2019
ANNUAL
REPORT
Who We Are...
The roots of our company were planted deep in 1965 with the founding of Security
National Life Insurance Company. Starting with only $543,000 in assets, in a small rented
house in Salt Lake City, Utah, Security National has grown into a strong industry leader in
several fields of service.
Over the past five decades we have grown consistently through new sales and investment
opportunities, and through the acquisition of life insurance companies, funeral homes and
cemeteries, as well as the formation and growth of our mortgage operations.
Profile
Our company operates three main business segments: life insurance, funeral service and
mortgage loans. Our company is designed and structured so each segment relates to
the others, and contributes to the profitability of the whole. For example, our cemetery
and mortuary operations enjoy a high level of public awareness, assisting in the sales
and marketing of our insurance and preneed cemetery and funeral products. Security
National Life Insurance Company in turn invests its assets in high quality mortgage loans.
Thus, while each segment is a stand-alone profit center, this horizontal integration is
strategically planned to improve profitability. Additionally, our company actively pursues
growth through acquisitions of life insurance companies and mortuaries, and through
expanding our mortgage operations.
of Kilpatrick and ensuring the same quality service for which
Kilpatrick has been known. The acquisition of Kilpatrick,
coupled with our organic growth, increased the Company’s
assets 27% YOY to $1.334 Billion.
Of course, the world today is a much different place than
it was in 2019, and much different even than it was a few
months ago. I believe our company has reacted well to
the tremendous challenges placed upon it and our staff
related to the COVID-19 pandemic. As March began, we
had probably 85-90% of our staff working in our offices. As
March ended, we had probably 15% working in our offices.
The remaining approximately 85% now work remotely from
their homes. I am very proud of how quickly our IT staff was
able to implement such functionality.
Financial markets have reacted with wide swings in both
the fixed income and equity markets. Interest rates have
dropped precipitously with the two year treasury bill even
dipping into negative interest rate territory briefly. While
the lowered rates have sparked additional activity in our
mortgage segment, profitably deploying cash has become
more troublesome.
We are fortunate that most, if not all, of our businesses to
date have been considered not “non-essential”. However,
even such formerly simple tasks as deed recordings and
professional licensing have now become problematic.
Traditionally a large percentage of our new customer sales
activity has been consumer direct in-home sales. Such in-
home transactions are becoming increasingly rare. We have
reacted speedily with video and other remotely based sales
presentation capabilities. The training of our sales force and
the market acceptance of such new sales methods remains
to be seen. Even where there is consistent demand, such
as in funeral services, providing those services in today’s
environment has been challenging given the quarantines and
group size limitations. While it is hazardous to guess how
long such conditions will linger, it is nevertheless our job to
understand and react to the present environment and to
continue to provide our needed services and products on a
profitable basis. I thank you for your continued support and
hope to see you at our Annual Meeting on June 26, 2020.
Very truly yours,
Scott M. Quist
Chairman, President and Chief Executive Officer
Scott M. Quist
Chairman of the Board
President
Chief Executive Officer
My Fellow Shareholders:
I am pleased to report on the affairs of our Company for the
year ended December 31, 2019, and invite you to attend the
annual Stockholders Meeting to be held June 26, 2020, in Salt
Lake City, Utah.
I thought our Company had a strong operational performance
in 2019. Excluding extraordinary items, meaning the gain
from the sale of our Dry Creek Apartments in 2018 and
the write-down on our Wichita office building in 2019, our
pre-tax Operational Earnings increased from $3.9 million in
2018 to $16.6 million in 2019. That represented a 322% YOY
improvement. While it is true that much of that improvement
was centered in our mortgage segment, all of our business
segments experienced significant and measurable operational
improvement.
In addition to the improved operational performance, we were
able to accomplish two significant acquisitions. In February
2019, we purchased Probst Family Funeral Homes, which has
two locations located in Heber City and Midway, Utah. This
acquisition expanded our Utah footprint and, given Probst’s
dominant market presence, enhanced our competitive position.
In December we closed on our purchase of Kilpatrick Life
Insurance Company. Kilpatrick was founded in 1932, is located
in Shreveport Louisiana, and occupies a prominent position in its
respective markets. The basic insurance business of Kilpatrick is
funeral related insurance, similar to what the Company sells as
its main insurance product. Several of the former principals of
Kilpatrick have agreed to continue serving as members of the
Kilpatrick Board of Directors, thus continuing their oversight
SNFC Board of Directors and Officers
Scott M. Quist
Chairman of the Board
President
Chief Executive Officer
Director
Executive Committee
H. Craig Moody
Norman G. Wilbur
Robert G. Hunter M.D.
Gilbert A. Fuller
President, Moody & Associates
Director
Executive Committee
Audit Committee
Compensation Committee
Nominating and Corporate
Governance Committee
Former Manager of Planning
and Reporting, J.C. Penney Co., Inc.
Director
Audit Committee
Compensation Committee
Nominating and Corporate
Governance Committee
Past Medical Staff President
Department Head-Otolaryngology,
Head and Neck Surgery
Intermountain Medical Center
Director
Compensation Committee
Nominating and Corporate
Governance Committee
Former Executive Vice President,
Chief Financial Officer and Secretary,
USANA Health Sciences, Inc.
Director
Executive Committee
Audit Committee
Compensation Committee
Nominating and Corporate
Governance Committee
John L. Cook
S. Andrew Quist
Jason G. Overbaugh
Jeffrey R. Stephens
Co-Owner & Operator
Cook Brothers Painting, Inc.
Director
Audit Committee
Compensation Committee
Nominating and Corporate
Governance Committee
Vice President
General Counsel
Director
Executive Committee
Vice President
National Marketing
Director of Life Insurance
Director
Secretary
Senior General Counsel
Garrett S. Sill
Chief Financial Officer
Treasurer
Christie Q. Overbaugh
Senior Vice President of Life
Insurance Internal Operations
Adam G. Quist
Vice President Memorial Services
Assistant Secretary
General Counsel
Diana C. Olson
Vice President
Finance
Stephen C. Johnson
Vice President
Mortgage Operations
Thayne D. Atkinson
Vice President
Chief Information Officer
John W. VanValkenburg
Matthew G. Bagley
Vice President
Actuarial Services
General Counsel
A History of Growth
1995 - The acquisition of Greer Wilson Funeral Home,
Tolleson Funeral Home and Civil Service Employees
Life
1996 - The dedication of Singing Hills Memorial Park
1997 - The acquisition of Crystal Rose Funeral Home and
the formation of Adobe Funeral Home
1998 - The acquisition of Southern Security Life (FL)
1999 - The acquisition of Menlo Life policy block
2000
2000 - The organization of Southern Security Mortgage
Company
2002 - The acquisition of Gulf National Life policy block
and Acadian Life policy block
2004 - The acquisition of Paramount Security Life
2005 - The acquisition of Memorial Insurance Company of
America
2007 - The acquisition of C&J Financial and Capital Reserve
Life Insurance Company
2008 - The acquisition of Southern Security Life (MS)
2010
2011 - The acquisition of North America Life policy block
2012 - The acquisition of Trans-Western Life
2012 - The formation of EverLEND Mortgage Company
2014 - The acquisition of American Funeral Financial
2016 - The acquisition of First Guaranty Insurance
Company
2018 - The acquisition of Beta Capital Corporation
2019 - The acquisition of Probst Family Funeral Homes
2019 - The acquisition of Kilpatrick Life Insurance Company
1965
1965 - The founding of Security National Life Insurance
Company
1966 - The acquisition of Grand Canyon Life
1967 - The acquisition of Bankers Trust Life
1969 - The acquisition of American Alliance Life
1970
1970 - The acquisition of Charter Oak Life & Washington
Life Assurance
1972 - The acquisition of Columbia Life
1973 - The acquisition of National Capital Life and
Memorial Estates Companies
1979 - The organization of Security National Financial
Corporation
1980
1981 -The acquisition of American Home Security Life
1984 - The acquisition of Western Investors policy block
1985 - The acquisition of Del Pueblo Life policy block and
Cibola Life policy block
1986 - The acquisition of Investors Equity Life
1987 - IPO of Security National Financial Corporation and
the acquisition of Southwest American policy block
1989 - The acquisition of Paradise Chapel Funeral Home
1990
1991 - The sale of Investors Equity Life and the acquisition
of Deseret Memorial Group
1993 - The formation of SecurityNational Mortgage
Company
1994 - The acquisition of Camelback Sunset Funeral Home
and Capital Investors Life
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Scott Quist
Chief Executive Officer
and President
Jason Overbaugh
Vice President
National Sales Director
Guy Winstead
Vice President of Sales
Preneed & Final Expense Divisions
Jason Richardson
Vice President of Sales
Home Service Division
Tommy Overton
National Sales Director
Final Expense Divisions
Christie Overbaugh
Sr. Vice President of
Internal Operations
Marty Rich
Director of Sales Operations
Wendi Beauchaine
Chief Underwriter
Jon Meredith
Director of Policy Administration
Galen Mills
Policy Service Manager
Mike Varanakis
Marketing Director
We specialize in affordable and
convenient products that “make
sense” for you and your family.
Let SNL show you a better way.
The unavoidable reality is that life ends. It is an event
that none of us can avoid. We can either prepare for the
unavoidable, or we leave that responsibility for others.
There really is no middle ground. Those who care,
prepare.
When the end of life occurs, those you leave behind (spouse, children,
family, friends, loved ones) are left to deal with their feelings of loss
without your help. Funerals and memorial services can seem like
extravagant ceremonies with little benefit. In truth though, they are
important for those left behind because they give a chance for closure,
a chance to start the grieving process, and a way to find understanding
and meaning in an unavoidable and often untimely event.
What is Preneed?
A celebration of life. A tribute to family. A treasured memory for
loved ones. Your funeral is an expression of your life and a gift to the
friends and family you leave behind. By pre-funding this tribute with
life insurance from Security National Life you are assured your wishes
will be honored. Preneed is the pre-planning and funding of a funeral
before one needs to do so at the time of a death.
What is Final Expense?
It is an act of caring, and of preparation; ultimately it is an expression
of compassion and responsibility for those you leave behind. New
responsibilities arise when a life ends. Final Expense insurance provides
an affordable and convenient solution for those responsibilities. The
passing of a loved one can be a traumatic event for those left behind,
Final Expense insurance provides an affordable and convenient way to
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Todd Clendennen
Regional Vice President of Sales
Preneed Division
Johnny Cabrera
Regional Director of Sales
Preneed Division
Graciela Jaloma
Regional Director of Sales
Preneed Division
Wayne Kirton
Regional Sales Manager
Preneed Division
Ed Bush
Regional Sales Manager
Preneed Division
Jeremy Cox
Director of Sales Development
Final Expense Division
Larry Burton
Regional Sales Manager
Home Service Division
Greg Halcomb
District Sales Manager
Home Service Division
Randy Martin
Districk Sales Manager
Home Service Division
Nathan Laviolette
District Sales Manager
Home Service Division
manage the financial aspects of the end of life. Even if you have fully
prepared, Final Expense Insurance can provide the safety net to take
care of those unanticipated items that will allow you to tell your loved
ones “It is all taken care of.”
What is Home Service?
Home Service is a family-oriented organization that cares for and is
committed to serving our clients with integrity and respect. We offer a
combination of sales and on-going service within the home, including
insurance review and premium collections, to provide peace of mind
to individuals and families through an affordable funeral plan. The
Home Service Division partners with almost 1,000 agents and funeral
homes—together serving over 320,000 policy holders. With coverage
amounts starting at $1,000 in most states and going up to $50,000,
our plans assure that our customers will have the dignity to bury their
loved ones without worrying about the costs.
Kilpatrick Life Insurance Company
Security National Life recently acquired Kilpatrick Life Insurance
Company in 2019. Kilpatrick is based in Shreveport, LA with roots
dating back to 1932. Through three generations, the Kilpatrick family
has overseen tremendous company growth and expansion. Kilpatrick
Life Insurance is an easy fit to the Security National family with its
family focus and priority. With award winning service, we are proud to
join in one mission to serve families across the nation.
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Scott Quist
Chief Executive Officer
Steve Johnson
President
J. Paul Christensen
Sr. Vice President,
National Sales Director
Cory Taylor
Vice President,
Production
Eric Bergstrom
Chief Strategy Officer
Jacob Banks
Chief Financial Officer
Mike Brumble
Chief Compliance Officer
Michael Muirbrook
Vice President,
Servicing & Audits
Dave Bennett
Vice President,
Market Execution
Karie Wakefield
Vice President,
Fulfillment
Heather Street
Executive Director,
Business Services
Wes Schueneman
Director,
Marketing
We’re SecurityNational Mortgage
A mortgage company with a rock-solid reputation
Our clients can feel confident that they’re getting the guidance
and professional treatment they deserve. With over 25 years
of experience, SecurityNational Mortgage Company has the
consistent track record and dependable financial backing of
Security National Financial Corporation, our publicly traded parent
company (NASDAQ: SNFCA). We’ve steadfastly weathered all
the ups and downs of the economy and gained a reputation for
outstanding leadership in the home loan market.
We’ve got professional mortgage branches from coast-to-coast,
and hundreds of experienced loan professionals ready to take
our clients through the loan process with top-notch service. Not
to brag, but we’re also consistently ranked a Top 50 mortgage
company by Scotsman Guide in the United States.
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J. Paul Christensen
Executive Regional Manager,
Region 1
David Christensen
Executive Regional Manager,
Region 2
Sean Christensen
Executive Regional Manager,
Region 2
Troy Mannella
Executive Regional Manager,
Region 3
Joel Harward
Executive Regional Manager,
Region 4
Lisa Newman
Executive Regional Manager,
Region 5
Scott Shelton
Executive Regional Manager,
Region 6
Turning Houses into Homes®
Welcome
to your journey home
Professional service
Buying a home can be one of the most stressful life experiences.
We understand that, and we work hard to turn a complex
process into a comfortable one. Our clients can count on us to
guide them through the whole loan process, end to end, and
ensure a smooth closing. They can worry about where they’re
going to hang the TV — we’ll worry about the financial details.
What they need when they need it
Every client is unique, so the service they get should be tailored
to their needs. Unlike a one-size-fits-all organization, we’re
a full-service lender with a wide range of loan products and
competitive interest rates to meet our client’s specific situation.
Our in-house underwriting and processing expertise means a fast
and reliable loan experience for each client we serve.
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$2.6 Billion Loan Volume
11,119 Loan Units
278 Loan Officers
72 National Branch Offices
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Scott Quist
Chief Executive Officer
Steve Johnson
President
J. Paul Christensen
Sr. Vice President,
National Sales Director
Cory Taylor
Vice President,
Production
Eric Bergstrom
Chief Strategy Officer
Jacob Banks
Chief Financial Officer
Mike Brumble
Chief Compliance Officer
Michael Muirbrook
Vice President,
Servicing & Audits
Dave Bennett
Vice President,
Market Execution
Karie Wakefield
Vice President,
Fulfillment
Heather Street
Executive Director,
Business Services
Wes Schueneman
Director,
Marketing
We’re SecurityNational Mortgage
A mortgage company with a rock-solid reputation
Our clients can feel confident that they’re getting the guidance
and professional treatment they deserve. With over 25 years
of experience, SecurityNational Mortgage Company has the
consistent track record and dependable financial backing of
Security National Financial Corporation, our publicly traded parent
company (NASDAQ: SNFCA). We’ve steadfastly weathered all
the ups and downs of the economy and gained a reputation for
outstanding leadership in the home loan market.
We’ve got professional mortgage branches from coast-to-coast,
and hundreds of experienced loan professionals ready to take
our clients through the loan process with top-notch service. Not
to brag, but we’re also consistently ranked a Top 50 mortgage
company by Scotsman Guide in the United States.
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J. Paul Christensen
Executive Regional Manager,
Region 1
David Christensen
Executive Regional Manager,
Region 2
Sean Christensen
Executive Regional Manager,
Region 2
Troy Mannella
Executive Regional Manager,
Region 3
Joel Harward
Executive Regional Manager,
Region 4
Lisa Newman
Executive Regional Manager,
Region 5
Scott Shelton
Executive Regional Manager,
Region 6
Turning Houses into Homes®
Welcome
to your journey home
Professional service
Buying a home can be one of the most stressful life experiences.
We understand that, and we work hard to turn a complex
process into a comfortable one. Our clients can count on us to
guide them through the whole loan process, end to end, and
ensure a smooth closing. They can worry about where they’re
going to hang the TV — we’ll worry about the financial details.
What they need when they need it
Every client is unique, so the service they get should be tailored
to their needs. Unlike a one-size-fits-all organization, we’re
a full-service lender with a wide range of loan products and
competitive interest rates to meet our client’s specific situation.
Our in-house underwriting and processing expertise means a fast
and reliable loan experience for each client we serve.
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$2.6 Billion Loan Volume
11,119 Loan Units
278 Loan Officers
72 National Branch Offices
We have a robust portfolio of loan products to serve our clients. Our professional loan
specialists match your needs by filtering over 250 different products, to find the one
that will best meet your needs. Every home. Every loan.
EverLEND is a locally focused mortgage lender that
values client satisfaction and long-term relationships
over production volumes and becoming the largest
lender in the area. We have a philosophy of using
technology where appropriate to enhance the personal
relationships and customer experience. Being locally
focused, we can avoid many of the regulatory and
systemic challenges that a national company faces. Our
focus also allows us to pursue local opportunities to
support our partners, which might be overlooked by
national lenders. We like to think that we are the right
size for great personal service.
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Andrew Quist
Chairman of the Board
and President
Mark McDonald
Chief Executive Officer
Chris Sleater
Operations Manager
Jack Helgesen
Support Services Manager
Tracy Anderson
Senior Graphic Designer
44%
Purchase Volume Increased
44% from 2018 to 2019
Our Foundation
Our parent company was founded in 1965, so we have the strength
and business experience to ensure a stable offering for our clients.
Our team is comprised of seasoned veterans with an impressive
depth of knowledge to help you select and secure the best possible
mortgage loan product to meet our client’s goals.
Passion is what drives our company to stand out amongst the sea
of lenders. We are a team of unique individuals that give our best
efforts to over-deliver for our clients and maintain a fun, rewarding
work environment. Finding solutions that are the right fit for our
clients, no matter how complex, gets us up in the morning.
66%
Total Funded Volume Increased
66% from 2018 to 2019
Long Term Relationships
We recognize how important it is to create a low-stress and
empowering process so that you remain in communication with
your loan team, and they help you become a better-educated client
along the way. Our professional loan officers keep you updated
throughout the loan process. We want to be your lender for life!
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Scott Quist
Chief Executive Officer
Adam Quist
Vice President and
Chief Operating Officer
Jordan Buckner
Vice President of Marketing
and Funeral Home Operations
Josh Atkinson
General Sales Director
Utah Cemeteries
Scott Prine
Manager
Singing Hills Memorial Park
Memorial provides excellent customer
service, peace of mind, and personalized
funeral and cemetery services to families
in Utah and San Diego.
Memorial Mortuaries & Cemeteries is Utah’s pre-eminent
funeral and cemetery service provider. Memorial operates
10 funeral homes and 5 cemeteries in Utah along with
one cemetery in San Diego, California. Additionally,
Memorial operates Affordable Funerals & Cremations,
which has two locations in Utah.
Our Mission
Memorial’s mission is to provide customers with peace of mind and
comfort while planning for and while experiencing end of life events.
