Company Quick10K Filing
Security National Financial
Price4.89 EPS1
Shares17 P/E9
MCap85 P/FCF-1
Net Debt-123 EBIT16
TEV-38 TEV/EBIT-2
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-14
10-Q 2020-03-31 Filed 2020-05-15
10-K 2019-12-31 Filed 2020-03-30
10-Q 2019-09-30 Filed 2019-11-14
10-Q 2019-06-30 Filed 2019-08-14
10-Q 2019-03-31 Filed 2019-05-15
10-K 2018-12-31 Filed 2019-03-29
10-Q 2018-09-30 Filed 2018-11-13
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-15
10-K 2017-12-31 Filed 2018-04-02
10-Q 2017-09-30 Filed 2017-11-14
10-Q 2017-06-30 Filed 2017-08-25
10-Q 2017-03-31 Filed 2017-05-15
10-Q 2017-03-31 Filed 2017-08-25
10-K 2016-12-31 Filed 2017-03-31
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-15
10-Q 2016-03-31 Filed 2016-05-16
10-K 2015-12-31 Filed 2016-03-30
10-Q 2015-09-30 Filed 2015-11-13
10-Q 2015-06-30 Filed 2015-08-14
10-Q 2015-03-31 Filed 2015-05-15
10-K 2014-12-31 Filed 2015-03-31
10-Q 2014-09-30 Filed 2014-11-14
10-Q 2014-06-30 Filed 2014-08-14
10-Q 2014-03-31 Filed 2014-05-15
10-K 2013-12-31 Filed 2014-03-31
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-15
10-K 2012-12-31 Filed 2013-03-29
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-15
10-K 2011-12-31 Filed 2012-03-30
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-15
10-Q 2011-03-31 Filed 2011-05-16
10-K 2010-12-31 Filed 2011-03-31
10-Q 2010-09-30 Filed 2010-11-15
10-Q 2010-06-30 Filed 2010-08-16
10-Q 2010-03-31 Filed 2010-05-14
10-K 2009-12-31 Filed 2010-03-31
8-K 2020-06-29 Other Events
8-K 2020-06-26 Shareholder Vote
8-K 2020-06-26 Other Events
8-K 2019-12-13
8-K 2019-11-12
8-K 2019-06-28
8-K 2019-02-15
8-K 2018-09-07
8-K 2018-06-28
8-K 2018-06-01
8-K 2018-03-29

SNFCA 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements.
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3.Quantitative and Qualitative Disclosures About Market Risk.
Item 4.Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3.Defaults Upon Senior Securities.
Item 4.Mine Safety Disclosures.
Item 5.Other Information.
Item 6.Exhibits, Financial Statements Schedules and Reports on Form 8 - K.
EX-10.3 snfca_ex10z3.htm
EX-21 snfca_ex21.htm
EX-31.1 snfca_ex31z1.htm
EX-31.2 snfca_ex31z2.htm
EX-32.1 snfca_ex32z1.htm
EX-32.2 snfca_ex32z2.htm

Security National Financial Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
1.21.00.70.50.20.02012201420172020
Assets, Equity
0.10.10.10.00.00.02012201420172020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin

10-Q 1 snfca_10q.htm SNFCA 10-Q 10q0398.edgar preformat

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

or

 

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to ________

 

Commission File Number: 000-09341

 

SECURITY NATIONAL FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

UTAH

87-0345941

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

121 West Election Road, Suite 100, Draper, Utah

84020

(Address of principal executive offices)

(Zip Code)

 

 

(801) 264-1060

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol

Name of each exchange on which registered

Class A Common Stock

SNFCA

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   

Yes [X] No [  ] 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  

Yes [X] No [  ] 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  

 

Large accelerated filer [  ]   Accelerated filer [  ]    

Non-accelerated filer [  ] (Do not check if a smaller reporting company)Smaller reporting company [X] 

Emerging growth company [  ] 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ] 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

Yes [  ] No[X] 

 

 

As of August 10, 2020, the registrant had 16,557,925 shares of Class A Common Stock, $2.00 par value, outstanding and 2,551,445 shares of Class C Common Stock, $2.00 par value, outstanding. 

 

===================================================================================


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q

 

QUARTER ENDED JUNE 30, 2020

 

Table of Contents

 

 

 

 

Page No.

 

Part I  - Financial Information

 

Item 1.

Financial Statements

 

 

Condensed Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019

3-4

 

Condensed Consolidated Statements of Earnings for the three and six months
ended June 30, 2020 and 2019 (unaudited)

5

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019 (unaudited)

6

 

Condensed Consolidated Statements of Stockholders' Equity as of June 30, 2020 and June 30, 2019 (unaudited)

7

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (unaudited)

8-9

 

Notes to Condensed Consolidated Financial Statements (unaudited)

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

55

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

62

Item 4.

Controls and Procedures

62

 

Part II - Other Information

 

Item 1.

Legal Proceedings

63

Item 1A.

Risk Factors

63

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

63

Item 3.

Defaults Upon Senior Securities

64

Item 4.

Mine Safety Disclosures

64

Item 5.

Other Information

64

Item 6.

Exhibits

64

 

Signature Page

66

 

 

 


2


SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

Part I - Financial Information

 

Item 1. Financial Statements. 

 

Assets

June 30
2020
(Unaudited)

 

December 31
2019

Investments:

 

 

 

Fixed maturity securities, available for sale, at estimated fair value

$       348,628,792

 

$   355,977,820

Equity securities at estimated fair value

           11,791,511

 

         7,271,165

Mortgage loans held for investment (net of allowances for loan losses of $2,443,557 and $1,453,037 for 2020 and 2019)

         260,418,004

 

     236,694,546

Real estate held for investment (net of accumulated depreciation of $12,801,555 and $12,788,739 for 2020 and 2019)

         113,192,422

 

     102,756,946

Real estate held for sale

           10,598,341

 

       14,097,627

Other investments and policy loans (net of allowances for doubtful accounts of $1,533,696 and $1,448,026 for 2020 and 2019)

           65,700,611

 

       60,245,269

Accrued investment income

             5,008,772

 

         4,833,232

Total investments

         815,338,453

 

     781,876,605

Cash and cash equivalents

         116,961,182

 

     127,754,719

Loans held for sale at estimated fair value

         356,949,958

 

     213,457,632

Receivables (net of allowances for doubtful accounts of $1,731,873
and $1,724,156 for 2020 and 2019)

           10,208,989

 

         9,236,330

Restricted assets (including $3,029,593 and $2,985,347 for 2020 and 2019 at estimated fair value)

           16,445,277

 

       13,935,317

Cemetery perpetual care trust investments (including $2,671,716 and $2,581,124 for 2020 and 2019 at estimated fair value)

             5,230,630

 

         4,411,864

Receivable from reinsurers

           15,858,896

 

       15,747,768

Cemetery land and improvements

             9,173,403

 

         9,519,950

Deferred policy and pre-need contract acquisition costs

           97,528,343

 

       94,701,920

Mortgage servicing rights, net

           21,695,123

 

       17,155,529

Property and equipment, net

           12,952,262

 

       14,600,394

Value of business acquired

             9,570,741

 

         9,876,647

Goodwill

             3,519,588

 

         3,519,588

Other

           29,628,897

 

       18,649,812

 

 

 

 

Total Assets

$   1,521,061,742

 

$ 1,334,444,075

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).


3


SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

 

 

June 30
2020
(Unaudited)

 

December 31
2019

Liabilities and Stockholders' Equity

 

 

 

Liabilities

 

 

 

Future policy benefits and unpaid claims

$   837,481,978

 

$   825,600,918

Unearned premium reserve

         3,476,463

 

         3,621,697

Bank and other loans payable

     347,139,008

 

     217,572,612

Deferred pre-need cemetery and mortuary contract revenues

       12,930,466

 

       12,607,978

Cemetery perpetual care obligation

         4,003,169

 

         3,933,719

Accounts payable

         4,920,178

 

         5,056,983

Other liabilities and accrued expenses

       62,689,482

 

       50,652,591

Income taxes

       25,806,772

 

       18,686,972

Total liabilities

   1,298,447,516

 

   1,137,733,470

 

 

 

 

Stockholders' Equity

 

 

 

Preferred Stock - non-voting - $1.00 par value; 5,000,000 shares authorized; none issued or outstanding

                     -

 

                     -

Class A: common stock - $2.00 par value; 20,000,000 shares authorized; issued 16,557,554 shares in 2020 and 16,107,779 shares in 2019

       33,115,108

 

       32,215,558

Class B: non-voting common stock - $1.00 par value; 5,000,000 shares authorized; none issued or outstanding

                     -

 

                     -

Class C: convertible common stock - $2.00 par value; 3,000,000 shares authorized; issued 2,551,445 shares in 2020 and 2,500,887 shares in 2019

         5,102,890

 

         5,001,774

Additional paid-in capital

       48,917,891

 

       46,091,112

Accumulated other comprehensive income, net of taxes

       16,894,089

 

       13,726,514

Retained earnings

     120,126,524

 

     101,256,229

Treasury stock at cost - 349,850 Class A shares in 2020 and 490,823 Class A shares in 2019

       (1,542,276)

 

       (1,580,582)

 

 

 

 

Total stockholders' equity

     222,614,226

 

     196,710,605

 

 

 

 

Total Liabilities and Stockholders' Equity

$ 1,521,061,742

 

$ 1,334,444,075

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).


