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 June 30, 2006 Commission File Number: 0-9341
------------------------------- ------------------------------
SECURITY NATIONAL FINANCIAL CORPORATION
Exact Name of Registrant
UTAH 87-0345941
(State or other jurisdiction I.R.S. Employer Identification Number
of incorporation or organization
5300 South 360 West, Salt Lake City, Utah 84123
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code (801) 264-1060
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for 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 5,862,370
------------------------------------- --------------
Title of Class Number of Shares Outstanding
as of June 30, 2006
Class C Common Stock, $.20 par value 6,642,929
------------------------------------ ---------------
Title of Class Number of Shares Outstanding
as of June 30, 2006
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2006
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements Page No.
------ --------
Condensed Consolidated Statement of Earnings -
Three and six months ended June 30, 2006 and 2005 (unaudited)....3
Condensed Consolidated Balance Sheet -
June 30, 2006, (unaudited) and December 31, 2005...............4-5
Condensed Consolidated Statement of Cash Flows -
Six months ended June 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....................................14-18
Item 3 Quantitative and Qualitative Disclosures about Market Risk.......18
------
Item 4 Controls and Procedures..........................................18
------
PART II - OTHER INFORMATION
Other Information..........................................19-21
Signature Page................................................22
Certifications.............................................23-25
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
Revenues: 2006 2005 2006 2005
-------- ---- ---- ---- ----
Insurance premiums and other
considerations $ 7,403,252 $ 6,712,209 $14,957,522 $13,892,729
Net investment income 5,504,372 5,097,838 10,579,058 9,443,101
Net mortuary and cemetery sales 3,154,220 2,845,816 6,209,018 5,731,184
Realized (losses) gains on investments
and other assets 60,255 (376) 57,671 23,314
Mortgage fee income 17,930,096 17,094,986 34,559,687 30,266,092
Other 94,254 93,583 187,186 310,320
------------ ----------- ------------ ------------
Total revenues 34,146,449 31,844,056 66,550,142 59,666,740
------------ ----------- ------------ ------------
Benefits and expenses:
Death benefits 3,567,731 2,909,547 7,389,690 6,425,475
Surrenders and other policy benefits 410,236 353,510 997,361 822,877
Increase in future policy benefits 3,014,873 2,442,725 5,347,880 5,070,915
Amortization of deferred policy and
pre-need acquisition costs and cost of
insurance acquired 757,542 863,697 1,564,997 1,719,438
General and administrative expenses:
Commissions 13,686,056 13,641,898 26,048,316 24,215,223
Salaries 4,247,101 3,935,749 8,489,853 7,748,483
Other 5,909,659 5,399,279 11,200,425 9,915,402
Interest expense 1,087,760 1,027,433 2,108,551 1,669,121
Cost of goods and services sold
mortuaries and cemeteries 572,624 567,116 1,208,045 1,114,956
------------ ----------- ------------ ------------
Total benefits and expenses 33,253,582 31,140,954 64,355,118 58,701,890
------------ ----------- ------------ ------------
Earnings before income taxes 892,867 703,102 2,195,024 964,850
Income tax expense (169,228) (151,627) (457,719) (133,467)
------------ ----------- ------------ ------------
Net earnings $ 723,639 $ 551,475 $ 1,737,305 $ 831,383
============ =========== ============ ============
Net earnings per common share $.11 $.09 $.27 $.14
==== ==== ==== ====
Weighted average outstanding
common shares 6,521,620 6,079,732 6,519,102 6,079,725
=========== =========== =========== ============
Net earnings per common share
-assuming dilution $.11 $.09 $.26 $.14
==== ==== ==== ====
Weighted average outstanding
common shares assuming-dilution 6,706,321 6,081,747 6,655,129 6,104,237
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2006 December 31,
(Unaudited) 2005
Assets:
Fixed maturity securities
held to maturity, at amortized cost $94,417,532 $89,780,942
Fixed maturity securities available
for sale, at estimated fair value 5,539,104 6,597,161
Equity securities available for sale,
at estimated fair value 4,997,529 12,346,939
Mortgage loans on real estate and construction loans,
net of allowances for losses 86,543,305 72,793,811
Real estate, net of accumulated
depreciation and allowances for losses 6,370,981 7,012,399
Policy, student and other loans net of allowance for
doubtful accounts 12,084,195 12,391,569
Short-term investments 10,599,227 3,211,590
------------- -------------
Total investments 220,551,873 204,134,411
------------- -------------
Restricted assets of cemeteries and mortuaries 5,257,539 5,240,099
------------- -------------
Cash and cash equivalents 10,088,209 16,632,966
------------- -------------
Receivables:
