UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2007, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____ to ______
Commission file number: 0-9341
SECURITY NATIONAL FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
UTAH 87-0345941
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5300 South 360 West, Suite 250 Salt Lake City, Utah 84123
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (801) 264-1060
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 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 accelerate 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 6,297,729
- ------------------------------------- ---------
Title of Class Number of Shares Outstanding as of
July 31, 2007
Class C Common Stock, $.20 par value 7,500,000
- ------------------------------------ ---------
Title of Class Number of Shares Outstanding as of
July 31, 2007
============================================================================
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2007
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements Page No.
- ------ --------
Condensed Consolidated Balance Sheets June 30, 2007
and December 31, 2006, (unaudited)..................................3-4
Condensed Consolidated Statements of Earnings - Three and
Six Months ended June 30, 2007 and 2006 (unaudited)...................5
Condensed Consolidated Statements of Cash Flows -
Six Months ended June 30, 2007 and 2006 (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.........................................15-20
Item 3 Quantitative and Qualitative Disclosures about Market Risk...........20
- ------
Item 4 Controls and Procedures..............................................20
- ------
PART II - OTHER INFORMATION
Other Information................................................20-26
Signature Page......................................................27
Certifications...................................................28-30
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
Assets 2007 2006
----------------- ----------------
Investments:
Fixed maturity securities, held to maturity, at amortized cost $ 94,611,167 $ 98,317,519
Fixed maturity securities, available for sale, at estimated fair value 2,903,281 3,417,531
Equity securities, available for sale, at estimated fair value 5,588,669 5,261,695
Mortgage loans on real estate and construction loans,
net of allowances for losses
70,190,705 85,135,011
Real estate, net of accumulated depreciation 4,869,973 5,002,853
Policy, student and other loans net of allowance
for doubtful accounts
12,597,159 12,846,986
Short-term investments 7,008,869 4,586,828
Accrued investment income 3,004,393 2,684,029
----------- -----------
Total investments 200,774,216 217,252,452
------------ ------------
Cash and cash equivalents 7,260,800 10,376,585
Mortgage loans sold to investors 81,468,491 59,817,248
Receivable, net 17,273,249 14,878,118
Restricted assets of cemeteries and mortuaries 5,691,643 5,430,870
Cemetery perpetual care trust investments 1,424,536 1,306,984
Receivable from reinsurers 718,112 700,850
Cemetery land and improvements sold to investors 9,084,112 8,745,424
Deferred policy and pre-need contract acquisition costs 29,650,710 28,395,762
Property and equipment, net 14,887,037 14,059,529
Cost of insurance acquired 11,395,705 11,882,047
Goodwill 683,191 683,191
Other 5,272,072 3,866,123
------------ ------------
Total assets $385,583,874 $377,395,183
============ ============
See accompanying notes to condensed consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
June 30, December 31,
2007 2006
---------- ------------
Liabilities and Stockholders' Equity
Liabilities
Future life, annuity, and other benefits $272,144,533 $268,403,765
Unearned premium reserve 4,807,565 4,519,387
Bank loans payable 8,115,089 6,923,344
Notes and contracts payable 621,159 747,188
Deferred pre-need cemetery and mortuary contract revenues 12,169,581 11,533,798
Accounts payable 1,562,118 1,820,178
Other liabilities and accrued expenses 11,619,716 11,611,033
Income taxes 16,955,923 16,587,284
------------ ------------
Total liabilities 327,995,684 322,145,977
------------ ------------
Non-Controlling Interest in Perpetual Care Trusts 2,352,529 2,278,510
------------ ------------
Stockholders' Equity:
Common stock:
Class A: $2.00 par value, 10,000,000 shares
authorized; issued 7,537,394 shares in 2007 and
7,533,230 shares in 2006 15,074,788 15,066,460
Class B non-voting common stock-$1.00 par value; 5,000,000 shares
authorized; none issued or outstanding -- --
Class C: convertible common stock - $0.20 par value; 7,500,000 shares
authorized; issued 7,500,000 shares in 2007 and 7,117,591
shares in 2006 1,500,000 1,423,518
Additional paid-in capital 17,075,572 17,064,488
Accumulated other comprehensive income and other items 2,368,249 1,703,155
Retained earnings 22,174,740 20,495,063
Treasury stock at cost - 1,239,665 Class A shares and
-0- Class C shares in 2007; 1,195,127 Class A shares and
145,045 Class C shares in 2006 (2,957,688) (2,781,988)
------------ ------------
Total stockholders' equity 55,235,661 52,970,696
------------ ------------
Total Liabilities and Stockholders' Equity $385,583,874 $377,395,183
============ ============
See accompanying notes to condensed consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
Revenues: 2007 2006 2007 2006
---- ---- ---- ----
Insurance premiums and other considerations $ 7,906,334 $ 7,403,252 $15,868,609 $14,957,522
Net investment income 9,009,038 5,504,372 16,952,496 10,579,058
Net mortuary and cemetery sales 3,434,182 3,154,220 6,945,119 6,209,018
Realized gains on investments and other assets 758,199 60,255 736,668 57,671
Mortgage fee income 33,079,231 17,930,096 62,601,118 34,559,687
Other 128,904 94,254 258,030 187,186
----------- ----------- ----------- -----------
Total revenues 54,315,888 34,146,449 103,362,040 66,550,142
----------- ----------- ----------- -----------
Benefits and expenses:
Death benefits 4,081,699 3,567,731 8,173,978 7,389,690
Surrenders and other policy benefits 463,580 410,236 1,072,202 997,361
Increase in future policy benefits 2,930,517 3,014,873 5,673,985 5,347,880
Amortization of deferred policy and pre-need
acquisition costs and cost of insurance acquired 1,362,645 757,542 2,723,485 1,564,997
General and administrative expenses:
Commissions 24,855,478 13,686,056 47,295,202 26,048,316
Salaries 5,901,947 4,247,101 11,686,845 8,489,853
Other 8,538,985 5,909,659 15,746,867 11,200,425
Interest expense 4,158,004 1,087,760 7,257,325 2,108,551
Cost of goods and services sold-
Mortuaries and cemeteries
663,183 572,624 1,314,923 1,208,045
------------ ------------ ------------ -----------
Total benefits and expenses 52,956,038 33,253,582 100,944,812 64,355,118
------------ ----------- ----------- -----------
Earnings before income taxes 1,359,850 892,867 2,417,228 2,195,024
Income tax expense (328,822) (169,228) (641,659) (457,719)
----------- ----------- ----------- -----------
Net earnings $1,031,028 $ 723,639 $ 1,775,569 $ 1,737,305
========== ========= =========== ===========
Net earnings per class A equivalent common share $0.15 $0.10 $0.25 $0.25
===== ===== ===== =====
Net earnings per class A equivalent common
share-assuming dilution $0.14 $0.10 $0.24 $0.25
===== ===== ===== =====
Weighted-average Class A equivalent
common shares outstanding 7,049,416 6,914,442 7,047,167 6,914,441
=========== ========= =========== =========
Weighted-average Class A equivalent common
shares outstanding assuming-dilution 7,321,334 7,099,143 7,306,302 7,050,468
=========== ========= =========== =========
Earnings per share amounts have been adjusted retroactively for the effect of
annual stock dividends. The weighted-average shares outstanding includes the
weighted-average Class A common shares and the weighted-average Class C common
shares determined on an equivalent Class A common stock basis. Net earnings per
common share represent net earnings per equivalent Class A common share. Net
earnings per Class C common share is equal to one-tenth (1/10) of such amount.
