SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2004 Commission File Number: 0-9341
- ------------------------------------ ------------------------------
SECURITY NATIONAL FINANCIAL CORPORATION
Exact Name of Registrant.
UTAH 87-0345941
- --------------------------- ---------------
(State or other jurisdiction of IRS Identification Number
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 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 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 5,119,986
- ------------------------------------- ----------------------
Title of Class Number of Shares Outstanding as
of September 30, 2004
Class C Common Stock, $.20 par value 6,254,028
- ------------------------------------ --------------------------
Title of Class Number of Shares Outstanding as
of September 30, 2004
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2004
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements Page No.
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Consolidated Statement of Earnings - Nine and three months
ended September 30, 2004 and 2003 (unaudited).................3
Consolidated Balance Sheet - September 30, 2004,
(unaudited)and December 31, 2003............................4-5
Consolidated Statement of Cash Flows -
Nine months ended September 30, 2004 and 2003 (unaudited).....6
Notes to Consolidated Financial Statements.................7-11
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................11-14
Item 3 Quantitative and Qualitative Disclosures about
Market Risk..................................................15
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Item 4 Controls and Procedures......................................15
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PART II - OTHER INFORMATION
Other Information......................................15-19
Signature Page............................................20
Certifications.........................................21-23
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
Revenues: 2004 2003 2004 2003
- -------- ---- ---- ---- ----
Insurance premiums and other considerations $19,316,466 $17,342,353 $6,516,327 $5,752,258
Net investment income 11,895,451 13,630,206 4,097,144 5,264,666
Net mortuary and cemetery sales 8,862,139 8,026,021 2,909,252 2,730,776
Realized gains (losses) on investments and other assets 147,563 (2,207) 142,240 (2,207)
Mortgage fee income 48,231,477 76,979,168 12,908,022 24,067,019
Other 555,003 245,893 124,817 62,468
------------- ------------- ------------- -------------
Total revenues 89,008,099 116,221,434 26,697,802 37,874,980
------------- ------------- ------------- -------------
Benefits and expenses:
Death benefits 10,025,473 9,768,115 3,127,355 2,725,055
Surrenders and other policy benefits 1,049,526 1,573,695 278,353 472,603
Increase in future policy benefits 6,258,223 4,921,318 2,255,143 2,113,665
Amortization of deferred policy acquisition costs
and cost of insurance acquired 3,403,664 3,341,614 733,774 1,345,551
General and administrative expenses:
Commissions 37,476,010 55,514,827 10,912,403 16,170,691
Salaries 10,930,883 10,579,874 3,404,155 3,473,367
Other 14,370,675 16,260,512 4,517,577 6,076,615
Interest expense 1,538,829 3,130,982 479,263 1,331,544
Cost of goods and services sold
of the mortuaries and cemeteries 1,750,055 1,699,005 612,711 575,267
------------- ------------- ------------- -------------
Total benefits and expenses 86,803,338 106,789,942 26,320,734 34,284,358
------------- ------------- ------------- -------------
Earnings before income taxes 2,204,761 9,431,492 377,068 3,590,622
Income tax (expense) benefit (492,324) (3,065,751) 33,548 (1,145,524)
Minority interest in loss of subsidiary 63,400 17,219 39,695 31,625
------------- ------------- ------------- -------------
Net earnings $1,775,837 $6,382,960 $450,311 $2,476,723
============= ============= ============= =============
Net earnings per common share $0.31 $1.24 $0.08 $.49
============= ============= ============= =============
Weighted average outstanding common shares 5,686,157 5,165,311 5,714,812 5,034,832
============= ============= ============= =============
Net earnings per common share-assuming dilution $0.31 $1.19 $0.08 $.47
============= ============= ============= =============
Weighted average outstanding common shares
assuming-dilution 5,799,244 5,378,996 5,715,207 5,252,132
============= ============= ============= =============
See accompanying notes to consolidated financial statements
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 2004 December 31,
(Unaudited) 2003
------------------ ------------
Assets:
- -------
Insurance-related investments:
Fixed maturity securities held
to maturity, at amortized cost $68,168,717 $37,293,989
Fixed maturity securities available
for sale, at market 11,198,062 14,270,037
Equity securities available for sale,
at market 3,815,068 3,453,444
Mortgage loans on real estate 51,781,027 29,914,745
Real estate, net of accumulated
depreciation and allowances for losses 9,905,672 8,519,680
Policy, student and other loans 12,751,301 11,753,617
Short-term investments 4,091,929 2,054,248
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Total insurance-related
Investments 161,711,776 107,259,760
------------- -------------
Restricted assets of cemeteries and mortuaries 5,137,498 4,745,709
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Cash 9,758,999 19,704,358
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Receivables:
Trade contracts 7,806,017 8,600,212
Mortgage loans sold to investors 70,189,476 114,788,185
Receivable from agents 1,418,564 1,318,958
Receivable from officers 10,540 37,540
Other 1,747,776 1,086,523
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Total receivables 81,172,373 125,831,418
Allowance for doubtful accounts (1,711,379) (1,706,678)
------------- -------------