This is accomplished through Memorial’s internal commitment to treat
each family we serve as if they were one of their own and holding
each other accountable as the best funeral and cemetery professionals.
Memorial excels at providing unique and special experiences for each of
the families they serve and at providing families the tools and resources
to help personalize their funeral and/or cemetery service.
Memorial’s goal is growth. Growth will allow the company to continue
providing excellent services to families in Utah, California and beyond.
Growth also provides increased opportunities and improved livelihood
for Memorial’s employees.
With growth in mind, Memorial opened a new location in St. George,
Utah under its “Affordable Funerals & Cremations” brand in 2017.
Affordable now operates two locations, one in Salt Lake City and the
second in St. George. Memorial also acquired Probst Family Funerals
in 2019.
Over the past several years, Memorial has realized double digit net
income growth, averaging over 25% operational income growth each
year since 2014.
Winner: Best of State
Three Years in a Row
Memorial Mortuaries and Cemeteries was recently awarded
Best of State for Funeral Services for the third year in a row.
Affordable Funerals and Cremations was also awarded Best of
State for Budget Funerals two years in a row. Criteria for the
awards are based on overall excellence, superiority and quality
of a nominee’s products, services or performance, differentiating
themselves from their competitors and improving the quality of
life for their neighbors.
The Best of State Awards were created to recognize outstanding
individuals, organizations, and businesses in Utah. By recognizing
excellence in the community and sharing examples of success for
many worthy endeavors the awards motivate and reward those
who have strived for excellence in their respective fields.
Acquisition of Probst Family Funerals & Cremations
Memorial recently acquired Probst Family Funerals & Cremations, a Utah based funeral services provider with
two locations in the Heber Valley, a community 45 minutes southeast of Salt Lake City. Probst Family Funerals was
established in 2013, and began its operations in Midway, Utah. In 2016, the owners also acquired Olpin Hoopes
Funeral Home located in Heber City, Utah, which it operated under the name of Heber Valley Funeral Home.
These businesses have grown to serve hundreds of families each year in the Heber Valley area. With this acquisition,
Memorial Mortuaries and Cemeteries is now one of Utah’s largest funeral providers, with ten funeral homes and five
cemeteries located throughout the state.
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Brandon Federico
Manager of Corporate
Real Estate
Gina Carter
Propterty Manager
Seth Anderson
Facilities Manager
Security National Real Estate manages
both commercial and residential
properties through wise investment
strategies.
Security National Real Estate is a wholly owned subsidiary of Security
National Life and offers property management and leasing services.
Each of our commercial properties is a fine example of the wise
investment strategy of our management team. The team consists of
an eight member staff handling sales, maintenance, and remodeling
to suit the needs of new and existing tenants. Our rental properties
consist of approximately 80 residential and 60 commercial leases.
All properties have the potential for development or raw land with
plans for future improvements.
Security National Corporate Headquarters
Security National Financial has broken ground on Security National's
own corporate headquarters. Featuring a similar design to the existing
Center 53 Campus, the new building will house employees for all Salt
Lake City based divisions.
• 6-story Office Building
• Approximately 200,000 sf
• Adjacent to I-15
• Scheduled to open Summer 2021
Wasatch 16
• 78,000 sf class A building located
in Draper, Utah
• Key tenants include T-Mobile,
Credit Corp Services, Journey
Team – Microsoft Partner.
Center 53 Campus
Security National Real Estate is developing and leasing approximately
1,000,000 square feet of commercial real estate at the center of the
Wasatch Front. The project, Center 53, encompasses over 20 acres
in the central valley of Salt Lake City which is only 30 minutes from
anywhere along the Wasatch Front. Current full floor tenants include:
R1, Finicity, and SoFi.
Each of the buildings in the campus will have the following features:
• Large floor plates with great views of the Salt Lake Valley
• Exterior features include natural stone, glass curtain walls
and terraneo finish
• Large modern lobby with wood walls and large format tile
feature walls
• Fitness center with cardio and weight stations
• Structured parking
• Easy access to freeway
• Centrally located in the Salt Lake Valley
Cabela’s
• Purchased in 2018
• 70,000 sf of retail
• Located in Farmington, Utah at Station Park
• 25 year lease with Cabela’s
Our passion is commercial real estate finance. We are your commercial loan source.
long-term
Security National Commercial Capital is a wholly owned
subsidiary of Security National Life and originates
interim/bridge loans to enhance the mortgage banker’s
traditional
lender relationships with a
faster closing, flexible, interim loan product intended
to provide a bridge until a property stabilizes and
conventional long-term financing can be obtained.
These loans are designed to facilitate the purchase,
refinance, leveraging or ownership change of good
quality, performing commercial real estate. We lend on
investor or owner/occupied real estate, including single or
multi-tenant office, retail, office, warehouse, and multifamily
properties. We also provide construction lending that
compliments SecurityNational Mortgage on approved
new residential construction and on select Commercial
construction projects throughout the United States.
Our loans are generated using relationships with
mortgage bankers, other life insurance companies,
commercial banks, website requests, referrals from past
business relationships, commercial lending institutions,
Real Estate professionals, Wall Street investors, and
through publication advertising. Our target loan size is
between $1,000,000 and $4,500,000, with a maximum
term of 3 years (12-month term preferred). We also
provide interim bridge financing for SBA-504 loans
waiting for debenture funding.
Our target loan size is between
$1,000,000 and $4,500,000...
Our loans are generated using
relationships...
We offer flexible fast funding commercial real estate
loans, and respect our fiduciary responsibility to Security
National Life’s insureds by providing secure, higher
yielding investments. We provide competitive products
and service to borrowers and the desired return to our
shareholders.
To learn more, visit www.sncloans.com for a
presentation of products offered.
‘‘‘‘‘‘‘‘ Some of our many properties funded:
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Steven R. Peterson
Executive Vice President
and Manager
Henry Kesler
Vice President
Tom Coleman
SBA Manager
Jerred Nelson
Construction Loan Manager
$39,964,600 Commercial
Bridge / Construction
$28,626,000
Aquisition &
Development
$80,621,136
Residential Construction
$26,540,600
Land
$14,189,550
Interim SBA 504 Bridge
2019 SNCC Originations
Where We Are
Indiana
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Sales Office
License Held
Security National Life
SecurityNational Mortgage
Kilpatrick Life
EverLEND Mortgage
No License Held
First Guaranty Life
C&J Financial, LLC Office
Corporate
Headquarters
Operations
Memorial Mortuaries
& Cemeteries
American Funeral Financial Office
Where We Are
SNFC Corporate Offices
Security National Financial Corporation
121 Election Road, Suite 100
Draper, UT 84020
P.O. Box 57250
Salt Lake City, UT 84157-0250
Telephone: (801) 264-1060
Toll Free: (800) 574-7117
Fax: (801) 264-8430
Form 10-K Offer
If you are a holder or beneficial owner of the
company’s stock, the company will send you, upon
request and at no charge, a copy of the company’s
Annual Report on Form 10-K filed with the Securities
& Exchange Commission for the year 2019 (including
a list of exhibits). All requests must be made in writing
to the Corporate Secretary.
Security National Financial Corporation
P.O. Box 57250
Salt Lake City, Utah 84157-0250
Stock Transfer Agents
Zions First National Bank
P.O. Box 30880
Salt Lake City, UT 84130
Former Holders of Preferred Stock and/or
Promissory Notes
Security National Financial Corporation
Attn: Stock Department
P.O. Box 57250
Salt Lake City, UT 84157-0250
Certified Public Accountants
Deloitte & Touche LLP
Salt Lake City, Utah
Outside Legal Counsel
Mackey Price Law
Salt Lake City, Utah
Company E-mail Address:
contact@securitynational.com
Company Internet Address:
www.securitynational.com
Life Insurance Offices
Security National Life Insurance Company
121 Election Road, Suite 100
Draper, UT 84020
Telephone: (800) 574-7117
Security National Life Insurance Company
Home Service Division
1044-B River Oaks Drive
Flowood, MS 39232
Telephone: (800) 826-6803
Security National Life Insurance Company
Preneed Sales Division
1 Sanctuary Blvd Suite 302
Mandeville, LA 70471
Telephone: (800) 574-7117
Kilpatrick Life Insurance Company
1818 Marshall St.
Shreveport, LA 71101
Telephone: (800) 235-0555
Fast Funding Offices
C&J Financial, LLC
200 Market Way
Rainbow City, AL 35906
Telephone: (800) 785-0003
American Funeral Financial
6000 Pelham Road Suite B
Greenville, SC 29615
Telephone: (877) 213-4233
Mortuaries & Cemeteries
Memorial Group Operations
121 Election Road, Suite 110
Salt Lake City, UT 84020
Telephone: (801) 268-8771
Memorial Holladay-Cottonwood Mortuary
4670 S. Highland Drive
Salt Lake City, UT 84117
Telephone: (801) 278-2801
Memorial Lake Hills Mortuary &
Cemetery
10055 S. State Street
Sandy, UT 84070
Telephone: (801) 566-1249
Memorial Lake View Mortuary & Cemetery
1640 E. Lakeview Drive
Bountiful, UT 84010
Telephone: (801) 298-1564
Memorial Murray Mortuary
5850 S. 900 E.
Murray, UT 84121
Telephone: (801) 262-4631
Memorial Mountain View Mortuary &
Cemetery
3115 E. 7800 S.
Cottonwood Heights, UT 84121
Telephone: (801) 943-0831
Memorial Redwood Mortuary & Cemetery
6500 S. Redwood Road
West Jordan, UT 84123
Telephone: (801) 969-3456
Memorial Holladay Cemetery
4900 S. Memory Lane
Holladay, UT 84117
Telephone: (801) 278-2803
Singing Hills Memorial Park
2800 Dehesa Road
El Cajon, CA 92019
Telephone: (619) 444-3000
Affordable Funerals & Cremations
5239 Greenpine Drive
Murray, UT 84123
Telephone: (801) 287-8233
Affordable Funerals & Cremations
St. George Location
157 E. Riverside Drive #3A
St. George, UT 84790
Telephone: (435) 680-7035
Heber Valley Funeral Home
288 N. Main Street
Heber City, UT 84032
Telephone: (435) 654-5458
Probst Family Funeral Home
79 E. Main Street
Midway, UT 84049
Telephone: (435) 654-5959
EverLEND Mortgage Offices
EverLEND–Operations
1111 Brickyard Road #107
Salt Lake City, UT 84106
Telephone: (801) 713-4800
UTAH
Layton
1133 North Main Street #150
Layton, UT 84041
Telephone: (801) 926-9925
Pleasant Grove
590 West State Street
Pleasant Grove, UT 84062
Telephone: (801) 910-0982
SNMC Mortgage Offices
SecurityNational Mortgage
Company–Operations
5201Green Street
Salt Lake City, UT 84123
Telephone: (801) 264-8111
Where We Are
SNMC Sales Offices
ARIZONA
Mesa
1819 S. Dobson, Suite 203
Mesa, AZ 85202
Telephone: (602) 732-3993
1930 South Alma School Road
Suite B-201
Mesa, AZ 85210
Telephone: (844) 820-8699
Scottsdale
16427 N. Scottsdale Road #440
Scottsdale, AZ 85254
Telephone: (480) 237-4670
17015 N. Scottsdale Road #125
Scottsdale, AZ 85255
Telephone: (480) 426-0400
Phoenix
77 E. Weldon Ave, Ste 220
Phoenix, AZ 85012
Telephone: (734) 945-5403
5100 N 99th Ave, Unit 101 & 103
Phoenix, AZ 85037
Telephone: (602) 273-9610
2828 No. Central Ave.
Suite 1006 &1018
Phoenix, AZ 85004
Telephone: (480) 424-2780
4725 N 19th Ave.
Phoenix, AZ 85015
Telephone: (844) 820-8699
CALIFORNIA
West Covina
1050 W. Lakes Drive #225 & 250
West Covina, CA 91790
Telephone: (626) 508-3004
COLORADO
Edwards
27 Main Street Suite C-104B
Edwards, CO 81632
Telephone: (970) 855-0466
FLORIDA
Ft. Myers
8191 College Parkway Suite 302
Ft. Myers, FL 33919
Telephone: (888) 550-9221
Lake Mary
1145 Townpark Avenue #2215
Lake Mary, FL 32746
Telephone: (407) 302-8384
136 Parliament Loop #1030
Lake Mary, FL 32746
Telephone: (407) 302-8384
Oldsmar
3689 Tampa Road #324
Oldsmar, FL 34677
Telephone: (727) 724-5438
Seminole
8265 113th St.
Seminole, FL 33772
Telephone: (727) 498-3570
HAWAII
Lihue
4370 Kukui Grove Street
Suite #201
Lihue, HI 96766
Telephone: (808) 823-8050
Kapolei
1001 Kamokila Boulevard, Suite 319
Kapolei, HI 96707
Telephone: (808) 427-9960
INDIANA
Indianapolis
9963 Crosspoint Blvd.
Suite 101 &102
Indianapolis, IN 46256
Telephone: (317) 572-6271
IDAHO
McCall
116 N. 3rd Street #12
McCall, ID 83638
Telephone: (208) 634-2767
MISSOURI
Branson
4987 Fall Creek Rd #1
Branson, MO 65616
Telephone: (417) 616-3341
NEVADA
Henderson
2370 Corporate Circle #200
Henderson, NV 89074
Telephone: (702) 487-5626
Las Vegas
1980 Festival Plaza Drive, Suite 850
Las Vegas, NV 89135
Telephone: (702) 562-8733
OHIO
Columbus
8720 Orion Place Suite 160
Columbus, OH 43240
Telephone: (614) 441-9978
OREGON
Clackamas
10365 SE Sunnyside Road #310
Clackamas, OR 97015
Telephone: (971) 544-7192
Portland
10610 SE Washington, Suite C
Portland, OR 97216
Telephone: (503) 251-5482
3311 NE MLK Jr Blvd #203
Portland, OR 97212
Telephone: (503) 308-6127
Tilamook
709 Pacific Ave.
Tillamook, OR 97141
Telephone: (855) 352-3744
SOUTH CAROLINA
Mauldin
213 E. Butler, Suite E-1
Mauldin, SC 29662
Telephone: (855) 203-1300
TENNESSEE
Franklin
6640 Carothers Parkway, Ste 110
Franklin, TN 37067
Telephone: (615) 721-2934
Johnson City
208 Sunset Drive, Suite 403 & 404
Johnson City, TN 37604
Telephone: (423) 491-7140
Memphis
6263 Poplar Ave, Suite 1150
Memphis, TN 38119
Telephone: (407) 302-8384
TEXAS
Austin
9737 Great Hills Trail #200 & 220
Austin, TX 78759
Telephone: (512) 795-5596
Brownsville
1213 E. Alton Gloor Blvd Suite H & I
Brownsville, TX 78526
Telephone: (956) 554-0792
Dallas
7920 Belt Line Road, Suite 158,
Dallas, TX 75254
Telephone: (214) 730-0021
Eagle Pass
240 N. Adams St, Suite 4 & 5
Eagle Pass, TX 78852
Telephone: (830) 776-4323
Mansfield
1900 Country Club Drive, Suite 150
Mansfield, TX 76063
Telephone: (855) 203-1300
Mesquite
3220 Gus Thomasson Rd, Ste 111-B
Mequite, TX 75150
Telephone: (855) 203-1300
Weatherford
602 S. Main Street #200
Weatherford, TX 76086
Telephone: (855) 203-1300
UTAH
Cottonwood Heights
6965 S. Union Park Center
Suite 300
Cottonwood Heights, UT 84047
Telephone: (801) 838-9808
6965 Union Park Center #470
Cottonwood Heights, UT 84047
Telephone: (801) 545-7270
Ephraim
497 S Main, Suite E.
Ephraim, UT 84627
Telephone: (435) 283-3000
Lehi
1350 E. 300 S.
3rd Floor,
Lehi, UT 84043
Telephone: (385) 484-7200
Orem
1145 South 800 East, Suite 201
Orem, UT 84097
Telephone: (801) 724-6425
Where We Are
Sandy
75 West Towne Ridge Parkway
Ste 100
Sandy, UT 84070
Telephone: (801) 262-6033
126 West Sego Lily Drive #260
Sandy, UT 84070
Telephone: (801) 571-1313
South Jordan
11240 So. River Heights Drive
Suite 100
South Jordan, UT 84095
Telephone: (801) 508-6300
Stansbury Park
500 East Village Blvd., Unit #110
Stansbury Park, UT 84074
Telephone: (435) 843-5340
Taylorsville
5965 South Redwood Rd
Taylorsville, UT 84123
Telephone: (385) 474-6293
6575 S. Redwood Rd #225
Taylorsville, UT 84123
Telephone: (801) 727-7600
VIRGINIA
Sterling
21430 Cedar Dr, Unit 200-202
Sterling, VA 20164
Telephone: (703) 880-1841
WASHINGTON
Vancouver
15640 NE Fourth Plain Blvd
#220 & 221
Vancouver, WA 98682
Telephone: (360) 869-7265
El Paso
1626 Lee Trevino, Suite A
El Paso, TX 79936
Telephone: (915) 307-7212
Farmer’s Branch
4100 Alpha Road, Suite 650
Farmer’s Branch, TX 75244
Telephone: (469) 374-9700
Fort Worth
5020 Collinwood Ave. Suite100
Fort Worth, TX 76107
Telephone: (817) 945-2551
Houston
11550 Fuqua, Suite 200
Houston, TX 77034
Telephone: (346) 203-9981
17347 Village Green Dr. Ste. 102
Houston, TX 77040
Telephone: (832) 615-5400
Hurst
1848 Norwood Plaza #213
Hurst, TX 76054
Telephone: (214) 444-9250
Katy
24668 Kingsland Blvd
Katy, TX 77494
Telephone: (832) 786-6699
Laredo
2408 Jacaman Rd. Suite F
Laredo, TX 78041
Telephone: (956) 284-0888
League City
3027 Marina Bay Dr. #200
League City, TX 77573
Telephone: (281) 549-7194
Deloitte & Touche LLP
111 South Main Street
Suite 1500
Salt Lake City, UT 84111
USA
Tel: +1 801 328 4706
Fax: +1 801 366 7900
www.deloitte.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Security National Financial Corporation:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Security National Financial Corporation and
subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of
income, comprehensive income, stockholders’ equity, and cash flows for each of the years then ended, and
the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial
statements”). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash
flows for each of the years then ended, in conformity with accounting principles generally accepted in the
United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company's financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Salt Lake City, UT
March 30, 2020
We have served as the Company's auditor since 2017.
3
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Assets
Investments:
Fixed maturity securities, available for sale, at estimated fair value
Fixed maturity securities, held to maturity, at amortized cost
Equity securities at estimated fair value
Mortgage loans held for investment (net of allowances for loan losses
of $1,453,037 and $1,347,972 for 2019 and 2018)
Real estate held for investment (net of accumulated depreciation
of $12,788,739 and $16,739,578 for 2019 and 2018)
Real estate held for sale
Other investments and policy loans (net of allowances for doubtful
accounts of $1,448,026 and $1,092,528 for 2019 and 2018)
Accrued investment income
Total investments
Cash and cash equivalents
Loans held for sale at estimated fair value
Receivables (net of allowances for doubtful accounts of $1,724,156 and
$1,519,842 for 2019 and 2018)
Restricted assets (including $2,985,347 and $744,673 for 2019 and 2018
at estimated fair value)
Cemetery perpetual care trust investments (including $2,581,124 and
$483,353 for 2019 and 2018 at estimated fair value)
Receivable from reinsurers
Cemetery land and improvements
Deferred policy and pre-need contract acquisition costs
Mortgage servicing rights, net
Property and equipment, net
Value of business acquired
Goodwill
Other
Total Assets
See accompanying notes to consolidated financial statements.