Trade contracts 6,451,686 5,733,142
Mortgage loans sold to investors 53,361,706 53,970,231
Receivable from agents 2,117,384 1,992,877
Other 1,319,613 958,851
------------- -------------
Total receivables 63,250,389 62,655,101
Allowance for loan losses and doubtful accounts (1,318,416) (1,191,106)
------------- -------------
Net receivables 61,931,973 61,463,995
------------- -------------
Policyholder accounts on deposit with reinsurer -- 6,572,756
Cemetery land and improvements held for sale 8,334,391 8,498,227
Accrued investment income 2,633,637 2,197,576
Deferred policy and pre-need
contract acquisition costs 26,736,965 24,048,638
Property and equipment, net 14,540,833 14,747,276
Cost of insurance acquired 12,372,837 12,663,221
Cemetery perpetual care trust investments 1,132,596 1,152,493
Goodwill 683,191 683,191
Other 2,011,157 1,610,624
------------- -------------
Total assets $366,275,201 $359,645,473
============= =============
See accompanying notes to condensed consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
June 30, 2006 December 31,
(Unaudited) 2005
------------- -----------
Liabilities:
Future life, annuity, and other benefits $264,672,164 $260,822,803
Unearned premium reserve 4,076,141 3,157,918
Bank loans payable 8,828,193 8,946,321
Notes and contracts payable 869,704 1,326,284
Deferred pre-need cemetery and mortuary
contract revenues 11,048,665 10,828,994
Accounts payable 1,082,418 1,533,065
Funds held under reinsurance treaties -- 1,129,747
Other liabilities and accrued expenses 9,999,074 9,427,644
Income taxes 15,089,425 14,601,029
------------ ------------
Total liabilities 315,665,784 311,773,805
------------ ------------
Commitments and contingencies -- --
------------ ------------
Non-controlling interest in
perpetual care trusts 2,230,725 2,173,250
------------ ------------
Stockholders' Equity:
Common stock:
Class A: $2.00 par value, authorized
10,000,000 shares, issued 7,106,447
shares in 2006 and 7,098,363 shares
in 2005 14,212,894 14,196,726
Class C: convertible, $0.20 par value,
authorized 7,500,000 shares,
issued 6,781,067 shares in 2006
and 6,781,060 shares in 2005 1,356,213 1,356,212
------------ ------------
Total common stock 15,569,107 15,552,938
Additional paid-in capital 15,681,975 15,650,344
Accumulated other comprehensive income (loss)
and other items, net of deferred taxes 1,040,998 117,647
Retained earnings 19,158,251 17,460,024
Treasury stock at cost (1,244,077 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) (3,071,639) (3,082,535)
------------ -------------
Total stockholders' equity 48,378,692 45,698,418
------------ -------------
Total liabilities and
stockholders' equity $366,275,201 $359,645,473
============ ============
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,
2006 2005
---- ----
Cash flows from operating activities:
Net cash provided by operating activities $12,925,511 $9,059,575
------------ ------------
Cash flows from investing activities: Securities held to maturity:
Purchase - fixed maturity securities (6,874,419) (2,482,355)
Calls and maturities - fixed
maturity securities 1,926,606 6,741,875
Securities available for sale:
Purchase - fixed maturity securities (134,262) --
Sales (purchases) - equity securities 9,164,900 (7,009)
Purchases of short-term investments (7,387,637) (9,439,274)
Sales of short-term investments -- 9,184,153
Purchases of restricted assets 12,500 (113,859)
Change in assets for perpetual care trusts 19,897 (110,498)
Amount received for perpetual care trusts 57,475 60,725
Mortgage, policy, and other loans made (36,282,485) (39,974,165)
Payments received for mortgage,
policy, and other loans 22,858,386 33,568,539
Purchases of property and equipment (664,104) (1,025,081)
Purchases of real estate (1,686,113) (2,787,026)
Sale of real estate 2,039,638 1,352,071
------------ ------------
Net cash used in
investing activities (16,949,618) (5,031,904)
------------ ------------
Cash flows from financing activities:
Annuity contract receipts 2,992,944 2,895,516
Annuity contract withdrawals (5,013,124) (4,834,366)
Sale of treasury stock 19,619 --
Repayment of bank loans and notes and
contracts payable (1,270,089) (2,119,365)
Proceeds from borrowing on notes and
contracts 750,000 --
------------ ------------
Net cash used in financing activities (2,520,650) (4,058,215)
------------ ------------
Net change in cash and cash equivalents (6,544,757) (30,544)
Cash and cash equivalents at beginning of period 16,632,966 15,333,668
------------ ------------
Cash and cash equivalents at end of period $10,088,209 $15,303,124
============ ============
See accompanying notes to condensed consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 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 six months ended June 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 December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 153, Exchange of Non-monetary Assets. SFAS No. 153 amends APB Opinion No.