Net receivables 79,460,994 124,124,740
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Policyholder accounts on deposit
with reinsurer 6,711,325 6,795,983
Land and improvements held for sale 8,341,719 8,387,061
Accrued investment income 1,950,404 1,142,690
Deferred policy and pre-need acquisition costs 19,174,705 17,202,489
Property, plant and equipment, net 10,730,299 11,009,416
Cost of insurance acquired 14,361,324 14,980,763
Excess of cost over net assets
of acquired subsidiaries 683,191 683,191
Other 978,658 873,424
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Total assets $319,000,892 $316,909,584
============= =============
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
September 30, 2004 December 31,
(Unaudited) 2003
Liabilities:
Future life, annuity, and other policy benefits $223,838,182 $218,793,693
Unearned premium reserve 2,190,698 1,945,203
Bank loans payable 11,034,389 14,422,670
Notes and contracts payable 2,802,624 3,440,694
Deferred pre-need cemetery and funeral
contracts revenues and estimated future
cost of pre-need sales 10,535,536 10,520,280
Accounts payable 908,387 1,274,183
Funds held under reinsurance treaties 1,213,167 1,294,589
Other liabilities and accrued expenses 10,125,667 11,171,368
Income taxes 11,206,345 10,914,845
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Total liabilities 273,854,995 273,777,525
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Commitments and contingencies -- --
------------- -------------
Minority interest 3,871,786 3,956,628
------------- -------------
Stockholders' Equity:
Common stock:
Class A: $2.00 par value, authorized 10,000,000
shares, issued 6,332,202 shares in 2004
and 6,275,014 shares in 2003 12,664,404 12,550,208
Class C: $0.20 par value, authorized
7,500,000 shares, issued 6,329,364
shares in 2004 and 6,469,638 shares
in 2003 1,265,873 1,293,927
------------- -------------
Total common stock 13,930,277 13,844,135
Additional paid-in capital 13,813,303 13,569,582
Accumulated other comprehensive income
(loss) and other items, net of deferred taxes (225,503) (437,973)
Retained earnings 6,860,729 15,414,681
Treasury stock at cost 1,212,216 Class A shares and
75,336 Class C shares in 2004; 1,276,518
Class A shares and 75,336 Class C
shares in 2003, held by
affiliated companies) (3,104,695) (3,214,994)
------------- -------------
Total stockholders' equity 41,274,111 39,175,431
------------- -------------
Total liabilities and stockholders' equity $319,000,892 $316,909,584
============= =============
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
2004 2003
---- ----
Cash flows from operating activities:
Net cash provided by operating activities $52,172,785 $4,097,189
------------ ------------
Cash flows from investing activities:
Securities held to maturity:
Purchase - fixed maturity securities (35,298,358) (8,080,087)
Calls and maturities - fixed
maturity securities 6,013,487 7,607,038
Securities available for sale:
Calls and maturities - fixed
maturity securities -- 360,000
Sales (purchases) of equity securities 2,662,122 (51,921)
Purchases of short-term investments (27,167,000) (15,608,535)
Sales of short-term investments 24,542,798 16,661,402
Sales (purchases) of restricted assets (231,902) 41,009
Mortgage, policy, and other loans made (50,980,016) (17,258,017)
Payments received for mortgage,
real estate, policy, and other loans 28,538,130 12,861,203
Purchases of property, plant,
and equipment (926,685) (1,215,617)
Purchases of real estate (1,830,045) (1,012,284)
Purchase of subsidiary (304,042) --
Sale of real estate 238,502 1,230,802
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Net cash used in investing activities (54,743,089) (4,465,007)
------------ ------------
Cash flows from financing activities:
Annuity and pre-need contract receipts 3,898,324 4,422,489
Annuity and pre-need contract withdrawals (7,532,453) (8,061,431)
Repayment of bank loans and notes and
contracts payable (3,851,225) (3,174,736)
Stock options exercised -- 25,200
Sale (Purchase) of Treasury Stock 110,299 (748,468)
------------ ------------
Net cash used in financing activities (7,375,055) (7,536,946)
------------ ------------
Net change in cash (9,945,359) (7,904,764)
Cash at beginning of period 19,704,358 38,199,041
------------ ------------
Cash at end of period $9,758,999 $30,294,277
============ ============
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004 (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 footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine months ended September 30, 2004, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2004. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended December 31, 2003,
included in the Company's Annual Report on Form 10-K (file number 0-9341).
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
future policy benefits and claims, valuation allowances for mortgage loans on
real estate, the estimated future costs for pre-need sales, deferred acquisition
costs, costs of insurance acquired and unearned revenue. Although variability is
inherent in these estimates, management believes the amounts provided are fairly
stated in all material respects.
2. Comprehensive Income
For the nine months ended September 30, 2004 and 2003, total comprehensive
income amounted to $1,988,307 and $4,753,124, respectively.
For the three months ended September 30, 2004 and 2003, total comprehensive
income amounted to $515,113 and $2,747,319, respectively.
3. Stock-Based Compensation
The Company accounts for stock-based compensation under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. The Company has adopted SFAS No. 123,
"Accounting for Stock-Based Compensation". In accordance with the provisions of
SFAS 123, the Company has elected to continue to apply Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion
No. 25"), and related interpretations in accounting for its stock option plans.