See accompanying notes to condensed consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
2007 2006
----------- ---------
Cash flows from operating activities:
Net cash provided by (used in) operating activities $(16,613,660) $12,925,511
------------ -----------
Cash flows from investing activities:
Securities held to maturity:
Purchase - fixed maturity securities (2,026,486) (6,874,419)
Calls and maturities - fixed maturity securities 5,756,249 1,926,606
Securities available for sale:
Purchase - fixed maturity securities (76,974) (134,262)
Sales - equity securities 789,494 9,164,900
Purchases of short-term investments (10,817,321) (7,387,637)
Sales of short-term investments 8,395,280 --
Purchases of restricted assets (243,851) 12,500
Change in assets for perpetual care trusts (89,321) 19,897
Amount received for perpetual care trusts 74,019 57,475
Mortgage, policy, and other loans made (32,831,713) (36,282,485)
Payments received for mortgage, policy, and other loans 47,986,468 22,858,386
Purchases of property and equipment (1,981,495) (664,104)
Disposal of property and equipment 730,242 --
Purchases of real estate (1,219,465) (1,686,113)
Sale of real estate 1,195,183 2,039,638
----------- ------------
Net cash provided by (used in) investing activities 15,640,309 (16,949,618)
----------- -----------
Cash flows from financing activities:
Annuity contract receipts 2,954,809 2,992,944
Annuity contract withdrawals (6,136,505) (5,013,124)
Sale of treasury stock -- 19,619
Repayment of bank loans and notes and
contracts payable (787,138) (1,270,089)
Proceeds from borrowing on bank loans 1,826,400 750,000
----------- -----------
Net cash used in financing activities (2,142,434) (2,520,650)
----------- -----------
Net change in cash and cash equivalents (3,115,785) (6,544,757)
Cash and cash equivalents at beginning of period 10,376,585 16,632,966
------------ -----------
Cash and cash equivalents at end of period $ 7,260,800 $10,088,209
============ ===========
See accompanying notes to condensed consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2007 (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, 2006, 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 six months ended June 30,
2007 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2007.
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 2006 amounts have been reclassified to bring them into conformity with
the 2007 presentation.
2. Recent Accounting Pronouncements
In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income
Taxes, which attempts to set out a consistent framework for preparers to use to
determine the appropriate level of valuation allowance tax reserves to maintain
for deferred tax assets relating to uncertain tax positions. This interpretation
for FASB Statement No. 109 uses a two-step approach wherein a tax benefit is
recognized if a position is more-than-likely-than-not to be sustained. The
amount of the benefit is then measured to be the highest tax benefit, which is
greater than fifty percent likely to be realized. FIN 48 also sets out
disclosure requirements to enhance transparency of an entity's tax reserves. The
Company adopted this Interpretation as of January 1, 2007. Management has
considered the amounts and the probabilities of the outcomes that could be
realized upon ultimate settlement and believes that it is more-likely-than-not
that the Company's recorded income tax benefits will be fully realized. There
were no unrecognized tax benefits at the beginning or at the end of the six
months ended June 30, 2007.
The Company records interest earned on income-tax refunds in other income, and
penalties and interest charged on tax deficiencies in interest expense. As of
the date of adoption, there were no amounts accrued for penalties or interest
related to unrecognized tax benefits.
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
June 30, 2007 (Unaudited)
In February 2007, the FASB issued SFAS No 159, The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment of FASB
Statement No 115 ("SFAS 159"). SFAS 159 allows measurement at fair value of
eligible financial assets and liabilities that are not otherwise measured at
fair value. If the fair value option for an eligible item is elected, unrealized
gains and losses for that item shall be reported in current earnings at each
subsequent reporting date. SFAS 159 also establishes presentation and disclosure
requirements designed to draw comparison between the different measurement
attributes the Company elects for similar types of assets and liabilities. This
statement is effective for fiscal years beginning after November 15, 2007. The
Company is in the process of evaluating the application of the fair value option
and its effect on its financial position and results of operations.
3. Comprehensive Income
For the three months ended June 30, 2007 and 2006, total comprehensive income
amounted to $1,134,604 and $450,827, respectively. This increase of $683,777 was
primarily the result of an increase in net income of $307,419, an increase in
derivatives of $111,927, and an increase in unrealized gains and losses in
securities available for sale of $264,431.
For the six months ended June 30, 2007 and 2006, total comprehensive income
amounted to $2,440,663 and $2,660,626, respectively. This decrease of $219,963
was primarily the result of an increase in net income of $38,294, a decrease in
derivatives of $121,887, and a decrease in unrealized gains and losses in
securities available for sale of $136,370.
4. Stock-Based Compensation
The Company accounts for its stock-based compensation plans according to the
provisions of Statement of Financial Accounting Standards No. 123R, "Share-Based
Payment" ("FAS 123R") for its stock-based compensation plans. 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.
The Company utilized the Black-Scholes-Merton model for calculating the fair
value of stock awards and stock options.
No options were granted for the three and six months ended June 30, 2007. Total
compensation costs relating to stock-based compensation was not material during
the three and six months ended June 30, 2007.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2007 (Unaudited)
The Company's Board of Directors granted stock options in 2004 to Scott M.
Quist, the Company's President and Chief Operating Officer, to purchase up to
1,000,000 shares of Class C common stock at exercise prices of $.323 and $.36
per share. On May 31, 2007, Mr. Quist made a cashless exercise of such options
to purchase a total of 1,157,625 shares of Class C common stock that he was
entitled to receive, after adjustments for 5% stock dividends issued in 2005,
2006 and 2007.
In connection with the exercise of such options on a cashless basis, Mr. Quist
delivered a total of 58,376 shares of Class A common stock to the Company that
he held in exchange for all the Class C shares he would be entitled to receive
for exercising the options. Inasmuch as there were 6,966,849 shares of Class C
common stock outstanding as of May 31, 2007 out of a total of 7,500,000
authorized shares of Class C common stock, the Company could legally issue only
533,151 shares of Class C common stock to Mr. Quist, leaving a balance of
624,474 Class C common shares owing to him.
In order to issue the additional shares of Class C common shares owing to Mr.
Quist, the Board of Directors approved on July 13, 2007 an amendment to the
Company's Articles of Incorporation to increase the number of Class C common
shares from 7,500,000 shares to 15,000,000 shares. Because stockholder approval
is also required to amend the Company's Articles of Incorporation, the Company
has scheduled a special stockholders meeting on September 21, 2007 to approve
the amendment to the Articles of Incorporation to increase the number of
authorized shares of Class C common stock from 7,500,000 shares to 15,000,000
shares.
