of 9.0% for 2004. The 2006 lapse rate to date has been approximately
the same as 2005.
At September 30, 2006, $16,884,000 of the Company's consolidated stockholders'
equity represents the statutory stockholders' equity of the Company's life
insurance subsidiaries. The life insurance subsidiaries cannot pay a dividend to
its parent company without the approval of insurance regulatory authorities.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no significant changes since the annual report Form 10-K filed
for the year ended December 31, 2005.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures - The Company's
principal executive officer and principal financial officer have reviewed and
evaluated the effectiveness of the Company's disclosure controls and procedures
(as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of
1934 (the "Exchange Act") as of September 30, 2006. Based on that evaluation,
the principal executive officer and the principal financial officer have
concluded that the Company's disclosure controls and procedures are effective,
providing them with material information relating to the Company as required to
be disclosed in the reports the Company files or submits under the Exchange Act
on a timely basis.
(b) Changes in internal controls - There were no significant changes in the
Company's internal controls over financial reporting or in other factors that
could significantly affect the Company's internal controls and procedures
subsequent to the date of their most recent evaluation, nor were there any
significant deficiencies or material weaknesses in the Company's internal
controls. As a result, no corrective actions were required or undertaken.
Part II - Other Information:
Item 1. Legal Proceedings
The Company received a letter dated November 9, 2004 on behalf of Charles Hood,
who worked at Singing Hills Memorial Park in El Cajon, California. Hood was
hired in early 2003 as a groundskeeper with his work concluding on October 30,
2003. Hood claims he wrote a letter to the Company expressing his concerns
regarding the operation of the cemetery, and that the next day he was
terminated, even though he recognizes his relationship was as an at-will
employee. Hood's claims against the Company also include, but are not limited
to, violation of labor laws, whistleblower retaliation and infliction of
emotional distress. The letter proposed a settlement in the amount of $275,000.
On November 23, 2005, Hood filed a complaint in the Superior Court of the State
of California for the County for San Diego (Case No. GIE 028978) against Singing
Hills Memorial Park and California Memorial Estates, Inc, wholly owned
subsidiaries of the Company. The claims in the complaint include wrongful
termination in
violation of public policy, retaliation in violation of public policy, race
discrimination in violation of the California Fair Employment and Housing Act,
retaliation in violation of the California Fair Employment and Housing Act,
intentional infliction of emotional distress, plus punitive damages, attorney's
fees and costs of the lawsuit. There are no specific amounts requested in the
complaint, but damages are in an amount to be proven at a jury trial. The
Company contends that Hood voluntarily quit and was not terminated. The trial
was set for November 2006. The Company reached a settlement with Hood, which
resulted in payment of $30,000 to Hood.
The Company is not a party to any other material legal proceedings outside the
ordinary course of business or to any other legal proceedings, which, if
adversely determined, would have a material adverse effect on its financial
condition or results of operations.
Item 2. Changes in Securities and Use of Proceeds
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on July 7, 2006, the
following matters were acted upon: (i) seven directors consisting
of George R. Quist, Scott M. Quist, J. Lynn Beckstead, Jr.,
Charles L. Crittenden, Dr. Robert G. Hunter, H. Craig Moody and
Norman G. Wilbur were elected to serve until the next annual
stockholders meeting or until their respective successors are
elected and qualified (for George R. Quist, with Class A and
Class C shares voting, 11,462,189 votes were cast in favor of
election, no votes were cast against election, and there were
23,963 abstentions; for Scott M. Quist, with Class A and Class C
shares voting, 11,451,638 votes were cast in favor of election,
no votes were cast against election, and there were 34,514
abstentions; for J. Lynn Beckstead, Jr., with Class A shares
voting, 5,329,919 votes were cast in favor of election, no votes
were cast against election, and there were 28,129 abstentions;
for Charles L. Crittenden, with Class A and Class C shares,
11,464,536 votes were cast in favor of election, no votes were
cast against election, and there were 21,616 abstentions; for Dr.
Robert G. Hunter, with Class A and Class C shares voting,
11,460,197 votes were cast in favor of election, no votes cast
against election, and there were 25,955 abstentions; for H. Craig
Moody, with Class A shares voting, 5,337,252 votes were cast in
favor of election, no votes cast against election, and there were
20,796 abstentions; and for Norman G. Wilbur, with Class A and
Class C shares voting, 11,460,197 votes were cast in favor of
election, no votes were cast against election, and there were
25,955 abstentions); and (ii) the appointment of Hansen, Barnett
& Maxwell, P.C. as the Company's registered pubic independent
accountants for the fiscal year ending December 31, 2006 was
ratified (with 11,475,856 votes cast for appointment, 2,232 votes
against appointment, and there were 8,064 abstentions).
Item 5. Other Information
NONE
Item 6. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
See "Table of Contents - Part I - Financial Information" under page 2
above
(a)(2) Financial Statement Schedules
None
All other schedules to the consolidated financial statements required
by Article 7 of Regulation S-X are not required under the related
instructions or are inapplicable and therefore have been omitted.
(3) Exhibits
The following Exhibits are filed herewith pursuant to Rule 601 of
Regulation S-K or are incorporated by reference to previous filings.