In accordance with APB Opinion No. 25, no compensation cost has been recognized
for these plans. Had compensation cost for these plans been determined based
upon the fair value at the grant date consistent with the methodology prescribed
under SFAS No. 123, net earnings for the nine months ended September 30, 2004
and 2003 would have been reduced by the following:
Nine Months Ended September 30,
2004 2003
---- ----
Net earnings as reported $1,775,837 $6,382,960
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects -- (133,000)
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Pro forma net earnings $1,775,837 $6,249,960
========== ==========
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004 (Unaudited)
Nine Months Ended September 30,
2004 2003
---- ----
Net earnings per common share:
Basic - as reported $0.31 $1.24
Basic - pro forma $0.31 $1.21
Diluted - as reported $0.31 $1.19
Diluted - pro forma $0.31 $1.16
4. Earnings Per Share
The basic and diluted earnings per share amounts were calculated as
follows:
Nine Months Ended September 30,
2004 2003
---- ----
Numerator:
Net income $1,775,837 $6,382,960
========== ==========
Denominator:
Denominator for basic earnings per share-
weighted-average shares 5,686,157 5,165,311
------------ -----------
Effect of dilutive securities:
Employee stock options 111,590 208,961
Stock appreciation rights 1,497 4,724
------------- -------------
Dilutive potential common shares 113,087 213,685
------------ -------------
Denominator for diluted earnings
per share-adjusted weighted-
average shares and assumed
conversions 5,799,244 5,378,996
=========== ===========
Basic earnings per share $0.31 $1.24
===== =====
Diluted earnings per share $0.31 $1.19
===== =====
Three Months Ended September 30,
2004 2003
---- ----
Numerator:
Net income $450,311 $2,476,723
======== ==========
Denominator:
Denominator for basic earnings per
share-weighted-average shares 5,714,812 5,034,832
---------- ----------
Effect of dilutive securities:
Employee stock options -- 212,541
Stock appreciation rights 395 4,759
-------- ----------
Dilutive potential common shares 395 217,300
-------- ----------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions 5,715,207 5,252,132
========== ==========
Basic earnings per share $.08 $.49
===== =====
Diluted earnings per share $.08 $.47
===== ====
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004 (Unaudited)
5. Business Segment
Life Cemetery/ Reconciling
Insurance Mortuary Mortgage Items Consolidated
For the Nine Months Ended
September 30, 2004
Revenues from
external sources $25,885,019 $ 9,628,455 $53,494,625$ -- $ 89,008,099
Intersegment revenues 6,128,267 38,336 191,158 (6,357,761) --
Segment profit (loss)
before income taxes 1,621,209 695,290 (111,738) -- 2,204,761
Identifiable assets 306,437,782 46,140,543 18,258,337 (51,835,770) 319,000,892
For the Nine Months Ended
September 30, 2003
Revenues from
external sources $ 22,137,919 $ 8,880,150 $85,203,365$ -- $116,221,434
Intersegment revenues 7,379,515 -- -- (7,379,515) --
Segment profit (loss)
before income taxes 1,114,422 135,785 8,181,285 -- 9,431,492
Identifiable assets 296,676,591 43,828,908 19,512,932 (43,819,867) 316,198,564
For the Three Months Ended
September 30, 2004
Revenues from
external sources $ 8,819,017 $ 3,172,449 $14,706,336$ -- $ 26,697,802
Intersegment revenues 1,866,654 38,336 69,074 (1,974,064) --
Segment profit (loss)
before income taxes 595,525 172,395 (390,852) -- 377,068
For the Three Months Ended
September 30, 2003
Revenues from
external sources $ 7,363,273 $ 3,051,572 $27,460,135 $ -- $ 37,874,980
Intersegment revenues 2,675,710 -- -- (2,675,710) --
Segment profit before
Income taxes 511,322 225,413 2,853,887 -- 3,590,622
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004 (Unaudited)
6. Recent Acquisition
On March 16, 2004, with the approval of the Louisiana Insurance Department,
Security National Life Insurance Company purchased all of the outstanding common
stock of Paramount Security Life Insurance Company, a Louisiana domiciled
company (Paramount) located in Shreveport, Louisiana. As of December 31, 2003,
Paramount had 9,383 policies in force and approximately 29 agents. The purchase
consideration was $4,397,994 and was effective January 26, 2004. For the year
ended December 31, 2003, Paramount had revenues of $614,000 and net income of
$76,000. As of December 31, 2003, statutory assets and capital and surplus were
$6,073,000 and $4,100,000, respectively. For the nine months ended September 30,
2004, Paramount had revenues of $414,000 and net income of $97,000. As of
September 30, 2004, statutory assets and capital and surplus were $3,146,000 and
$1,201,000, respectively.
Paramount is licensed in the State of Louisiana and is permitted to appoint
agents who do not have a full life insurance license. These agents are limited
to selling small life insurance policies in the final expense market. The
Company believes that with this license it will be able to expand its operations
in Louisiana. The Company is servicing Paramount policyholders out of its
Jackson, Mississippi office, and has closed the Shreveport office.
7. Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51", and subsequently issued a revision to this
Interpretation in December 2003. This Interpretation addresses the consolidation
by business enterprises of variable interest entities as defined in the
Interpretation. The Interpretation applies to those variable interest entities
considered to be special-purpose entities no later than December 31, 2003. The
Interpretation must also be applied to all other variable interest entities no
later than March 31, 2004. The adoption of Interpretation No. 46 did not have a
material impact on the Company's financial position or results of operations.
8. Agreement and Plan of Reorganization
On August 25, 2004, the Company through its wholly-owned subsidiary, Security
National Life Insurance Company, entered into an Agreement and Plan of
Reorganization with Southern Security Life Insurance Company and SSLIC Holding
Company, a wholly-owned subsidiary of Security National Life Insurance Company.