If the stockholders approve the amendment at the special stockholders meeting,
the Company will issue Mr. Quist the additional 624,474 shares of Class C common
stock that are owed pursuant to his exercise of stock options. If the amendment
is not approved at the special stockholders meeting, the Company will,
alternatively, issue Mr. Quist 62,487 shares of Class A common stock,
representing 10% of the 624,474 Class C common shares that are owed to Mr. Quist
based on the conversion ratio set forth in the Articles of Incorporation of one
share of Class A common stock for each ten shares of Class C common stock. As of
June 30, 2007, the Company has recorded the fair value of the derivative
liability in the amount of $175,700 to reflect the Company's obligation to issue
the shares of Class C common stock or, alternatively, shares of Class A common
stock owed to Mr. Quist pursuant to the exercise of the stock options. This
liability is included in other liabilities and accrued expenses in the
accompanying condensed consolidated balance sheet.
5. Earnings Per Share
The basic and diluted earnings per share amounts were calculated as follows:
Three Months Ended June 30,
2007 2006
Numerator:
Net income $1,031,028 $ 723,639
========== ==========
Denominator:
Basic weighted-average shares
outstanding 7,049,416 6,914,442
----------- ----------
Effect of dilutive securities:
Employee stock options 257,075 183,470
Stock appreciation rights -- 1,231
Employee deferred compensation rights 14,843 --
----------- ----------
Dilutive potential common shares 271,918 184,701
----------- ----------
Diluted weighted-average
shares outstanding 7,321,334 7,099,143
=========== ===========
Basic earnings per share $0.15 $0.10
===== =====
Diluted earnings per share $0.14 $0.10
===== =====
Earnings per share amounts have been adjusted for the effect of annual stock
dividends.
Six Months Ended June 30,
2007 2006
---- ------
Numerator:
Net income $1,775,569 $1,737,305
========== ==========
Denominator:
Basic weighted-average
shares outstanding 7,047,167 6,914,441
----------- -----------
Effect of dilutive securities:
Employee stock options 244,292 134,946
Stock appreciation rights -- 1,081
Employee deferred compensation rights 14,843 --
----------- ----------
Dilutive potential common shares 259,135 136,027
----------- -----------
Diluted weighted-average
shares outstanding 7,306,302 7,050,468
=========== ===========
Basic earnings per share $0.25 $0.25
===== =====
Diluted earnings per share $0.24 $0.25
===== =====
Earnings per share amounts have been adjusted for the effect of annual stock
dividends.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2007 (Unaudited)
6. Business Segment
Life Cemetery/ Reconciling
Insurance Mortuary Mortgage Items Consolidated
----------- ---------- -------- -------------- ------------
For the Three Months Ended
June 30, 2007
Revenues from external customers $11,428,079 $4,347,795 $38,540,014 $ $54,315,888
--
Intersegment revenues 1,767,705 23,001 122,184 (1,912,890) --
Segment profit (loss) before income taxes 1,039,469 588,153 (267,772) -- 1,359,850
For the Three Months Ended
June 30, 2006
Revenues from external customers $10,698,047 $3,452,483 $19,995,919 $ $34,146,449
--
Intersegment revenues 1,264,601 23,001 121,182 (1,408,784) --
Segment profit (loss) before income taxes 947,324 233,273 (287,730) -- 892,867
For the Six Months Ended
June 30, 2007
Revenues from external customers $23,227,261 $8,127,011 $72,007,768 $ -- $103,362,040
Intersegment revenues 3,105,062 46,002 242,344 (3,393,408) --
Segment profit (loss) before income taxes 1,645,114 1,018,730 (246,616) -- 2,417,228
Identifiable assets 359,542,165 58,490,187 22,721,012 (55,169,490) 85,583,874
For the Six Months Ended
June 30, 2006
Revenues from external customers $21,609,384 $6,769,172 $38,171,586 $ -- 66,550,142
Intersegment revenues 2,654,467 46,002 212,618 (2,913,087) --
Segment profit (loss) before income taxes 2,053,401 605,128 (463,505) -- 2,195,024
Identifiable assets 352,247,310 51,897,683 18,891,648 (56,761,440) 66,275,201
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2007, (Unaudited)
7. Other Business Activity
On March 5, 2007, the Company received a proposed consent order from the Florida
Office of Insurance Regulation concerning the New Success Life Program, the
higher education product currently being marketed and sold by Southern Security
Life. The proposed order states that as a result of an investigation the Florida
Office has determined that Southern Security Life violated Florida law (i) by
knowingly making statements, sales presentations, omissions or comparisons that
misrepresented the benefits, advantages, or terms of the New Success Life
Program, and (ii) by knowingly making, advertisements, announcements, or
statements containing representations that were untrue or misleading.
The proposed order would require Security National Life and Southern Security
Life to immediately cease and desist from making any false or misleading
representations to Florida consumers suggesting that the New Success Life
Program would accumulate enough value to pay for college expenses in full. The
proposed order would also require Security National Life and Southern Security
Life to agree to no longer market or sell the New Success Life Program in the
State of Florida. In addition, Security National Life and Southern Security Life
would be required to send a written notice to Florida consumers who purchased
the New Success Life Program on or after January 1, 1998 stating that the higher
education program is a whole life insurance product, with a term and annuity
rider, and not a college trust fund, savings plan, or other program, and it may
not necessarily pay college expenses in full from the accumulated value.
Moreover, the written notice is to provide an opportunity for the Florida
consumers who purchased the New Success Life Program on or after January 1, 1998
to cancel their policy and be given a full refund, including all premiums paid,
together with interest at the agreed upon rate in the original contract. If each
of the Florida consumers who purchased the New Success Life Program after
January 1, 1998 was to cancel his or her policy and receive a refund, the cost
to the Company to refund all premiums paid, including interest, would be
approximately $8,200,000, an amount in excess of the assets of Southern Security
Life.
The proposed consent order would also require Security National Life and
Southern Security Life to issue refunds including interest to the eleven
policyholders whose affidavits were taken in connection with the administrative
complaint that the Florida Office had previously filed against Franz Wallace,
the former National Sales Director of Southern Security Life. Security National
Life and Southern Security Life would additionally be required to issue refunds,
including interest, to any Florida policyholder in the New Success Life Program
who had filed a complaint with the Florida Department of Financial Services or
whose coverage had lapsed. Furthermore, Security National Life and Southern
Security Life would be required to notify the state insurance department in each
state in which the New Success Life Program is marketed of the order and any
complaint that Southern Security Life received relating to the New Success Life
Program from policyholders in that state. Finally, Security National Life and
Southern Security Life would be required to pay the Florida Office a penalty of
$100,000 and administrative costs of $5,000.
The Company disputes the terms of the proposed consent order. The Company is not
aware of specific concerns that the Florida Office has with the New Success Life
Program because it has received no specific administrative complaint from the
Florida Office nor is it aware of any recent market conduct examination that the
Florida Office has conducted relative to the program. The Company intends to
vigorously oppose the proposed consent order. The Company is currently engaged
in discussions with the Florida Office in an effort to settle the dispute
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2007, (Unaudited)
7. Other Business Activity (continued)
concerning the proposed order. If the Company is unable to reach a satisfactory
resolution with the Florida Office with respect to the terms of the proposed
consent order and the Florida Office issues a similar order, the Company intends
to take action necessary to protect its rights and interests, including
requesting a hearing before an administrative law judge to oppose the order. The
Company believes any potential liability would be limited to the net assets of
Southern Security Life, which are approximately $3,914,000.