29, Accounting for Non-monetary Transactions, to eliminate the exception for
non-monetary exchanges of similar productive assets. The Company was required to
apply this statement to non-monetary exchanges after December 31, 2005. The
adoption of this standard did not have a material effect on the Company's
financial position or results of operations.
In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and FASB
No. 3, Reporting Accounting Changes in Interim Financial Statements. Statement
154 applies to all voluntary changes in accounting principle, and changes the
requirements for accounting for and reporting of a change in accounting
principle. Statement 154 requires retrospective application to prior periods'
financial statements of a voluntary change in accounting principle unless it is
impracticable. It is effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005. The adoption of SFAS 154
did not have a material impact on the Company's financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2006, (Unaudited)
In June 2005, the FASB Emerging Issues Task Force ("EITF") reached a consensus
on Issue No. 05-6, Determining the Amortization Period for Leasehold
Improvements. The guidance requires that leasehold improvements acquired in a
business combination or purchased subsequent to the inception of a lease be
amortized over the lesser of the useful life of the assets or a term that
includes renewals that are reasonably assured at the date of the business
combination or purchase. The Company adopted EITF No. 05-06 on January 1, 2006.
The adoption of EITF No. 05-6 did not have a material effect on the Company's
financial position or results of operations.
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.
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.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2006, (Unaudited)
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.
3. Comprehensive Income
For the three months ended June 30, 2006 and 2005, total comprehensive income
amounted to $450,857 and $625,380, respectively. This decrease of $175,000 was
primarily the result of an increase in net income of $172,000, a decrease in
derivatives of $134,000, and a $213,000 decrease in unrealized gains and losses
in securities available for sale.
For the six months ended June 30, 2006 and 2005, total comprehensive income
amounted to $2,660,656 and $705,436, respectively. This increase of $1,955,000
was primarily the result of an increase in net income of $906,000, an increase
in derivatives of $450,000, and an increase of $599,000 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
June 30, 2006, (Unaudited)
4. Stock-Based Compensation (Continued)
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:
Six Months Ended
June 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 six months ended June 30, 2006. Total
compensation costs relating to stock-based compensation was not material during
the six months ended June 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:
Six Months Ended
June 30,
2006 2005
----- ----
Net earnings, as reported $1,737,305 $831,383
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 $1,737,305 $831,383
========== ========
Basic earnings per share, as reported $.27 $.14
Diluted earnings per share as reported $.26 $.14
Basic earnings per share, pro forma $.27 $.14
Diluted earnings per share, pro forma $.26 $.14
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2006, (Unaudited)
5. Earnings Per Share
The basic and diluted earnings per share amounts were calculated as follows:
Three Months Ended June 30,
2006 2005
---- ----
Numerator:
Net income $ 723,639 $ 551,475
========== ===========
Denominator:
Denominator for basic earnings per
share-weighted-average shares 6,521,620 6,079,732
---------- ----------
Effect of dilutive securities:
Employee stock options 183,470 1,714
Stock appreciation rights 1,231 301
---------- -----------
Dilutive potential common shares 184,701 2,015
---------- -----------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions 6,706,321 6,081,747
========== ===========
Basic earnings per share $.11 $.09
==== ====
Diluted earnings per share $.11 $.09
==== ====
Earnings per share amounts have been adjusted for the effect of annual stock
dividends.