4


SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

 

 

Three Months Ended June 30

 

Six Months Ended June 30

 

2020

 

2019

 

2020

 

2019

Revenues:

 

 

 

 

 

 

 

Insurance premiums and other considerations

$      22,924,709

 

$      19,645,218

 

$    45,215,985

 

$      38,672,220

Net investment income

        12,962,745

 

        10,540,835

 

      26,363,244

 

        20,582,503

Net mortuary and cemetery sales

         4,700,778

 

         4,000,730

 

        9,158,869

 

          7,679,358

Gains (losses) on investments and other assets

         2,238,279

 

        (1,025,893)

 

         (973,968)

 

            780,768

Mortgage fee income

        73,368,333

 

        32,946,567

 

    113,650,094

 

        57,425,438

Other

         2,466,898

 

         2,337,725

 

        4,856,467

 

          4,798,730

Total revenues

118,661,742

 

68,445,182

 

198,270,691

 

129,939,017

 

 

 

 

 

 

 

 

Benefits and expenses:

 

 

 

 

 

 

 

Death benefits

        13,586,723

 

         9,248,796

 

      26,994,350

 

        19,326,699

Surrenders and other policy benefits

            838,191

 

            763,978

 

        1,908,666

 

          1,629,909

Increase in future policy benefits

         6,603,843

 

         5,676,111

 

      13,641,876

 

        11,427,241

Amortization of deferred policy and pre-need acquisition costs and value of business acquired

         3,026,666

 

         3,073,478

 

        6,541,723

 

          6,201,752

Selling, general and administrative expenses:

 

 

 

 

 

 

 

Commissions

        27,239,088

 

        13,853,889

 

      43,793,831

 

        23,528,981

Personnel

        20,538,655

 

        15,699,260

 

      39,258,653

 

        30,730,596

Advertising

         1,229,841

 

         1,171,903

 

        2,235,158

 

          2,205,078

Rent and rent related

         1,662,853

 

         1,724,179

 

        3,277,594

 

          3,628,467

Depreciation on property and equipment

            518,070

 

            422,926

 

        1,034,283

 

            872,606

Costs related to funding mortgage loans

         2,378,815

 

         1,559,289

 

        4,335,097

 

          2,914,214

Other

        11,303,388

 

         8,154,367

 

      21,378,930

 

        15,799,494

Interest expense

         1,881,440

 

         1,782,557

 

        3,700,049

 

          3,274,444

Cost of goods and services sold-mortuaries and cemeteries

            660,413

 

            690,606

 

        1,502,491

 

          1,343,534

Total benefits and expenses

91,467,986

 

63,821,339

 

169,602,701

 

122,883,015

 

 

 

 

 

 

 

 

Earnings before income taxes

        27,193,756

 

         4,623,843

 

      28,667,990

 

          7,056,002

Income tax expense

        (6,636,709)

 

        (1,143,789)

 

      (6,686,494)

 

        (1,645,630)

 

 

 

 

 

 

 

 

Net earnings

$      20,557,047

 

$        3,480,054

 

$    21,981,496

 

$        5,410,372

 

 

 

 

 

 

 

 

Net earnings per Class A Equivalent common share (1)

$1.10

 

$0.19

 

$1.18

 

$0.29

 

 

 

 

 

 

 

 

Net earnings per Class A Equivalent common share-assuming dilution (1)

$1.07

 

$0.19

 

$1.15

 

$0.29

 

 

 

 

 

 

 

 

Weighted-average Class A equivalent common share outstanding (1)

18,764,831

 

18,576,031

 

18,703,390

 

18,567,907

 

 

 

 

 

 

 

 

Weighted-average Class A equivalent common shares outstanding-assuming dilution (1)

19,183,491

 

18,810,276

 

19,036,249

 

18,807,576

 

 

(1) Net earnings per share amounts have been adjusted retroactively for the effect of annual stock dividends.

 

See accompanying notes to condensed consolidated financial statements (unaudited).


5


SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

Three Months Ended June 30

 

Six Months Ended June 30

 

2020

 

2019

 

2020

 

2019

Net earnings

$      20,557,047

 

$        3,480,054

 

$     21,981,496

 

$       5,410,372

Other comprehensive income:

 

 

 

 

 

 

 

Unrealized gains on fixed maturity securities available for sale

$      15,180,782

 

                      -

 

        3,999,631

 

                     -

Unrealized gains on restricted assets

              18,072

 

                      -

 

              4,987

 

                     -

Unrealized gains on cemetery perpetual care trust investments

              17,815

 

                      -

 

              5,769

 

                     -

Foreign currency translation adjustments

                  165

 

                  954

 

               (280)

 

              2,046

Other comprehensive income, before income tax

        15,216,834

 

                  954

 

        4,010,107

 

              2,046

Income tax expense

        (3,196,946)

 

                 (238)

 

         (842,532)

 

               (510)

Other comprehensive income, net of income tax

        12,019,888

 

                  716

 

        3,167,575

 

              1,536

Comprehensive income

$      32,576,935

 

$        3,480,770

 

$     25,149,071

 

$       5,411,908

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).


6


SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

Six Months Ended June 30, 2020

 

 

Class A Common Stock

 

Class C Common Stock

 

Additional Paid-in Capital

 

Accumulated Other Comprehensive Income

 

Retained Earnings

 

Treasury Stock

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1, 2020

 

$  32,215,558

 

$ 5,001,774

 

$      46,091,112

 

$          13,726,514

 

$  101,256,229

 

$ (1,580,582)

 

$  196,710,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

                            -

 

                         -

 

                               -

 

                                    -

 

          1,424,449

 

                           -

 

          1,424,449

Other comprehensive loss

 

                            -

 

                         -

 

                               -

 

             (8,852,313)

 

                              -

 

                           -

 

        (8,852,313)

Stock-based compensation expense

 

                            -

 

                         -

 

                 65,877

 

                                    -

 

                              -

 

                           -

 

                65,877

Exercise of stock options

 

              44,822

 

                         -

 

               (33,930)

 

                                    -

 

                              -

 

                           -

 

                 10,892

Sale of treasury stock

 

                            -

 

                         -

 

               218,280

 

                                    -

 

                              -

 

           264,081

 

              482,361

Purchase of treasury stock

 

                            -

 

                         -

 

                               -

 

                                    -

 

                              -

 

         (129,608)

 

            (129,608)

Stock dividends

 

                 2,322

 

             (1,020)

 

                    2,292

 

                                    -

 

                 (3,594)

 

                           -

 

                              -

Conversion Class C to Class A

 

              22,324

 

         (22,324)

 

                               -

 

                                    -

 

                              -

 

                           -

 

                              -

March 31, 2020

 

$ 32,285,026

 

$4,978,430

 

$    46,343,631

 

$            4,874,201

 

$ 102,677,084

 

$  (1,446,109)

 

$  189,712,263

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

                            -

 

                         -

 

                               -

 

                                    -

 

      20,557,047

 

                           -

 

      20,557,047

Other comprehensive income

 

                            -

 

                         -

 

                               -

 

             12,019,888

 

                              -

 

                           -

 

        12,019,888

Stock-based compensation expense

 

                            -

 

                         -

 

                101,520

 

                                    -

 

                              -

 

                           -

 

               101,520

Exercise of stock options

 

              22,726

 

                         -

 

               (22,726)

 

                                    -

 

                              -

 

                           -

 

                              -

Sale of treasury stock

 

                            -

 

                         -

 

               319,676

 

                                    -

 

                              -

 

          664,546

 

             984,222

Purchase of treasury stock

 

                            -

 

                         -

 

                               -

 

                                    -

 

                              -

 

         (760,713)

 

            (760,713)

Stock dividends

 

           807,356

 

         124,460

 

          2,175,790

 

                                    -

 

        (3,107,607)

 

                           -

 

                             (1)

Conversion Class C to Class A

 

                            -

 

                         -

 

                               -

 

                                    -

 

                              -

 

                           -

 

                              -

June 30, 2020

 

$    33,115,108

 

$ 5,102,890

 

$     48,917,891

 

$         16,894,089

 

$  120,126,524

 

$ (1,542,276)

 

$ 222,614,226

 

 

 

Six Months Ended June 30, 2019

 

 

Class A Common Stock

 

Class C Common Stock

 

Additional Paid-in Capital

 

Accumulated Other Comprehensive Income

 

Retained Earnings

 

Treasury Stock

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1, 2019

 

$ 30,609,596

 

$  4,387,286

 

$     41,821,778

 

$                    (2,823)

 

$    95,201,732

 

$     (206,396)

 

$     171,811,173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

                            -

 

                          -

 

                               -

 

                                    -

 

           1,930,318

 

                           -

 

           1,930,318

Other comprehensive income

 

                            -

 

                          -

 

                               -

 

                             820

 

                              -

 

                           -

 

                        820

Stock-based compensation expense

 

                            -

 

                          -

 

                 64,704

 

                                    -

 

                              -

 

                           -

 

                64,704

Exercise of stock options

 

                 8,936

 

                          -

 

                    8,444

 

                                    -

 

                              -

 

                           -

 

                 17,380

Sale of treasury stock

 

                            -

 

                          -

 

               295,153

 

                                    -

 

                              -

 

             42,343

 

             337,496

Purchase of treasury stock

 

                            -

 

                          -

 

                               -

 

                                    -

 

                              -

 

          (112,404)

 

             (112,404)

Stock dividends

 

                      282

 

                        (4)

 

                        489

 

                                    -

 

                      (769)

 

                           -

 

                            (2)

Conversion Class C to Class A

 

                 6,560

 

             (6,560)

 

                               -

 

                                    -

 

                              -

 

                           -

 

                              -

March 31, 2019

 

$ 30,625,374

 

$  4,380,722

 

$    42,190,568

 

$                    (2,003)

 

$      97,131,281

 

$     (276,457)

 

$ 174,049,485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

                            -

 

                          -

 

                               -

 

                                    -

 

         3,480,054

 

                           -

 

         3,480,054

Other comprehensive loss

 

                            -

 

                          -

 

                               -

 

                              716

 

 

 

                           -

 

                         716

Stock-based compensation expense

 

                            -

 

                          -

 

                 65,037

 

                                    -

 

                              -

 

                           -

 

                65,037

Exercise of stock options

 

              20,274

 

                          -

 

                     9,519

 

                                    -

 

                              -

 

                           -

 

                29,793

Sale of treasury stock

 

                            -

 

                          -

 

                 92,605

 

                                    -

 

                              -

 

              25,190

 

               117,795

Purchase of treasury stock

 

                            -

 

                          -

 

                               -

 

                                    -

 

                              -

 

         (174,704)

 

            (174,704)

Conversion Class C to Class A

 

                          12

 

                      (14)

 

                              2

 

                                    -

 

                              -

 

                           -

 

                              -

June 30, 2019

 

$ 30,645,660

 

$  4,380,708

 

$    42,357,731

 

$                     (1,287)

 

$   100,611,335

 

$      (425,971)

 

$  177,568,176

 

See accompanying notes to condensed consolidated financial statements (unaudited).