In June 2007, the Company completed the sale of the Colonial Funeral Home
property to the Utopia Station Development Corp. for $730,242, net of selling
costs of $44,758. The Colonial Funeral Home ceased operations in July 2006 and
has been inactive since that date. The carrying amount on the Company's
financial statements on June 20, 2007 was $148,777. As a result of the sale and
after the related selling expenses, the Company recognized a gain of $581,465.
The Company received a down payment of $15,242 with the remaining $715,000 to be
received in a lump sum within one year. The gain has been included as a part of
Realized Gains on Investments and Other Assets in the Company's condensed
consolidated statement of earnings.
8. Subsequent Event
On July 16, 2007, the Company completed a purchase transaction with C & J
Financial, LLC, an Alabama limited liability company ("C & J Financial"). C & J
Financial operates a factoring business with offices in Rainbow City, Alabama
with an emphasis on providing financing for funeral homes and mortuaries. Under
the terms of the Unit Purchase Agreement dated July 16, 2007, (the "Purchase
Agreement") among the Company, C & J Financial, Henry Culp, Jr. ("Culp") and
Culp Industries, Inc. ("Culp Industries"), the Company purchased all of the
outstanding member units of C & J Financial for a purchase consideration of (i)
$1,250,000 in cash, (ii) a promissory note from the Company to Culp in the
amount of $381,500 plus interest at the rate of 5% per annum, payable over a
period of 24 months in monthly payments of $16,737, including interest, until
paid in full, and (iii) a quit claim deed from C & J Financial to Culp,
conveying ownership of the building and surrounding property located in the
Jester Commercial Park in Rainbow City, Alabama, where C & J Financial currently
maintains its business offices. At closing, Culp Industries entered into a lease
agreement with C & J Financial to lease to C & J Financial approximately 5,000
square feet in the building located at the Jester Commercial Park. The lease is
for a term of three years for which C & J Financial, as tenant, is required to
make monthly payments of $1,200, for a total lease payment of $43,200.
The Purchase Agreement additionally required Culp to deliver to the Company at
closing a promissory note (the "Note") in the principal amount of $1,755,236
plus interest at the rate of 8.25% per annum from C & J Financial, as borrower,
to Culp, as lender, with such note to be cancelled and marked "paid in full".
Moreover, the agreement provides for the possibility of adjustments. If the
total equity on the balance sheet of C & J Financial as of May 31, 2007, defined
as total assets minus total liabilities, is greater than the amount of the
equity on the balance sheet of C & J Financial as of the closing date, or July
16, 2007, Culp agrees to pay to the Company the difference between the total
equity on the balance sheet as of May 31, 2007 and the total equity on the
balance sheet as of July 16, 2007 by reducing the amount of the Note by such
difference in the amounts of the total equity on such balance sheets. If the
amount of the total equity on the balance sheet of C & J Financial as of May 31,
2007 is less than the amount of the total equity on the balance sheet of C & J
Financial as of July 16, 2007, the Company agrees to pay Culp the difference
between the total equity on the balance sheet as of May 31, 2007 and the total
equity on the balance sheet as of July 16, 2007 by increasing the amount of the
Note payable by such difference in the amounts of the total equity on such
balance sheets.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2007, (Unaudited)
The Purchase Agreement further requires each unitholder to deliver to the
Company a non-competition and confidentiality agreement prohibiting the
unitholder from competing with C & J Financial for a period of five years from
July 16, 2007 through July 16, 2012. The Company also entered into a one year
consulting agreement with Culp, which requires Culp to provide part-time
consulting services for C & J Financial at $50.00 per hour, and a five year
employment agreement with Kevin O. Smith ("Smith"), Vice President of C & J
Financial, who will continue to serve in that position. The employment agreement
requires C & J Financial to pay Smith an annual salary of $96,000 plus a
discretionary bonus and a monthly car allowance of $1,161.
Finally, the Purchase Agreement requires the Company, C & J Financial, Culp and
Culp Industries to acknowledge the existence of a business loan agreement
between Regions Bank, as lender, and Culp Industries, as borrower, which
provides for a line of credit for C & J Financial. The outstanding balance on
the line of credit as of July 16, 2007 was $1,931,764. The line of credit is
secured by, among other assets, the accounts receivable of C & J Financial and
is personally guaranteed by Culp. The Company has received confirmation that
Regions Bank will not authorize any further advances or sweeps with respect to
the line of credit. The Company agrees that it will pay off the outstanding
balance of the line of credit with Regions Bank relating to the business of C &
J Financial. The Company will initially attempt to pay off the line of credit by
means of applying the payments from the accounts receivable of C & J Financial
as such payments are made in the ordinary course of business.
At June 30, 2007, total assets of C & J Financial were $3,197,000 and total
liabilities were $3,526,000, which includes the Note to Culp in the amount of
$1,755,000 that was cancelled at closing. For the seven month period from
November 1, 2006 to May 31, 2007, total revenues of C & J Financial were
$775,000 and total expenses were $764,000, resulting in net income of $11,000.
For the fiscal year ended October 31, 2006, total revenues of C & J Financial
were $1,397,000 and total expenses were $1,351,000, resulting in net income of
$46,000. For the fiscal year ended October 31, 2005, total revenues of C & J
Financial were $1,137,000 and total expenses were $1,114,000, resulting in net
income of $23,000. The Company anticipates utilizing the employees and
operations of C & J Financial to expand its fast funding operations, which
provide financing for funeral homes and mortuaries.
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.
Mortgage Operations
During the three months ended June 30, 2007, Security National 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 10,755 loans ($1,985,066,000 total volume) and
6,002 loans ($993,094,000 total volume), respectively, for the six months ended
June 30, 2007 and 2006.
The mortgage industry is currently experiencing substantial change due to higher
than expected delinquencies from subprime loans. The market for new subprime
loans has been substantially reduced and several mortgage companies whose
primary product was subprime mortgage originations have ceased operations. The
Company funded $4.2 million (.2% of the Company's production) in subprime loans
during the six months ending June 30, 2007 and has currently eliminated subprime
loans from its product offerings. The Company believes that its potential losses
from subprime loans are minimal.
The industry problem with subprime mortgages has created a volatile secondary
market for other high risk products, especially alternative documentation (Alt
A) loans. Alt A loans are typically offered to qualified borrowers who have
relatively high credit scores but are not required to provide full documentation
to support personal income and assets owned. Alt A loans can have a loan to
value ratio as high as 100%. There is currently a smaller market for Alt A loans
and the Company's warehouse line providers have shortened the allowable time for
the Company to sell these products to investors. As a result of these changes,
the Company is only offering these loans on a limited basis.