3.1 Articles of Restatement of Articles of Incorporation (6)
3.2 Amended Bylaws (8)
4.1 Specimen Class A Stock Certificate (1)
4.2 Specimen Class C Stock Certificate (1)
4.3 Specimen Preferred Stock Certificate and Certificate of Designation
of Preferred Stock (1)
10.1 Restated and Amended Employee Stock Ownership Plan and Trust
Agreement (1)
10.2 2000 Director Stock Option Plan (3)
10.3 2003 Stock Option Plan (7)
10.4 Deferred Compensation Agreement with George R. Quist (2)
10.5 Promissory Note with George R. Quist (4)
10.6 Deferred Compensation Plan (5)
10.7 Stock Purchase Agreement with Paramount Security Life Insurance
Company (9)
10.8 Reinsurance Agreement between Security National Life Insurance
Company and Guaranty Income Life Insurance Company(10)
10.9 Employment agreement with J. Lynn Beckstead, Jr.(10)
10.10 Employment agreement with Scott M. Quist (11)
10.11 Agreement and Plan of Reorganization among Security National Life
Insurance Company, SSLIC Holding Company, and Southern Security Life
Insurance Company (12)
10.12 Agreement and Plan of Merger, among Security National Life Insurance
Company, SSLIC Holding Company, and Southern Security Life Insurance
Company (13)
10.13 Agreement to Repay Indebtedness and Convey Option with Monument
Title, LLC. (13)
10.14 Stock Purchase Agreement among Security National Life Insurance
Company, Southern Security Life Insurance Company, Memorial
Insurance Company of America, and the shareholders of Memorial
Insurance Company (14)
10.15 Reinsurance Agreement between Security National Life Insurance
Company and Memorial Insurance Company of America(15)
10.16 Trust Agreement between Security National Life Insurance Company
and Memorial Insurance Company of America(15)
10.17 Promissory Note between Memorial Insurance Company as Maker and
Security National Life Insurance Company as Payee(15)
10.18 Security Agreement between Memorial Insurance Company as Debtor and
Security National Life Insurance Company as Secured Party(15)
10.19 Surplus Contribution Note between Memorial Insurance Company of
America as Maker and Southern Security Life Insurance Company as
Payee(15)
10.20 Guaranty Agreement by Security National Life Insurance Company and
Southern Security Life Insurance Company as Guarantors(15)
10.21 Administrative Services Agreement between Security National Life
Insurance Company and Memorial Insurance Company of America(15)
10.22 Reinsurance Agreement between Security National Life Insurance
Company and Southern Security Life Insurance Company(16)
10.23 Trust Agreement among Security National Life Insurance Company,
Southern Security Life Insurance Company and Zions First National
Bank(16)
10.24 Subsidiaries of the Registrant
31.1 Certification pursuant to 18 U.S.C. Section 1350, as enacted by
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification pursuant to 18 U.S.C. Section 1350, as enacted by
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(1) Incorporated by reference from Registration Statement on
Form S-1, as filed on September 29, 1987
(2) Incorporated by reference from Annual Report on Form 10-K,
as filed on September 30, 1989
(3) Incorporated by reference from Schedule 14A Definitive Proxy
Statement, filed August 29, 2000, relating to the Company's
Annual Meeting of Shareholders
(4) Incorporated by reference from Annual Report on Form 10-K, as
filed on April 16, 2001
(5) Incorporated by reference from Annual Report on Form 10-K,
as filed on April 3, 2002
(6) Incorporated by reference from Report on Form 8-K/A as filed
on January 8, 2003
(7) Incorporated by reference from Schedule 14A Definitive Proxy
Statement, Filed on September 5, 2003, relating to the
Company's Annual Meeting of Shareholders
(8) Incorporated by reference from Report on Form 10-Q, as filed on
November 14, 2003
(9) Incorporated by reference from Report on Form 8-K, as filed
March 30, 2004
(10) Incorporated by reference from Report on Form 10-K, as filed on
March 30, 2004
(11) Incorporated by reference from Report on Form 10-Q, as filed on
August 13, 2004
(12) Incorporated by reference from Report on Form 8-K, as filed on
August 30, 2004
(13) Incorporated by reference from Report on Form 10-K, as filed on
September 30, 2005
(14) Incorporated by reference from Report on Form 8-K, as filed on
September 27, 2005
(15) Incorporated by reference from Report on Form 8-K, as filed on
January 5, 2006
(16) Incorporated by reference from Report on Form 8-K, as filed on
January 11, 2006
(b) Reports on Form 8-K:
No reports were filed by the Company during the quarter ended
September 30, 2006
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGISTRANT
SECURITY NATIONAL FINANCIAL CORPORATION
Registrant
DATED: November 14, 2006 By: s/s George R. Quist
-------------------
George R. Quist
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
DATED: November 14, 2006 By: s/s Stephen M. Sill
-------------------
Stephen M. Sill
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Exhibit 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ENACTED BY
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, George R. Quist, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Security National
Financial Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15-d-15(e)) for the registrant to have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period covered in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls over
financial reporting.
Date: November 14, 2006
By: George R. Quist
Chairman of the Board and
Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ENACED BY
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stephen M. Sill, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Security National
Financial Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15-d-15(e)) for the registrant to have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period covered in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls over
financial reporting.
Date: November 14, 2006
By: Stephen M. Sill
Vice President, Treasurer and
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Security National Financial
Corporation (the "Company") on Form 10-Q for the period ending September 30,
2006, as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, George R. Quist, Chairman of the Board and Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of
my knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
Date: November 14, 2006 By: George R. Quist
Chairman of the Board
and Chief Executive Office
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Security National Financial
Corporation (the "Company") on Form 10-Q for the period ending September 30,
2006, as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Stephen M. Sill, Vice President, Treasurer and Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the
best of my knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
Date: November 14, 2006 By: Stephen M. Sill
Vice President, Treasurer and
Chief Financial Officer