7


 

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Six Months Ended June 30

 

2020

 

2019

Cash flows from operating activities:

 

 

 

    Net cash used in operating activities

$(109,561,903)

 

$  (40,725,988)

 

 

 

 

Cash flows from investing activities:

 

 

 

Purchases of fixed maturity securities

    (49,243,362)

 

      (4,570,527)

Sales, calls and maturities of fixed maturity securities

     60,438,933

 

     13,688,850

Purchases of equity securities

    (13,396,648)

 

      (2,046,346)

Sales of equity securities

       7,841,952

 

          763,548

Net changes in restricted assets

      (1,476,279)

 

      (1,380,216)

Net changes in perpetual care trusts

        (120,904)

 

          757,527

Mortgage loans held for investment, other investments and policy loans made

  (313,439,255)

 

  (273,167,834)

Payments received for mortgage loans held for investment, other investments and policy loans

    291,577,885

 

    269,379,815

Purchases of property and equipment

        (910,429)

 

        (367,466)

Sales of property and equipment

                    -

 

           51,102

Purchases of real estate

    (12,217,051)

 

      (4,316,130)

Sales of real estate

       6,584,359

 

       4,945,323

Cash paid for purchase of subsidiaries, net of cash acquired

                    -

 

      (3,261,788)

     Net cash provided by (used in) investing activities

    (24,360,799)

 

          475,858

 

 

 

 

Cash flows from financing activities:

 

 

 

Investment contract receipts

       5,180,530

 

       6,275,671

Investment contract withdrawals

      (8,606,537)

 

      (8,729,845)

Proceeds from stock options exercised

           10,892

 

           47,173

Purchases of treasury stock

        (890,321)

 

        (287,108)

Repayment of bank and other loans

    (48,739,820)

 

    (93,583,859)

Proceeds from bank borrowings

    119,172,821

 

     92,967,146

Net change in warehouse line borrowings for loans held for sale

     59,048,513

 

     29,203,601

     Net cash provided by financing activities

    125,176,078

 

     25,892,779

 

 

 

 

Net change in cash, cash equivalents, restricted cash and restricted cash equivalents

(8,746,624)

 

(14,357,351)

 

 

 

 

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period

137,735,673

 

150,936,673

 

 

 

 

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period

$  128,989,049

 

$  136,579,322

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

Cash paid during the year for:

 

 

 

Interest

$     3,732,031

 

$     3,219,201

Income taxes (net of refunds)

          409,223

 

          960,408

 

 

 

 

Non Cash Operating, Investing and Financing Activities:

 

 

 

Transfer of loans held for sale to mortgage loans held for investment

$     8,933,676

 

$                  -

Right-of-use assets obtained in exchange for operating lease liabilities

       4,641,238

 

     11,860,956

Benefit plans funded with treasury stock

       1,466,583

 

          455,291

Accrued real estate construction costs and retainage

          687,314

 

          823,545

Mortgage loans held for investment foreclosed into real estate held for investment

          686,124

 

          755,000

Right-of-use assets obtained in exchange for finance lease liabilities

             8,494

 

          244,855

Receivable for maturities of fixed maturity securities

                    -

 

     10,000,000

Mortgage loans held for investment foreclosed into receivables

                    -

 

          155,347

 

 

 

 

See Note 15 regarding non cash transactions included in the acquisition of Probst Family Funeral and Cremations and Heber Valley Funeral Home.


8


 

 

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

 

Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents as shown in the condensed consolidated statements of cash flows is presented in the table below:

 

 

Six Months Ended June 30

 

2020

 

2019

Cash and cash equivalents

$     116,961,182

 

$      127,828,356

Restricted assets

          9,992,953

 

            7,076,341

Cemetery perpetual care trust investments

          2,034,914

 

            1,674,625

 

 

 

 

Total cash, cash equivalents, restricted cash and restricted cash equivalents

$     128,989,049

 

$      136,579,322

 

See accompanying notes to condensed consolidated financial statements (unaudited).


9


 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)


1)Basis of Presentation 

 

The accompanying unaudited condensed 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 Articles 8 and 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, 2019, included in the Company’s Annual Report on Form 10-K (File Number 000-09341). 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 six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to adopt policies and make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. In applying these policies and estimates, the Company makes judgments that frequently require assumptions about matters that are inherently uncertain. The novel coronavirus (“COVID-19”) spread rapidly across the world in the first and second quarters of 2020 and was declared a pandemic (the “COVID-19 Pandemic”) by the World Health Organization. The government and private sector responses to contain its spread began to affect the Company’s operations in March, has continued to affect the Company’s operations and will likely continue to affect nearly all of the Company’s operations in the third quarter, although such effects may vary significantly. The duration and extent of the effects over longer terms cannot be reasonably estimated at this time. The risks and uncertainties resulting from the pandemic that may affect the Company’s future earnings, cash flows, and financial condition include the nature and duration of the curtailment or closure of the Company’s various facilities and the long-term effect on the demand for the Company’s products and services. Accordingly, significant estimates used in the preparation of the Company’s financial statements may be subject to significant adjustments in future periods. Actual results could differ from those estimates.

 

Material estimates that are particularly susceptible to significant changes in the near term are those used in determining the value of derivative assets and liabilities; those used in determining deferred acquisition costs and the value of business acquired; those used in determining the value of mortgage loans foreclosed to real estate held for investment; those used in determining the liability for future policy benefits; those used in estimating other than temporary impairments on available for sale securities; those used in determining the value of mortgage servicing rights; those used in determining allowances for loan losses for mortgage loans held for investment; those used in determining loan loss reserve; and those used in determining deferred tax assets and liabilities. Although some variability is inherent in these estimates, management believes the amounts provided are fairly stated in all material respects.

 

2)Recent Accounting Pronouncements 

 

Accounting Standards Adopted in 2020

 

ASU No. 2018-13: “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement” – Issued in August 2018, ASU 2018-13 modifies the disclosure requirements of Topic 820 by removing, modifying or adding certain disclosures. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 does not change the fair value measurements already required or permitted by existing standards. The Company adopted this standard on January 1, 2020. The adoption of this standard did not materially impact the Company’s financial statements. See Note 8 for the Company’s fair value disclosures.


10


 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

2)Recent Accounting Pronouncements (Continued) 


Accounting Standards Adopted in 2019

 

ASU No. 2016-02: “Leases (Topic 842)” - Issued in February 2016, ASU 2016-02 supersedes the requirements in Accounting Standards Codification (“ASC”) Topic 840, “Leases”, and was issued to increase transparency and comparability among organizations. The new standard sets forth the principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record on the balance sheet right-of-use assets and lease liabilities, equal to the present value of the remaining lease payments. The lease classification will determine whether the lease expense is recognized based on an effective interest rate met hod or a straight-line basis over the term of the leases. The FASB further clarified ASU 2016-02 and provided targeted improvements by issuing ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20.

 

The Company adopted this standard on January 1, 2019 using the modified retrospective transition method with no cumulative-effect adjustment to the opening balance of retained earnings. Under this transition method, the application date was the beginning of the reporting period, January 1, 2019, in which the Company first applied the standard. Under this transition option, the Company will apply the legacy guidance in ASC 840, “Leases”, including its disclosure requirements, in the comparative periods presented in the year of adoption. The Company has made an accounting policy election not to apply the recognition requirements to short-term leases, which are leases that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying assets that the lessee is reasonably certain to exercise. The new authoritative guidance allows for certain practical expedients to be utilized to assist with the implementation of the new standard. The Company has elected the transition package of practical expedients which allows the Company to not reassess whether any expired or existing contracts are or contain leases, to not reassess the lease classification for any expired or existing leases and to not reassess initial direct costs for any existing leases.

 

The Company implemented a third-party lease accounting system to assist with the measurement of the lease liabilities and the related right-of-use assets. The Company compiled an inventory of its leases, determined the appropriate discount rates and has determined the impact of this standard which is not material to the Company’s results of operations, but has an effect on the balance sheet presentation for leased assets and obligations. The Company recognized a right-of-use asset and related lease liability for approximately $12,076,000 on January 1, 2019. This standard did not impact the Company’s accounting for leases where the Company is the lessor.

 

Accounting Standards Issued But Not Yet Adopted

 

ASU No. 2016-13: “Financial Instruments – Credit Losses (Topic 326)” – Issued in September 2016, ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis (such as mortgage loans and held to maturity debt securities) and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP; however, Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. In October 2019, the FASB proposed an update to ASU No. 2016-13 that would make the ASU effective for the Company on January 1, 2023. The Company is in the process of evaluating the potential impact of this standard, especially as it relates to mortgage loans held for investment.


11


 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

2)Recent Accounting Pronouncements (Continued) 


ASU No. 2018-12: “Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts” – Issued in August 2018, ASU 2018-12 is intended to improve the timeliness of recognizing changes in the liability for future policy benefits on traditional long-duration contracts by requiring that assumptions be updated after contract inception and by modifying the rate used to discount future cash flows. The ASU will simplify and improve the accounting for certain market-based options or guarantees associated with deposit or account balance contracts, simplify amortization of deferred acquisition costs while improving and expanding required disclosures. In October 2019, the FASB proposed an update to ASU No. 2018-12 that would make the ASU effective for the Company on January 1, 2024. The Company is in the process of evaluating the potential impact of this standard.

 

The Company has reviewed other recent accounting pronouncements and has determined that they will not significantly impact the Company’s results of operations or financial position.