Alt A loans represented approximately 21% of the Company's production for the
six months ended June 30, 2007. The Company is currently experiencing an
increase in production of its other mortgage products. This increased mortgage
production will offset some of the loss of income related to the discontinuance
of Alt A loans. As of August 13, 2007, the Company had originated a total of
$60,400,000 in Alt A loans that had not been settled by investors. If the
Company were unable to sell its Alt A loans it would be required to assume the
risk of holding and servicing such loans. The Company believes it has adequate
liquidity, however, through its life insurance operations to carry such loans
until purchased by investors if warehousing lines are not available.
The Company expects the current mortgage market conditions to continue for the
remainder of 2007. Under these circumstances it is difficult to predict
profitability. Profitability may be impacted by volume reduction, changes in
margins, increased borrowing costs and future loans losses. Management has taken
and will continue to take a number of actions, however, in response to the
changing market conditions. These include offering Alt A loans on a limited
basis, closing unprofitable branch offices, obtaining new warehousing agreements
at a lower interest rates, and expense reduction initiatives.
During the six months ending June 30, 2007, the Company experienced loan losses
of $2,459,000. This amount was charged against the provision for loan losses.
The balance of the reserve for loan losses at June 30, 2007 was $1,594,000. The
Company adds approximately $165,000 per month to its loan loss reserves. The
Company believes the loan loss reserves are sufficient to cover reasonably
foreseeable future loan losses and that its formula for determining the
provision for such reserves is adequate.
Results of Operations
Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006
Total revenues increased by $20,169,000, or 59.1%, to $54,316,000 for the three
months ended June 30, 2007, from $34,147,000 for the three months ended June 30,
2006. Contributing to this increase in total revenues was a $15,149,000 increase
in mortgage fee income, a $503,000 increase in insurance premiums and other
considerations, a $3,505,000 increase in investment income, a $280,000 increase
in net mortuary and cemetery sales, a $34,000 increase in other revenues, and a
$698,000 increase in realized gains on investments and other assets.
Insurance premiums and other considerations increased by $503,000, or 6.8%, to
$7,906,000 for the three months ended June 30, 2007, from $7,403,000 for the
comparable period in 2006. This increase was primarily due to the additional
premiums realized from new insurance sales.
Net investment income increased by $3,505,000, or 63.7%, to $9,009,000 for the
three months ended June 30, 2007, from $5,504,000 for the comparable period in
2006. This increase was primarily attributable to additional interest income
from increased long-term bond and mortgage purchases over the comparable period
in 2006.
Net mortuary and cemetery sales increased by $280,000, or 8.9%, to $3,434,000
for the three months ended June 30, 2007, from $3,154,000 for the comparable
period in 2006. This increase was due to increased at-need sales in the cemetery
and mortuary operations and increased pre-need land sales in the cemetery
operations.
Realized gains on investments and other assets increased by $698,000, or 1,163%
to $758,000 for the three months ended June 30, 2007 from $60,000 for the
comparable period in 2006. This was primarily due to a gain of $581,000 from the
sale of Colonial Funeral Home in Salt Lake City.
Mortgage fee income increased by $15,149,000, or 84.5%, to $33,079,000 for the
three months ended June 30, 2007, from $17,930,000 for the comparable period in
2006. This increase was primarily attributable to an increase in the number of
loan originations during the second quarter of 2007 as new mortgage offices were
opened and production increased in existing mortgage offices, which resulted in
the financing of a greater number of mortgage loans.
Other revenues increased by $34,000, or 35.8% to $129,000, for the three months
ended June 30, 2007 from $95,000 for the comparable period in 2006. This
increase was due to increases in several small income items throughout the
Company's operations.
Total benefits and expenses were $52,956,000, or 97.5% of total revenues, for
the three months ended June 30, 2007, as compared to $33,254,000, or 97.4% of
total revenues, for the comparable period in 2006. This increase primarily
resulted from increased loan costs at SecurityNational Mortgage Company due to a
greater number of loan originations.
Death benefits, surrenders and other policy benefits, and increase in future
policy benefits increased by an aggregate of $483,000, or 6.9%, to $7,476,000
for the three months ended June 30, 2007, from $6,993,000 for the comparable
period in 2006. This increase was primarily due to increased insurance business
and to the expected increase in reserves for policyholder benefits and death
claims.
Amortization of deferred policy and pre-need acquisition costs and cost of
insurance acquired increased by $605,000, or 79.8%, to $1,363,000 for the three
months ended June 30, 2007, from $758,000 for the comparable period in 2006.
This increase was primarily due to increased deferred acquisition costs
associated with interest sensitive products and pre-need cemetery contracts.
General and administrative expenses increased by $15,454,000, or 64.8%, to
$39,296,000 for the three months ended June 30, 2007, from $23,843,000 for the
comparable period in 2006. This increase primarily resulted from an increase in
commission expenses of $11,169,000, from $13,686,000 in 2006 to $24,855,000 in
2007, due to a greater number of mortgage loan originations made by
SecurityNational Mortgage Company during the second quarter of 2007. Salaries
increased by $1,655,000 from $4,247,000 in 2006 to $5,902,000 in 2007, primarily
due to merit increases in salaries of existing employees, and an increase in the
number of employees necessitated by the Company's expanding business operations.
Other expenses increased by $2,629,000 from $5,910,000 in 2006 to $8,539,000 in
2007. The increase in other expenses primarily resulted from increased loan
costs at SecurityNational Mortgage Company due to a greater number of loan
originations.
Interest expense increased by $3,070,000, or 282.3%, to $4,158,000 for the three
months ended June 30, 2007, from $1,088,000 for the comparable period in 2006.
This increase was primarily due to increased warehouse lines of credit required
for a greater number of warehoused mortgage loans by SecurityNational Mortgage
Company.
Cost of goods and services sold of the mortuaries and cemeteries increased by
$91,000, or 15.8%, to $663,000 for the three months ended June 30, 2007, from
$572,000 for the comparable period in 2006. This increase was primarily due to
increased at-need cemetery sales.
Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
Total revenues increased by $36,812,000, or 55.3%, to $103,362,000 for the six
months ended June 30, 2007, from $66,550,000 for the six months ended June 30,
2006. Contributing to this increase in total revenues was a $28,042,000 increase
in mortgage fee income, a $911,000 increase in insurance premiums and other
considerations, a $6,373,000 increase in investment income, a $736,000 increase
in net mortuary and cemetery sales, a $71,000 increase in other revenues, and a
$679,000 increase in realized gains on investments and other assets.
Insurance premiums and other considerations increased by $911,000, or 6.1%, to
$15,869,000 for the six months ended June 30, 2007, from $14,958,000 for the
comparable period in 2006. This increase was primarily due to the additional
insurance premiums realized from new insurance sales.
Net investment income increased by $6,373,000, or 60.2%, to $16,952,000 for the
six months ended June 30, 2007, from $10,579,000 for the comparable period in
2006. This increase was primarily attributable to additional interest income
from increased long-term bond and mortgage purchases over the comparable period
in 2006.
Net mortuary and cemetery sales increased by $736,000, or 11.9%, to $6,945,000
for the six months ended June 30, 2007, from $6,209,000 for the comparable
period in 2006. This increase was due to increased at-need sales in the cemetery
and mortuary operations and increased pre-need land sales in cemetery
operations.