December 31
2019
2018
$ 355,977,820
-
7,271,165
$
-
232,078,723
5,558,611
236,694,546
186,465,069
102,756,946
14,097,627
121,558,222
-
60,245,269
4,833,232
781,876,605
127,754,719
213,457,632
46,617,655
3,566,146
595,844,426
142,199,942
136,210,853
9,236,330
8,935,343
13,935,317
10,981,562
4,411,864
15,747,768
9,519,950
94,701,920
17,155,529
14,600,394
9,876,647
3,519,588
18,649,812
$1,334,444,075
4,335,869
10,820,102
9,878,427
89,362,096
20,016,822
7,010,778
5,765,190
2,765,570
6,684,143
$ 1,050,811,123
2
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
Liabilities and Stockholders' Equity
Liabilities
Future policy benefits and unpaid claims
Unearned premium reserve
Bank and other loans payable
Deferred pre-need cemetery and mortuary contract revenues
Cemetery perpetual care obligation
Accounts payable
Other liabilities and accrued expenses
Income taxes
Total liabilities
Stockholders’ Equity
Preferred Stock:
Preferred stock - non-voting-$1.00 par value; 5,000,000 shares authorized;
none issued or outstanding
Common Stock:
Class A: common stock - $2.00 par value; 20,000,000 shares authorized;
issued 16,107,779 shares in 2019 and 15,304,798 shares in 2018
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 2,500,887 shares in 2019 and 2,193,643 shares in 2018
Additional paid-in capital
Accumulated other comprehensive income, net of taxes
Retained earnings
Treasury stock, at cost - 490,823 Class A shares and -0- Class C shares
in 2019; 302,541 Class A shares and -0- Class C shares in 2018
Total stockholders’ equity
Total Liabilities and Stockholders’ Equity
See accompanying notes to consolidated financial statements.
December 31
2019
2018
$
825,600,918
3,621,697
217,572,612
12,607,978
3,933,719
5,056,983
50,652,591
18,686,972
1,137,733,470
$
620,399,714
3,920,473
187,521,188
12,508,625
3,821,979
2,883,349
31,821,624
16,122,998
878,999,950
-
-
32,215,558
30,609,596
-
-
5,001,774
46,091,112
13,726,514
101,256,229
4,387,286
41,821,778
(2,823)
95,201,732
(1,580,582)
196,710,605
1,334,444,075
$
(206,396)
171,811,173
1,050,811,123
$
3
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Revenues:
Insurance premiums and other considerations
Net investment income
Net mortuary and cemetery sales
Gains on investments and other assets
Mortgage fee income
Other
Total revenues
Benefits and expenses:
Death benefits
Surrenders and other policy benefits
Increase in future policy benefits
Amortization of deferred policy and pre-need acquisition
costs and value of business acquired
Selling, general and administrative expenses:
Commissions
Personnel
Advertising
Rent and rent related
Depreciation on property and equipment
Costs related to funding mortgage loans
Other
Interest expense
Cost of goods and services sold – cemeteries and mortuaries
Total benefits and expenses
Earnings before income taxes
Income tax expense
Net earnings
Net earnings per Class A equivalent common share (1)
Net earnings per Class A equivalent common share -
assuming dilution (1)
Weighted average Class A equivalent common shares
outstanding (1)
Weighted average Class A equivalent common shares
outstanding-assuming dilution (1)
Years Ended December 31
2019
2018
$
81,860,610
43,019,473
15,296,235
728,367
131,976,082
10,180,163
283,060,930
$
75,928,910
39,913,267
13,726,518
23,941,179
116,185,853
9,923,000
279,618,727
41,591,057
3,320,748
23,568,497
36,298,789
2,886,298
24,332,088
14,634,577
11,631,346
56,762,891
64,221,270
4,784,558
7,055,456
1,711,369
6,278,954
34,922,761
7,386,688
2,878,169
269,116,995
50,291,352
67,368,952
4,602,591
7,605,375
1,867,001
6,423,944
31,014,999
6,956,707
2,158,895
253,438,337
13,943,935
(3,050,416)
10,893,519
$
26,180,390
(4,494,311)
21,686,079
$
$0.60
$0.60
$1.21
$1.19
18,104,681
17,968,062
18,229,116
18,188,665
(1) Earnings per share amounts have been adjusted retroactively for the effect of annual stock dividends. The weighted-
average shares outstanding includes the weighted-average Class A common shares and the weighted-average Class C
common shares determined on an equivalent Class A common stock basis. Net earnings per common share represent
net earnings per equivalent Class A common share.
See accompanying notes to consolidated financial statements.
4
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net earnings
Other comprehensive income:
Unrealized gains on fixed maturity securities available for sale
Unrealized gains on restricted assets
Unrealized gains on cemetery perpetual care trust investments
Foreign currency translation adjustments
Other comprehensive income, before income tax
Income tax benefit (expense)
Other comprehensive income (loss), net of income tax
Comprehensive income
See accompanying notes to consolidated financial statements.
Years Ended December 31
2019
10,893,519
$
2018
21,686,079
$
17,315,770
35,550
29,904
972
17,382,196
(3,652,859)
13,729,337
24,622,856
$
-
-
(3,761)
(3,761)
938
(2,823)
21,683,256
$
5
-
-
-
-
-
-
-
-
-
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Cla s s A
Co mmo n
S to c k
Cla s s C
Co mmo n
S to c k
Ad d itio n a l
P a id - in
Ca p ita l
Ac c u mu la te d
O th e r
Co mp re h e n s ive
In c o me (Lo s s )
Re ta in e d
Ea rn in g s
Tre a s u ry
S to c k
To ta l
B a la n c e a t De c e mb e r 3 1, 2 0 17
29,071,154
4,178,748
38,125,042
603,170
77,520,951 (931,075)
148,567,990
Cumula tive e ffe c t a djus tme nt upon
a doption of ne w a c c ounting s ta nda rd
(AS U 2016- 01)
Ne t e a rnings
Othe r c ompre he ns ive los s
S toc k ba s e d c ompe ns a tion e xpe ns e
Exe rc is e of s toc k options
S a le of tre a s ury s toc k
P urc ha s e of tre a s ury s toc k
-
-
-
76,946
-
-
-
-
-
-
-
-
-
-
237,123
(19,534)
540,713
-
S toc k divide nds
1,461,120
208,914
2,938,434
Conve rs ion Cla s s C to Cla s s A
376 (376)
-
(603,170)
603,170
-
(2,823)
21,686,079
-
-
21,686,079
(2,823)
237,123
57,412
-
-
-
-
940,200
1,480,913
(215,521)
(215,521)
(4,608,468)
-
-
-
-
-
-
-
-
-
-
-
B a la n c e a t De c e mb e r 3 1, 2 0 18
30,609,596
4,387,286
41,821,778
(2,823)
95,201,732 (206,396)
171,811,173
Ne t e a rnings
Othe r c ompre he ns ive inc ome
S toc k ba s e d c ompe ns a tion e xpe ns e
Exe rc is e of s toc k options
S a le of tre a s ury s toc k
P urc ha s e of tre a s ury s toc k
-
-
-
-
-
-
65,034
382,886
-
-
-
-
-
-
256,996
415,990
529,858
-
S toc k divide nds
1,534,356
238,174
3,066,490
Conve rs ion Cla s s C to Cla s s A
6,572
(6,572)
-
13,729,337
-
-
-
-
-
-
-
10,893,519
-
-
-
-
165,702
10,893,519
13,729,337
256,996
863,910
695,560
(1,539,888) (1,539,888)
(4,839,022)
-
-
-
(2)
-
B a la n c e a t De c e mb e r 3 1, 2 0 19
$ 32,215,558 $ 5,001,774 $ 46,091,112 $
13,726,514
$101,256,229 $ (1,580,582) $ 196,710,605
See accompanying notes to consolidated financial statements.
6
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Gains on investments and other assets
Depreciation
Provision for loan losses and doubtful accounts
Net amortization of deferred fees and costs, premiums and discounts
Provision for deferred income taxes
Policy and pre-need acquisition costs deferred
Policy and pre-need acquisition costs amortized
Value of business acquired amortized
Mortgage servicing rights, additions
Amortization of mortgage servicing rights
Stock based compensation expense
Benefit plans funded with treasury stock
Net change in fair value of loans held for sale
Originations of loans held for sale
Proceeds from sales of loans held for sale
Net gains on sales of loans held for sale
Change in assets and liabilities:
Land and improvements held for sale
Future policy benefits and unpaid claims
Other operating assets and liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchases of fixed maturity securities
Calls and maturities of fixed maturity securities
Purchase of equity securities
Sales of equity securities
Net changes in restricted assets
Net changes in cemetery perpetual care trust investments
Mortgage loans held for investment, other investments and policy loans made
Payments received for mortgage loans held for investment, other investments
and policy loans
Purchases of property and equipment
Sales of property and equipment
Purchases of real estate held for investment
Sales of real estate held for investment
Cash received for reinsurance assumed
Cash paid for purchase of subsidiaries, net of cash acquired
Net cash provided by investing activities
Years Ended December 31
2019
2018
$
10,893,519
$
21,686,079
(728,367)
5,183,658
1,202,688
(887,605)
(1,857,897)
(19,176,531)
13,787,037
847,540
(4,194,502)
7,055,795
256,996
695,560
(2,498,097)
(2,606,839,175)
2,580,875,055
(80,666,413)
(23,941,179)
5,456,185
377,683
(1,110,363)
(2,605,401)
(19,544,569)
10,807,777
823,569
(3,922,816)
5,282,931
237,123
1,480,913
(3,736,209)
(2,194,607,543)
2,259,145,473
(74,426,183)
358,477
18,394,928
1,695,259
(75,602,075)
(110,601,438)
26,624,182
(3,264,028)
2,639,729
(1,254,991)
299,897
(572,171,590)
556,352,676
(1,839,293)
54,496
(8,572,556)
11,614,927
158,358,594
(20,141,074)
38,099,531
64,506
21,710,347
3,830,947
7,009,270
(37,488,774)
32,993,161
(3,354,274)
2,886,492
(241,665)
1,207,622
(505,060,464)
535,354,544
(1,282,704)
2,016,156
(29,193,332)
68,875,269
-
(3,405,783)
63,306,248
7
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Cash flows from financing activities:
Investment contract receipts
Investment contract withdrawals
Proceeds from stock options exercised
Purchase of treasury stock
Repayment of bank loans
Proceeds from bank borrowings
Net change in warehouse line borrowings for loans held for sale
Net change in line of credit borrowings
Net cash provided by financing activities
Net change in cash, cash equivalents, restricted cash and restricted
cash equivalents
Cash, cash equivalents, restricted cash and restricted cash equivalents at
beginning of year
Cash, cash equivalents, restricted cash and restricted cash equivalents
at end of year
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized)
Income taxes
Non Cash Investing and Financing Activities:
Transfer of loans held for sale to mortgage loans held for investment
Right-of-use assets obtained in exchange for operating lease liabilities
Transfer of real estate held for investment to property and equipment
Mortgage loans held for investment foreclosed into real estate held for
investment
Accrued real estate construction costs and retainage
Right-of-use assets obtained in exchange for finance lease liabilities
Mortgage loans held for investment foreclosed into receivables
See Note 20 regarding non cash transactions included in the acquisitions of
Beta Capital Corporation, Probst Family Funerals and Cremations and Heber
Valley Funeral Home and Kilpatrick Life Insurance Company
Years Ended December 31
2019
2018
$
12,141,627
(16,911,841)
863,910
(1,539,888)
(236,790,722)
196,610,127
69,928,331
-
24,301,544
$
11,571,551
(15,356,571)
57,412
(215,521)
(133,123,024)
162,653,177
(717,792)
1,250,000
26,119,232
(13,201,000)
96,434,750
150,936,673
54,501,923
$
137,735,673
$
150,936,673
$
7,284,078
4,861,318
$
6,878,048
5,701,565
$
31,881,851
16,544,406
3,261,259
$
10,827,797
-
-
1,704,015
590,256
252,763
155,347
670,601
214,200
-
-
Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents as shown in the consolidated
statements of cash flows is presented in the table below:
Cash and cash equivalents
Restricted assets
Cemetery perpetual care trust investments
Total cash, cash equivalents, restricted cash and restricted cash equivalents
See accompanying notes to consolidated financial statements.
8
Years Ended December 31
2019
127,754,719
8,674,214
1,306,740
137,735,673
2018
142,199,942
7,179,225
1,557,506
150,936,673
$
$
$
$
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
1)
Significant Accounting Policies
General Overview of Business
Security National Financial Corporation and its wholly owned subsidiaries (the “Company”) operate in three main
business segments: life insurance, cemetery and mortuary, and mortgages. The life insurance segment is engaged in
the business of selling and servicing selected lines of life insurance, annuity products and accident and health insurance
marketed primarily in the Intermountain West, California and eleven southern states. The cemetery and mortuary
segment of the Company consists of eight mortuaries and five cemeteries in Utah and one cemetery in California. The
mortgage segment is an approved government and conventional lender that originates and underwrites residential and
commercial loans for new construction, existing homes and real estate projects primarily in Florida, Nevada, Texas,
and Utah.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted
accounting principles in the United States of America (GAAP).
Principles of Consolidation
These consolidated financial statements include the financial statements of the Company and its majority owned
subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation.
Use of Estimates
Management of the Company has made a number of estimates and assumptions related to the reported amounts of
assets and liabilities, reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with GAAP. 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 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.
Investments
The Company’s management determines the appropriate classifications of investments in fixed maturity securities and
equity securities at the acquisition date and re-evaluates the classifications at each balance sheet date.
Fixed maturity securities available for sale are carried at estimated fair value. Changes in fair values are reported as
unrealized gains or losses and are recorded in accumulated other comprehensive income. On December 31, 2019, the
Company changed the classification of its bond and preferred stock investments to available for sale from held to
maturity. As a result, securities available for sale are carried at estimated fair value instead of amortized cost.
Fixed maturity securities held to maturity are carried at cost, adjusted for amortization of premium or accretion of
discount. Although the Company has the ability and intent to hold these investments to maturity, infrequent and
unusual conditions could occur under which it would sell certain of these securities. Those conditions include
unforeseen changes in asset quality, significant changes in tax laws, and changes in regulatory capital requirements or
permissible investments.
Equity securities are carried at estimated fair value. Changes in fair values are reported as unrealized gains or losses
and are recorded through net earnings.
9
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
1)
Significant Accounting Policies (Continued)
Mortgage loans held for investment are carried at their unpaid principal balances adjusted for net deferred fees, net
discounts, charge-offs and the related allowance for loan losses. Interest income is included in net investment
income on the 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 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.
Real estate held for investment is carried at cost, less accumulated depreciation provided on a straight-line basis over
the estimated useful lives of the properties, or is adjusted to a new basis for impairment in value, if any. Included are
foreclosed properties which the Company intends to hold for investment purposes. These properties are recorded at
the lower of cost or fair value upon foreclosure.
Real estate held for sale is carried at lower of cost or fair value. Depreciation is not recognized on real estate classified
as held for sale.
Other investments and policy loans are carried at the aggregate unpaid balances, less allowances for losses.
Gains and losses on investments (except for equity securities carried at fair value through net earnings) arise when
investments are sold (as determined on a specific identification basis) or are other than temporarily impaired. If in
management’s judgment a decline in the value of an investment below cost is other than temporary, the cost of the
investment is written down to fair value with a corresponding charge to earnings. Factors considered in judging
whether an impairment is other than temporary include: the financial condition, business prospects and credit
worthiness of the issuer, the length of time that fair value has been less than cost, the relative amount of the decline,
and the Company’s ability and intent to hold the investment until the fair value recovers, which is not assured.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to
be cash equivalents. The Company maintains its cash in bank deposit accounts, which at times exceed federally insured
limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant
credit risk on cash and cash equivalents.
Loans Held for Sale
Accounting Standards Codification (“ASC”) No. 825, “Financial Instruments”, allows for the option to report
certain financial assets and liabilities at fair value initially and at subsequent measurement dates with changes in
fair value included in earnings. The option may be applied instrument by instrument, but it is irrevocable. The
Company elected the fair value option for loans held for sale. The Company believes the fair value option most
closely aligns the timing of the recognition of gains and costs. These loans are intended for sale and the Company
believes that the fair value is the best indicator of the resolution of these loans. Electing fair value also reduces
certain timing differences and better matches changes in the fair value of these assets with changes in the fair value
of the related derivatives used for these assets. See Note 3 and Note 17 to Consolidated Financial Statements for
additional disclosures regarding loans held for sale.
Mortgage Fee Income
Mortgage fee income consists of origination fees, processing fees, interest income and certain other income related
to the origination of mortgage loans held for sale. All revenues and costs are recognized when the mortgage loan is
funded and any changes in fair value are shown as a component of mortgage fee income. See Note 3 and Note 17
to Consolidated Financial Statements for additional disclosures regarding loans held for sale.
The Company, through its mortgage subsidiaries, sells mortgage loans to third-party investors without recourse
unless defects are identified in the representations and warranties made at loan sale. It may be required, however,
to repurchase a loan or pay a fee instead of repurchase under certain events, which include the following:
10
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
1)
Significant Accounting Policies (Continued)
• Failure to deliver original documents specified by the investor,
• The existence of misrepresentation or fraud in the origination of the loan,
• The loan becomes delinquent due to nonpayment during the first several months after it is sold,
• Early pay-off of a loan, as defined by the agreements,
• Excessive time to settle a loan,
•
Investor declines purchase, and
• Discontinued product and expired commitment.
Loan purchase commitments generally specify a date 30 to 45 days after delivery upon which the underlying loans
should be settled. Depending on market conditions, these commitment settlement dates can be extended at a cost to
the Company.
It is the Company's policy to cure any documentation problems regarding such loans at a minimal cost for up to a
six-month time period and to pursue efforts to enforce loan purchase commitments from third-party investors
concerning the loans. The Company believes that six months allows adequate time to remedy any documentation
issues, to enforce purchase commitments, and to exhaust other alternatives. Remedial methods include the
following:
• Research reasons for rejection,
• Provide additional documents,
• Request investor exceptions,
• Appeal rejection decision to purchase committee, and
• Commit to secondary investors.
Once purchase commitments have expired and other alternatives to remedy are exhausted, which could be earlier
than the six-month time period, the loans are repurchased and transferred to the long-term investment portfolio at
the lower of cost or fair value and previously recorded mortgage fee income that was to be received from a third-
party investor is written off against the loan loss reserve.
Determining Lower of Cost or Fair Value
Cost for loans held for sale is equal to the amount paid to the warehouse bank and the amount originally funded by
the Company. Fair value is often difficult to determine, but is based on the following:
• For loans that are committed, the Company uses the commitment price.
• For loans that are non-committed that have an active market, the Company uses the market price.
• For loans that are non-committed where there is no market but there is a similar product, the
Company uses the market value for the similar product.
• For loans that are non-committed where no active market exists, the Company determines that the
unpaid principal balance best approximates the market value, after considering the fair value of the
underlying real estate collateral, estimated future cash flows, and the loan interest rate.