12


 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)


3)Investments 

 

The Company’s investments as of June 30, 2020 are summarized as follows:

 

 

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Estimated Fair Value

June 30, 2020:

 

 

 

 

 

 

 

 

Fixed maturity securities, available for sale, at estimated fair value:

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. Government agencies

 

$    102,442,154

 

$       2,147,334

 

$                      -

 

$      104,589,488

    

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

5,878,900

 

269,394

 

(2,661)

 

6,145,633

 

 

 

 

 

 

 

 

 

Corporate securities including public utilities

 

182,731,042

 

21,371,660

 

(2,841,768)

 

201,260,934

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

35,789,063

 

1,209,447

 

(734,173)

 

36,264,337

 

 

 

 

 

 

 

 

 

Redeemable preferred stock

 

364,339

 

              21,561

 

             (17,500)

 

368,400

 

 

 

 

 

 

 

 

 

Total fixed maturity securities available for sale

 

$    327,205,498

 

$     25,019,396

 

$      (3,596,102)

 

$      348,628,792

 

 

 

 

 

 

 

 

 

Equity securities at estimated fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial, miscellaneous and all other

 

$      12,380,259

 

$       1,525,151

 

$      (2,113,899)

 

$        11,791,511

 

 

 

 

 

 

 

 

 

Total equity securities at estimated fair value

 

$      12,380,259

 

$       1,525,151

 

$      (2,113,899)

 

$        11,791,511

 

 

 

 

 

 

 

 

 

Mortgage loans held for investment at amortized cost:

 

 

 

 

 

 

 

 

Residential

 

$    109,304,960

 

 

 

 

 

 

Residential construction

 

      106,890,366

 

 

 

 

 

 

Commercial

 

        49,613,367

 

 

 

 

 

 

Less: Unamortized deferred loan fees, net

 

        (1,730,243)

 

 

 

 

 

 

Less: Allowance for loan losses

 

        (2,443,557)

 

 

 

 

 

 

Less: Net discounts

 

        (1,216,889)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total mortgage loans held for investment

 

$    260,418,004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate held for investment - net of accumulated depreciation:

 

 

 

 

 

 

 

 

Residential

 

$      19,973,537

 

 

 

 

 

 

Commercial

 

        93,218,885

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total real estate held for investment

 

$    113,192,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate held for sale:

 

 

 

 

 

 

 

 

Residential

 

$        4,522,020

 

 

 

 

 

 

Commercial

 

          6,076,321

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total real estate held for sale

 

$      10,598,341

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other investments and policy loans at amortized cost:

 

 

 

 

 

 

 

 

Policy loans

 

$      14,450,587

 

 

 

 

 

 

Insurance assignments

 

        43,276,682

 

 

 

 

 

 

Federal Home Loan Bank stock (1)

 

          4,056,600

 

 

 

 

 

 

Other investments

 

          5,450,438

 

 

 

 

 

 

Less: Allowance for doubtful accounts

 

        (1,533,696)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total policy loans and other investments

 

$      65,700,611

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued investment income

 

$        5,008,772

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investments

 

$    815,338,453

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                         

 

 

 

 

 

 

 

 

(1) Includes $874,400 of Membership stock and $3,182,200 of Activity stock due to short-term borrowings.


13


 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

3)Investments (Continued) 


The Company’s investments as of December 31, 2019 are summarized as follows:

 

 

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Estimated Fair Value

December 31, 2019:

 

 

 

 

 

 

 

 

Fixed maturity securities, available for sale, at estimated fair value:

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. Government agencies

 

$    142,740,641

 

$          632,185

 

$           (25,215)

 

$      143,347,611

    

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

7,450,366

 

87,812

 

(9,026)

 

7,529,152

 

 

 

 

 

 

 

 

 

Corporate securities including public utilities

 

156,599,184

 

16,768,449

 

(463,413)

 

172,904,220

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

31,475,280

 

597,395

 

(240,177)

 

31,832,498

 

 

 

 

 

 

 

 

 

Redeemable preferred stock

 

364,339

 

                      -   

 

                      -   

 

364,339

 

 

 

 

 

 

 

 

 

Total fixed maturity securities available for sale

 

$    338,629,810

 

$     18,085,841

 

$         (737,831)

 

$      355,977,820

 

 

 

 

 

 

 

 

 

Equity securities at estimated fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial, miscellaneous and all other

 

$        6,900,537

 

$       1,139,799

 

$         (769,171)

 

$          7,271,165

 

 

 

 

 

 

 

 

 

Total equity securities at estimated fair value

 

$        6,900,537

 

$       1,139,799

 

$         (769,171)

 

$          7,271,165

 

 

 

 

 

 

 

 

 

Mortgage loans held for investment at amortized cost:

 

 

 

 

 

 

 

 

Residential

 

$    113,043,965

 

 

 

 

 

 

Residential construction

 

        89,430,237

 

 

 

 

 

 

Commercial

 

        38,718,220

 

 

 

 

 

 

Less: Unamortized deferred loan fees, net

 

        (2,391,567)

 

 

 

 

 

 

Less: Allowance for loan losses

 

        (1,453,037)

 

 

 

 

 

 

Less: Net discounts

 

           (653,272)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total mortgage loans held for investment

 

$    236,694,546

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate held for investment - net of accumulated depreciation:

 

 

 

 

 

 

 

 

Residential

 

$      12,530,306

 

 

 

 

 

 

Commercial

 

        90,226,640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total real estate held for investment

 

$    102,756,946

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate held for sale:

 

 

 

 

 

 

 

 

Residential

 

$        8,021,306

 

 

 

 

 

 

Commercial

 

          6,076,321

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total real estate held for sale

 

$      14,097,627

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other investments and policy loans at amortized cost:

 

 

 

 

 

 

 

 

Policy loans

 

$      14,762,805

 

 

 

 

 

 

Insurance assignments

 

        41,062,965

 

 

 

 

 

 

Federal Home Loan Bank stock (1)

 

             894,300

 

 

 

 

 

 

Other investments

 

          4,973,225

 

 

 

 

 

 

Less: Allowance for doubtful accounts

 

        (1,448,026)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total policy loans and other investments

 

$      60,245,269

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued investment income

 

$        4,833,232

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investments

 

$    781,876,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                         

 

 

 

 

 

 

 

 

(1) Includes $894,300 of Membership stock and $-0- of Activity stock due to short-term borrowings.


14


 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

3)Investments (Continued) 


Fixed Maturity Securities

 

The following tables summarize unrealized losses on fixed maturity securities available for sale, which were carried at estimated fair value, at June 30, 2020 and December 31, 2019. The unrealized losses were primarily related to interest rate fluctuations and uncertainties relating to COVID-19. The tables set forth unrealized losses by duration with the fair value of the related fixed maturity securities:

 

 

 

Unrealized Losses for Less than Twelve Months

 

Fair Value

 

Unrealized Losses for More than Twelve Months

 

Fair Value

 

Total Unrealized Loss

 

Fair Value

At June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of States and Political Subdivisions

 

$          2,661

 

$        717,466

 

$                    -

 

$                    -

 

$            2,661

 

$        717,466

Corporate Securities

 

       1,876,784

 

     22,141,540

 

          964,984

 

       3,039,240

 

       2,841,768

 

     25,180,780

Mortgage and other asset-backed securities

 

          710,364

 

     10,024,319

 

            23,809

 

          504,583

 

          734,173

 

     10,528,902

Redeemable preferred stock

 

            17,500

 

          232,500

 

                      -

 

                      -

 

            17,500

 

          232,500

Total unrealized losses

 

$     2,607,309

 

$   33,115,825

 

$        988,793

 

$     3,543,823

 

$     3,596,102

 

$   36,659,648

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Securities and Obligations

 

 

 

 

 

 

 

 

 

 

 

 

   of U.S. Government Agencies

 

$          20,211

 

$   30,629,288

 

$            5,004

 

$   10,000,400

 

$          25,215

 

$   40,629,688

Obligations of States and Political Subdivisions

 

              9,026

 

       3,062,889

 

                      -

 

                      -

 

              9,026

 

       3,062,889

Corporate Securities

 

          118,746

 

       7,184,311

 

          344,667

 

       3,950,509

 

          463,413

 

     11,134,820

Mortgage and other asset-backed securities

 

          205,470

 

     13,266,443

 

            34,707

 

          502,769

 

          240,177

 

     13,769,212

Total unrealized losses

 

$        353,453

 

$   54,142,931

 

$        384,378

 

$   14,453,678

 

$        737,831

 

$   68,596,609

 

There were 134 securities with fair value of 91.1% of amortized cost at June 30, 2020. There were 93 securities with fair value of 98.9% of amortized cost at December 31, 2019. No credit losses have been recognized for the three and six months ended June 30, 2020 and 2019.

 

On a quarterly basis, the Company evaluates its fixed maturity securities available for sale. This evaluation includes a review of current ratings by the National Association of Insurance Commissions (“NAIC”). Securities with a rating of 1 or 2 are considered investment grade and are not reviewed for impairment. Securities with ratings of 3 to 5 are evaluated for impairment. Securities with a rating of 6 are automatically determined to be impaired and are written down. The evaluation involves an analysis of the securities in relation to historical values, interest payment history, projected earnings and revenue growth rates as well as a review of the reason for a downgrade in the NAIC rating. Based on the analysis of a security that is rated 3 to 5, a determination is made whether the security will likely make interest and principal payments in accordance with the terms of the financial instrument. If it is unlikely that the security will meet contractual obligations, the loss is considered to be other than temporary, the security is written down to the new anticipated market value and an impairment loss is recognized. Impairment losses are treated as credit losses as the Company holds fixed maturity securities to maturity unless the underlying conditions have changed in the financial instrument to require an impairment. 

 

The fair values of fixed maturity securities are based on quoted market prices, when available. For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services, or in the case of private placements, are estimated by discounting expected future cash flows using a current market value applicable to the coupon rate, credit and maturity of the investments.


15


 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

3)Investments (Continued) 


The amortized cost and estimated fair value of fixed maturity securities available for sale, at June 30, 2020, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

Amortized
Cost   

 

Estimated Fair
  Value      

Due in 1 year

 

$       61,039,649

 

$       61,451,128

Due in 2-5 years

 

         73,278,818

 

         76,149,038

Due in 5-10 years

 

         82,777,913

 

         88,468,598

Due in more than 10 years

 

         73,955,716

 

         85,927,291

Mortgage-backed securities

 

         35,789,063

 

         36,264,337

Redeemable preferred stock

 

              364,339

 

              368,400

Total

 

$     327,205,498

 

$     348,628,792

 

 

 

 

 

 

The Company is a member of the Federal Home Loan Bank of Des Moines and Dallas (“FHLB”). The Company pledged a total of $100,000,000, par value, of United States Treasury fixed maturity securities with the FHLB at June 30, 2020. These securities are used as collateral on any cash borrowings from the FHLB. As of June 30, 2020, the Company owed $79,000,000 to the FHLB and its estimated remaining maximum borrowing capacity was $19,572,000.