Realized gains on investments and other assets increased by $679,000, or
1,170.7%, to $737,000 for the six months ended June 30, 2007 from $58,000 for
the comparable period in 2006. This was primarily due to a one time gain of
$581,000 from the sale of Colonial Funeral Home in Salt Lake City.
Mortgage fee income increased by $28,042,000, or 81.1%, to $62,601,000 for the
six months ended June 30, 2007, from $34,559,000 for the comparable period in
2006. This increase was primarily attributable to an increase in the number of
loan originations during the six months of 2006 as new mortgage offices were
opened and production increased in existing mortgage offices, which resulted in
the financing of a greater number of mortgage loans.
Other revenues increased by $71,000, or 38.0%, to $258,000 for the six months
ended June 30, 2007 from $187,000 for the comparable period in 2006. This
increase was due to increases in several small income items throughout the
Company's operations.
Total benefits and expenses were $100,945,000, or 97.7% of total revenues, for
the six months ended June 30, 2007, as compared to $64,355,000, or 96.7% of
total revenues, for the comparable period in 2006. This increase primarily
resulted from increased loan costs at SecurityNational Mortgage Company due to a
greater number of loan originations.
Death benefits, surrenders and other policy benefits, and increase in future
policy benefits increased by an aggregate of $1,185,000, or 8.6%, to $14,920,000
for the six months ended June 30, 2007, from $13,735,000 for the comparable
period in 2006. This increase was primarily due to increased insurance business
and to the expected increase in reserves for policyholder benefits and death
claims.
Amortization of deferred policy and pre-need acquisition costs and cost of
insurance acquired increased by $1,158,000, or 74.0%, to $2,723,000 for the six
months ended June 30, 2007, from $1,565,000 for the comparable period in 2006.
This increase was primarily due to increased deferred acquisition costs
associated with interest-sensitive products from the recapture of the Mega
reinsurance agreement in the first quarter of 2006, and pre-need cemetery
contracts.
General and administrative expenses increased by $28,990,000, or 63.4%, to
$74,729,000 for the six months ended June 30, 2007, from $45,739,000 for the
comparable period in 2006. This increase primarily resulted from an increase in
commission expenses by $21,247,000 from $26,048,000 in 2006 to $47,295,000 in
2007, due to a greater number of mortgage loan originations made by
SecurityNational Mortgage Company during the first six months of 2007. Salaries
increased by $3,197,000 from $8,490,000 in 2006 to $11,687,000 in 2007,
primarily due to merit increases in salaries of existing employees, and an
increase in the number of employees necessitated by the Company's expanding
business operations. Other expenses increased by $4,546,000 from $11,201,000 in
2006 to $15,747,000 in 2007. The increase in other expenses primarily resulted
from increased loan costs at SecurityNational Mortgage Company due to a greater
number of loan originations.
Interest expense increased by $5,149,000, or 244.3%, to $7,257,000 for the six
months ended June 30, 2007, from $2,108,000 for the comparable period in 2006.
This increase was primarily from increased warehouse lines of credit required
for a greater number of warehoused mortgage loans by SecurityNational Mortgage
Company.
Cost of goods and services sold by the mortuaries and cemeteries increased by
$107,000, or 8.9%, to $1,315,000 for the six months ended June 30, 2007, from
$1,208,000 for the comparable period in 2006. 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.
During the six months ended June 30, 2007, the Company's operations used cash of
$15,414,000, while cash totaling $12,926,000 was provided by operations during
the six months ended June 30, 2006. This is due to an increase in the accrual
for mortgage loans sold to investors of $21,651,000, which is attributed to a
higher mortgage loan volume for the first six months of 2007 versus mortgage
loan volume during the first six months of 2006. The increase in the accrual
resulted from an increase in mortgage loans originated but not yet settled by
investors as of June 30, 2007.
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 insurance
subsidiaries amounted to $97,514,000 as of June 30, 2007, compared to
$101,735,000 as of December 31, 2006. This represents 48.6% and 46.8% of the
total investments as of June 30, 2007, and December 31, 2006, 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 June 30, 2007 0.9% (or $893,000)
and at December 31, 2006, 2.3% (or $2,402,000) 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 June 30, 2007, and
December 31, 2006, the life insurance subsidiary exceeded the regulatory
criteria.
The Company's total capitalization of stockholders' equity, and bank debt and
notes payable was $63,972,000 as of June 30, 2007, as compared to $60,641,000 as
of December 31, 2006. Stockholders' equity as a percent of total capitalization
was 86 % and 87% as of June 30, 2007 and December 31, 2006, respectively.
Lapse rates measure the amount of insurance terminated during a particular
period. The Company's lapse rate for life insurance in 2006 was 8.4% as compared
to a rate of 7.9% for 2005. The 2007 lapse rate to date has been approximately
the same as 2006.
At June 30, 2007, $19,497,000 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, 2006.
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 June 30, 2007. 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
On March 5, 2007, the Company received a proposed consent order from the Florida
Office of Insurance Regulation concerning the New Success Life Program, the
higher education product currently being marketed and sold by Southern Security
Life. The proposed order states that as a result of an investigation the Florida
Office has determined that Southern Security Life violated Florida law (i) by
knowingly making statements, sales presentations, omissions or comparisons that
misrepresented the benefits, advantages, or terms of the New Success Life
Program, and (ii) by knowingly making, advertisements, announcements, or
statements containing representations that were untrue or misleading.
The proposed order would require Security National Life and Southern Security
Life to immediately cease and desist from making any false or misleading
representations to Florida consumers suggesting that the New Success Life
Program would accumulate enough value to pay for college expenses in full. The
proposed order would also require Security National Life and Southern Security
Life to agree to no longer market or sell the New Success Life Program in the
State of Florida. In addition, Security National Life and Southern Security Life
would be required to send a written notice to Florida consumers who purchased
the New Success Life Program on or after January 1, 1998 stating that the higher
education program is a whole life insurance product, with a term and annuity
rider, and not a college trust fund, savings plan, or other program, and it may
not necessarily pay college expenses in full from the accumulated value.
Moreover, the written notice is to provide an opportunity for the Florida
consumers who purchased the New Success Life Program on or after January 1, 1998
to cancel their policy and be given a full refund, including all premiums paid,
together with interest at the agreed upon rate in the original contract. If each
of the Florida consumers who purchased the New Success Life Program after
January 1, 1998 was to cancel his or her policy and receive a refund, the cost
to the Company to refund all premiums paid, including interest, would be
approximately $8,200,000, an amount in excess of the assets of Southern Security
Life.
The proposed consent order would also require Security National Life and
Southern Security Life to issue refunds including interest to the eleven
policyholders whose affidavits were taken in connection with the administrative
complaint that the Florida Office had previously filed against Franz Wallace,
the former National Sales Director of Southern Security Life. Security National
Life and Southern Security Life would additionally be required to issue refunds,
including interest, to any Florida policyholder in the New Success Life Program
who had filed a complaint with the Florida Department of Financial Services or
whose coverage had lapsed. Furthermore, Security National Life and Southern
Security Life would be required to notify the state insurance department in each
state in which the New Success Life Program is marketed of the order and any
complaint that Southern Security Life received relating to the New Success Life
Program from policyholders in that state. Finally, Security National Life and
Southern Security Life would be required to pay the Florida Office a penalty of
$100,000 and administrative costs of $5,000.