Six Months Ended June 30,
2006 2005
---- ----
Numerator:
Net income $1,737,305 $ 831,383
========== ===========
Denominator:
Denominator for basic earnings per share-
weighted-average shares 6,519,102 6,079,725
---------- -----------
Effect of dilutive securities:
Employee stock options 134,946 23,971
Stock appreciation rights 1,081 541
---------- -----------
Dilutive potential common shares 136,027 24,512
---------- -------------
Denominator for diluted earnings
per share-adjusted weighted-average
shares and assumed conversions 6,655,129 6,104,237
=========== ===========
Basic earnings per share $.27 $.14
==== ====
Diluted earnings per share $.26 $.14
==== ====
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, 2006 (Unaudited)
6. Business Segment
Life Cemetery/ Reconciling
Insurance Mortuary Mortgage Items Consolidated
---------- ---------- --------- ----------- -------------
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 Three Months Ended
June 30, 2005
---------------------------
Revenues from
external customers $ 9,522,023 $ 3,140,844 $19,181,189$ -- $ 31,844,056
Intersegment revenues 1,120,778 15,334 83,639 (1,219,751) --
Segment profit (loss)
before income taxes 698,306 67,689 (62,893) -- 703,102
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) 366,275,201
For the Six Months Ended
June 30, 2005
------------------------
Revenues from
external customers $ 19,578,539 $ 6,333,917 $33,754,284$ -- $ 59,666,740
Intersegment revenues 2,369,536 38,335 163,040 (2,570,911) --
Segment profit (loss)
before income taxes 1,336,145 421,887 (793,182) -- 964,850
Identifiable assets 306,689,103 48,786,278 15,123,942 (51,870,626) 318,728,697
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 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 Six Months Ended
2005 2005
----- -----
In thousands except earnings per share
Total revenue $32,759 $61,497
Net earnings $ 760 $ 1,250
Basic earnings per share $.13 $.21
Diluted earnings per share $.12 $.20
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 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 June 30, 2006 and 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 will recognize a gain
of $761,111 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.
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 six months ended June 30, 2006, 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 6,002 ($993,094,000) and 5,766 ($904,478,000)
loans, respectively, for the six months ended June 30, 2006 and 2005.
Results of Operations
Second Quarter of 2006 Compared to Second Quarter of 2005
Total revenues increased by $2,302,000, or 7.2%, to $34,146,000 for the three
months ended June 30, 2006, from $31,844,000 for the three months ended June 30,
2005. Contributing to this increase in total revenues was an $835,000 increase
in mortgage fee income, a $691,000 increase in insurance premiums and other
considerations, a $407,000 increase in net investment income, a $308,000
increase in net mortuary and cemetery sales, and a $61,000 increase in realized
gains on investments and other assets.
Insurance premiums and other considerations increased by $691,000, or 10.3%, to
$7,403,000 for the three months ended June 30, 2006, from $6,712,000 for the
comparable period in 2005. This increase was primarily due to additional
premiums realized from new insurance sales and from the purchase of Memorial
Insurance Company on December 29, 2005.
Net investment income increased by $407,000, or 8.0%, to $5,504,000 for the
three months ended June 30, 2006, from $5,097,000 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 in the
purchase of Memorial Insurance Company.
Net mortuary and cemetery sales increased by $308,000, or 10.8%, to $3,154,000
for the three months ended June 30, 2006, from $2,846,000 for the comparable
period in 2005. 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.
Mortgage fee income increased by $835,000, or 4.9%, to $17,930,000 for the three
months ended June 30, 2006, from $17,095,000 for the comparable period in 2005.
This increase was primarily attributable to an increase in the number of loan
originations during the second quarter of 2006 due to the opening of new
mortgage offices and increased production in existing mortgage offices, which
resulted in financing a greater number of mortgage loans.
Total benefits and expenses were $33,254,000, or 97.4% of total revenues, for
the three months ended June 30, 2006, as compared to $31,141,000, or 97.8% 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 related to
operations of Memorial Insurance Company, which the Company purchased on
December 29, 2005.
Death benefits, surrenders and other policy benefits, and increase in future
policy benefits increased by an aggregate of $1,287,000, or 22.6%, to $6,993,000
for the three months ended June 30, 2006, from $5,706,000 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 cost of
insurance acquired decreased by $106,000, or 12.3%, to $758,000 for the three
months ended June 30, 2006, from $864,000 for the comparable period in 2005.
This reduction was primarily due to the realization of improvements in
persistency and expenses.
General and administrative expenses increased by $866,000,or 3.8%, to
$23,843,000 for the three months ended June 30, 2006, from $22,977,000 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 second quarter of 2006, the
additional expenses related to 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 $60,000, or 5.8%, to $1,088,000 for the three
months ended June 30, 2006, from $1,028,000 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 by SecurityNational Mortgage
Company.
Cost of goods and services sold of the mortuaries and cemeteries increased by
$6,000, or 1.1%, to $573,000 for the three months ended June 30, 2006, from
$567,000 for the comparable period in 2005. This increase was primarily due to
increased pre-need cemetery land sales.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Total revenues increased by $6,883,000, or 11.5%, to $66,550,000 for the six
months ended June 30, 2006, from $59,667,000 for the six months ended June 30,
2005. Contributing to this increase in total revenues was a $4,294,000 increase
in mortgage fee income, a $1,065,000 increase in insurance premiums and other
considerations, a $1,136,000 increase in net investment income, and a $478,000
increase in net mortuary and cemetery sales. This increase was partially offset
by a $126,000 decrease in other revenues.