 

Investment Related Earnings

 

The Company’s net realized gains and losses from sales, calls, and maturities, unrealized gains and losses on equity securities, and other than temporary impairments are summarized as follows:

 

 

 

Three Months Ended June 30

 

Six Months Ended June 30

 

 

2020

 

2019

 

2020

 

2019

Fixed maturity securities:

 

 

 

 

 

 

 

 

Gross realized gains

 

$        55,138

 

$      163,038

 

$      150,959

 

$      248,626

Gross realized losses

 

        (12,089)

 

        (69,622)

 

        (12,089)

 

       (105,015)

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

Gains (losses) on securities sold

 

        (50,029)

 

          41,088

 

       (107,471)

 

          52,664

Unrealized gains and (losses) on securities held at the end of the period

 

      1,738,059

 

          14,016

 

    (1,023,797)

 

        775,224

 

 

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

 

 

Gross realized gains

 

          48,736

 

        688,289

 

        505,764

 

      1,793,223

Gross realized losses

 

        458,464

 

    (1,862,702)

 

       (487,334)

 

    (1,983,954)

Total

 

$    2,238,279

 

$  (1,025,893)

 

$     (973,968)

 

$      780,768

 

The net realized gains and losses on the sale of securities are recorded on the trade date, and the cost of the securities sold is determined using the specific identification method.

 

On December 31, 2019, the Company changed the classification of its bond and preferred stock investments from held to maturity to available for sale based on the Company’s need to be able to respond proactively to market risks in managing its portfolio. Proceeds received from the sale of fixed maturity available for sale securities for the six months ended June 30, 2020, were $2,753,331, and resulted in gross realized gains and gross realized losses of $133,339 and $137, respectively. The carrying amount of held to maturity securities sold for the six months ended June 30, 2019 was $662,972 and the net realized loss related to these sales was $53,097.


16


 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

3)Investments (Continued) 


Major categories of net investment income are as follows:

 

 

Three Months Ended June 30

 

Six Months Ended June 30

 

2020

 

2019

 

2020

 

2019

Fixed maturity securities

$     3,143,072

 

$     2,528,689

 

$     6,067,786

 

$     5,032,554

Equity securities

         111,122

 

           74,730

 

         203,164

 

         152,651

Mortgage loans held for investment

       5,582,152

 

       4,525,817

 

     11,236,042

 

       8,629,184

Real estate held for investment

       2,787,881

 

       2,096,927

 

       5,941,267

 

       4,007,221

Policy loans

         257,527

 

         106,905

 

         491,492

 

         195,042

Insurance assignments

       4,383,398

 

       3,906,832

 

       8,682,602

 

       8,118,952

Other investments

               398

 

           52,130

 

           25,421

 

         106,678

Cash and cash equivalents

           22,385

 

         465,959

 

         320,390

 

         964,876

Gross investment income

     16,287,935

 

     13,757,989

 

     32,968,164

 

     27,207,158

Investment expenses

     (3,325,190)

 

     (3,217,154)

 

     (6,604,920)

 

     (6,624,655)

Net investment income

$   12,962,745

 

$   10,540,835

 

$   26,363,244

 

$   20,582,503

 

Net investment income includes income earned by the restricted assets cemeteries and mortuaries of $140,093 and $134,229 for the three months ended June 30, 2020 and 2019, respectively, and $250,732 and $220,516 for the six months ended June 30, 2020 and 2019, respectively.

 

Net investment income on real estate consists primarily of rental revenue.

 

Investment expenses consist primarily of depreciation, property taxes, operating expenses of real estate and an estimated portion of administrative expenses relating to investment activities.

 

Securities on deposit with regulatory authorities as required by law amounted to $9,632,398 at June 30, 2020 and $9,633,818 at December 31, 2019. These restricted securities are included in various assets under investments on the accompanying condensed consolidated balance sheets.

 

There were no investments, aggregated by issuer, in excess of 10% of shareholders’ equity (before net unrealized gains and losses on equity securities and fixed maturity securities) at June 30, 2020, other than investments issued or guaranteed by the United States Government.

 

Real Estate Held for Investment and Held for Sale

 

The Company continues to strategically deploy resources into real estate to match the income and yield durations of its primary obligations. The sources for these real estate assets come through its various business units in the form of acquisition, development and mortgage foreclosures.

 

Commercial Real Estate Held for Investment and Held for Sale

 

The Company owns and manages commercial real estate assets as a means of generating investment income. These assets are acquired in accordance with the Company’s goals and objectives for risk-adjusted returns. Due diligence is conducted on each asset using internal and third-party reports. Geographic locations and asset classes of the investment activity is determined by senior management under the direction of the Board of Directors.


17


 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

3)Investments (Continued) 


The Company employs full-time employees to attend to the day-to-day operations of those assets within the greater Salt Lake area and close surrounding markets. The Company utilizes third party property managers when the geographic boundary does not warrant full-time staff or through strategic lease-up periods. The Company generally looks to acquire assets in regions that are high growth regions for employment and population and in assets that provide operational efficiencies.

 

The Company currently owns and operates 13 commercial properties in 5 states. These properties include office buildings, an assisted living facility, a funeral home, flex office space, and includes the redevelopment and expansion of its corporate campus (“Center53”) in Salt Lake City, Utah. The Company also holds undeveloped land that may be used for future commercial developments. The Company uses bank debt in strategic cases to leverage established yields or to acquire a higher quality or different class of asset.

 

The aggregated net ending balance of commercial real estate that serves as collateral for bank borrowings was approximately $70,578,000 and $87,815,000 as of June 30, 2020 and December 31, 2019, respectively. The associated bank loan carrying values totaled approximately $47,068,000 and $54,917,000 as of June 30, 2020 and December 31, 2019, respectively.

 

During the three months ended June 30, 2020 and 2019, the Company recorded impairment losses on commercial real estate held for sale of $15,551 and $-0-, respectively. During the six months ended June 30, 2020 and 2019, the Company recorded impairment losses on commercial real estate held for sale of $46,980 and $1,867,197, respectively. These impairment losses relate to an office building held by the life insurance segment. Impairment losses are included in gains (losses) on investment and other assets on the condensed consolidated statements of earnings.

 

The following is a summary of the Company’s commercial real estate held for investment for the periods presented:

 

 

 

Net Ending Balance

 

Total Square Footage

 

 

June 30
2020

 

December 31 2019

 

June 30
2020

 

December 31 2019

Louisiana

 

$  5,929,267

 

$   6,009,079

 

   125,114

 

       125,114

Mississippi

 

   2,914,989

 

     2,951,478

 

     21,521

 

        21,521

Utah (1)

 

  84,374,629

 

   81,266,083

 

   462,730

 

       462,730

 

 

 

 

 

 

 

 

 

 

 

$93,218,885

 

$ 90,226,640

 

   609,365

 

       609,365

                 

 

 

 

 

 

 

 

 

(1) Includes Center53 phase 1 completed in July 2017 and phase 2 which is under construction

 

The following is a summary of the Company’s commercial real estate held for sale for the periods presented:

 

 

 

Net Ending Balance

 

Total Square Footage

 

 

June 30
2020

 

December 31 2019

 

June 30
2020

 

December 31 2019

Arizona (1)

 

$        2,500

 

$        2,500

 

              -

 

                  -

Kansas

 

    4,800,000

 

    4,800,000

 

    222,679

 

        222,679

Mississippi

 

       318,322

 

       318,322

 

      12,300

 

          12,300

Nevada

 

       655,499

 

       655,499

 

        4,800

 

            4,800

Texas (2)

 

       300,000

 

       300,000

 

              -

 

                  -

 

 

 

 

 

 

 

 

 

 

 

$  6,076,321

 

$  6,076,321

 

    239,779

 

        239,779

                 

 

 

 

 

 

 

 

 

(1) Undeveloped land

 

 

 

 

 

 

(2) Improved commercial pad

 

 

 

 

 

 


18


 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

3)Investments (Continued) 


These properties are all actively being marketed with the assistance of commercial real estate brokers in the markets where the properties are located. The Company expects these properties to sell within the coming 12 months.

 

Residential Real Estate Held for Investment and Held for Sale

 

The Company owns a portfolio of residential homes primarily as a result of loan foreclosures.  The strategy has been to lease these homes to produce cash flow and allow time for the economic fundamentals to return to the various markets. As an orderly and active market for these homes returns, the Company has the option to dispose or to continue and hold them for cash flow and acceptable returns. The Company also invests in residential subdivision developments.

 

The Company established Security National Real Estate Services (“SNRE”) to manage the residential portfolio. SNRE cultivates and maintains the preferred vendor relationships necessary to manage costs and quality of work performed on the portfolio of homes across the country.

 

As of June 30, 2020, SNRE manages 24 residential properties in 6 states across the United States.

 

The net ending balance of foreclosed residential real estate included in residential real estate held for investment and sale is $7,698,000 and $12,434,000 as of June 30, 2020 and December 31, 2019, respectively.

 

During the three and six months ended June 30, 2020 and 2019 the Company did not record any impairment losses on residential real estate held for investment or held for sale. Impairment losses, if any, are included in gains (losses) on investment and other assets on the condensed consolidated statements of earnings.