The Company disputes the terms of the proposed consent order. The Company is not
aware of specific concerns that the Florida Office has with the New Success Life
Program because it has received no specific administrative complaint from the
Florida Office nor is it aware of any recent market conduct examination that the
Florida Office has conducted relative to the program. The Company intends to
vigorously oppose the proposed consent order. The Company is currently engaged
in discussions with the Florida Office in an effort to settle the dispute
concerning the proposed order. If the Company is unable to reach a satisfactory
resolution with the Florida Office with respect to the terms of the proposed
consent order and the Florida Office issues a similar order, the Company intends
to take action necessary to protect its rights and interests, including
requesting a hearing before an administrative law judge to oppose the order. The
Company believes any potential liability would be limited to the net assets of
Southern Security Life, which are approximately $3,914,000.
Except for the proposed consent order from the Florida Office of Insurance
Regulation, the Company is not a party to any 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 operation.
Item 1A Risk Factors
Due to changes in the mortgage industry from higher than expected delinquencies
in subprime loans, the Company may be unable to sell its alternative
documentation loans to investors, which would require the Company to assume the
risk of holding and servicing such loans.
The mortgage industry is currently experiencing substantial change due to higher
than expected delinquencies from subprime loans. The market for new subprime
loans has been substantially reduced and several mortgage companies whose
primary product was subprime mortgage originations have ceased operations. The
Company funded $4.2 million (.2% of the Company's production) in subprime loans
during the six months ending June 30, 2007 and has currently eliminated subprime
loans from its product offerings. The Company believes that its potential losses
from subprime loans are minimal.
The industry problem with subprime mortgages has created a volatile secondary
market for other high risk products, especially alternative documentation (Alt
A) loans. Alt A loans are typically offered to qualified borrowers who have
relatively high credit scores but are not required to provide full documentation
to support personal income and assets owned. Alt A loans can have a loan to
value ratio as high as 100%. There is currently a smaller market for Alt A loans
and the Company's warehouse line providers have shortened the allowable time for
the Company to sell these products to investors. As a result of these changes,
the Company is only offering these loans on a limited basis.
Alt A loans represented approximately 21% of the Company's production for the
six months ended June 30, 2007. The Company is currently experiencing an
increase in production of its other mortgage products. This increased mortgage
production will offset some of the loss of income related to the discontinuance
of Alt A loans. As of August 13, 2007, the Company had originated a total of
$60,400,000 in Alt A loans that had not been settled by investors. If the
Company were unable to sell its Alt A loans it would be required to assume the
risk of holding and servicing such loans. The Company believes it has adequate
liquidity, however, through its life insurance operations to carry such loans
until purchased by investors if warehousing lines are not available.
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
None
Item 5. Other Information
Acquisition of C & J Financial, LLC
On July 16, 2007, the Company completed a purchase transaction with C & J
Financial, LLC, an Alabama limited liability company ("C & J Financial"). C
& J Financial operates a factoring business with offices in Rainbow City,
Alabama with an emphasis on providing financing for funeral homes and
mortuaries. Under the terms of the Unit Purchase Agreement dated July 16,
2007 (the "Purchase Agreement") among the Company, C & J Financial, Henry
Culp, Jr. ("Culp") and Culp Industries, Inc. ("Culp Industries"), the
Company purchased all of the outstanding member units of C & J Financial
for a purchase consideration of (i) $1,250,000 in cash, (ii) a
promissory note from the Company to Culp in the amount of $381,500 plus
interest at the rate of 5% per annum, payable over a period of 24 months in
monthly payments of $16,737, including interest, until paid in full, and
(iii) a quit claim deed from C & J Financial to Culp, conveying ownership
of the building and surrounding property located in the Jester Commercial
Park in Rainbow City, Alabama, where C & J Financial currently maintains
its business offices. At closing, Culp Industries entered into a lease
agreement with C & J Financial to lease to C & J Financial approximately
5,000 square feet in the building located at the Jester Commercial Park.
The lease is for a term of three years for which C & J Financial, as
tenant, is required to make monthly payments of $1,200, for a total lease
payment of $43,200.
The Purchase Agreement additionally required Culp to deliver to the Company
at closing a promissory note (the "Note") in the principal amount of
$1,755,236 plus interest at the rate of 8.25% per annum from C & J
Financial, as borrower, to Culp, as lender, with such note to be cancelled
and marked "paid in full". Moreover, the agreement provides for the
possibility of adjustments. If the total equity on the balance sheet of C &
J Financial as of May 31, 2007, defined as total assets minus total
liabilities, is greater than the amount of the equity on the balance sheet
of C & J Financial as of the closing date, or July 16, 2007, Culp agrees to
pay to the Company the difference between the total equity on the balance
sheet as of May 31, 2007 and the total equity on the balance sheet as of
July 16, 2007 by reducing the amount of the Note by such difference in the
amounts of the total equity on such balance sheets. If the amount of the
total equity on the balance sheet of C & J Financial as of May 31, 2007 is
less than the amount of the total equity on the balance sheet of C & J
Financial as of July 16, 2007, the Company agrees to pay Culp the
difference between the total equity on the balance sheet as of May 31, 2007
and the total equity on the balance sheet as of July 16, 2007 by increasing
the amount of the Note payable by such difference in the amounts of the
total equity on such balance sheets.
The Purchase Agreement further requires each unitholder to deliver to the
Company a non-competition and confidentiality agreement prohibiting the
unitholder from competing with C & J Financial for a period of five years
from July 16, 2007 through July 16, 2012. The Company also entered into a
one year consulting agreement with Culp, which requires Culp to provide
part-time consulting services for C & J Financial at $50.00 per hour, and a
five year employment agreement with Kevin O. Smith ("Smith"), Vice
President of C & J Financial, who will continue to serve in that position.
The employment agreement requires C & J Financial to pay Smith an annual
salary of $96,000 plus a discretionary bonus and a monthly car allowance of
$1,161.
Finally, the Purchase Agreement requires the Company, C & J Financial, Culp
and Culp Industries to acknowledge the existence of a business loan
agreement between Regions Bank, as lender, and Culp Industries, as
borrower, which provides for a line of credit for C & J Financial. The
outstanding balance on the line of credit as of July 16, 2007 was
$1,931,764. The line of credit is secured by, among other assets, the
accounts receivable of C & J Financial and is personally guaranteed by
Culp. The Company has received confirmation that Regions Bank will not
authorize any further advances or sweeps with respect to the line of
credit. The Company agrees that it will pay off the outstanding balance of
the line of credit with Regions Bank relating to the business of C & J
Financial. The Company will initially attempt to pay off the line of credit
by means of applying the payments from the accounts receivable of C & J
Financial as such payments are made in the ordinary course of business.