The appraised value of the real estate underlying the original mortgage loan adds support to the Company’s
determination of fair value because if the loan becomes delinquent, the Company has sufficient value to collect the
unpaid principal balance or the carrying value of the loan, thus minimizing credit losses.
The majority of loans originated are sold to third-party investors. The amounts expected to be sold to investors are
shown on the consolidated balance sheets as loans held for sale.
Loan Loss Reserve
The loan loss reserve is an estimate of probable losses at the balance sheet date that the Company will realize in the
future on loans sold. The Company may be required to reimburse third-party investors for costs associated with
early payoff of loans within the first six months of such loans and to repurchase loans where there is a default in
any of the first four monthly payments to the investors or, in lieu of repurchase, to pay a negotiated fee to the
investors. The Company’s estimates are based upon historical loss experience and the best estimate of the probable
loan loss liabilities.
11
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
1)
Significant Accounting Policies (Continued)
Upon completion of a transfer that satisfies the conditions to be accounted for as a sale, the Company initially
measures at fair value liabilities incurred in a sale relating to any guarantee or recourse provisions. The Company
accrues a monthly allowance for indemnification losses to investors based on total production. This estimate is
based on the Company’s historical experience and is included as a component of mortgage fee income. Subsequent
updates to the recorded liability from changes in assumptions are recorded in selling, general and administrative
expenses. The estimated liability for indemnification losses is included in other liabilities and accrued expenses.
The loan loss reserve analysis involves mortgage loans that have been sold to third-party investors, which were
believed to have met investor underwriting guidelines at the time of sale, where the Company has received a demand
from the investor. There are generally three types of demands: make whole, repurchase, or indemnification. These
types of demands are more particularly described as follows:
Make whole demand – A make whole demand occurs when an investor forecloses on a property and then
sells the property. The make whole amount is calculated as the difference between the original unpaid
principal balance, accrued interest and fees, less the sale proceeds.
Repurchase demand – A repurchase demand usually occurs when there is a significant payment default,
error in underwriting or detected loan fraud.
Indemnification demand – On certain loans the Company has negotiated a set fee that is to be paid in lieu
of repurchase. The fee varies by investor and by loan product type.
The Company believes the allowance for loan losses and the loan loss reserve represent probable loan losses
incurred as of the balance sheet date.
Additional information related to the Loan Loss Reserve is included in Note 3.
Restricted Assets
Restricted assets are assets held in a trust account for future mortuary services and merchandise and consist of cash
and cash equivalents; participations in mortgage loans held for investment with Security National Life Insurance
Company (“Security National Life”); mutual funds carried at estimated fair value; equity securities carried at estimated
fair value; and a surplus note with Security National Life (which is eliminated in consolidation). Restricted assets also
represents escrows held for borrowers and investors under servicing and appraisal agreements relating to mortgage
loans, funds held by warehouse banks in accordance with loan purchase agreements and funds held in escrow for
certain real estate construction development projects. Additionally, the Company elected to fund its medical benefit
safe-harbor limit based on the qualified direct costs, and has included this amount as a component of restricted cash.
Cemetery Perpetual Care Trust Investments
Cemetery endowment care trusts have been set up for four of the six cemeteries owned by the Company. Of the six
cemeteries owned by the Company, four cemeteries are endowment care properties. Under endowment care
arrangements a portion of the price for each lot sold is withheld and invested in a portfolio of investments similar to
those described in the prior paragraph. The earnings stream from the investments is designed to fund future
maintenance and upkeep of the cemetery.
Cemetery Land and Improvements
The development of a cemetery involves not only the initial acquisition of raw land but the installation of roads,
water lines, landscaping and other costs to establish a marketable cemetery lot. The costs of developing the cemetery
are shown as an asset on the balance sheet. The amount on the balance sheet is reduced by the total cost assigned
to the development of a particular lot when the criterion for recognizing a sale of that lot is met.
12
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
1)
Significant Accounting Policies (Continued)
Deferred Policy Acquisition Costs and Value of Business Acquired
Commissions and other costs, net of commission and expense allowances for reinsurance ceded, that vary with and
are primarily related to the production of new insurance business have been deferred. Deferred policy acquisition costs
(“DAC”) for traditional life insurance are amortized over the premium paying period of the related policies using
assumptions consistent with those used in computing policy benefit reserves. For interest-sensitive insurance products,
deferred policy acquisition costs are amortized generally in proportion to the present value of expected gross profits
from surrender charges, investment, mortality and expense margins. This amortization is adjusted when estimates of
current or future gross profits to be realized from a group of products are reevaluated. Deferred acquisition costs are
written off when policies lapse or are surrendered.
When accounting for DAC, the Company considers internal replacements of insurance and investment contracts. An
internal replacement is a modification in product benefits, features, rights or coverage that occurs by the exchange of
a contract for a new contract, or by amendment, endorsement, or rider to contract, or by the election of a feature or
coverage within a contract. Modifications that result in a replacement contract that is substantially changed from the
replaced contract are accounted for as an extinguishment of the replaced contract. Unamortized DAC, unearned
revenue liabilities and deferred sales inducements from the replaced contract are written-off. Modifications that result
in a contract that is substantially unchanged from the replaced contract are accounted for as a continuation of the
replaced contract.
Value of business acquired is the present value of estimated future profits of the acquired business and is amortized
similar to deferred policy acquisition costs.
Mortgage Servicing Rights
Mortgage Servicing Rights (“MSR”) arise from contractual agreements between the Company and third-party
investors (or their agents) when mortgage loans are sold. Under these contracts, the Company is obligated to retain
and provide loan servicing functions on loans sold, in exchange for fees and other remuneration. The servicing
functions typically performed include, among other responsibilities, collecting and remitting loan payments;
responding to borrower inquiries; accounting for principal and interest, holding custodial (impound) funds for
payment of property taxes and insurance premiums; counseling delinquent mortgagors; and supervising the
acquisition of real estate owned and property dispositions.
The total residential mortgage loans serviced for others consist primarily of agency conforming fixed-rate mortgage
loans. The value of MSRs is derived from the net cash flows associated with the servicing contracts. The Company
receives a servicing fee of generally about 0.250% annually on the remaining outstanding principal balances of the
loans. Based on the result of the cash flow analysis, an asset or liability is recorded for mortgage servicing rights.
The servicing fees are collected from the monthly payments made by the mortgagors. The Company generally
receives other remuneration including rights to various mortgagor-contracted fees such as late charges, and
collateral reconveyance charges and the Company is generally entitled to retain the interest earned on funds held
pending remittance of mortgagor principal, interest, tax and insurance payments. Contractual servicing fees and late
fees are included in other revenues on the consolidated statements of earnings.
The Company’s subsequent accounting for MSRs is based on the class of MSRs. The Company has identified two
classes of MSRs: MSRs backed by mortgage loans with initial term of 30 years and MSRs backed by mortgage
loans with initial term of 15 years. The Company distinguishes between these classes of MSRs due to their differing
sensitivities to change in value as the result of changes in market. After being initially recorded at fair value, MSRs
backed by mortgage loans are accounted for using the amortization method. Amortization expense is included in
other expenses on the consolidated statements of earnings. MSR amortization is determined by amortizing the MSR
balance in proportion to, and over the period of the estimated future net servicing income of the underlying financial
assets.
Interest rate risk, prepayment risk, and default risk are inherent risks in MSR valuation. Interest rate changes largely
drive prepayment rates. Refinance activity generally increases as rates decline. A significant decrease in rates
beyond expectation could cause a decline in the value of the MSR. On the contrary, if rates increase borrowers are
13
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
1)
Significant Accounting Policies (Continued)
less likely to refinance or prepay their mortgage, which extends the duration of the loan and MSR values are likely
to rise. Because of these risks, discount rates and prepayment speeds are used to estimate the fair value.
The Company periodically assesses MSRs for impairment. Impairment occurs when the current fair value of the
MSR falls below the asset’s carrying value (carrying value is the amortized cost reduced by any related valuation
allowance). If MSRs are impaired, the impairment is recognized in current period earnings and the carrying value
of the MSRs is adjusted through a valuation allowance.
Management periodically reviews the various loan strata to determine whether the value of the MSRs in a given
stratum is impaired and likely to recover. When management deems recovery of the value to be unlikely in the
foreseeable future, a write-down of the cost of the MSRs for that stratum to its estimated recoverable value is
charged to the valuation allowance.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated principally on the straight-line method over
the estimated useful lives of the assets which range from three to forty years. Leasehold improvements paid for by the
Company as a lessee are amortized over the lesser of the useful life or remaining lease terms.
Long-lived Assets
Long-lived assets to be held and used, including property and equipment and real estate held for investment, are
reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount
may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on
the fair value of the asset, and long-lived assets to be disposed of are reported at the lower of carrying amount or
fair value less costs to sell. No impairment of long-lived assets has been recognized in the accompanying financial
statements except for certain impairments of real estate held for investment as disclosed in Note 2.
Derivative Instruments
Mortgage Banking Derivatives
Loan Commitments
The Company is exposed to price risk due to the potential impact of changes in interest rates on the values of loan
commitments from the time a loan commitment is made to an applicant to the time the loan that would result from
the exercise of that loan commitment is funded. Managing price risk is complicated by the fact that the ultimate
percentage of loan commitments that will be exercised (i.e., the number of loans that will be funded) fluctuates. The
probability that a loan will not be funded or the loan application is denied or withdrawn within the terms of the
commitment is driven by a number of factors, particularly the change, if any, in mortgage rates following the
issuance of the loan commitment.
In general, the probability of funding increases if mortgage rates rise and decreases if mortgage rates fall. This is
due primarily to the relative attractiveness of current mortgage rates compared to the applicant’s committed rate.
The probability that a loan will not be funded within the terms of the mortgage loan commitment also is influenced
by the source of the applications (retail, broker or correspondent channels), proximity to rate lock expiration,
purpose for the loan (purchase or refinance), product type and the application approval status. The Company has
developed fallout estimates using historical data that take into account all of the variables, as well as renegotiations
of rate and point commitments that tend to occur when mortgage rates fall. These fallout estimates are used to
estimate the number of loans that the Company expects to be funded within the terms of the loan commitments and
are updated periodically to reflect the most current data.
The Company estimates the fair value of a loan commitment based on the change in estimated fair value of the
underlying mortgage loan, quoted mortgage-backed securities (“MBS”) prices, estimates of the fair value of mortgage
servicing rights, and an estimate of the probability that the mortgage loan will fund within the terms of the
commitment. The change in fair value of the underlying mortgage loan is measured from the date the loan commitment
is issued and is shown net of expenses. Following issuance, the value of a loan commitment can be either positive or
negative depending upon the change in value of the underlying mortgage loans.
14
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
1)
Significant Accounting Policies (Continued)
Forward Sale Commitments
The Company utilizes forward commitments to economically hedge the price risk associated with its outstanding
mortgage loan commitments. A forward commitment protects the Company from losses on sales of the loans arising
from exercise of the loan commitments. Management expects these types of commitments will experience changes in
fair value opposite to changes in fair value of the loan commitments, thereby reducing earnings volatility related to
the recognition in earnings of changes in the values of the commitments.
The net changes in fair value of loan commitments and forward sale commitments are shown in current earnings as a
component of mortgage fee income on the consolidated statements of earnings. Mortgage banking derivatives are
shown in other assets and other liabilities and accrued expenses on the consolidated balance sheets.
Call and Put Option Derivatives
The Company uses a strategy of selling “out of the money” call options on its equity securities as a source of revenue.
The options give the purchaser the right to buy from the Company specified equity securities at a set price up to a pre-
determined date in the future. The Company uses the strategy of selling put options as a means of generating cash or
purchasing equity securities at lower than current market prices. The Company receives an immediate payment of
cash for the value of the option and establishes a liability for the fair value of the option. The liability for options is
adjusted to fair value at each reporting date. In the event a call option is exercised, the Company sells the equity
security at a favorable price enhanced by the value of the option that was sold. If the option expires unexercised, the
Company recognizes a gain from the expired option. In the event a put option is exercised, the Company acquires an
equity security at the strike price of the option reduced by the value received from the sale of the put option. The equity
security is then treated as a normal equity security in the Company’s portfolio. The net changes in the fair value of call
and put options are shown in current earnings as a component of realized gains (losses) on investments and other
assets. Call and put options are shown in other liabilities and accrued expenses on the consolidated balance sheets.
Allowance for Doubtful Accounts and Loan Losses and Impaired Loans
The Company records an allowance and recognizes an expense for potential losses from mortgage loans held for
investment, other investments and receivables in accordance with GAAP.
Receivables are the result of cemetery and mortuary operations, mortgage loan operations and life insurance
operations. The allowance is based upon the Company’s historical experience for collectively evaluated impairment.
Other allowances are based upon receivables individually evaluated for impairment. Collectability of the cemetery
and mortuary receivables is significantly influenced by current economic conditions. The critical issues that impact
recovery of mortgage loan operations are interest rate risk, loan underwriting, new regulations and the overall
economy.
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. See the schedules in Note 2 for additional information. In
addition, when a mortgage loan is past due more than 90 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. The Company will rent the properties until
it is deemed desirable to sell them.
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.
15
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
1)
Significant Accounting Policies (Continued)
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 and second mortgages on the unit.
The borrower’s ability to repay is sensitive to the life events and general economic condition of the region. Where
loan to values exceed 80%, the loan is generally guaranteed by private mortgage insurance, FHA or VA.
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
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.
the completed project and
the success of
the ability of
the borrower
to secure
Future Policy Benefits and Unpaid Claims
Future policy benefit reserves for traditional life insurance are computed using a net level method, including
assumptions as to investment yields, mortality, morbidity, withdrawals, and other assumptions based on the life
insurance subsidiaries’ experience, modified as necessary to give effect to anticipated trends and to include provisions
for possible unfavorable deviations. Such liabilities are, for some plans, graded to equal statutory values or cash values
at or prior to maturity, which are deemed a reasonable equivalent for GAAP. The range of assumed interest rates for
all traditional life insurance policy reserves was 4% to 10%. Benefit reserves for traditional limited-payment life
insurance policies include the deferred portion of the premiums received during the premium-paying period. Deferred
premiums are recognized as income over the life of the policies. Policy benefit claims are charged to expense in the
period the claims are incurred. Increases in future policy benefits are charged to expense.
Future policy benefit reserves for interest-sensitive insurance products are computed under a retrospective deposit
method and represent policy account balances before applicable surrender charges. Policy benefits and claims that are
charged to expense include benefit claims incurred in the period in excess of related policy account balances. Interest
crediting rates for interest-sensitive insurance products ranged from 3% to 6.5%.
The Company records an unpaid claims liability for claims in the course of settlement equal to the death benefit amount
less any reinsurance recoverable amount for claims reported. There is also an unpaid claims liability for claims incurred
but not reported. This liability is based on the historical experience of the net amount of claims that were reported in
reporting periods subsequent to the reporting period when claims were incurred.
Participating Insurance
Participating business constituted 2% of insurance in force for the years ended 2019 and 2018. The provision for
policyholders’ dividends included in policyholder obligations is based on dividend scales anticipated by management.
Amounts to be paid are determined by the Board of Directors.
(cid:3)
16
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
1)
Significant Accounting Policies (Continued)
Recognition of Insurance Premiums and Other Considerations
Premiums and other consideration for traditional life insurance products (which include those products with fixed and
guaranteed premiums and benefits and consist principally of whole life insurance policies, limited payment life
insurance policies, and certain annuities with life contingencies) are recognized as revenues when due from
policyholders. Premiums and other consideration for interest-sensitive insurance policies (which include universal life
policies, interest-sensitive life policies, deferred annuities, and annuities without life contingencies) are recognized
when earned and consist of amounts assessed against policyholder account balances during the period for policy
administration charges and surrender charges.
Reinsurance
The Company follows the procedure of reinsuring risks in excess of $100,000 to provide for greater diversification of
business to allow management to control exposure to potential losses arising from large risks, and provide additional
capacity for growth. The Company remains liable for amounts ceded in the event the reinsurers are unable to meet
their obligations.
The Company entered into coinsurance agreements with unaffiliated insurance companies under which the Company
assumed 100% of the risk for certain life insurance policies and certain other policy-related liabilities of the insurance
company.
Reinsurance premiums, commissions, expense reimbursements, and reserves related to reinsured business are
accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the
reinsurance contracts. Expense allowances received in connection with reinsurance ceded are accounted for as a
reduction of the related policy acquisition costs and are deferred and amortized accordingly.
Pre-need Sales and Costs
Pre-need contract sales of funeral services and caskets - revenue and costs associated with the sales of pre-need funeral
services and caskets are deferred until the performance obligations are fulfilled (services are performed or the caskets
are delivered).
Sales of cemetery interment rights (cemetery burial property) - revenue and costs associated with the sale of cemetery
interment rights are recognized in accordance with the retail land sales provisions based on GAAP. Under GAAP,
recognition of revenue and associated costs from constructed cemetery property must be deferred until 10% of the
sales price has been collected.
Pre-need contract sales of cemetery merchandise (primarily markers and vaults) - revenue and costs associated with
the sale of pre-need cemetery merchandise is deferred until the merchandise is delivered.
Pre-need contract sales of cemetery services (primarily merchandise delivery, installation fees and burial opening and
closing fees) - revenue and costs associated with the sales of pre-need cemetery services are deferred until the services
are performed.
Prearranged funeral and pre-need cemetery customer acquisition costs - costs incurred related to obtaining new pre-
need contract cemetery and prearranged funeral services are accounted for under the guidance of the provisions based
on GAAP. Obtaining costs, which include only costs that vary with and are primarily related to the acquisition of new
pre-need cemetery and prearranged funeral services, are deferred until the merchandise is delivered or services are
performed.
Revenues and costs for at-need sales are recorded when a valid contract exists, the services are performed, collection
is reasonably assured and there are no significant obligations remaining.
The Company, through its cemetery and mortuary operations, provides guaranteed funeral arrangements wherein a
prospective customer can receive future goods and services at guaranteed prices. To accomplish this, the Company,
through its life insurance operations, sells to the customer an increasing benefit life insurance policy that is assigned
to the mortuaries. If, at the time of need, the policyholder/potential mortuary customer utilizes one of the Company’s
facilities, the guaranteed funeral arrangement contract that has been assigned will provide the funeral goods and
services at the contracted price. The increasing life insurance policy will cover the difference between the original
17
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
1)
Significant Accounting Policies (Continued)
contract prices and current prices. Risks may arise if the difference cannot be fully met by the life insurance policy.
However, management believes that given current inflation rates and related price increases of goods and services, the
risk of exposure is minimal.
Goodwill
Previous acquisitions have been accounted for as purchases under which assets acquired and liabilities assumed
were recorded at their fair values with the excess purchase price recognized as goodwill. The Company evaluates
annually or when changes in circumstances warrant the recoverability of goodwill and if there is a decrease in value,
the related impairment is recognized as a charge against income. No impairment of goodwill has been recognized
in the accompanying financial statements.
Other Intangibles (trade name and customer lists)
Other intangibles are recognized apart from goodwill whenever an acquired intangible asset arises from contractual
or other legal rights, or whenever it is capable of being separated or divided from the acquired entity and sold,
transferred, licensed, rented, or exchanged, either individually or in combination with a related contract, asset, or
liability. The Company engaged a valuation firm to analyze the value of the Kilpatrick Life name in conjunction
with its acquisition. The value of the trade name is included in Other Assets and was determined using the income
approach, relying on a relief from the royalty method.