 

The following is a summary of the Company’s residential real estate held for investment for the periods presented:

 

 

 

Net Ending Balance

 

 

June 30
2020

 

December 31 2019

Florida

 

$    1,269,577

 

$     2,487,723

Nevada

 

        686,124

 

         293,516

Utah (1)

 

    17,731,655

 

       9,462,886

Washington

 

        286,181

 

         286,181

 

 

$  19,973,537

 

$   12,530,306

                 

 

 

 

 

(1) Includes subdivision land developments

 

The following is a summary of the Company’s residential real estate held for sale for the periods presented:

 

 

 

Net Ending Balance

 

 

June 30
2020

 

December 31 2019

California

 

       421,452

 

       640,452

Florida

 

     1,351,040

 

    1,300,641

Nevada

 

       293,516

 

                 -

Ohio

 

         10,000

 

        10,000

Utah

 

     2,446,012

 

    5,880,213

Washington

 

                 -

 

       190,000

 

 

$   4,522,020

 

$  8,021,306


19


 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

3)Investments (Continued) 


These properties are all actively being marketed with the assistance of residential real estate brokers in the markets where the properties are located. The Company expects these properties to sell within the coming 12 months.

 

Real Estate Owned and Occupied by the Company

 

The primary business units of the Company occupy a portion of the real estate owned by the Company.  As of June 30, 2020, real estate owned and occupied by the Company is summarized as follows:

 

Location

 

Business Segment

 

Approximate Square Footage

 

Square Footage Occupied by the Company

121 W. Election Rd., Draper, UT

 

Corporate Offices, Life Insurance and
    Cemetery/Mortuary Operations

 

78,979

 

18%

5201 Green Street, Salt Lake City, UT (1)

 

Life Insurance and Mortgage Operations

 

39,157

 

73%

1044 River Oaks Dr., Flowood, MS

 

Life Insurance Operations

 

19,694

 

28%

1818 Marshall Street, Shreveport, LA (1)(2)

 

Life Insurance Operations

 

12,274

 

100%

909 Foisy Street, Alexandria, LA (1)(2)

 

Life Insurance Sales

 

8,059

 

100%

812 Sheppard Street, Minden, LA (1)(2)

 

Life Insurance Sales

 

1,560

 

100%

1550 N 3rd Street, Jena, LA (1)(2)

 

Life Insurance Sales

 

1,737

 

100%

                      

 

 

 

 

 

 

(1) Included in property and equipment on the condensed consolidated balance sheets

 

 

 

 

 

 

 

 

 

 

 

(2) See Note 15 regarding the acquisition of Kilpatrick Life Insurance Company

 

 

 

 

 

Mortgage Loans Held for Investment

 

Mortgage loans held for investment consist of first and second mortgages. The mortgage loans bear interest at rates ranging from 2.0% to 10.5%, maturity dates range from nine months to 30 years and are secured by real estate. Concentrations of credit risk arise when a number of mortgage loan debtors have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. Although the Company has a diversified mortgage loan portfolio consisting of residential mortgages, commercial loans and residential construction loans and requires collateral on all real estate exposures, a substantial portion of its debtors’ ability to honor obligations is reliant on the economic stability of the geographic region in which the debtors do business. At June 30, 2020, the Company had 54%, 15%, 8%, 5%, 5% and 3% of its mortgage loans from borrowers located in the states of Utah, Florida, Texas, Nevada, California, and Arizona, respectively. At December 31, 2019, the Company had 48%, 16%, 10%, 6%, 6% and 5% of its mortgage loans from borrowers located in the states of Utah, Florida, Texas, California, Nevada and Arizona, respectively.

 

Mortgage loans held for investment are carried at their unpaid principal balances adjusted for net deferred fees, charge-offs, premiums, discounts and the related allowance for loan losses. Interest income is included in net investment income on the condensed consolidated statements of earnings and is recognized when earned. The Company defers related material loan origination fees, net of related direct loan origination costs, and amortizes the net fees over the term of the loans. Origination fees are included in net investment income on the condensed consolidated statements of earnings.

 

Mortgage loans are secured by the underlying property and require an appraisal at the time of underwriting and funding.  Generally, the Company will fund a loan not to exceed 80% of the loan’s collateral fair market value. Amounts over 80% will require additional collateral or mortgage insurance by an approved third-party insurer.  

 

The Company provides for losses on its mortgage loans held for investment through an allowance for loan losses (a contra-asset account). The allowance is comprised of two components. The first component is an allowance for collectively evaluated impairment that is based upon the Company’s historical experience in collecting similar receivables. The second component is based upon individual evaluation of loans that are determined to be impaired. Upon determining impairment, the Company establishes an individual impairment allowance based upon an assessment of the fair value of the underlying collateral. In addition, when a mortgage loan is past due more than 90


20


 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

3)Investments (Continued) 


days, the Company does not accrue any interest income. When a loan becomes delinquent, the Company proceeds to foreclose on the real estate and all expenses for foreclosure are expensed as incurred. Once foreclosed, an adjustment for the lower of cost or fair value is made, if necessary, and the amount is classified as real estate held for investment or held for sale.

 

The allowance for losses on mortgage loans held for investment could change based on changes in the value of the underlying collateral, the performance status of the loans, or the Company’s actual collection experience. The actual losses could change, in the near term, from the established allowance, based upon the occurrence or non-occurrence of these events.

 

For purposes of determining the allowance for losses, the Company has segmented its mortgage loans held for investment by loan type. The Company’s loan types are commercial, residential, and residential construction. The inherent risks within the portfolio vary depending upon the loan type as follows:

 

Commercial - Underwritten in accordance with the Company’s policies to determine the borrower’s ability to repay the obligation as agreed. Commercial loans are made primarily based on the underlying collateral supporting the loan. Accordingly, the repayment of a commercial loan depends primarily on the collateral and its ability to generate income and secondary on the borrower’s (or guarantors) ability to repay.

 

Residential – Secured by family dwelling units. These loans are secured by first mortgages on the unit, which are generally the primary residence of the borrower, generally at a loan-to-value ratio (“LTV”) of 80% or less.

 

Residential construction (including land acquisition and development) – Underwritten in accordance with the Company’s underwriting policies which include a financial analysis of the builders, borrowers (guarantors), construction cost estimates, and independent appraisal valuations. These loans will rely on the value associated with the project upon completion. These cost and valuation estimates may be inaccurate. Construction loans generally involve the disbursement of substantial funds over a short period of time with repayment substantially dependent upon the success of the completed project and the ability of the borrower to secure long-term financing.  Additionally, land is underwritten according to the Company’s policies, which include independent appraisal valuations as well as the estimated value associated with the land upon completion of development into finished lots. These cost and valuation estimates may be inaccurate. These loans are considered to be of a higher risk than other mortgage loans due to their ultimate repayment being sensitive to general economic conditions, availability of long-term or construction financing, and interest rate sensitivity.


21


 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

3)Investments (Continued) 


The Company establishes a valuation allowance for credit losses in its mortgage loans held for investment portfolio. The following is a summary of the allowance for loan losses as a contra-asset account for the periods presented:

 

 

Commercial

 

Residential

 

Residential Construction

 

Total

June 30, 2020

 

 

 

 

 

 

 

Allowance for credit losses:

 

 

 

 

 

 

 

Beginning balance - January 1, 2020

$        187,129

 

$     1,222,706

 

$          43,202

 

$     1,453,037

  Charge-offs

                      -

 

                      -

 

                      -

 

                      -

  Provision

                      -

 

          990,520

 

                      -

 

          990,520

Ending balance - June 30, 2020

$        187,129

 

$     2,213,226

 

$          43,202

 

$     2,443,557

 

 

 

 

 

 

 

 

Ending balance: individually evaluated for impairment

$                    -

 

$        427,069

 

$                    -

 

$        427,069

 

 

 

 

 

 

 

 

Ending balance: collectively evaluated for impairment

$        187,129

 

$     1,786,157

 

$          43,202

 

$     2,016,488

 

 

 

 

 

 

 

 

Mortgage loans:

 

 

 

 

 

 

 

Ending balance

$   49,613,367

 

$ 109,304,960

 

$ 106,890,366

 

$ 265,808,693

 

 

 

 

 

 

 

 

Ending balance: individually evaluated for impairment

$     1,039,013

 

$     7,106,397

 

$     1,389,574

 

$     9,534,984

 

 

 

 

 

 

 

 

Ending balance: collectively evaluated for impairment

$   48,574,354

 

$ 102,198,563

 

$ 105,500,792

 

$ 256,273,709

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

Allowance for credit losses:

 

 

 

 

 

 

 

Beginning balance - January 1, 2019

$        187,129

 

$     1,125,623

 

$          35,220

 

$     1,347,972

  Charge-offs

                      -

 

         (32,692)

 

                      -

 

         (32,692)

  Provision

                      -

 

          129,775

 

              7,982

 

          137,757

Ending balance - December 31, 2019

$        187,129

 

$     1,222,706

 

$          43,202

 

$     1,453,037

 

 

 

 

 

 

 

 

Ending balance: individually evaluated for impairment

$                    -

 

$        195,993

 

$                    -

 

$        195,993

 

 

 

 

 

 

 

 

Ending balance: collectively evaluated for impairment

$        187,129

 

$     1,026,713

 

$          43,202

 

$     1,257,044

 

 

 

 

 

 

 

 

Mortgage loans:

 

 

 

 

 

 

 

Ending balance

$   38,718,220

 

$ 113,043,965

 

$   89,430,237

 

$ 241,192,422

 

 

 

 

 

 

 

 

Ending balance: individually evaluated for impairment

$     4,488,719

 

$     3,752,207

 

$        655,000

 

$     8,895,926

 

 

 

 

 

 

 

 

Ending balance: collectively evaluated for impairment

$   34,229,501

 

$ 109,291,758

 

$   88,775,237

 

$ 232,296,496


22


 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

3)Investments (Continued) 


The following is a summary of the aging of mortgage loans held for investment for the periods presented:

 

 

30-59 Days
Past Due

60-89 Days
Past Due

Greater Than
90 Days (1)

In Process of Foreclosure (1)

Total
Past Due

Current

Total
Mortgage Loans

Allowance for
Loan Losses

Unamortized deferred loan fees, net

Unamortized discounts, net

Net Mortgage
Loans

June 30, 2020

 

 

 

 

 

 

 

 

 

 

Commercial

$   2,783,200

$    371,938

$  1,039,013

$                       -

$  4,194,151

$  45,419,216

$  49,613,367

$   (187,129)

$        (11,545)

$      (849,914)

$  48,564,779

Residential

    7,624,435

 3,308,995

   5,423,083

          1,683,314

 18,039,827

   91,265,133

  109,304,960

  (2,213,226)