Upon completion of the proposed Agreement and Plan of Reorganization, SSLIC
Holding Company will be merged with and into Southern Security Life Insurance
Company which merger, if consummated, would result in (i) Southern Security Life
Insurance Company becoming a wholly-owned subsidiary of Security National Life
Insurance Company and (ii) the Company's unaffiliated stockholders of Southern
Security Life Insurance Company becoming entitled to receive $3.84 in cash for
each issued and outstanding share of Southern Security Life Insurance Company 's
common stock. The Agreement and Plan of Reorganization was unanimously approved
by all of the directors of the Company.
If the proposed merger is completed, the separate existence of SSLIC Holding
Company will cease as Southern Security Life Insurance Company will be the
surviving corporation in the merger and will continue to be governed by the laws
of the State of Florida, and the separate corporate existence of Southern
Security Life Insurance Company will continue unaffected by the merger. The
shares of common stock owned by Southern Security Life Insurance Company
unaffiliated stockholders immediately prior to the effective time of the merger
will be exchanged for cash.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004 (Unaudited)
The total amount of cash to be paid by Security National Life Insurance Company
to the unaffiliated holders of Southern Security Life Insurance Company's common
stock, holding an aggregate of 490,816 shares of Southern Security Life
Insurance Company's common stock, pro rata to their respective share ownership,
will be $3.84 per share of common stock, or an aggregate of $1,884,733. The
490,816 shares of Southern Security Life Insurance Company's common stock that
Security National Life Insurance Company has agreed to purchase from the
unaffiliated stockholders of Southern Security Life Insurance Company represent
23.3% of Southern Security Life Insurance Company's outstanding common shares,
or all of the outstanding shares. The unaffiliated stockholders do not include
Security National Life Insurance Company and SSLIC Holding Company. Security
National Life Insurance Company and SSLIC Holding Company own 76.7% of Southern
Security Life Insurance Company's outstanding common shares.
If the merger is completed, each share of Southern Security Life Insurance
Company's common stock held by the unaffiliated stockholders prior to the
effective time of the merger will, by virtue of the merger and without any
action on the part of the stockholder thereof, automatically be canceled and
converted into the right to receive cash in the amount equal to $3.84 per share.
In addition, each unaffiliated holder of Southern Security Life Insurance
Company's common shares immediately prior to the effective time of the merger
will, by virtue of the merger and without any action on the part of such
stockholder, cease being a stockholder of Southern Security Life Insurance
Company and automatically receive cash in an amount equal to the number of
shares of common stock held of record by such stockholder at such time
multiplied by $3.84 per share.
The obligations of Security National Life Insurance Company, SSLIC Holding and
Southern Security Life Insurance Company to complete the proposed merger are
subject to the satisfaction of certain conditions, including (i) the approval
and adoption of the Agreement and Plan of Reorganization by Southern Security
Life Insurance Company's stockholders; (ii) all authorizations, consents, orders
or approvals of the insurance departments of the states of Florida and Utah
shall have been obtained; and (iii) on the closing date the dissenting shares of
Southern Security Life Insurance Company's common stock shall not exceed 10% of
the outstanding common shares of Southern Security Life Insurance Company.
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) capitalizing on historically lower interest rates by
originating and refinancing mortgage loans.
During the nine months ended September 30, 2004, Security National Mortgage
Company ("SNMC") experienced a decrease in revenue and expenses due to the
decrease in loan volume of its operations as a result of increased interest
rates. 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 8,790 ($1,368,134,000) and 14,487 ($2,125,995,000) loans,
respectively, for the nine months ended September 30, 2004 and 2003.
Results of Operations
Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30,
2003
Total revenues decreased by $27,213,000, or 23.4%, to $89,008,000 for the nine
months ended September 30, 2004, from $116,221,000 for the nine months ended
September 30, 2003. Contributing to this decrease in total revenues was a
$28,748,000 reduction in mortgage fee income and a $1,735,000 reduction in net
investment income.
Insurance premiums and other considerations increased by $1,974,000, or 11.4%,
to $19,316,000 for the nine months ended September 30, 2004, from $17,342,000
for the comparable period in 2003. This increase was primarily due to the
additional insurance premiums that were realized on new insurance sales and
including premiums from policies acquired from Paramount Security Life Insurance
Company.
Net investment income decreased by $1,735,000 or 12.7%, to $11,895,000 for the
nine months ended September 30, 2004, from $13,630,000 for the comparable period
in 2003. This decrease was primarily attributable to reduced borrower interest
income on fewer mortgage loans originated by Security National Mortgage Company
during the nine months ended September 30, 2004.
Net mortuary and cemetery sales increased by $836,000, or 10.4%, to $8,862,000
for the nine months ended September 30, 2004, from $8,026,000 for the comparable
period in 2003. This increase was primarily due to additional cemetery and
mortuary sales during the nine months ended September 30, 2004.
Mortgage fee income decreased by $28,748,000, or 37.3%, to $48,231,000 for the
nine months ended September 30, 2004, from $76,979,000 for the comparable period
in 2003. This decrease was primarily attributable to a decrease in the number of
loan originations during the nine months ended September 30, 2004, due to an
increase in interest rates resulting in fewer borrowers refinancing their
mortgage loans.