Income Taxes
Income taxes include taxes currently payable plus deferred taxes. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to the temporary differences in the financial reporting basis and tax basis of
assets and liabilities and operating loss carry-forwards. Deferred tax assets are measured using enacted tax rates
expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or
settled.
Liabilities are established for uncertain tax positions expected to be taken in income tax returns when such positions
are judged to meet the “more-likely-than-not” threshold based on the technical merits of the positions. Estimated
interest and penalties related to uncertain tax penalties are included as a component of other expenses.
Earnings Per Common Share
The Company computes earnings per share which requires presentation of basic and diluted earnings per share. Basic
earnings per equivalent Class A common share are computed by dividing net earnings by the weighted-average
number of Class A common shares outstanding during each year presented, after the effect of the assumed
conversion of Class C common stock to Class A common stock. Diluted earnings per share is computed by dividing
net earnings by the weighted-average number of common shares outstanding during the year used to compute basic
earnings per share plus dilutive potential incremental shares. Basic and diluted earnings per share amounts have
been adjusted retroactively for the effect of annual stock dividends.
Stock Based Compensation
The cost of employee services received in exchange for an award of equity instruments is recognized in the financial
statements and is measured based on the fair value on the grant date of the award. The fair value of stock options is
calculated using the Black Scholes Option Pricing Model. Stock option compensation expense is recognized over the
period during which an employee is required to provide service in exchange for the award and is included in personnel
expenses on the consolidated statements of earnings.
Concentration of Credit Risk
For a description of the geographic concentration risk regarding mortgage loans held for investment and real
estate held for investment, refer to Note 2 of the Notes to Consolidated Financial Statements.
18
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
1)
Significant Accounting Policies (Continued)
Advertising
The Company expenses advertising costs as incurred.
Recent Accounting Pronouncements
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 method 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.
19
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
1)
Significant Accounting Policies (Continued)
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. This new authoritative guidance will be effective for the Company on
January 1, 2020. The adoption of this standard will not materially impact the Company’s financial statements.
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.
20
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
2) Investments
The Company’s investments as of December 31, 2019 are summarized as follows:
December 31, 2019:
Fixed maturity securities, available for sale, at estimated fair value:
U.S. Treasury securities and obligations of U.S. Government
agencies
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
$
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
Redeemable preferred stock
31,475,280
597,395
(240,177)
31,832,498
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
Residential construction
Commercial
Less: Unamortized deferred loan fees, net
Less: Allowance for loan losses
Less: Net discounts
Total mortgage loans held for investment
Real estate held for investment - net of accumulated depreciation:
Residential
Commercial
Total real estate held for investment
Real estate held for sale:
Residential
Commercial
Total real estate held for sale
Other investments and policy loans at amortized cost:
Policy loans
Insurance assignments
Federal Home Loan Bank stock (1)
Other investments
Less: Allowance for doubtful accounts
Total policy loans and other investments
Accrued investment income
Total investments
$
113,043,965
89,430,237
38,718,220
(2,391,567)
(1,453,037)
(653,272)
$
236,694,546
$
12,530,306
90,226,640
$
102,756,946
$
8,021,306
6,076,321
$
14,097,627
$
14,762,805
41,062,965
894,300
4,973,225
(1,448,026)
$
60,245,269
$
4,833,232
$
781,876,605
(1) Includes $894,300 of Membership stock and $-0- of Activity stock due to short-term borrowings.
21
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
2)
Investments (Continued)
The Company’s investments as of December 31, 2018 are summarized as follows:
December 31, 2018:
Fixed maturity securities held to maturity at amortized cost:
U.S. Treasury securities and obligations of U.S. Government
agencies
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
$
52,017,683
$
264,891
$
(727,798)
$
51,554,776
Obligations of states and political subdivisions
6,959,237
32,274
(111,271)
6,880,240
Corporate securities including public utilities
157,639,860
7,002,864
(3,704,137)
160,938,587
Mortgage-backed securities
Redeemable preferred stock
15,358,746
227,398
(308,864)
15,277,280
103,197
1,903
(5,125)
99,975
Total fixed maturity securities held to maturity
$
232,078,723
$
7,529,330
$
(4,857,195)
$
234,750,858
Equity securities at estimated fair value:
Common stock:
Industrial, miscellaneous and all other
$
6,312,158
$
422,528
$
(1,176,075)
$
5,558,611
Total equity securities at estimated fair value
$
6,312,158
$
422,528
$
(1,176,075)
$
5,558,611
Mortgage loans held for investment at amortized cost:
Residential
Residential construction
Commercial
Less: Unamortized deferred loan fees, net
Less: Allowance for loan losses
Total mortgage loans held for investment
Real estate held for investment - net of accumulated depreciation:
Residential
Commercial
Total real estate held for investment
Other investments and policy loans at amortized cost:
Policy loans
Insurance assignments
Federal Home Loan Bank stock (1)
Other investments
Less: Allowance for doubtful accounts
Total policy loans and other investments
Accrued investment income
Total investments
$
89,935,600
71,366,544
27,785,927
(1,275,030)
(1,347,972)
$
186,465,069
$
29,507,431
92,050,791
$
121,558,222
$
6,424,325
35,239,396
2,548,700
3,497,762
(1,092,528)
$
46,617,655
$
3,566,146
$
595,844,426
(1) Includes $708,700 of Membership stock and $1,840,000 of Activity stock due to short-term borrowings.
22
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
2)
Investments (Continued)
Fixed Maturity Securities
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. Such investments are carried at fair value with any unrealized gains and losses reported
as a component of other accumulated comprehensive income or loss. At the date of the transfer, the carrying value
of the Company’s held to maturity securities was $338,629,810, and net unrealized gains of $17,315,770 were
recognized in accumulated other comprehensive income.
The following tables summarize unrealized losses on fixed maturities securities that were carried at estimated fair
value at December 31, 2019 and carried at amortized cost at December 31, 2018. The unrealized losses were
primarily related to interest rate fluctuations. The tables set forth unrealized losses by duration with the fair value
of the related fixed maturity securities:
At December 31, 2019
U.S. Treasury Securities and Obligations
of U.S. Government Agencies
Obligations of States and Political Subdivisions
Corporate Securities
Mortgage and other asset-backed securities
Total unrealized losses
At December 31, 2018
U.S. Treasury Securities and Obligations
of U.S. Government Agencies
Obligations of States and Political Subdivisions
Corporate Securities
Mortgage and other asset-backed securities
Redeemable preferred stock
Total unrealized losses
Unrealized
Losses for
Less than
Twelve
Months
Fair Value
Unrealized
Losses for
More than
Twelve
Months
Total
Unrealized
Loss
Fair Value
Fair Value
$ 20,211
9,026
118,746
205,470
$ 353,453
$ 30,629,288
3,062,889
7,184,311
13,266,443
$ 54,142,931
$ 5,004
-
344,667
34,707
$ 384,378
$ 10,000,400
-
3,950,509
502,769
$ 14,453,678
$ 25,215
9,026
463,413
240,177
$ 737,831
$ 40,629,688
3,062,889
11,134,820
13,769,212
$ 68,596,609
$ 10,519
6,643
2,514,549
79,896
5,125
$ 2,616,732
$ 695,863
1,791,257
61,090,431
1,705,296
90,000
$ 65,372,847
$ 717,279
104,628
1,189,588
228,968
-
$ 2,240,463
$ 39,930,052
2,889,517
11,767,349
2,690,065
-
$ 57,276,983
$ 727,798
111,271
3,704,137
308,864
5,125
$ 4,857,195
$ 40,625,915
4,680,774
72,857,780
4,395,361
90,000
$ 122,649,830
There were 93 securities with fair value of 98.9% of amortized cost at December 31, 2019. There were 361 securities
with fair value of 96.2% of amortized cost at December 31, 2018. No credit losses have been recognized for the
years ended December 31, 2019 and 2018.
On a quarterly basis, the Company evaluates its fixed maturity securities classified as available for sale or held to
maturity. 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.
23
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
2)
Investments (Continued)
The amortized cost and estimated fair value of fixed maturity securities at December 31, 2019, 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.
Due in 1 year
Due in 2-5 years
Due in 5-10 years
Due in more than 10 years
Mortgage-backed securities
Redeemable preferred stock
Total
$
Amortized
Cost
104,805,927
67,412,618
71,110,341
63,461,305
31,475,280
364,339
338,629,810
Estimated Fair
Value
$
104,845,243
69,126,500
76,249,550
73,559,690
31,832,498
364,339
355,977,820
$
$
The Company is a member of the Federal Home Loan Bank of Des Moines and Dallas (“FHLB”). The Company
pledged a total of $60,000,000, par value, of United States Treasury fixed maturity securities with the FHLB at
December 31, 2019. These securities are used as collateral on any cash borrowings from the FHLB. As of December
31, 2019, the Company did not have any outstanding amounts owed to the FHLB and its estimated maximum
borrowing capacity was $57,727,738.
Investment Related Earnings
The Company’s net realized gains and losses from sales, calls, and maturities, and other than temporary impairments
from investments and other assets for the years ended December 31 are summarized as follows:
Fixed maturity securities held to maturity:
Gross realized gains
Gross realized losses
Equity securities:
2019
2018
$
459,286
(162,649)
$
522,937
(669,303)
Gains (losses) on securities sold
Unrealized gains (losses) on securities held at the
end of the period
256,520
(173,413)
1,086,116
(1,053,756)
Other assets:
Gross realized gains
Gross realized losses
Total
2,844,673
(3,755,579)
728,367
$
(1)
26,553,814
(1,239,100)
23,941,179
$
(1) Includes a one-time gain of $22,252,000 from the sale of Dry Creek at East
Village Apartments.
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.
The carrying amount of held to maturity securities sold was $4,950,041 and $5,808,244, for the years ended December
31, 2019 and 2018, respectively. The net realized gain related to these sales was $43,039, for the year ended December
31, 2019, and the net realized loss related to these sales was $268,823, for the year ended December 31, 2018.
24
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
2)
Investments (Continued)
Major categories of net investment income for the years ended December 31, were as follows:
Fixed maturity securities
Equity securities
Mortgage loans held for investment
Real estate held for investment and sale
Policy loans
Insurance assignments
Other investments
Cash and cash equivalents
Gross investment income
Investment expenses
Net investment income
$
2019
10,372,559
309,918
18,405,010
8,782,959
554,969
16,086,059
184,439
1,824,443
56,520,356
(13,500,883)
$
43,019,473
$
2018
10,041,349
233,555
18,716,226
8,375,257
409,589
14,771,336
227,930
1,264,611
54,039,853
(14,126,586)
$
39,913,267
Net investment income includes net investment income earned by the restricted assets of the cemeteries and mortuaries
of $448,754 and $386,659 for the years ended December 31, 2019 and 2018, 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 for regulatory authorities as required by law amounted to $9,633,818 and $9,220,520 at
December 31, 2019 and 2018, respectively. The restricted securities are included in various assets under investments
on the accompanying 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) at December 31, 2019, 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 segments in the form
of acquisition, development and mortgage foreclosures. The Company reports real estate held for investment and held
for sale pursuant to the accounting policy discussed in Note 1 of the Notes to Consolidated Financial Statements.
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.
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 assets that provide
operational efficiencies.
The Company currently owns and operates 16 commercial properties in 5 states. These properties include industrial
warehouses, office buildings, retail centers, and includes the redevelopment and expansion of its corporate campus
25
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
2)
Investments (Continued)
(“Center53”) in Salt Lake City, Utah. The Company also holds undeveloped land that may be used for future
commercial developments. The Company does use debt in strategic cases to leverage established yields or to acquire
a higher quality or different class of asset. See Note 20 regarding commercial real estate held for investment in
Louisiana acquired with the acquisition of Kilpatrick Life Insurance Company.
The aggregated net ending balance of commercial real estate that serves as collateral for bank borrowings was
approximately $87,815,000 and $84,880,000 as of December 31, 2019 and 2018, respectively. The associated bank
loan carrying values totaled approximately $54,917,000 and $52,237,000 as of December 31, 2019 and 2018,
respectively.
During the years ended December 31, 2019 and 2018, the Company recorded impairment losses on commercial real
estate held for investment of $2,768,979 and $-0-, respectively. The impairment loss of $2,768,979 recognized relates
to an office building in Kansas held by the life insurance segment for which the Company received an unsolicited bid
from a potential buyer that was significantly below the building’s carrying value. Although management did not
consider the offer as representative of fair value, the Company evaluated the unsolicited bid as a potential impairment
indicator. The Company performed an impairment analysis internally and obtained an independent appraisal from an
outside commercial real estate valuation firm, concluding that the fair value of the building was less than its carrying
value. This office building was recently listed for sale and is included in commercial real estate held for sale. This
impairment loss is included in gains (losses) on investments and other assets on the consolidated statements of
earnings.
The Company’s commercial real estate held for investment for the years ended December 31, is summarized as
follows:
Arizona
Kansas
Louisiana
Mississippi
New Mexico
Texas
Utah
Net Ending Balance
$
2019
-
-
6,009,079
2,951,478
-
-
2018
$
4,000 (1)
6,861,898
467,694
3,329,948
7,000 (1)
300,000 (2)
81,266,083 (3)
81,080,251
$ 90,226,640
$ 92,050,791
Total Square Footage
2019
2018
-
-
125,114
21,521
-
-
465,230
611,865
-
222,679
7,063
33,821
-
-
502,129
765,692
(1) Undeveloped Land
(2) Improved commercial pad
(3) Includes Center53 phase 1 completed in July 2017
(cid:3)
26
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
2)
Investments (Continued)
The Company’s commercial real estate held for sale for the years ended December 31, is summarized as follows:
Arizona
Kansas
Mississippi
Nevada
Texas
Net Ending Balance
2019
2018
$
2,500 (1) $
4,800,000
318,322
655,499
300,000 (2)
$ 6,076,321
$
Total Square Footage
2018
2019
-
-
-
-
-
-
-
222,679
12,300
4,800
-
239,779
-
-
-
-
-
-
(1) Undeveloped land
(2) Improved commercial pad
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 December 31, 2019, SNRE manages 38 residential properties in 6 states across the United States.
During the years ended December 31, 2019 and 2018, the Company recorded impairment losses on residential real
estate held for investment of $700,134 and $486,457, respectively. These impairment losses are included in gains
(losses) on investments and other assets on the consolidated statements of earnings.
The net ending balance of foreclosed residential real estate included in residential real estate held for investment is
approximately $12,434,000 and $23,532,000 as of December 31, 2019 and 2018, respectively.
27
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
2)
Investments (Continued)
The Company’s residential real estate held for investment for the years ended December 31, is summarized as follows:
California
Florida
Nevada
Ohio
Oklahoma
Tennessee
Texas
Utah
Washington
Net Ending Balance
$
2019
-
2,487,723
293,516
-
-
-
-
9,462,886 (1)
286,181
$ 12,530,306
2018
$ 2,644,321
6,534,277
-
10,000
-
105,260
139,174
19,598,218 (1)
476,181
$ 29,507,431
(1) Includes subdivision developments
The Company’s residential real estate held for sale for the years ended December 31, is summarized as follows:
Net Ending Balance
2019
2018
California
Florida
Ohio
Utah
Washington
640,452
1,300,641
10,000
5,880,213
190,000
8,021,306
$
$
-
-
-
-
-
-
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.
28
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
2)
Investments (Continued)
Real Estate Owned and Occupied by the Company
The primary business units of the Company occupy a portion of the commercial real estate owned by the Company.
As of December 31, 2019, real estate owned and occupied by the Company is summarized as follows:
Location
Business Segment
121 W. Election Rd., Draper, UT
5201 Green Street, Salt Lake City, UT (1)
1044 River Oaks Dr., Flowood, MS
1818 Marshall Street, Shreveport, LA (1)(2)
909 Foisy Street, Alexandria, LA (1)(2)
812 Sheppard Street, Minden, LA (1)(2)
1550 N 3rd Street, Jena, LA (1)(2)
Corporate Offices, Life Insurance and
Cemetery/Mortuary Operations
Life Insurance and Mortgage
Operations
Life Insurance Operations
Life Insurance Operations
Life Insurance Sales
Life Insurance Sales
Life Insurance Sales
(1) Included in property and equipment on the consolidated balance sheets
(2) See Note 20 regarding the acquisition of Kilpatrick Life Insurance Company
Mortgage Loans Held for Investment
Square
Footage
Occupied
by the
Company
Approximate
Square
Footage
78,979
39,157
19,694
12,274
8,059
1,560
1,737
18%
73%
28%
100%
100%
100%
100%
The Company reports mortgage loans held for investment pursuant to the accounting policy discussed in Note 1 of the
Notes to Consolidated Financial Statements.
Mortgage loans 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
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.
29
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
2)
Investments (Continued)
The Company establishes a valuation allowance for credit losses in its portfolio. The following is a summary of the
allowance for loan losses as a contra-asset account for the periods presented:
Allowance for Credit Losses and Recorded Investment in Mortgage Loans Held for Investment
Years Ended December 31
Commercial
Residential
Residential
Construction
T otal
2019
Allowance for credit losses:
Beginning balance
Charge-offs
Provision
Ending balance
$
$
$
$
187,129
-
-
187,129
1,125,623
(32,692)
129,775
1,222,706
35,220
-
7,982
43,202
$
$
$
$
1,347,972
(32,692)
137,757
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
2018
Allowance for credit losses:
Beginning balance
Charge-offs
Provision
Ending balance
$
$
$
$
187,129
-
-
187,129
1,546,447
(5,725)
(415,099)
1,125,623
35,220
-
-
35,220
$
$
$
$
1,768,796
(5,725)
(415,099)
1,347,972
Ending balance: individually evaluated for impairment
$
-
$
74,185
$
-
$
74,185
Ending balance: collectively evaluated for impairment
$
187,129
$
1,051,438
$
35,220
$
1,273,787
Mortgage loans:
Ending balance
$
27,785,927
$
89,935,600
$
71,366,544
$
189,088,071
Ending balance: individually evaluated for impairment
$
196,182
$
2,939,651
$
502,991
$
3,638,824
Ending balance: collectively evaluated for impairment
$
27,589,745
$
86,995,949
$
70,863,553
$
185,449,247
30
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
2)
Investments (Continued)
The following is a summary of the aging of mortgage loans held for investment for the periods presented.
Age Ana lys is o f P a s t Due M o rtga ge Lo a ns He ld fo r Inve s tm e nt
Ye a rs Ende d De c e m be r 31
30-59 Da ys
P a s t Due
60-89 Da ys
P a s t Due
Gre a te r Tha n
90 Da ys (1)
In P ro c e s s o f
F o re c lo s ure
(1)
To ta l P a s t
Due
C urre nt
To ta l M o rtga ge
Lo a ns
Allo wa nc e fo r
Lo a n Lo s s e s
Una m o rtize d
de fe rre d lo a n
fe e s , ne t
Una m o rtize d
dis c o unts ,
ne t
Ne t M o rtga ge
Lo a ns
$
1,872,000
$
-
$
4,488,719
$
-
$
6,360,719
$
32,357,501
$
38,718,220
$
(187,129)
$
(88,918)
$
(653,272)
$
37,788,901
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)
-
-
655,000
-
655,000
88,775,237
89,430,237
(43,202)
(735,068)
-
-
110,253,678
88,651,967
$
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
$
4,588,424
$
-
$
196,182
$
-
$
4,784,606
$
23,001,321
$
27,785,927
$
(187,129)
$
32,003
$
-
$
27,630,801
9,899,380
2,312,252
1,715,362
1,224,289
15,151,283
74,784,317
89,935,600
(1,125,623)
(862,411)
-
-
-
502,991
502,991
70,863,553
71,366,544
(35,220)
(444,622)
-
-
87,947,566
70,886,702
$
14,487,804
$
2,312,252
$
1,911,544
$
1,727,280
$
20,438,880
$
168,649,191
$
189,088,071
$
(1,347,972)
$
(1,275,030)
$
-
$
186,465,069
2 0 19
C o m m e rc ia l
R e s ide ntia l
R e s ide ntia l
C o ns truc tio n
To ta l
2 0 18
C o m m e rc ia l
R e s ide ntia l
R e s ide ntia l
C o ns truc tio n
To ta l
(1) The re wa s no t a ny inte re s t inc o m e re c o gnize d o n lo a ns pa s t due gre a te r tha n 90 da ys o r in fo re c lo s ure .