     (1,258,346)

        (366,975)

   105,466,413

Residential
 Construction

                   -

                 -

        1,389,574

                              -

        1,389,574

      105,500,792

      106,890,366

            (43,202)

            (460,352)

                            -

       106,386,812

 

 

 

 

 

 

 

 

 

 

 

 

Total

$ 10,407,635

$ 3,680,933

$  7,851,670

$         1,683,314

$23,623,552

$242,185,141

$  65,808,693

$(2,443,557)

$  (1,730,243)

$ (1,216,889)

$ 260,418,004

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

Commercial

$   1,872,000

$                -

$  4,488,719

$                       -

$  6,360,719

$  32,357,501

$  38,718,220

$   (187,129)

$        (88,918)

$      (653,272)

$  37,788,901

Residential

   10,609,296

  4,085,767

   2,100,742

          1,651,465

 18,447,270

  94,596,695

  113,043,965

  (1,222,706)

     (1,567,581)

                       -

   110,253,678

Residential
 Construction

                   -

                  -

      655,000

                         -

      655,000

   88,775,237

   89,430,237

       (43,202)

        (735,068)

                       -

    88,651,967

 

 

 

 

 

 

 

 

 

 

 

 

Total

$ 12,481,296

$ 4,085,767

$  7,244,461

$        1,651,465

$25,462,989

$215,729,433

$241,192,422

$(1,453,037)

$   (2,391,567)

$       (653,272)

$236,694,546

                            

 

 

 

 

 

 

 

 

 

 

 

(1)  Interest income is not recognized on loans past due greater than 90 days or in foreclosure.


23


 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

3)Investments (Continued) 


Impaired Mortgage Loans Held for Investment

 

Impaired mortgage loans held for investment include loans with a related specific valuation allowance or loans whose carrying amount has been reduced to the expected collectible amount because the impairment has been considered other than temporary. The recorded investment in and unpaid principal balance of impaired loans along with the related loan specific allowance for losses, if any, for each reporting period and the average recorded investment and interest income recognized during the time the loans were impaired were as follows:

 

 

Recorded Investment

 

Unpaid Principal Balance

 

Related Allowance

 

Average Recorded Investment

 

Interest Income Recognized

June 30, 2020

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

  Commercial

$    1,039,013

 

$    1,039,013

 

$                  -

 

$       951,866

 

$                   -

  Residential

      4,683,807

 

      4,683,807

 

                    -

 

      3,466,388

 

                     -

  Residential construction

      1,389,574

 

      1,389,574

 

                    -

 

         694,787

 

                     -

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

  Commercial

$                  -

 

$                   -

 

$                  -

 

$                  -

 

$                   -

  Residential

      2,422,590

 

      2,422,590

 

        427,069

 

      2,355,231

 

                     -

  Residential construction

                    -

 

                     -

 

                    -

 

                    -

 

                     -

 

 

 

 

 

 

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

  Commercial

$    1,039,013

 

$    1,039,013

 

$                  -

 

$       951,866

 

$                   -

  Residential

      7,106,397

 

      7,106,397

 

        427,069

 

      5,821,619

 

                     -

  Residential construction

      1,389,574

 

      1,389,574

 

                    -

 

         694,787

 

                     -

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

  Commercial

$    4,488,719

 

$    4,488,719

 

$                  -

 

$    1,499,043

 

$                   -

  Residential

      2,254,189

 

      2,254,189

 

                    -

 

      3,367,151

 

                     -

  Residential construction

         655,000

 

         655,000

 

                    -

 

      1,457,278

 

                     -

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

  Commercial

$                  -

 

$                   -

 

$                  -

 

$                  -

 

$                   -

  Residential

      1,498,018

 

      1,498,018

 

        195,993

 

         665,270

 

                     -

  Residential construction

                    -

 

                     -

 

                    -

 

                    -

 

                     -

 

 

 

 

 

 

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

  Commercial

$    4,488,719

 

$    4,488,719

 

$                  -

 

$    1,499,043

 

$                   -

  Residential

      3,752,207

 

      3,752,207

 

        195,993

 

      4,032,421

 

                     -

  Residential construction

         655,000

 

         655,000

 

                    -

 

      1,457,278

 

                     -


24


 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

3)Investments (Continued) 


Credit Risk Profile Based on Performance Status

 

The Company’s mortgage loan held for investment portfolio is monitored based on performance of the loans. Monitoring a mortgage loan increases when the loan is delinquent or earlier if there is an indication of impairment. The Company defines non-performing mortgage loans as loans 90 days or greater delinquent or on non-accrual status.

 

The Company’s performing and non-performing mortgage loans held for investment were as follows:

 

 

Commercial

 

Residential

 

Residential Construction

 

Total

 

June  
30, 2020

 

December
31, 2019

 

June  
30, 2020

 

December
31, 2019

 

June  
30, 2020

 

December
31, 2019

 

June  
30, 2020

 

December
31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$ 48,574,354

 

$ 34,229,501

 

$ 102,198,563

 

$109,291,758

 

$  105,500,792

 

$  88,775,237

 

$ 256,273,709

 

$     232,296,496

Non-performing

          1,039,013

 

         4,488,719

 

          7,106,397

 

         3,752,207

 

           1,389,574

 

            655,000

 

          9,534,984

 

              8,895,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$  49,613,367

 

$  38,718,220

 

$ 109,304,960

 

$113,043,965

 

$  106,890,366

 

$  89,430,237

 

$ 265,808,693

 

$     241,192,422

 

Non-Accrual Mortgage Loans Held for Investment

 

Once a loan is past due 90 days, it is the policy of the Company to end the accrual of interest income on the loan and write off any interest income that had been accrued. Payments received for loans on a non-accrual status are recognized on a cash basis. Interest income recognized from any payments received for loans on a non-accrual status was immaterial. Accrual of interest resumes if a loan is brought current. Interest not accrued on these loans totals approximately $384,000 and $203,000 as of June 30, 2020 and December 31, 2019, respectively.

 

The following is a summary of mortgage loans held for investment on a non-accrual status for the periods presented.

 

 

As of June 30
2020

 

As of December 31
2019

Commercial

$                    1,039,013

 

$                   4,488,719

Residential

                      7,106,397

 

                     3,752,207

Residential construction

                      1,389,574

 

                        655,000

Total

$                    9,534,984

 

$                   8,895,926

 

4)Loans Held for Sale 

 

The Company has elected the fair value option for loans held for sale. Changes in the fair value of the loans are included in mortgage fee income. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on mortgage loans held for investment and is included in mortgage fee income on the condensed consolidated statement of earnings. There is one loan with an unpaid principal balance of $227,794 that is 90 or more days past due and on a nonaccrual status as of June 30, 2020. See Note 8 to the condensed consolidated financial statements for additional disclosures regarding loans held for sale.


25


 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

4)Loans Held for Sale (Continued) 


The following is a summary of the aggregate fair value and the aggregate unpaid principal balance of loans held for sale for the periods presented:

 

 

As of June 30
2020

As of December 31 2019

 

 

 

Aggregate fair value

$         356,949,958

$          213,457,632

Unpaid principal balance

           344,480,058

           206,417,122

Unrealized gain

             12,469,900

               7,040,510

 

Mortgage Fee Income

 

Mortgage fee income consists of origination fees, processing fees, interest income and certain other income related to the origination and sale of mortgage loans held for sale.

 

Major categories of mortgage fee income for loans held for sale are as follows:

 

 

Three Months Ended June 30

 

Six Months Ended June 30

 

2020

 

2019

 

2020

 

2019

Loan fees

$      15,226,536

 

$        8,626,163

 

$      22,940,750

 

$      13,437,482

Interest income

         2,601,605

 

         1,690,098

 

         4,282,063

 

         2,904,730

Secondary gains

        49,422,815

 

        21,201,216

 

        77,269,683

 

        38,585,201

Change in fair value of loan commitments

         5,278,099

 

            603,797

 

         8,553,132

 

         1,536,324

Change in fair value of loans held for sale

         2,363,713

 

            977,799

 

         2,742,010

 

         1,216,586

Provision for loan loss reserve

        (1,524,435)

 

          (152,506)

 

        (2,137,544)

 

          (254,885)

Mortgage fee income

$      73,368,333

 

$      32,946,567

 

$    113,650,094

 

$      57,425,438

 

Loan Loss Reserve

 

When a repurchase demand corresponding to a mortgage loan previously held for sale and sold to a third-party investor is received from a third-party investor, the relevant data is reviewed and captured so that an estimated future loss can be calculated. The key factors that are used in the estimated loss calculation are as follows: (i) lien position, (ii) payment status, (iii) claim type, (iv) unpaid principal balance, (v) interest rate, and (vi) validity of the demand. Other data is captured and is useful for management purposes; the actual estimated loss is generally based on these key factors. The Company conducts its own review upon the receipt of a repurchase demand. In many instances, the Company is able to resolve the issues relating to the repurchase demand by the third-party investor without having to make any payments to the investor.

 

The following is a summary of the loan loss reserve that is included in other liabilities and accrued expenses:

 

 

As of June 30
2020

 

As of December 31
2019

Balance, beginning of period

$                4,046,288

 

$               3,604,869

Provision on current loan originations (1)

                  1,524,435

 

                    643,284

Charge-offs, net of recaptured amounts

                   (784,357)

 

                  (201,865)

Balance, end of period

$                4,786,366

 

$               4,046,288

                      

 

 

 

(1) Included in mortgage fee income

 

 

 


26


 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

4)Loans Held for Sale (Continued) 


The Company maintains reserves for estimated losses on current production volumes. For the six months ended June 30, 2020, $1,768,968 in reserves were added at a rate of 8.6 basis points per loan, the equivalent of $860 per $1,000,000 in loans originated. This is an increase over the six months ended June 30, 2019, when reserves were added at a rate of 2.5 basis points per loan originated, the equivalent of $250 per $1,000,000 in loans originated. The economic impact of COVID-19 and subsequent government action has increased the potential for losses due to early payoff penalties and potential for losses due to increased delinquency.  The unique nature of these current events creates significant difficulty for forecasting potential future losses.  Based on the Company’s best estimate for potential loan losses and considering published industry data, a loss reserve of 8 basis points per loan originated will continue in the third quarter 2020.  The Company will continue to monitor data and economic conditions in order to maintain adequate loss reserves on current production.