Total benefits and expenses were $86,803,000, or 97.5% of total revenues, for
the nine months ended September 30, 2004, as compared to $106,790,000, or 91.9%
of total revenues, for the comparable period in 2003. The lower margin in 2004
is due to fixed expenses, which did not decrease proportionally with the
reduction in revenue.
Death benefits, surrenders and other policy benefits, and increase in future
policy benefits increased by an aggregate of $1,070,000, or 6.6%, to $17,333,000
for the nine months ended September 30, 2004, from $16,263,000, for the
comparable period in 2003. This increase was primarily the result of an increase
in reserves for policyholders.
Amortization of deferred policy acquisition costs and cost of insurance acquired
increased by $62,000, or 1.8%, to $3,404,000 for the nine months ended September
30, 2004, from $3,342,000, for the comparable period in 2003. This increase in
amortized expenses was in line with actuarial assumptions.
General and administrative expenses decreased by $19,577,000, or 23.8%, to
$62,778,000 for the nine months ended September 30, 2004, from $82,355,000 for
the comparable period in 2003. This decrease primarily resulted from a reduction
in commissions due to fewer mortgage loan originations having been made by
Security National Mortgage Company during the nine months ended September 30,
2004.
Interest expense decreased by $1,592,000, or 50.9%, to $1,539,000 for the nine
months ended September 30, 2004, from $3,131,000, for the comparable period in
2003. This decrease was primarily due to reduced warehouse lines of credit
required for fewer mortgage loan originations by Security National Mortgage
Company during the nine months ended September 30, 2004.
Cost of goods and services sold of the mortuaries and cemeteries increased by
$51,000, or 3.0%, to $1,750,000, for the nine months ended September 30, 2004,
from $1,699,000 for the comparable period in 2003. This increase was in line
with increased sales for the nine months ended September 30, 2004.
Third Quarter of 2004 Compared to Third Quarter of 2003
Total revenues decreased by $11,177,000, or 29.5%, to $26,698,000 for the three
months ended September 30, 2004, from $37,875,000 for the three months ended
September 30, 2003. Contributing to this decrease in total revenues was an
$11,159,000 decrease in mortgage fee income and a $1,168,000 decrease in net
investment income.
Insurance premiums and other considerations increased by $764,000, or 13.3%, to
$6,516,000 for the three months ended September 30, 2004, from $5,752,000 for
the comparable period in 2003. This increase was primarily due to the additional
insurance premiums that were realized on new insurance sales and including
premiums from policies acquired from Paramount Security Life Insurance Company.
Net investment income decreased by $1,168,000, or 22.2%, to $4,097,000 for the
three months ended September 30, 2004, from $5,265,000 for the comparable period
in 2003. This decrease was primarily attributable to reduced borrower interest
income on fewer mortgage loans originated by Security National Mortgage Company
during the third quarter of 2004.
Net mortuary and cemetery sales increased by $178,000, or 6.5%, to $2,909,000
for the three months ended September 30, 2004, from $2,731,000 for the
comparable period in 2003. This increase was primarily due to additional
cemetery and mortuary sales.
Mortgage fee income decreased by $11,159,000, or 46.4%, to $12,908,000 for the
three months ended September 30, 2004, from $24,067,000 for the comparable
period in 2003. This decrease was primarily attributable to a decrease in the
number of loan originations during the third quarter of 2004 due to an increase
in interest rates resulting in fewer borrowers refinancing their mortgage loans.
Total benefits and expenses were $26,321,000, or 98.6% of total revenues for the
three months ended September 30 2004, as compared to $34,284,000, or 90.5% of
total revenues for the comparable period in 2003. The lower margin in 2004 is
due to fixed expenses, which did not decrease proportionally with the reduction
in revenue.
Death benefits, surrenders and other policy benefits, and increase in future
policy benefits increased by an aggregate of $350,000, or 6.6%, to $5,661,000
for the three months ended September 30, 2004, from $5,311,000 for the
comparable period in 2003. This increase was primarily the result of an increase
in reserves for policyholders.
Amortization of deferred policy acquisition costs and cost of insurance acquired
decreased by $612,000, or 45.5%, to $734,000 for the three months ended
September 30, 2004, from $1,346,000 for the comparable period in 2003. This
decrease was in line with actuarial assumptions.
General and administrative expenses decreased by $6,887,000, or 26.8%, to
$18,834,000 for the three months ended September 30, 2004, from $25,721,000 for
the comparable period in 2003. This decrease primarily resulted from a reduction
in commissions due to fewer mortgage loan originations having been made by
Security National Mortgage Company during the third quarter of 2004.
Interest expense decreased by $852,000, or 64.0%, to $479,000 for the three
months ended September 30, 2004, from $1,331,000 for the comparable period in
2003. This decrease was primarily due to reduced warehouse lines of credit
required for fewer mortgage loan originations by Security National Mortgage
Company.
Cost of goods and services sold of the mortuaries and cemeteries increased by
$37,000, or 6.5%, to $613,000 for the three months ended September 30, 2004,
from $575,000 for the comparable period in 2003. This increase was in line with
increased sales during the third quarter of 2004.