31
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
2)
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:
Impaired Loans
Years Ended December 31
Unpaid
Principal
Balance
Related
Allowance
Recorded
Investment
Average
Recorded
Investment
Interest
Income
Recognized
$
4,488,719
2,254,189
655,000
$
4,488,719
2,254,189
655,000
-
$
-
-
$
1,499,043
3,367,151
1,457,278
-
$
-
-
$
-
1,498,018
-
$
-
1,498,018
-
$
-
195,993
-
$
-
665,270
-
$
-
-
-
$
4,488,719
3,752,207
655,000
$
4,488,719
3,752,207
655,000
$
-
195,993
-
$
1,499,043
4,032,421
1,457,278
$
-
-
-
$
196,182
1,612,164
502,991
$
196,182
1,612,164
502,991
-
$
-
-
$
98,023
2,423,135
675,950
-
$
-
-
-
$
1,327,487
-
$
-
1,327,487
-
$
-
74,185
-
-
$
1,543,416
-
-
$
-
-
$
196,182
2,939,651
502,991
$
196,182
2,939,651
502,991
$
-
74,185
-
$
98,023
3,966,551
675,950
-
$
-
-
2019
With no related allowance recorded:
Commercial
Residential
Residential construction
With an allowance recorded:
Commercial
Residential
Residential construction
T otal:
Commercial
Residential
Residential construction
2018
With no related allowance recorded:
Commercial
Residential
Residential construction
With an allowance recorded:
Commercial
Residential
Residential construction
T otal:
Commercial
Residential
Residential construction
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.
32
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
2)
Investments (Continued)
The Company’s performing and non-performing mortgage loans held for investment were as follows:
M o rtga ge Lo a ns He ld fo r Inve s tm e nt C re dit Expo s ure
C re dit R is k P ro file B a s e d o n P a ym e nt Ac tivity
Ye a rs Ende d De c e m be r 31
C o m m e rc ia l
R e s ide ntia l
R e s ide ntia l C o ns truc tio n
To ta l
2019
2018
2019
2018
2019
2018
2019
2018
P e rfo rm ing
$
34,229,501
$
27,589,745
$
109,291,758
$
86,995,949
$
88,775,237
$
70,863,553
$
232,296,496
$
185,449,247
No n-pe rfo rm ing
4,488,719
196,182
3,752,207
2,939,651
655,000
502,991
8,895,926
3,638,824
To ta l
$
38,718,220
$
27,785,927
$
113,043,965
$
89,935,600
$
89,430,237
$
71,366,544
$
241,192,422
$
189,088,071
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 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 $203,000 and $151,000 as of December 31, 2019 and 2018, respectively.
The following is a summary of mortgage loans held for investment on a non-accrual status for the periods presented.
Mortgage Loans on Non-accrual Status
Years Ended December 31
2019
2018
$
$
4,488,719
3,752,207
655,000
8,895,926
196,182
2,939,651
502,991
3,638,824
$
$
Commercial
Residential
Residential construction
Total
Principal Amounts Due
The amortized cost and contractual payments on mortgage loans held for investment by category as of December
31, 2019 are shown below. Expected principal payments may differ from contractual obligations because certain
borrowers may elect to pay off mortgage obligations with or without early payment penalties.
Residential
Residential Construction
Commercial
Total
Total
113,043,965
89,430,237
38,718,220
241,192,422
$
$
Principal
Amounts
Due in
1 Year
6,234,913
60,376,688
24,175,464
90,787,065
$
$
$
Principal
Amounts
Due in
2-5 Years
$
27,161,628
29,053,549
$
4,020,999
60,236,176
$
Principal
Amounts
Due
Thereafter
$
79,647,424
-
10,521,757
90,169,181
$
33
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
3)
Loans Held for Sale
The Company has elected the fair value option for loans held for sale as disclosed in Note 1. 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 consolidated statement of earnings. There
are five loans with an aggregate unpaid principal balance of $1,130,028 that are 90 or more days past due and on a
nonaccrual status as of December 31, 2019. See Note 17 of the Notes to Consolidated Financial Statements for
additional disclosures regarding loans held for sale.
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 December 31
2019
As of December 31
2018
Aggregate fair value
Unpaid principal balance
Unrealized gain
$
213,457,632
206,417,122
7,040,510
$
136,210,853
131,663,946
4,546,907
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 for the years ended December 31, were as follows:
Loan fees
Interest income
Secondary gains
Change in fair value of loan commitments
Change in fair value of loans held for sale
Provision for loan loss reserve
Mortgage fee income
Loan Loss Reserve
$
$
2019
28,660,966
6,978,930
93,581,956
899,417
2,498,097
(643,284)
131,976,082
2018
27,429,237
6,156,796
80,416,718
(404,773)
3,736,209
(1,148,334)
116,185,853
$
$
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.
34
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
3)
Loans Held for Sale (Continued)
The following is a summary of the loan loss reserve which is included in other liabilities and accrued expenses:
December 31
Balance, beginning of period
Provision for current loan originations (1)
Charge-offs, net of recaptured amounts
Balance, at December 31
(1) Included in Mortgage fee income
$
$
2019
3,604,869
643,284
(201,865)
4,046,288
2018
2,571,524
1,148,334
(114,989)
3,604,869
$
$
The Company maintains reserves for estimated losses on current production volumes. The Company also retains loss
reserves for loans that the Company originated between 2005 and 2007, in which the possibility of an investor claim
or potential settlement may still exist. During 2019, 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. During 2018, reserves were added at an average rate of 5.0
basis points per loan originated.
Based on the Company’s best estimate for potential loan losses and considering published industry data, loss reserve
basis points are established to create an adequate reserve. The reserve is intended to cover both expected losses on
recent period loan production and possible losses on earlier loans that were sold. The strong housing market over the
last several years has reduced the Company’s exposure to losses on more recent loan production, but exposure still
remains on older loans.
During the period from 2006 to 2019, over $60 million has been reserved for loan losses. A large majority of that
reserve has been used to settle investor claims or potential claims on alternative documentation loans originated
between 2005 to 2007. As the time since the origination of these loans has increased, estimating the potential of a
claim being made, when it might be made, the validity of the claim, and the amount of such claim becomes more
difficult. However, because some loans remain from the original 2005 to 2007 time period that have not been settled,
the Company still includes a reserve for the potential of future loan demands and potential settlements of such loans.
As of December 31, 2019, the loan loss reserve includes an estimate of approximately $3,000,000 for remaining losses
still to be settled on loans from this time period with a general reserve for more recent loan production. Thus, the
Company believes that the final loan loss reserve as of December 31, 2019, represents its best estimate for adequate
loss reserves on loans sold.
The Company believes that actual loan loss experience could change in the near-term from the established reserve
based upon claims that could be asserted by a third-party investor. The Company believes there is potential to resolve
any alleged claims by a third-party investor on acceptable terms. If the Company is unable to resolve such claims on
acceptable terms, legal action may ensue. In the event of legal action by any third-party investor, the Company believes
it has significant defenses to any such action and intends to vigorously defend itself against such action.
35
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
4)
Receivables
Receivables consist of the following:
Trade contracts
Receivables from sales agents
Other
Total receivables
Allowance for doubtful accounts
December 31
2019
2018
$
2,795,471
$
2,816,225
2,962,571
5,202,444
10,960,486
(1,724,156)
3,079,688
4,559,272
10,455,185
(1,519,842)
Net receivables
$
9,236,330
$
8,935,343
5)
Value of Business Acquired, Intangible Assets and Goodwill
Information with regard to value of business acquired was as follows:
Balance at beginning of year
Value of business acquired
Imputed interest at 7% included in earnings
Amortization included in earnings
Shadow amortization included in other
comprehensive income
Net amortization
Balance at end of year
December 31
$
2019
5,765,190
4,962,831
472,916
(1,320,456)
(1)
$
2018
6,588,759
-
421,122
(1,244,691)
(3,834)
(851,374)
9,876,647
$
-
(823,569)
5,765,190
$
(1) See Note 20 regarding the acquisition of Kilpatrick Life Insurance Company
Presuming no additional acquisitions, net amortization charged to income is expected to approximate $1,194,000,
$1,065,000, $985,000, $916,000, and $845,000 for the years 2020 through 2025. Actual amortization may vary based
on changes in assumptions or experience. As of December 31, 2019, value of business acquired is being amortized
over a weighted average life of 6.8 years.
The carrying value of the Company’s intangible assets were as follows:
December 31
Intangible asset - customer lists
Intangible asset - trade name
Less accumulated amortization
Balance at end of year
Useful Life
15 years
15 years
2019
$
$
890,000
610,000
(98,222)
1,401,778
$
(1)
(2)
(1)
2018
890,000
$
$
-
(34,611)
855,389
$
(1) See Note 20 regarding the acquisition of Beta Capital Corp.
(2) See Note 20 regarding the acquisition of Kilpatrick Life Insurance Company
36
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
5)
Value of Business Acquired, Intangible Assets and Goodwill (Continued)
Information regarding goodwill by segment was as follows:
Balance at January 1, 2018:
Goodwill
Accumulated impairment
Total goodwill, net
Balance at December 31, 2018:
Goodwill
Accumulated impairment
Total goodwill, net
Life
Insurance
Cemetery/
Mortuary
$
2,765,570
-
2,765,570
$
-
-
-
2,765,570
-
2,765,570
-
-
-
Total
$
2,765,570
-
2,765,570
2,765,570
-
2,765,570
Acquisition
-
754,018
(1)
754,018
Balance at December 31, 2019:
Goodwill
Accumulated impairment
Total goodwill, net
2,765,570
-
$
2,765,570
754,018
-
$
754,018
3,519,588
-
$
3,519,588
(1) See Note 20 regarding the acquisition of Probst Family Funerals and
Cremations and Heber Valley Funeral Home
Goodwill of $3,519,588 is not amortized but is tested annually for impairment. The annual impairment tests resulted
in no impairment of goodwill for the years ended December 31, 2019 and 2018.
6)
Property and Equipment
The cost of property and equipment is summarized below:
December 31
Land and buildings
Furniture and equipment
Less accumulated depreciation
Total
$
$
2019
15,131,301
18,987,984
34,119,285
(19,518,891)
14,600,394
2018
7,775,922
16,731,457
24,507,379
(17,496,601)
7,010,778
$
$
Depreciation expense for the years ended December 31, 2019 and 2018 was $1,711,369 and $1,867,001, respectively.
During 2019, the Company transferred $3,261,259 from real estate held for investment to property and equipment.
This transfer is shown as a non cash item on the consolidated statements of cash flows. See Note 20 for additional
information regarding property and equipment acquired through acquisitions.
37
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
7)
Bank and Other Loans Payable
Bank and other loans payable are summarized as follows:
2.25% above the monthly LIBOR rate plus 1/16th of the monthly LIBOR rate note payable in
monthly principal payments of $13,167 plus interest, collateralized by real property with a
book value of approximately $4,244,000, due September 2021.
4.27% fixed note payable in monthly installments of $53,881 including principal and interest,
collateralized by shares of Security National Life Insurance Company stock, due
December 2021.
Prime rate note payable in monthly installments of $75,108 including principal and interest,
collateralized by shares of Security National Life Insurance Company stock, due
December 2024.
4.40% fixed note payable in monthly installments of $46,825 including principal and interest,
collateralized by real property with a book value of approximately $12,923,000, due
January 2026.
4.329% fixed note payable in monthly installments of $9,775 including principal and interest,
collateralized by real property with a book value of approximately $3,261,000, due
September 2025.
December 31
2019
2018
$
2,659,769
$
2,817,775
1,238,619
1,817,905
4,000,000
-
7,247,651
7,492,140
1,896,450
1,929,725
2.5% above the monthly LIBOR rate plus 1/16th of the monthly LIBOR rate construction loan
payable in monthly principal payments of $113,000 plus interest, collateralized by real property
with a book value of approximately $49,378,000, due August 2020.
33,811,559
30,796,861
4.7865% fixed interest only note payable in monthly installments, collateralized by real property
with a book value of approximately $18,009,000, due June 2028.
9,200,000
9,200,000
1 month LIBOR rate plus 3% loan purchase agreement with a warehouse line availability of
$100,000,000, matures June 2020.
88,509,536
60,438,156
1 month LIBOR rate plus 3% loan purchase agreement with a warehouse line availability of
$100,000,000, matures September 2020.
Other short-term borrowings (1)
Finance lease liabilities
Other loans payable
Total bank and other loans
Less current installments
Bank and other loans, excluding current installments
(1) Federal Home Loan Bank and Revolving Lines of Credit
67,537,600
25,680,649
1,250,000
47,250,000
153,439
67,989
217,572,612
-
97,977
187,521,188
192,985,602
24,587,010
$
165,219,632
22,301,556
$
38
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
7)
Bank and Other Loans Payable (Continued)
Sources of Liquidity
Federal Home Loan Bank Membership
The Federal Home Loan Banks (“the FHLBs”) are a group of cooperatives that lending institutions use to finance
housing and economic development in local communities. The Company is a member of the FHLB based in Des
Moines, Iowa and based in Dallas, Texas. As a member of the FHLB, the Company is required to maintain a minimum
investment in capital stock of the FHLB and may pledge collateral to the bank for advances of funds to be used in its
operations.
Federal Home Loan Bank of Des Moines
At December 31, 2019, the amount available for borrowings from the FHLB of Des Moines was approximately
$57,727,738, compared with $534,579 at December 31, 2018. United States Treasury fixed maturity securities with
an estimated fair value of $59,877,900 at December 31, 2019 have been pledged at the FHLB of Des Moines as
collateral for current and potential borrowings compared with $49,342,210 at December 31, 2018. At December 31,
2019, the Company had no outstanding FHLB borrowings. At December 31, 2019, the Company’s total investment
in FHLB stock was $806,500 compared with $2,548,700 at December 31, 2018. The Company’s decreased investment
in FHLB stock was a result of its decrease in short-term FHLB borrowings during 2019.
Federal Home Loan Bank of Dallas
The membership of the FHLB of Dallas was acquired with the acquisition of Kilpatrick Life Insurance Company. See
Note 20 regarding this acquisition. At December 31, 2019, the Company’s total investment in FHLB stock was
$87,800. The Company does not have any collateral pledged at the FHLB of Dallas or any outstanding borrowings.
Revolving Lines of Credit
The Company has a $2,000,000 revolving line-of-credit with a bank with interest payable at the prime rate minus
.75%, secured by the capital stock of Security National Life and maturing September 30, 2020, renewable annually.
At December 31, 2019, the Company was contingently liable under a standby letter of credit aggregating
$625,405, to be used as collateral to cover any contingency related to additional risk assessments pertaining to the
Company's captive insurance program. The Company does not expect any material losses to result from the issuance
of the standby letter of credit. The standby letter of credit will draw on the line of credit if necessary. The Company
does not expect any material losses to result from the issuance of the standby letter of credit because claims are not
expected to exceed premiums paid. As of December 31, 2019, there were no amounts outstanding under the revolving
line-of-credit.
The Company also has a $2,500,000 revolving line-of-credit with a bank with interest payable at the overnight
LIBOR rate plus 2.25% maturing September 30, 2020. As of December 31, 2019, there was $1,250,000 outstanding
under the revolving line-of-credit.
Debt Covenants for Mortgage Warehouse Lines of Credit
The Company, through its subsidiary SecurityNational Mortgage, has a $100,000,000 line of credit with Wells
Fargo Bank N.A. The agreement charges interest at the 1-Month LIBOR rate plus 2.1% and matures on June 16,
2020. SecurityNational Mortgage is required to comply with covenants for adjusted tangible net worth, unrestricted
cash balance, the ratio of indebtedness to adjusted tangible net worth, and the liquidity overhead coverage ratio, and
a quarterly gross profit of at least $1.
The Company, through its subsidiary SecurityNational Mortgage, also uses a line of credit with Texas Capital Bank
N.A. This agreement with the bank allows SecurityNational Mortgage to borrow up to $100,000,000 for the sole
purpose of funding mortgage loans. SecurityNational Mortgage is currently approved to borrow $30,000,000 of the
$100,000,000 available. The agreement charges interest at the 1-Month LIBOR rate plus 3% and matures on
September 9, 2020. The Company is required to comply with covenants for adjusted tangible net worth, unrestricted
39
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
7)
Bank and Other Loans Payable (Continued)
cash balance, and minimum combined pre-tax income (excluding any changes in the fair value of mortgage
servicing rights) of at least $1 on a rolling four-quarter basis.
The agreements for both warehouse lines include cross default provisions in that a covenant violation under one
agreement constitutes a covenant violation under the other agreement. As of December 31, 2019, the Company had
approximately $67,538,000 and $88,510,000 outstanding on the Texas Capital Bank and Wells Fargo warehouse
lines, respectively, and was in compliance with all debt covenants.
The following tabulation shows the combined maturities of bank and other loans payable:
2019
2020
2021
2022
2023
Thereafter
Total
$
192,985,602
4,256,684
1,151,703
1,218,742
1,247,461
16,712,420
217,572,612
$
Interest expense in 2019 and 2018 was $7,386,688 and $6,956,707, respectively. Interest paid in 2019 and 2018
was $7,284,078 and $6,878,048, respectively.
8)
Cemetery Perpetual Care Trust Investments and Obligation and Restricted Assets
State law requires the Company to pay into endowment care trusts a portion of the proceeds from the sale of certain
cemetery property interment rights for cemeteries that have established an endowment care trust. These endowment
care trusts are defined as variable interest entities pursuant to GAAP. Also, management has determined that the
Company is the primary beneficiary of these trusts, as it absorbs both a majority of the losses and returns associated
with the trusts. The Company has consolidated cemetery endowment care trust investments with a corresponding
amount recorded as Cemetery Perpetual Care Obligation in the accompanying consolidated balance sheets.
The components of the cemetery perpetual care investments and obligation are as follows:
Cash and cash equivalents
Fixed maturity securities, available for sale, at estimated fair value
Equity securities, at estimated fair value
Commerical mortgage loans held for investment
Real estate held for investment
Note receivables from Cottonwood Mortuary, Singing Hills
Cemetery and Memorial Estates eliminated in consolidation
Total cemetery perpetual care trust investments
Cemetery perpetual care obligation
Trust investments in excess of trust obligations
December 31
$
2019
1,306,740
975,673
1,605,451
524,000
-
$
2018
1,557,506
990,390
483,353
-
1,304,620
1,541,120
5,952,984
(3,933,719)
2,019,265
$
1,606,155
5,942,024
(3,821,979)
2,120,045
$
40
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
8)
Cemetery Perpetual Care Trust Investments and Obligation and Restricted Assets (Continued)
The Company has also established certain restricted assets to provide for future merchandise and service obligations
incurred in connection with its pre-need sales for its cemetery and mortuary segment.