At June 30, 2007, total assets of C & J Financial were $3,197,000 and total
liabilities were $3,526,000, which includes the Note to Culp in the amount
of $1,755,000 that was cancelled at closing. For the seven month period
from November 1, 2006 to May 31, 2007, total revenues of C & J Financial
were $775,000 and total expenses were $764,000, resulting in net income of
$11,000. For the fiscal year ended October 31, 2006, total revenues of C &
J Financial were $1,397,000 and total expenses were $1,351,000, resulting
in net income of $46,000. For the fiscal year ended October 31, 2005, total
revenues of C & J Financial were $1,137,000 and total expenses were
$1,114,000, resulting in net income of $23,000. The Company anticipates
utilizing the employees and operations of C & J Financial to expand its
fast funding operations, which provide financing for funeral homes and
mortuaries.
Exercise of Stock Options and Special Stockholders Meeting
The Company's Board of Directors granted stock options in 2004 to Scott M.
Quist, the Company's President and Chief Operating Officer, to purchase up to
1,000,000 shares of Class C common stock at exercise prices of $.323 and $.36
per share. On May 31, 2007, Mr. Quist made a cashless exercise of such options
to purchase a total of 1,157,625 shares of Class C common stock that he was
entitled to receive, after adjustments for 5% stock dividends issued in 2005,
2006 and 2007.
In connection with the exercise of such options on a cashless basis, Mr. Quist
delivered a total of 58,376 shares of Class A common stock to the Company that
he held in exchange for all the Class C shares he would be entitled to receive
for exercising the options. Inasmuch as there were 6,966,849 shares of Class C
common stock outstanding as of May 31, 2007 out of a total of 7,500,000
authorized shares of Class C common stock, the Company could legally issue only
533,151 shares of Class C common stock to Mr. Quist, leaving a balance of
624,474 Class C common shares owing to him.
In order to issue the additional shares of Class C common shares owing to Mr.
Quist, the Board of Directors approved on July 13, 2007 an amendment to the
Company's Articles of Incorporation to increase the number of Class C common
shares from 7,500,000 shares to 15,000,000 shares. Because stockholder approval
is also required to amend the Company's Articles of Incorporation, the Company
has scheduled a special stockholders meeting on September 21, 2007 to approve
the amendment to the Articles of Incorporation to increase the number of
authorized shares of Class C common stock from 7,500,000 shares to 15,000,000
shares.
If the stockholders approve the amendment at the special stockholders meeting,
the Company will issue Mr. Quist the additional 624,474 shares of Class C common
stock that are owed pursuant to his exercise of stock options. If the amendment
is not approved at the special stockholders meeting, the Company will,
alternatively, issue Mr. Quist 62,487 shares of Class A common stock,
representing 10% of the 624,474 Class C common shares that are owed to Mr. Quist
based on the conversion ratio set forth in the Articles of Incorporation of one
share of Class A common stock for each ten shares of Class C common stock. As of
June 30, 2007, the Company has recorded the fair value of the derivative
liability in the amount of $175,700 to reflect the Company's obligation to issue
the shares of Class C common stock or, alternatively, shares of Class A common
stock owed to Mr. Quist pursuant to the exercise of the stock options. This
liability is included in other liabilities and accrued expenses in the
accompanying condensed consolidated balance sheet.
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 (4)
3.2 Amended Bylaws (6)
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 2003 Stock Option Plan (5)
10.3 2006 Director Stock Option Plan
10.4 Deferred Compensation Agreement with George R. Quist (2)
10.5 Deferred Compensation Plan (3)
10.6 Employment agreement with J. Lynn Beckstead, Jr. (7)
10.7 Employment agreement with Scott M. Quist (8)
10.8 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 (9)
10.9 Reinsurance Agreement between Security National Life Insurance
Company and Memorial Insurance Company of America (10)
10.10 Trust Agreement between Security National Life Insurance Company
and Memorial Insurance Company of America (10)
10.11 Promissory Note between Memorial Insurance Company as Maker and
Security National Life Insurance Company as Payee (10)
10.12 Security Agreement between Memorial Insurance Company as Debtor
and Security National Life Insurance Company as Secured Party (10)
10.13 Surplus Contribution Note between Memorial Insurance
Company of America as Maker and Southern Security Life Insurance
Company as Payee (10)
10.14 Guaranty Agreement by Security National Life Insurance Company
and Southern Security Life Insurance Company as Guarantors (10)
10.15 Administrative Services Agreement between Security National Life
Insurance Company and Memorial Insurance Company of America (10)
10.16 Reinsurance Agreement between Security National Life Insurance
Company and Southern Security Life Insurance Company (11)
10.17 Trust Agreement among Security National Life Insurance Company,
Southern Security Life Insurance Company and Zions First National
Bank (11)
10.18 Stock Purchase Agreement among Security National Life Insurance
Company, Southern Security Life Insurance Company and American
Network Insurance Company (12)
10.19 Escrow Agreement among Security National Life Insurance Company,
Southern Security Life Insurance Company, American Network
Insurance Company and Mackey Price Thompson & Ostler (12)
10.20 Escrow Agreement among American Network Insurance Company,
Security National Life Insurance Company, Southern Security Life
Insurance Company, and Preferred Insurance Capital
Consultants, LLC (12)
10.21 Agreement and Plan of Complete Liquidation of Southern Security
Life Insurance Company into Security National Life Insurance
Company (12)
10.22 Assignment between Southern Security Life Insurance Company and
Security National Life Insurance Company (12)
10.23 Assignment between Southern Security Life Insurance Company and
Security National Life Insurance Company (12)
10.24 Unit Purchase Agreement among Security National Financial
Corporation, C&J Financial, LLC, Henry Culp, Jr., and Culp
Industries, Inc. (13)
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 June 29, 1987
(2) Incorporated by reference from Annual Report on Form 10-K, as
filed on June 30, 1989
(3) Incorporated by reference from Annual Report on Form 10-K, as
filed on April 3, 2002
(4) Incorporated by reference from Report on Form 8-K/A as filed on
January 8, 2003
(5) Incorporated by reference from Schedule 14A Definitive Proxy
Statement, Filed on June 5, 2003, relating to the Company's Annual
Meeting of Shareholders
(6) Incorporated by reference from Report on Form 10-Q, as filed on
November 14, 2003
(7) Incorporated by reference from Report on Form 10-K, as filed
on March 30, 2004
(8) Incorporated by reference from Report on Form 10-Q, as filed on
August 13, 2004
(9) Incorporated by reference from Report on Form 8-K, as filed on
September 27, 2005
(10) Incorporated by reference from Report on Form 8-K, as filed on
January 5, 2006
(11) Incorporated by reference from Report on Form 8-K, as filed on
January 11, 2006
(12) Incorporated by reference from Report on Form 8-K, as filed on
January 12, 2007
(13) Incorporated by reference from Report on Form 8-K, as filed on
August 8, 2007
(b) Reports on Form 8-K:
No reports were filed by the Company during the quarter ended June 30,
2007.
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: August 14, 2007 By: s/s George R. Quist
---------------------
George R. Quist
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
Dated: August 14, 2007 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.
Dated: August 14, 2007 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.
Dated: August 14, 2007 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 June 30, 2007, 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.
Dated: August 14, 2007 By: George R. Quist
Chairman of the Board and Chief
Executive Officer
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 June 30, 2007, 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.
Dated: August 14, 2007 By: Stephen M. Sill
Vice President, Treasurer and Chief
Financial Officer