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 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 the 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 $79,367,000, as of September 30,
2004, compared to $51,564,000 as of December 31, 2003. This represents 49% and
48% of the total insurance-related investments as of September 30, 2004, and
December 31, 2003, respectively. Generally, all bonds owned by the life
insurance subsidiaries are rated by the National Association of Insurance
Commissioners. Under this rating system, there are six categories used for
rating bonds. At September 30, 2004 and December 31, 2003, 2% ($1,464,000) and
3% ($1,739,000) of the Company's total investment in bonds were invested in
bonds in rating categories three through six, which are considered
non-investment grade.
The Company has classified certain of its fixed income securities, including
high-yield securities, in its portfolio as available for sale, with the
remainder classified as held to maturity. However, in accordance with Company
policy, any such securities purchased in the future will be classified as held
to maturity. Business conditions, however, may develop in the future which may
indicate a need for a higher level of liquidity in the investment portfolio. In
that event the Company believes it could sell short-term investment grade
securities before liquidating higher-yielding longer-term securities.
The Company is subject to risk based capital guidelines established by statutory
regulators requiring minimum capital levels based on the perceived risk of
assets, liabilities, disintermediation, and business risk. At September 30,
2004, and December 31, 2003, the life insurance subsidiary exceeded the
regulatory criteria.
The Company's total capitalization of stockholders' equity and bank debt and
notes payable was $55,111,000 as of September 30, 2004, as compared to
$57,039,000 as of December 31, 2003. Stockholders' equity as a percent of
capitalization increased to 75% as of September 30, 2004, from 69% as of
December 31, 2003.
Lapse rates measure the amount of insurance terminated during a particular
period. The Company's lapse rate for life insurance in 2003 was 8.6% as compared
to a rate of 10.7% for 2002. The 2004 lapse rate to date has been approximately
the same as 2003.
At September 30, 2004, $27,260,000 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, 2003.
Item 4. Controls and Procedures
a) Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management,
including principal executive officer and principal financial officer, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as of September 30, 2004. Based on
this evaluation, our principal executive officer and our principal
financial officer concluded that, as of the end of the period covered by
this report, our disclosure controls and procedures were effective and
adequately designed to ensure that the information required to be disclosed
by us in the reports we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time
periods specified in applicable rules and forms. b) Changes in internal
controls over financial reporting
During the quarter ended September 30, 2004, there has been no change
in our internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
Part II Other Information:
Item 1. Legal Proceedings
An action was brought against the Company in May 2001, by Glenna Brown Thomas
individually and as personal representative of the Estate of Lynn W. Brown in
the Third Judicial Court, Salt Lake County, Utah. The action asserts that
Memorial Estates delivered to Lynn W. Brown six stock certificates representing
2,000 shares in 1970 and 1971. Mr. Brown died in 1972. It is asserted that at
the time the 2,000 shares were issued and outstanding, such represented a 2%
ownership of Memorial Estates. It is alleged Mr. Brown was entitled to
preemptive rights and that after the issuance of the stock to Mr. Brown there
were further issuances of stock without providing written notice to Mr. Brown or
his estate with respect to an opportunity to purchase more stock.
It is also asserted among other things that Thomas "has the right to a transfer
of Brown's shares to Thomas on defendants' (which includes Security National
Financial Corporation as well as Memorial Estates, Inc.) books and to
restoration of Brown's proportion of share ownership in Memorial at the time of
his death by issuance and delivery to Thomas of sufficient shares of defendant's
publicly traded and unrestricted stock in exchange for the 2,000 shares of
Memorial stock and payment of all dividends from the date of Thomas's demand, as
required by Article XV of the Articles of Incorporation." The formal discovery
cutoff was January 15, 2004. The Company
has been verbally informed that Thomas will dismiss the case but such has not
been communicated in writing. Until the foregoing actually happens, the Company
intends to vigorously defend the matter, including an assertion that the statute
of limitations bars the claims.
An action was brought against Southern Security Life Insurance Company by
National Group Underwriters, Inc. ("NGU") in state court in the State of Texas.
The case was removed by the Company to the United States District Court for the
Northern District of Texas, Fort Worth Division, with Civil No. 4:01-CV-403-E.
An amended complaint was filed on or about July 18, 2001. The amended complaint
asserted that NGU had a contract with the Company wherein NGU would submit
applications for certain policies of insurance to be issued by the Company. It
was alleged that disputes had arisen between NGU and the Company with regard to
the calculation and payment of certain commissions as well as certain production
bonuses.
NGU alleged that it had been damaged far in excess of the $75,000 minimum
jurisdictional limits of the federal court. NGU also sought attorney's fees and
costs as well as prejudgment and post judgment interest. A second amended
complaint and a third amended complaint, which included a fraud claim, were
filed. A motion was filed by the Company to dismiss the third amended complaint,
including the fraud claim. The court denied the motion. The Company
counterclaimed for what it claimed to be a debit balance owing to it pursuant to
the relationship between the parties (the amount subject to reduction as
premiums are received). The Company also sought to recover attorney's fees and
costs, as well as punitive damages on three of its causes of action in the
counterclaim.
Following initial discovery, the federal case was dismissed by stipulation. The
matter was refiled in Texas state court, Tarrant County, Case No. 348 195490 02.