Restricted cash also represents escrows held for borrowers and investors under servicing and appraisal agreements
relating to mortgage loans, funds held by warehouse banks in accordance with loan purchase agreements and funds
held in escrow for certain real estate construction development projects. Additionally, the Company elected to fund
its medical benefit safe-harbor limit based on 35% of the qualified direct costs for the preceding year, and has included
this amount as a component of restricted cash. These restricted cash items are for the Company’s life insurance and
mortgage segments.
Restricted assets are summarized as follows:
Cash and cash equivalents (1)
Mutual funds, at estimated fair value
Fixed maturity securities, available for sale, at estimated fair value
Equity securities, at estimated fair value
Participating interests in mortgage loans held for investment
with Security National Life
Total
December 31
$
2019
8,674,214
-
1,008,867
1,976,480
$
2018
7,179,225
677,795
1,258,397
66,878
2,275,756
13,935,317
$
1,799,267
10,981,562
$
(1) Including cash and cash equivalents of $7,170,092 and $5,668,580 as of December 31, 2019 and
2018, respectively, for the life insurance and mortgage segments.
A surplus note receivable in the amount of $4,000,000 at December 31, 2019 and 2018, from Security National Life,
was eliminated in consolidation.
See Notes 1 and 17 for additional information regarding restricted assets.
41
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
9)
Income Taxes
The Company’s income tax liability is summarized as follows:
December 31
Current
Deferred
Total
2019
1,410,153
17,276,819
18,686,972
$
$
2018
$
473,800
15,649,198
16,122,998
$
Significant components of the Company’s deferred tax (assets) and liabilities are approximately as follows:
Assets
Future policy benefits
Loan loss reserve
Unearned premium
Available for sale securities
Net operating loss
Deferred compensation
Deposit obligations
Other
Less: Valuation allowance
Total deferred tax assets
Liabilities
Deferred policy acquisition costs
Basis difference in property and equipment
Value of business acquired
Deferred gains
Trusts
Tax on unrealized appreciation
Total deferred tax liabilities
Net deferred tax liability
December 31
2019
2018
$
(12,450,229)
(1,053,256)
(760,556)
-
(438,420)
(1,996,865)
(619,633)
(1,020,718)
2,439,394
(15,900,283)
15,536,717
3,638,512
2,074,096
5,169,104
1,064,387
5,694,286
33,177,102
17,276,819
$
$
(8,293,592)
(938,496)
(823,299)
(366,279)
(593,272)
(1,677,118)
(610,769)
(185,557)
-
(13,488,382)
15,255,960
4,309,162
1,210,690
6,267,373
1,064,387
1,030,008
29,137,580
15,649,198
$
The valuation allowance relates to differences between recorded deferred tax assets and liabilities and ultimate
anticipated realization. For the year ended December 31, 2019, the Company has recorded a valuation allowance
related to Kilpatrick Life Insurance Company that was acquired in December 2019. See Note 20 regarding the
acquisition.
The Company paid $4,861,318 and $5,701,565 in income taxes for the years ended December 31, 2019 and 2018,
respectively.
42
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
9)
Income Taxes (Continued)
The Company’s income tax expense is summarized as follows for the years ended December 31:
Current
Federal
State
Deferred
Federal
State
Total
2019
2018
$
4,404,041
504,272
4,908,313
$
6,933,145
166,567
7,099,712
(1,551,725)
(306,172)
(1,857,897)
(1,838,947)
(766,454)
(2,605,401)
$
3,050,416
$
4,494,311
The reconciliation of income tax expense at the U.S. federal statutory rates is as follows:
Computed expense at statutory rate
State tax expense, net of federal tax benefit
Change in valuation allowance
Other, net
Income tax expense
$
$
2019
2,928,226
156,499
194,364
(228,673)
3,050,416
2018
5,497,882
(473,911)
-
(529,660)
4,494,311
$
$
The Company’s overall effective tax rate for the years ended December 31, 2019 and 2018 was 21.9% and 17.2%,
respectively. The Company’s effective tax rates differ from the U.S. federal statutory corporate income tax rate of
21% partially due to its provision for state income taxes and an increase to the valuation allowance related to
Kilpatrick Life Insurance Company that increased the effective income tax rate when compared to the prior year.
At December 31, 2019, the Company had no significant unrecognized tax benefits. As of December 31, 2019, the
Company does not expect any material changes to the estimated amount of unrecognized tax benefits in the next
twelve months. Federal and state income tax returns for 2016 through 2019 are subject to examination by taxing
authorities.
Net Operating Losses and Tax Credit Carryforwards:
Year of Expiration
2020
2021
2022
2023
2024
Thereafter up through 2037
$
114,601
17,101
-
-
-
1,701,126
$
1,832,828
43
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
10)
Reinsurance, Commitments and Contingencies
Reinsurance
The Company follows the procedure of reinsuring risks in excess of a specified limit, which ranged from $25,000 to
$100,000 during the years 2019 and 2018. The Company is liable for these amounts in the event such reinsurers are
unable to pay their portion of the claims. The Company has also assumed insurance from other companies having
insurance in force amounting to approximately $99,000,000 and approximately $103,000,000 at December 31, 2019
and 2018, respectively.
Mortgage Loan Loss Settlements
Future loan losses can be extremely difficult to estimate. However, the Company believes that its reserve
methodology and its current practice of property preservation allow it to estimate potential losses on loans sold. The
estimated liability for indemnification losses is included in other liabilities and accrued expenses and, as of
December 31, 2019 and 2018, the balances were $4,046,000 and $3,605,000, respectively.
During the period from 2006 to 2019, over $60 million has been reserved for loan losses. A large majority of that
reserve has been used to settle investor claims or potential claims on alternative documentation loans originated
between 2005 to 2007. As the time since the origination of these loans has increased, estimating the potential of a
claim being made, when it might be made, the validity of the claim, and the amount of such claim becomes more
difficult. However, because some loans remain from the original 2005 to 2007 time period that have not been settled,
the Company still includes a reserve for the potential of future loan demands and potential settlements of such loans.
As of December 31, 2019, the loan loss reserve includes an estimate of approximately $3,000,000 for remaining losses
still to be settled on loans from this time period with a general reserve for more recent loan production. Thus, the
Company believes that the final loan loss reserve as of December 31, 2019, represents its best estimate for adequate
loss reserves on loans sold.
Mortgage Loan Loss Litigation
Lehman Brothers Holdings Litigation – Delaware and New York
In January 2014, Lehman Brothers Holdings Inc. (“Lehman Holdings”) entered into a settlement with the Federal
National Mortgage Association (Fannie Mae) concerning the mortgage loan claims that Fannie Mae had asserted
against Lehman Holdings, which were based on alleged breaches of certain representations and warranties by
Lehman Holdings in the mortgage loans it had sold to Fannie Mae. Lehman Holdings had acquired these loans
from Aurora Bank, FSB, formerly known as Lehman Brothers Bank, FSB, which in turn purchased the loans from
residential mortgage loan originators, including SecurityNational Mortgage Company (“SecurityNational
Mortgage”). A settlement based on similar circumstances was entered into between Lehman Holdings and the
Federal Home Loan Mortgage Corporation (Freddie Mac) in February 2014.
Lehman Holdings filed a motion in May 2014 with the U.S. Bankruptcy Court of the Southern District of New York
to require the mortgage loan originators, including SecurityNational Mortgage, to engage in non-binding mediations
of the alleged indemnification claims against the mortgage loan originators relative to the Fannie Mae and Freddie
Mac settlements with Lehman Holdings. The mediation was not successful in resolving any issues between
SecurityNational Mortgage and Lehman Holdings.
On January 26, 2016, SecurityNational Mortgage filed a declaratory judgment action against Lehman Holdings in
the Superior Court for the State of Delaware. In the Delaware action, SecurityNational Mortgage asserted its right
to obtain a declaration of rights in that there are allegedly millions of dollars in dispute with Lehman Holdings
pertaining to approximately 136 mortgage loans. SecurityNational Mortgage sought a declaratory judgment as to
its rights as it contends that it has no liability to Lehman Holdings as a result of Lehman Holdings’ settlements with
Fannie Mae and Freddie Mac. Lehman Holdings filed a motion in the Delaware court seeking to stay or dismiss
the declaratory judgment action. On August 24, 2016, the Court ruled that it would exercise its discretion to decline
jurisdiction over the action and granted Lehman Holdings’ motion to dismiss.
44
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
10)
Reinsurance, Commitments and Contingencies (Continued)
On February 3, 2016, Lehman Holdings filed an adversary proceeding against approximately 150 mortgage loan
originators, including SecurityNational Mortgage, in the U.S. Bankruptcy Court of the Southern District of New
York seeking a declaration of rights similar in nature to the declaration that SecurityNational Mortgage sought in
its Delaware lawsuit, and for damages relating to the alleged obligations of the defendants under indemnification
provisions of the alleged agreements, in amounts to be determined at trial, including interest, attorneys’ fees and
costs incurred by Lehman Holdings in enforcing the obligations of the defendants. No response was required to be
filed relative to the Complaint or the Amended Complaint dated March 7, 2016. A Case Management Order was
entered on November 1, 2016.
On December 27, 2016, pursuant to the Case Management Order, Lehman Holdings filed a Second Amended
Complaint against SecurityNational Mortgage, which eliminates the declaratory judgment claim but retains a
similar claim for damages as in the Complaint. Many of the defendants, including SecurityNational Mortgage, filed
a joint motion in the case asserting that the Bankruptcy Court does not have subject matter jurisdiction concerning
the matter and that venue is improper. Lehman Holdings’ response memorandum was filed on May 31, 2017 and a
reply memorandum of the defendants filing the motion was filed on July 14, 2017. A hearing on the motion was
held on June 12, 2018.
On August 13, 2018, the Court issued its Memorandum Decision and Order (“Decision”) denying the motion. On
August 27, 2018, a number of the defendants, including SecurityNational Mortgage, filed a joint motion with the
United States District Court (Case No. 18-mc-00392(VEC)) requesting that the Bankruptcy Court’s Decision be
treated as findings of fact and conclusions of law, and for the District Court to review the Decision de novo as to
jurisdiction. Included with the motion were proposed objections to the Bankruptcy Court’s Decision. On September
18, 2018, Lehman Holdings filed its response to the joint motion, and defendants’ reply was filed on October 2,
2018.
On September 17, 2018, certain defendants, including SecurityNational Mortgage, also filed a notice of appeal, and
thereafter a motion for leave to file an interlocutory appeal as to the Bankruptcy Court’s Decision pertaining to
jurisdiction and improper venue as a “protective” appeal should the District Court decide not to treat the Decision
as findings of fact and conclusions of law. Separately, certain other defendants also filed a notice of appeal and
motion for leave to file an interlocutory appeal with respect to the Bankruptcy Court’s Decision concerning
improper venue. Lehman Holdings filed its response on October 22, 2018, and defendants filed a joint reply to
Lehman Holdings’ response on November 26, 2018. The motions to file appeals were consolidated before Valerie
Caproni, U.S. District Court Judge, Case No. 18-cv-08986 (VEC). Case No. 18-mc-00392 (VEC) was also before
Judge Caproni.
On October 1, 2018, Lehman Holdings filed a motion for leave to file Third Amended Complaints against numerous
defendants including SecurityNational Mortgage. In addition to the Fannie Mae and Freddie Mac related loans, the
amendments and supplements include additional mortgage loans sold to Lehman Holdings that were packaged for
securitization (“RMBS loans”). The RMBS loans had allegedly been sold by defendants to Lehman Bank that, in
turn, sold them to Lehman Holdings. The allegations pertaining to the RMBS loans include, e.g., purported breaches
of representations and warranties made to the securitization trusts by Lehman Holdings. Lehman Holdings asserts
that it made representations and warranties purportedly based in part by representations and warranties made to
Lehman Bank by loan originators, including SecurityNational Mortgage.
On May 8, 2019, Judge Caproni issued her Opinion and Order denying the motion for an interlocutory appeal of
the bankruptcy court’s ruling relative to jurisdiction and venue. Further, the judge denied the motion for immediate
de novo review of the bankruptcy court’s ruling indicating that de novo review can be left for the future.
The alleged RMBS loans in dispute with SecurityNational Mortgage allegedly involve millions of dollars pertaining
to approximately 577 mortgage loans in addition to the Fannie Mae and Freddie Mac related loans. Lehman
Holdings also moved the Court to simultaneously allow alternative dispute resolution procedures to take place
including potential mediation. Over objections, at a hearing on October 29, 2018, the Court granted Lehman
Holdings’ motion to amend or supplement its complaints adding the RMBS loans, and also to mandate alternative
45
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
10)
Reinsurance, Commitments and Contingencies (Continued)
dispute resolution procedures affecting many defendants, including SecurityNational Mortgage.
Instead of filing a Third Amended Complaint to include the RMBS loans referenced above, Lehman Holdings filed
the matter against SecurityNational Mortgage as a new complaint ("RMBS Complaint") (United States Bankruptcy
Court, Southern District of New York, Adversary Proceeding 18-01819) pertaining to the approximately 577 RMBS
loans, in addition to the Second Amended Complaint already on file. The RMBS Complaint seeks alleged damages
relating to obligations under alleged contractual indemnification provisions in an amount to be determined at trial,
interest, costs and expenses incurred by LBHI in enforcing alleged obligations, including attorneys' fees and costs
and any expert witness fees incurred in litigation; and such other relief as the Court deems just and proper.
SecurityNational Mortgage denies any liability to Lehman Holdings and intends to vigorously protect and defend
its position.
In response to a Court order, certain defendants referenced in the Second Amended Complaint and the RMBS
Complaints negotiated with Lehman Holdings concerning an amended case management order pertaining to certain
case procedures and management for both lawsuits including, but not limited to, timing for filing motions and
answering the complaints, and provisions concerning discovery such as document production, taking depositions,
and use of experts. At a hearing held on March 7, 2019, the Court considered differences of the parties as to the
content of an amended case management order, and thereafter signed an amended case management order dated
March 13, 2019. SecurityNational Mortgage filed an answer and amended answer in the Fannie Mae and Freddie
Mac case, and in the RMBS case. Discovery is in process.
Lehman Holdings sent an Indemnification Alternative Dispute Resolution Notice to SecurityNational Mortgage
dated August 1, 2019. SecurityNational Mortgage sent its Statement of Position to Lehman Brothers Holdings dated
September 3, 2019 in response to the notice. Thereafter, Lehman Holdings sent its Reply dated October 2, 2019 to
SecurityNational Mortgage. On January 9, 2020, SecurityNational Mortgage submitted further information to the
mediator. Mediation was set to take place on January 23, 2020 in New York.
On January 15, 2020, SecurityNational Mortgage filed a motion to dismiss Lehman Holdings’ RMBS action in the
Bankruptcy Court for lack of subject matter jurisdiction and standing. It was not filed in the Bankruptcy Court but
in the United States District Court for the Southern District of New York. The District Court referred the matter to
a magistrate judge for general pretrial, which “includes scheduling, discovery, non-dispositive pretrial motions, and
settlement,” as well as for “a Report and Recommendation” as to the pending motion. The final disposition of the
motion will be with the District Court judge. Lehman Holdings has asked the District Court to transfer the case to
one of two other judges allegedly due to related matters. No action has been taken by the District Court on the
request.
However, a briefing schedule is in place before the original assigned magistrate judge. Lehman Holdings’ response
brief to SecurityNational Mortgage’s motion is due March 6, 2020, and SecurityNational Mortgage’s reply brief is
due April 6, 2020. In view of SecurityNational Mortgage’s motion to dismiss, Lehman Holdings requested that the
mediation set for January 23, 2020 be adjourned “pending resolution of your [SecurityNational Mortgage] motion
by the court.” On January 17, 2020, the mediator adjourned the scheduled mediation without a date.
Non-Cancelable Leases
The Company leases office space and equipment under various non-cancelable agreements. See Note 24 regarding
leases.
Other Contingencies and Commitments
The Company has entered into commitments to fund construction and land development loans and has also provided
financing for land acquisition and development. As of December 31, 2019, the Company’s commitments were
approximately $123,601,000, for these loans of which $90,566,000 had been funded. The Company will advance
funds once the work has been completed and an independent inspection is made. The maximum loan commitment
46
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
10)
Reinsurance, Commitments and Contingencies (Continued)
ranges between 50% and 80% of appraised value. The Company receives fees and interest for these loans and the
interest rate is generally fixed 5.50% to 8.00% per annum. Maturities range between six and eighteen months.
The Company belongs to a captive insurance group for certain casualty insurance, worker compensation and
liability programs. Insurance reserves are maintained relative to these programs. The level of exposure from
catastrophic events is limited by the purchase of stop-loss and aggregate liability reinsurance coverage. When
estimating the insurance liabilities and related reserves, the captive insurance management considers a number of
factors, which include historical claims experience, demographic factors, severity factors and valuations provided
by independent third-party actuaries. If actual claims or adverse development of loss reserves occurs and exceed
these estimates, additional reserves may be required. The estimation process contains uncertainty since captive
insurance management must use judgment to estimate the ultimate cost that will be incurred to settle reported claims
and unreported claims for incidents incurred but not reported as of the balance sheet date.
The Company is a defendant in various other legal actions arising from the normal conduct of business. Management
believes that none of the actions will have a material effect on the Company’s financial position or results of operations.
Based on management’s assessment and legal counsel’s representations concerning the likelihood of unfavorable
outcomes, no amounts have been accrued for the above claims in the consolidated financial statements.
The Company is not a party to any other material legal proceedings outside the ordinary course of business or to any
other legal proceedings, which, if adversely determined, would have a material adverse effect on its financial condition
or results of operations.
11) Retirement Plans
The Company and its subsidiaries have a noncontributory Employee Stock Ownership Plan (“ESOP”) for all eligible
employees. Eligible employees are primarily those with more than one year of service, who work in excess of 1,000
hours per year. Contributions, which may be in cash or stock of the Company, are determined annually by the Board
of Directors.
The Company’s contributions are allocated to eligible employees based on the ratio of each eligible employee’s
compensation to total compensation for all eligible employees during each year. The Company did not make any
contributions for the years ended December 31, 2019 and 2018. On November 25, 2019, the Company distributed a
“Notice of Intent to Terminate” the ESOP Plan to all current plan participants. The Company also filed Form 5310
“Application for Determination for Terminating Plan”, with the IRS on December 6, 2019. The Company is awaiting
approval of its application from the IRS prior to its final distribution of the ESOP Plan assets to the participants. At
December 31, 2019, the ESOP held 495,618 shares of Class A and 307,491 shares of Class C common stock of the
Company. All shares held by the ESOP have been allocated to the participating employees and all shares held by
the ESOP are considered outstanding for purposes of computing earnings per share.
The Company has three 401(k) savings plans covering all eligible employees, as defined above, which includes
employer participation in accordance with the provisions of Section 401(k) of the Internal Revenue Code. The plans
allow participants to make pretax contributions up to a maximum of $19,000 and $18,500 for the years 2019 and 2018,
respectively or the statutory limits.