Insurance premiums and other considerations increased by $1,065,000, or 7.7%, to
$14,958,000 for the six months ended June 30, 2006, from $13,893,000 for the
comparable period in 2005. This increase was primarily due to additional
premiums realized from new insurance sales and from the purchase of Memorial
Insurance Company on December 29, 2005.
Net investment income increased by $1,136,000, or 12.0%, to $10,579,000 for the
six months ended June 30, 2006, from $9,443,000 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 purchase of Memorial Insurance Company.
Net mortuary and cemetery sales increased by $478,000, or 8.3%, to $6,209,000
for the six months ended June 30, 2006, from $5,731,000 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 the cemetery
operations.
Other revenues decreased by $123,000, or 39.7%, to $187,000 for the six months
ended June 30, 2006 from $310,000 for the comparable period in 2005. This
decrease was due to a reduction in other revenues from the Company's mortuary
operations.
Mortgage fee income increased by $4,294,000, or 14.2%, to $34,560,000 for the
six months ended June 30, 2006, from $30,266,000 for the comparable period in
2005. This increase was primarily attributable to an increase in the number of
loan originations during the first six months of 2006 due to the opening of new
mortgage offices and increased production in existing mortgage offices, which
resulted in financing a greater number of mortgage loans.
Total benefits and expenses were $64,355,000, or 96.7% of total revenues, for
the six months ended June 30, 2006, as compared to $58,702,000, or 98.4% 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 related to
operations of Memorial Insurance Company, which the Company purchased on
December 29, 2005.
Death benefits, surrenders and other policy benefits, and increase in future
policy benefits increased by an aggregate of $1,416,000, or 11.5%, to
$13,735,000 for the six months ended June 30, 2006, from $12,319,000 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 cost of
insurance acquired decreased by $154,000, or 9.0%, to $1,565,000 for the six
months ended June 30, 2006, from $1,719,000 for the comparable period in 2005.
This reduction was primarily due to the realization of improvements in
persistency and expenses.
General and administrative expenses increased by $3,860,000, or 9.2%, to
$45,739,000 for the six months ended June 30, 2006, from $41,879,000 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 six months of 2006, the
additional expenses related to 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 $440,000, or 26.3%, to $2,109,000 for the six
months ended June 30, 2006, from $1,669,000 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 by SecurityNational Mortgage
Company.
Cost of goods and services sold of the mortuaries and cemeteries increased by
$93,000, or 8.3%, to $1,208,00 for the six months ended June 30, 2006, from
$1,115,000 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 $99,957,000 as of June 30, 2006, compared to
$96,378,000 as of December 31, 2005. This represents
44.3% and 46.0% of the total insurance-related investments as of June 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 June 30, 2006 and December 31, 2005, 3% ($3,349,000) 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 June 30, 2006 and
December 31, 2005, the life insurance subsidiary exceeded the regulatory
criteria.
The Company's total capitalization of stockholders' equity and bank debt and
notes payable was $58,077,000 as of June 30, 2006, as compared to $55,971,000 as
of December 31, 2005. Stockholders' equity as a percent of total capitalization
was 83% and 82% as of June 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 June 30, 2006, $21,468,060 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 June 30, 2005. 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 Company intends to vigorously defend the action. An answer was filed. The
case is in the discovery stage and the trial is set for November 2006.
The Company also received a letter dated November 29, 2004 on behalf of Roger
Gornichec, who the Company recognizes as having been an independent contractor.
The attorney who wrote the letter on behalf of Gornichec also wrote the letter
on behalf of Hood. 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.
The Company is a defendant in various other legal actions arising from the
normal conduct of business. Management believes that none of the actions will
have a material effect on the Company's financial position or results of
operations. Based on management's assessment and legal counsel's representations
concerning the likelihood of unfavorable outcomes, no amounts have been accrued
for the above claims in the consolidated financial statements.
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
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 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 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 June 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
June 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 June 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: August 14, 2006 By: s/s George R. Quist
-------------------
George R. Quist
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
DATED: August 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: August 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: August 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 June 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: August 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 June 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: August 14, 2006 By: Stephen M. Sill
Vice President, Treasurer and
Chief Financial Officer