The claims of the respective parties are essentially the same as those in
federal court, which claims of NGU (estimated to be $2,133,625 through September
30, 2004) include fraudulent inducement relative to entering into a contract,
fraud, breach of contract as to commissions and production bonuses as well as
policy fees, certain dues and debits of other agents, attorney's fees and
exemplary damages as well as seeking an accounting with the appointment of an
auditor and contesting the interest charges. Certain discovery has taken place,
including depositions, since the filing again in state court. A trial was set
for late October, 2004, and the Company had filed another motion for partial
summary judgment. However, as a result of mediation, a settlement was reached in
the case, which was completed on September 24, 2004. Pursuant to completion of
the settlement, the litigation was dismissed with prejudice.
The settlement required Southern Security Life Insurance Company to pay NGU a
$265,000 cash payment by September 24, 2004, which approximated interest
Southern Security Life Insurance Company charged on NGU's account. In addition,
Southern Security Life Insurance Company is required to pay the regular
commission and policy fee renewals to NGU. Finally, NGU has the right to
undertake an audit and review of the policy fees Southern Security Life
Insurance Company has paid NGU during the period from May 1, 2001 through July
31, 2004, provided the audit is completed within 75 days of the September 24,
2004 effective date of the Settlement Agreement between Southern Security Life
Insurance Company and NGU. If it is determined, as a result of the audit, that
the amount of policy fees was not fully credited during such period, Southern
Security Life Insurance Company is required to pay NGU any such policy fees owed
without interest thereon.
The Company is not a party to any other legal proceedings outside the ordinary
course of its business or to any other legal proceedings, which, if adversely
determined, would have a material adverse effect on the Company or its business.
Item 2. Changes in Securities and Use of Proceeds
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
At the annual stockholders meeting held on July 16, 2004, the
following matters were acted upon: (i) seven directors consisting
of George R. Quist, J. Lynn Beckstead, Jr., Scott M. Quist,
Charles L. Crittenden, Dr. Robert G. Hunter, H. Craig Moody and
Norman G. Wilbur were elected to serve until the next annual
stockholders meeting or until their respective successors are
elected and qualified (for George R. Quist, Class A and Class C
shares, 9,160,589 votes were cast in favor of election, no votes
were cast against election and there were 57,615 abstentions; for
J. Lynn Beckstead, Jr., Class A shares only, 3,623,683 votes were
cast in favor of election, no votes were cast against election
and there were 53,232 abstentions; for Scott M. Quist, Class A
and Class C shares, 9,160,429 votes were cast in favor of
election, no votes were cast against election and there were
57,775 abstentions; for Charles L. Crittenden, Class A shares
only, 3,623,828 votes were cast in favor of election and no votes
were cast against election and there were 53,087 abstentions; for
Dr. Robert G. Hunter, Class A and Class C shares, 9,163,578 votes
were cast in favor of election, no votes cast against election
and there were 54,626 abstentions; for H. Craig Moody, Class A
and C shares, 9,161,821 votes were cast in favor of election, no
votes cast against election and there were 56,383 abstentions;
for Norman G. Wilbur, Class A and Class C shares, 9,162,933 votes
were cast in favor of election, no votes were cast against
election and there were 55,271 abstentions; (ii) the appointment
of Tanner + Co. as the Company's independent accountants for the
fiscal year ended December 31, 2004 was ratified (with 9,174,484
votes cast for appointment, 35,375 votes against appointment and
8,345 abstentions).
Item 5. Other Information
On August 25, 2004, the Company through its wholly-owned
subsidiary, Security National Life Insurance Company, entered
into an Agreement and Plan of Reorganization with Southern
Security Life Insurance Company and SSLIC Holding Company, a
wholly-owned subsidiary of Security National Life Insurance
Company. Upon completion of the proposed Agreement and Plan of
Reorganization, SSLIC Holding Company will be merged with and
into Southern Security Life Insurance Company which merger, if
consummated, would result in (i) Southern Security Life Insurance
Company becoming a wholly-owned subsidiary of Security National
Life Insurance Company and (ii) the Company's unaffiliated
stockholders of Southern Security Life Insurance Company becoming
entitled to receive $3.84 in cash for each issued and outstanding
share of Southern Security Life Insurance Company 's common
stock. The Agreement and Plan of Reorganization was unanimously
approved by all of the directors of the Company.
If the proposed merger is completed, the separate existence of
SSLIC Holding Company will cease as Southern Security Life
Insurance Company will be the surviving corporation in the merger
and will continue to be governed by the laws of the State of
Florida, and the separate corporate existence of Southern
Security Life Insurance Company will continue unaffected by the
merger. The shares of common stock owned by Southern Security
Life Insurance Company unaffiliated stockholders immediately
prior to the effective time of the merger will be exchanged for
cash.
The total amount of cash to be paid by Security National Life
Insurance Company to the unaffiliated holders of Southern
Security Life Insurance Company's common stock holding an
aggregate of 490,816 shares of Southern Security Life Insurance
Company's common stock, pro rata to their respective share
ownership, will be $3.84 per share of common stock, or an
aggregate of $1,884,733. The 490,816 shares of Southern Security
Life Insurance Company's common stock that Security National Life
Insurance Company has agreed to purchase from the unaffiliated
stockholders of Southern Security Life Insurance Company
represent 23.3% of Southern Security Life Insurance Company's
outstanding common shares, or all of the outstanding shares. The
unaffiliated stockholders do not include Security National Life
Insurance Company and SSLIC Holding Company. Security National
Life Insurance Company and SSLIC Holding Company own 76.7% of
Southern Security Life Insurance Company's outstanding common
shares.