 

As of June 30, 2020, the loan loss reserve includes approximately $3,000,000 for remaining losses still to be settled on loans originated between 2004 and 2007. On July 30, 2020, a settlement agreement with an investor was executed which covered all remaining anticipated claims against this population of loans. Loss reserves are sufficient to cover the settlement expense, and the reserves will be reduced by that amount during the third quarter 2020. No additional loss reserves are being held for loans originated between 2004 and 2007.

 

Thus, the Company believes that the final loan loss reserve as of June 30, 2020, represents its best estimate for adequate loss reserves on loans sold.


27


 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)


5)Stock Compensation Plans 

 

The Company has two fixed option plans (the “2013 Plan” and the “2014 Director Plan”). Compensation expense for options issued of $101,520 and $65,037 has been recognized for these plans for the three months ended June 30, 2020 and 2019, respectively, and $167,397 and $129,741 has been recognized for these plans for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, the total unrecognized compensation expense related to the options issued was $227,269, which is expected to be recognized over the vesting period of one year.

 

The fair value of each option granted is estimated on the date of grant using the Black Scholes Option Pricing Model. The Company estimates the expected life of the options using the simplified method. Future volatility is estimated based upon the weighted historical volatility of the Company’s Class A common stock over a period equal to the expected life of the options. The risk-free interest rate for the expected life of the options is based upon the Federal Reserve Board’s daily interest rates in effect at the time of the grant.

 

A summary of the status of the Company’s stock compensation plans as of June 30, 2020, and the changes during the six months ended June 30, 2020, are presented below:

 

 

 

Number of
Class A Shares

 

Weighted Average Exercise Price

 

Number of
Class C Shares

 

Weighted Average Exercise Price

 

 

 

 

 

 

 

 

 

Outstanding at January 1, 2020

 

     1,086,053

 

$      4.41

 

        594,132

 

$      5.36

Adjustment for effect of stock dividends

 

          29,099

 

 

 

          22,544

 

 

Granted

 

          77,000

 

 

 

        180,000

 

 

Exercised

 

        (78,803)

 

 

 

                   -

 

 

Cancelled

 

                   -

 

 

 

                   -

 

 

Outstanding at June 30, 2020

 

     1,113,349

 

$      4.27

 

        796,676

 

$      4.87

 

 

 

 

 

 

 

 

 

As of June 30, 2020:

 

 

 

 

 

 

 

 

Options exercisable

 

     1,013,955

 

$      4.27

 

        561,440

 

$      5.11

 

 

 

 

 

 

 

 

 

As of June 30, 2020:

 

 

 

 

 

 

 

 

Available options for future grant

 

        325,372

 

 

 

        266,500

 

 

 

 

 

 

 

 

 

 

 

Weighted average contractual term of options

 

 

 

 

 

 

 

 

outstanding at June 30, 2020

 

5.97 years

 

 

 

6.18 years

 

 

 

 

 

 

 

 

 

 

 

Weighted average contractual term of options

 

 

 

 

 

 

 

 

exercisable at June 30, 2020

 

5.61 years

 

 

 

5.32 years

 

 

 

 

 

 

 

 

 

 

 

Aggregated intrinsic value of options

 

 

 

 

 

 

 

 

outstanding at June 30, 2020 (1)

 

$2,568,502

 

 

 

$1,360,855

 

 

 

 

 

 

 

 

 

 

 

Aggregated intrinsic value of options

 

 

 

 

 

 

 

 

exercisable at June 30, 2020 (1)

 

$2,338,090

 

 

 

$823,712

 

 

                                

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) The Company used a stock price of $6.58 as of June 30, 2020 to derive intrinsic value.


28


 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

5)Stock Compensation Plans (Continued) 


A summary of the status of the Company’s stock compensation plans as of June 30, 2019, and the changes during the three months ended June 30, 2019, are presented below:

 

 

 

Number of
Class A Shares

 

Weighted Average Exercise Price

 

Number of
Class C Shares

 

Weighted Average Exercise Price

 

 

 

 

 

 

 

 

 

Outstanding at January 1, 2019

 

     1,011,274

 

$      4.49

 

        577,280

 

$      5.15

Granted

 

            2,000

 

 

 

                   -

 

 

Exercised

 

        (15,328)

 

 

 

                   -

 

 

Cancelled

 

                   -

 

 

 

                   -

 

 

Outstanding at June 30, 2019

 

        997,946

 

$      4.50

 

        577,280

 

$      5.15

 

 

 

 

 

 

 

 

 

As of June 30, 2019:

 

 

 

 

 

 

 

 

Options exercisable

 

        921,895

 

$      4.42

 

        530,030

 

$      5.14

 

 

 

 

 

 

 

 

 

As of June 30, 2019:

 

 

 

 

 

 

 

 

Available options for future grant

 

        299,351

 

 

 

        146,425

 

 

 

 

 

 

 

 

 

 

 

Weighted average contractual term of options

 

 

 

 

 

 

 

 

outstanding at June 30, 2019

 

5.65 years

 

 

 

3.46 years

 

 

 

 

 

 

 

 

 

 

 

Weighted average contractual term of options

 

 

 

 

 

 

 

 

exercisable at June 30, 2019

 

5.53 years

 

 

 

2.93 years

 

 

 

 

 

 

 

 

 

 

 

Aggregated intrinsic value of options

 

 

 

 

 

 

 

 

outstanding at June 30, 2019 (1)

 

$822,875

 

 

 

$218,010

 

 

 

 

 

 

 

 

 

 

 

Aggregated intrinsic value of options

 

 

 

 

 

 

 

 

exercisable at June 30, 2019 (1)

 

$822,875

 

 

 

$218,010

 

 

                                

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) The Company used a stock price of $5.02 as of June 30, 2019 to derive intrinsic value.

 

The total intrinsic value (which is the amount by which the fair value of the underlying stock exceeds the exercise price of an option on the exercise date) of stock options exercised during the six months June 30, 2020 and 2019 was $191,656 and $15,220, respectively.


29


 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)


6)Earnings Per Share 

 

The basic and diluted earnings per share amounts were calculated as follows:

 

 

 

 

Three Months Ended
June 30

 

Six Months Ended
June 30

 

 

 

2020

 

2019

 

2020

 

2019

Numerator:

 

 

 

 

 

 

 

 

 

Net earnings

 

$ 20,557,047

 

$   3,480,054

 

$   21,981,496

 

$       5,410,372

Denominator:

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

   18,764,831

 

   18,576,031

 

     18,703,390

 

       18,567,907

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Employee stock options

 

        418,660

 

        234,245

 

          332,859

 

            239,669

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted-average shares outstanding

 

   19,183,491

 

   18,810,276

 

     19,036,249

 

       18,807,576

 

 

 

 

 

 

 

 

 

 

Basic net earnings per share

 

$1.10

 

$0.19

 

$1.18

 

$0.29

 

 

 

 

 

 

 

 

 

 

Diluted net earnings per share

 

$1.07

 

$0.19

 

$1.15

 

$0.29

 

Net earnings per share amounts have been retroactively adjusted for the effect of annual stock dividends. For the six months June 30, 2020 and 2019, there were -0- and 857,227 of anti-dilutive employee stock option shares, respectively, that were not included in the computation of diluted net earnings per common share as their effect would be anti-dilutive.

 

7)Business Segment Information 

 

Description of Products and Services by Segment

 

The Company has three reportable business segments: life insurance, cemetery and mortuary, and mortgage. The Company’s life insurance segment consists of life insurance premiums and operating expenses from the sale of insurance products sold by the Company’s independent agency force and net investment income derived from investing policyholder and segment surplus funds. The Company’s cemetery and mortuary segment consists of revenues and operating expenses from the sale of at-need cemetery and mortuary merchandise and services at its mortuaries and cemeteries, pre-need sales of cemetery spaces after collection of 10% or more of the purchase price and the net investment income from investing segment surplus funds. The Company’s mortgage segment consists of fee income and expenses from the originations of residential mortgage loans and interest earned and interest expenses from warehousing loans held for sale.

 

Measurement of Segment Profit or Loss and Segment Assets

 

The accounting policies of the reportable segments are the same as those described in the Significant Accounting Principles of the Form 10-K for the year ended December 31, 2019. Intersegment revenues are recorded at cost plus an agreed upon intercompany profit, and are eliminated upon consolidation.

 

Factors Management Used to Identify the Enterprise’s Reportable Segments

 

The Company’s reportable segments are business units that are managed separately due to the different products provided and the need to report separately to the various regulatory jurisdictions. The Company regularly reviews the quantitative thresholds and other criteria to determine when other business segments may need to be reported.


30


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2020 (Unaudited)

 

7)Business Segment Information (Continued) 


 

 

Life Insurance

 

Cemetery/
Mortuary

 

Mortgage

 

Intercompany

Eliminations

 

Consolidated

For the Three Months Ended

 

 

 

 

 

 

 

 

 

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$   37,788,593

 

$   5,306,305

 

$   75,566,844

 

$                -

 

$   118,661,742

Intersegment revenues

 

       1,816,185

 

         89,799

 

         190,701

 

    (2,096,685)

 

                     -

Segment profit before income taxes

 

       3,670,369

 

    1,548,452

 

    21,974,935

 

                  -

 

      27,193,756

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$   28,607,056

 

$   4,543,007

 

$   35,295,119

 

$                -

 

$     68,445,182

Intersegment revenues

 

       1,080,347

 

       113,622

 

         124,921

 

    (1,318,890)

 

                     -

Segment profit before income taxes

 

       1,219,001

 

    1,023,782

 

      2,381,060

 

                  -

 

        4,623,843

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended

 

 

 

 

 

 

 

 

 

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$   70,994,355

 

$   9,320,001

 

$ 117,956,335

 

$                -

 

$   198,270,691

Intersegment revenues

 

       2,724,353

 

       193,313

 

         391,033