If the merger is completed, each share of Southern Security Life
Insurance Company's common stock held by the unaffiliated
stockholders prior to the effective time of the merger will, by
virtue of the merger and without any action on the part of the
stockholder thereof, automatically be canceled and converted into
the right to receive cash in the amount equal to $3.84 per share.
In addition, each unaffiliated holder of Southern Security Life
Insurance Company's common shares immediately prior to the
effective time of the merger will, by virtue of the merger and
without any action on the part of such stockholder, cease being a
stockholder of Southern Security Life Insurance Company and
automatically receive cash in an amount equal to the number of
shares of common stock held of record by such stockholder at such
time multiplied by $3.84 per share.
The obligations of Security National Life Insurance Company,
SSLIC Holding and Southern Security Life Insurance Company to
complete the proposed merger are subject to the satisfaction of
certain conditions, including (i) the approval and adoption of
the Agreement and Plan of Reorganization by Southern Security
Life Insurance Company's stockholders; (ii) all authorizations,
consents, orders or approvals of the insurance departments of the
states of Florida and Utah shall have been obtained; and (iii) on
the closing date the dissenting shares of Southern Security Life
Insurance Company's common stock shall not exceed 10% of the
outstanding common shares of Southern Security Life Insurance
Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1. Articles of Restatement of Articles of Incorporation (7)
3.2. Amended
Bylaws (10)
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 1993 Stock Option Plan (3)
10.3 2000 Director Stock Option Plan (4)
10.4 2003 Stock Option Plan (9)
10.5 Deferred Compensation Agreement with George R. Quist (2)
10.6 Promissory Note with George R. Quist (5)
10.7 Deferred Compensation Plan (6)
10.8 Coinsurance Agreement between Security National Life Insurance
Company and Acadian (7)
10.9 Assumption Agreement among Acadian, Acadian Financial Group, Inc.,
Security National Life Insurance Company and the Company (7)
10.10 Asset Purchase Agreement among Acadian, Acadian Financial
Group, Inc., Security National Life Insurance Company and the
Company (7)
10.11 Promissory Note with Key Bank of Utah (8)
10.12 Loan and Security Agreement with Key Bank of Utah (8)
10.13 Stock Purchase and Sale Agreement with Ault Glazer & Co. Investment
Management LLC (10)
10.14 Stock Purchase Agreement with Paramount Security Life
Insurance Company (11)
10.15 Reinsurance Agreement between Security National Life
Insurance Company and Guaranty Income Life Insurance Company (12)
10.16 Employment agreement with J. Lynn Beckstead, Jr. (12)
10.17 Employment agreement with Scott M. Quist (13)
10.18 Agreement and Plan of Reorganization among Security National
Life Insurance Company, SSLIC Holding Company, and Southern Security
Life Insurance Company (14)
31.1 Certification pursuant to 18 U.S.C. Section 1350 as enacted by Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certification pursuant to 18 U.S.C. Section 1350 as enacted by Section
302 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
------------------
(1) Incorporated by reference from Registration Statement on Form S-1, as
filed on September 29, 1987
(2) Incorporated by reference from Annual Report on Form 10-K, as filed on
September 30, 1989
(3) Incorporated by reference from Annual Report on Form 10-K, as filed on
September 30, 1994
(4) Incorporated by reference from Schedule 14A Definitive Proxy
Statement, filed August 29, 2000, relating to the Company's Annual
Meeting of Shareholders
(5) Incorporated by reference from Annual Report on Form 10-K, as filed on
April 16, 2001
(6) Incorporated by reference from Annual Report on Form 10-K, as filed on
April 3, 2002
(7) Incorporated by reference from Report on Form 8-K/A as filed on
January 8, 2003
(8) Incorporated by reference from Annual Report on Form 10-K, as filed on
April 15, 2003
(9) Incorporated by reference from Schedule 14A Definitive Proxy
Statement, Filed on September 5, 2003 relating to the Company's Annual
Meeting of Shareholders
(10) Incorporated by reference from Report on Form 10-Q, as filed on
November 14, 2003
(11) Incorporated by reference from Report on Form 8-K, as filed on March
29, 2004
(12) Incorporated by reference from Report on Form 10-K, as filed on March
30, 2004
(13) Incorporated by reference from Report on Form 10-Q, as filed on August
13, 2004
(14) Incorporated by reference from Report on Form 8-K, as filed on August
30, 2004
Subsidiaries of the Registrant
(b) Reports on Form 8-K:
Current Report on Form 8-K, as filed on August 30, 2004 Current Report
on Form 8-K/A, as filed on August 31, 2004
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGISTRANT
SECURITY NATIONAL FINANCIAL CORPORATION
Registrant
DATED: November 15, 2004 By: George R. Quist,
----------------
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
DATED: November 15, 2004 By: 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 and 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
control over financial reporting.
Date: November 15, 2004
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 and 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
control over financial reporting.
Date: November 15, 2004
By: Stephen M. Sill
Vice President, Treasurer and
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Security National Financial
Corporation (the "Company") on Form 10-Q for the period ending September 30,
2004, as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, George R. Quist, 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.
By: George R. Quist
Chief Executive Officer
November 15, 2004
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Security National Financial
Corporation (the "Company") on Form 10-Q for the period ending September 30,
2004, as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Stephen M. Sill, 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.
By: Stephen M. Sill
Chief Financial Officer
November 15, 2004