Beginning January 1, 2008, the Company elected to be a “Safe Harbor” Plan for its matching 401(k) contributions.
The Company matched 100% of up to 3% of an employee’s total annual compensation and matched 50% of 4% to
5% of an employee’s annual compensation. The match was in Company stock. The Company’s contribution for the
years ended December 31, 2019 and 2018 was $695,560 and $1,480,913, respectively under the “Safe Harbor”
plan.
In 2001, the Company’s Board of Directors adopted a Non-Qualified Deferred Compensation Plan, and this plan
was amended in 2005. Under the terms of the Plan, the Company will provide deferred compensation for a select
group of management or highly compensated employees, within the meaning of Sections 201(2), 301(a)(3) and
47
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
11)
Retirement Plans (Continued)
401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended. The Board has appointed a
Committee of the Company to be the Plan Administrator and to determine the employees who are eligible to
participate in the plan. The employees who participate may elect to defer a portion of their compensation into the
plan. The Company may contribute into the plan at the discretion of the Company’s Board of Directors. The
Company did not make any contributions for 2019 and 2018.
Effective December 4, 2018, the Board members approved a motion to extend Mr. Quist’s employment agreement,
dated December 4, 2012, for an additional four-year term ending December 2022. In the event of disability, Mr.
Quist’s salary would be continued for up to five years at 75% of its current level of compensation.
In the event of a sale or merger of the Company and Mr. Quist is not retained in his current position, the Company
would be obligated to continue paying Mr. Quist’s current compensation and benefits for seven years following the
merger or sale. The agreement further provides that Mr. Quist is entitled to receive annual retirement benefits
beginning (i) one month from the date of his retirement (to commence no sooner than age 65), (ii) five years
following complete disability, or (iii) upon termination of his employment without cause. These retirement benefits
are to be paid for a period of twenty years in annual installments in the amount equal to 75% of his then current
level of compensation. In the event that Mr. Quist dies prior to receiving all retirement benefits thereunder, the
remaining benefits are to be paid to his heirs. The Company expensed $660,000 and $660,000 during the years
ended December 31, 2019 and 2018, respectively, to cover the present value of anticipated retirement benefits under
the employment agreement. The liability accrued was $5,722,837 and $5,191,670 as of December 31, 2019 and
2018, respectively.
The Company, through its wholly owned subsidiary, SecurityNational Mortgage, also has an employment
agreement with its former Vice President of Mortgage Operations and President of SecurityNational Mortgage, who
retired from the Company on December 31, 2015. Under the terms of the employment agreement, this individual is
entitled to receive retirement benefits from the Company for a period of ten years in an amount equal to 50% of his
rate of compensation at the time of his retirement, which was $267,685 for the year ended December 31, 2015. Such
retirement payments are paid monthly during the ten-year period. In the event that this individual dies prior to
receiving all of his retirement benefits under his employment agreement, the remaining benefits will be made to his
heirs. The company paid $133,843 and $133,843 in retirement compensation to this individual during the years
ended December 31, 2019 and 2018, respectively. The liability accrued was $803,055 and $841,591 as of December
31, 2019 and 2018, respectively and is included in Other liabilities and accrued expenses on the consolidated balance
sheets.
48
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
12)
Capital Stock
The Company has one class of preferred stock of $1.00 par value, 5,000,000 shares authorized, of which none are
issued. The preferred stock is non-voting.
The Company has two classes of common stock with shares outstanding, Class A common shares and Class C common
shares. Class C shares have 10 votes per share on all matters except for the election of one third of the directors who
are elected solely by the Class A shares. Class C shares are convertible into Class A shares at any time on a one to one
ratio. The decrease in treasury stock was the result of treasury stock being used to fund the company’s 401(k) Plans.
Stockholders of both Class A and Class C common stock have received 5% stock dividends in the years 1990 through
2019, as authorized by the Company’s Board of Directors.
The Company has Class B common stock of $1.00 par value, 5,000,000 shares authorized, of which none are issued.
Class B shares are non-voting stock except to any proposed amendment to the Articles of Incorporation which would
affect Class B common stock.
The following table summarizes the activity in shares of capital stock for the two-year period ended December 31,
2019:
Outstanding shares at December 31, 2017
Exercise of stock options
Stock dividends
Conversion of Class C to Class A
Class A
14,535,577
38,473
730,560
188
Class C
2,089,374
-
104,457
(188)
Outstanding shares at December 31, 2018
15,304,798
2,193,643
Exercise of stock options
Stock dividends
Conversion of Class C to Class A
32,517
767,178
3,286
191,443
119,087
(3,286)
Outstanding shares at December 31, 2019
16,107,779
2,500,887
49
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
12)
Capital Stock (Continued)
Earnings per share amounts have been retroactively adjusted for the effect of annual stock dividends. In accordance
with GAAP, the basic and diluted earnings per share amounts were calculated as follows:
Numerator:
Net earnings
Denominator:
2019
2018
$
10,893,519
$
21,686,079
Denominator for basic earnings
per share-weighted-average shares
18,104,681
17,968,062
Effect of dilutive securities
Employee stock options
Dilutive potential common shares
Denominator for diluted earnings
per share-adjusted weighted-average
shares and assumed conversions
124,435
124,435
220,603
220,603
18,229,116
18,188,665
Basic earnings per share
Diluted earnings per share
$0.60 $1.21
$1.19
$0.60
For the years ended December 31, 2019 and 2018, there were 382,289 and 862,915 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.
50
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
13)
Stock Compensation Plans
The Company has two fixed option plans (the “2013 Plan” and the “2014 Director Plan”). Compensation expense for
options issued of $256,996 and $237,123 has been recognized under these plans for the years ended December 31,
2019 and 2018, respectively, and is included in personnel expenses on the consolidated statements of earnings. As of
December 31, 2019, the total unrecognized compensation expense related to the options issued in December 2019 was
$230,446, 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.
The following table summarizes the assumptions used in estimating the fair value of each option granted along with
the weighted-average fair value of the options granted:
Assumptions
Weighted-
Average Fair
Value of Each
Option
$
0.96
Expected
Dividend
Yield
5%
Underlying
stock
FMV
$
5.19
Weighted-
Average
Volatility
32.79%
Weighted-
Average
Risk-Free
Interest
Rate
1.64%
Weighted-
Average
Expected
Life
(years)
4.83
Grant Date
December 6, 2019
Plan
All Plans
January 17, 2019
All Plans
$
1.12
November 30, 2018
All Plans
$
1.12
5%
5%
$
4.98
36.04%
2.56%
$
4.91
34.61%
2.86%
5.31
4.56
51
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
13)
Stock Compensation Plans (Continued)
Activity of the stock option plans is summarized as follows:
Outstanding at January 1, 2018
Adjustment for the effect of stock dividends
Granted
Exercised
Cancelled
Outstanding at December 31, 2018
Adjustment for the effect of stock dividends
Granted
Exercised
Cancelled
Weighted
Average
Exercise
Price
$
5.24
$
5.15
Weighted
Average
Exercise
Price
$
4.35
$
4.49
Number of
Class A
Shares
880,426
48,168
142,000
(42,211)
(17,109)
1,011,274
51,018
81,000
(45,834)
(11,405)
Number of
Class C
Shares
523,603
27,491
90,000
-
(63,814)
577,280
28,295
180,000
(191,443)
-
Outstanding at December 31, 2019
1,086,053
$
4.41
594,132
$
5.36
Exercisable at end of year
1,002,603
$
4.34
405,132
$
5.40
Available options for future grant
205,664
-
Weighted average contractual term of options
outstanding at December 31, 2019
5.62 years
5.82 years
Weighted average contractual term of options
exercisable at December 31, 2019
5.26 years
4.54 years
Aggregated intrinsic value of options outstanding
at December 31, 2019 (1)
$1,291,602
$2,177,223
Aggregated intrinsic value of options exercisable
at December 31, 2019 (1)
$1,259,786
$159,028
(1) The Company used a stock price of $5.57 as of December 31, 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 years ended December 31, 2019 and 2018
was $271,220 and $123,154, respectively.
52
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
14)
Statutory Financial Information and Dividend Limitations
The Company’s insurance subsidiaries prepare their statutory-basis financial statements in conformity with accounting
practices prescribed or permitted by the insurance department of the applicable state of domicile. Prescribed statutory
accounting practices include a variety of publications of the NAIC, as well as state laws, regulations and general
administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed.
All states require domiciled insurance companies to prepare statutory-basis financial statements in conformity with
the NAIC Accounting Practices and Procedures Manual, subject to any deviations prescribed or permitted by the
applicable insurance commissioner and/or director. Statutory accounting practices differ from GAAP primarily since
they require charging policy acquisition and certain sales inducement costs to expense as incurred, establishing life
insurance reserves based on different actuarial assumptions, and valuing certain investments and establishing deferred
taxes on a different basis.
Statutory net income and capital and surplus of the Company’s insurance subsidiaries, determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory authorities are as follows:
Statutory Net Income
2019
2018
Statutory Capital and Surplus
2019
2018
Amounts by insurance subsidiary:
Security National Life Insurance Company
Kilpatrick Life Insurance Company
First Guaranty Insurance Company
Memorial Insurance Company of America
Southern Security Life Insurance Company, Inc.
Trans-Western Life Insurance Company
Total
$
3,589,552
12,752,100
1,078,733
(107)
87
3,773
17,424,138
(1)
17,963,528
$
-
1,042,683
94
68
5,460
$
19,011,833
$
$
$
49,390,181
15,208,071
6,352,670
1,088,559
1,588,396
512,163
74,140,040
47,184,064
-
5,786,369
1,088,880
1,586,915
508,390
56,154,618
$
$
(1) Includes 12 months even though Kilpatrick Life Insurance Company wasn't acquired by the Company until
December 2019.
The Utah, Arkansas, Louisiana, Mississippi and Texas Insurance Departments impose minimum risk-based capital
(RBC) requirements that were developed by the NAIC on insurance enterprises. The formulas for determining the
RBC specify various factors that are applied to financial balances or various levels of activity based on the perceived
degree of risk. Regulatory compliance is determined by a ratio (the Ratio) of the enterprise’s regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level, as defined by the NAIC. Enterprises below specific
trigger points or ratios are classified within certain levels, each of which requires specified corrective action. The life
insurance subsidiaries each have a ratio that is greater than the first level of regulatory action as of December 31, 2019.
Generally, the net assets of the life insurance subsidiaries available for transfer to the Company are limited to the
amounts of the life insurance subsidiaries net assets, as determined in accordance with statutory accounting practices,
that exceed minimum statutory capital requirements. Additional requirements must be met depending on the state, and
payments of such amounts as dividends are subject to approval by regulatory authorities.
Under the Utah Insurance Code, Security National Life Insurance Company is permitted to pay a stockholder dividend
to the Company as long as the Company provides the Utah Insurance Commissioner (the “Utah Commissioner”) with
at least 30 days notice and the aggregate amount of all such dividends in any 12 month period does not exceed the
lesser of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) net
gain from operations, not including realized capital gains, for the immediately preceding calendar year, not including
pro rata distributions of the Company’s own securities. In determining whether a dividend is extraordinary, the
Company may include carryforward net income from the previous two calendar years, excluding realized capital gains
less dividends paid in the second and immediately preceding calendar years. Security National Life Insurance
Company will be permitted to pay a dividend to the Company in excess of the
53
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
14)
Statutory Financial Information and Dividend Limitations (Continued)
lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with
the Utah Commissioner and the Utah Commissioner either approves the distribution of the dividend or does not
disapprove the distribution within 30 days of its filing. In all cases, a dividend may not be paid that would reduce the
insurer’s total adjusted capital below the insurer’s company action level risk-based capital, as defined for statutory
reporting purposes. Amounts available to be paid as dividends in the next 12 months totals approximately $4,795,000.
Under the Louisiana Insurance Code, First Guaranty Insurance Company and Kilpatrick Life Insurance Company are
permitted to pay a stockholder dividend to Security National Life as long as their capital has been (i) fully paid in cash,
(ii) is unimpaired, (iii) has a surplus beyond its capital stock and (iv) has a surplus beyond its minimum required
surplus. In 2019, First Guaranty Insurance Company paid to Security National Life a cash dividend of $500,000 and
Kilpatrick Life Insurance Company paid a cash dividend of $3,000,000. Amounts available to be paid as dividends at
December 31, 2019 totaled approximately $2,453,000 for First Guaranty Insurance Company and totaled
approximately $11,508,000 for Kilpatrick Life Insurance Company.
15)
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 pre-sold loans before the funds are received from financial institutional investors.
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. 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.
54
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
15)
Business Segment Information (Continued)
Revenues:
From external sources:
Revenue from customers
Net investment income
Gains on investments and other assets
Other revenues
Intersegment revenues:
Net investment income
Total revenues
Expenses:
Death, surrenders and other policy benefits
Increase in future policy benefits
Amortization of deferred policy and pre-need
acquisition costs and value of business
acquired
Selling, general and administrative expenses:
Commissions
Personnel
Advertising
Rent and rent related
Depreciation on property and equipment
Cost related to funding mortgage loans
Intersegment
Other
Interest expense:
Intersegment
Other
Costs of goods and services sold-mortuaries
and cemeteries
Total benefits and expenses
Earnings before income taxes
Income tax benefit (expense)
Net earnings
Life
Insurance
Cemetery/
Mortuary
2019
Mortgage
Intercompany
Eliminations
Consolidated
$
81,860,610
41,610,831
138,330
2,128,961
$
15,296,235
579,995
530,098
95,197
$
131,976,082
828,647
59,939
7,956,005
$
-
-
-
-
$
229,132,927
43,019,473
728,367
10,180,163
4,455,034
130,193,766
443,548
16,945,073
508,637
141,329,310
(5,407,219)
(5,407,219)
-
283,060,930
44,911,805
23,568,497
-
-
14,199,152
435,425
3,632,780
20,311,591
595,118
451,380
477,247
-
412,853
11,769,097
490,756
2,808,081
1,084,079
5,177,810
368,173
47,525
428,633
-
180,594
3,241,023
154,615
288,768
-
-
-
52,046,032
38,731,869
3,821,267
6,556,551
805,489
6,278,954
544,463
19,912,641
3,623,938
4,289,839
-
-
-
-
-
-
-
-
-
(1,137,910)
-
(4,269,309)
-
44,911,805
23,568,497
14,634,577
56,762,891
64,221,270
4,784,558
7,055,456
1,711,369
6,278,954
-
34,922,761
-
7,386,688
-
123,628,357
6,565,409
(1,085,848)
5,479,561
$
$
2,878,169
14,284,814
2,660,259
(649,144)
2,011,115
$
$
-
136,611,043
4,718,267
(1,315,424)
3,402,843
$
$
-
(5,407,219)
-
$
-
$
-
2,878,169
269,116,995
13,943,935
(3,050,416)
10,893,519
$
$
Identifiable assets
$
1,110,641,526
$
81,014,182
$
249,970,323
$
(110,701,544)
$
1,330,924,487
Goodwill
$
2,765,570
$
754,018
$
-
$
-
$
3,519,588
55
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
15)
Business Segment Information (Continued)
Revenues:
From external sources:
Revenue from customers
Net investment income
Gains on investments and other assets
Other revenues
Intersegment revenues:
Net investment income
Total revenues
Expenses:
Death, surrenders and other policy benefits
Increase in future policy benefits
Amortization of deferred policy and pre-need
acquisition costs and value of business
acquired
Selling, general and administrative expenses:
Commissions
Personnel
Advertising
Rent and rent related
Depreciation on property and equipment
Cost related to funding mortgage loans
Intersegment
Other
Interest expense:
Intersegment
Other
Costs of goods and services sold-mortuaries
and cemeteries
Total benefits and expenses
Earnings before income taxes
Income tax benefit (expense)
Net earnings
Life
Insurance
Cemetery/
Mortuary
2018
Mortgage
Intercompany
Eliminations
Consolidated
$
75,928,910
38,720,365
21,396,282
1,636,901
$
13,726,518
283,343
2,301,342
128,797
$
116,185,853
909,559
243,555
8,157,302
$
-
-
-
-
$
205,841,281
39,913,267
23,941,179
9,923,000
3,972,532
141,654,990
429,312
16,869,312
503,794
126,000,063
(4,905,638)
(4,905,638)
-
279,618,727
39,185,087
24,332,088
-
-
11,270,579
360,767
3,242,745
18,489,063
566,154
321,701
400,686
-
402,213
10,094,626
481,587
2,744,841
1,222,642
4,773,866
333,852
33,138
372,469
-
182,009
3,046,902
173,807
294,535
-
-
-
45,825,965
44,106,023
3,702,585
7,250,536
1,093,846
6,423,944
531,370
17,873,471
3,134,652
3,917,331
-
-
-
-
-
-
-
-
-
(1,115,592)
-
(3,790,046)
-
39,185,087
24,332,088
11,631,346
50,291,352
67,368,952
4,602,591
7,605,375
1,867,001
6,423,944
-
31,014,999
-
6,956,707
-
111,531,370
30,123,620
(5,275,662)
24,847,958
$
$
2,158,895
12,952,882
3,916,430
(946,820)
2,969,610
$
$
-
133,859,723
(7,859,660)
1,728,171
(6,131,489)
$
$
-
(4,905,638)
-
$
-
$
-
2,158,895
253,438,337
26,180,390
(4,494,311)
21,686,079
$
$
Identifiable assets
$
928,251,387
$
90,639,130
$
159,680,649
$
(130,525,613)
$
1,048,045,553
Goodwill
$
2,765,570
$
-
$
-
$
-
$
2,765,570
56
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
16)
Related Party Transactions
The Company’s Board of Directors has a written procedure, which requires disclosure to the Board of any material
interest or any affiliation on the part of any of its officers, directors or employees that is in conflict or may be in
conflict with the interests of the Company. The Company and its Board of Directors is unaware of any related party
transactions that require disclosure as of December 31, 2019.
17)
Fair Value of Financial Instruments
GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants. GAAP also specifies a fair value hierarchy based upon the observability of inputs used in
valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources,
while unobservable inputs (lowest level) reflect internally developed market assumptions. Fair value measurements
are classified under the following hierarchy:
Level 1: Financial assets and financial liabilities whose values are based on unadjusted quoted prices for identical
assets or liabilities in an active market that the Company can access.
Level 2: Financial assets and financial liabilities whose values are based on the following:
a) Quoted prices for similar assets or liabilities in active markets;
b) Quoted prices for identical or similar assets or liabilities in non-active markets; or
c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of
the asset or liability.
Level 3: Financial assets and financial liabilities whose values are based on prices or valuation techniques that
require inputs that are both unobservable and significant to the overall fair value measurement. These inputs may
reflect the Company’s estimates of the assumptions that market participants would use in valuing the financial assets
and financial liabilities.
The Company utilizes a combination of third-party valuation service providers, brokers, and internal valuation
models to determine fair value.
The following methods and assumptions were used by the Company in estimating the fair value disclosures related to
significant financial instruments:
The items shown under Level 1 and Level 2 are valued as follows:
Fixed Maturity Securities Available for Sale: 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 (considered Level 3 investments), are estimated
by discounting expected future cash flows using a current market value applicable to the coupon rate, credit and
maturity of the investments.
Equity Securities: The fair values for equity securities are based on quoted market prices.
Loans Held for Sale: The Company elected the fair value option for loans held for sale. The fair value is based on
quoted market prices, when available. When a quoted market price is not readily available, the Company uses the
market price from its last sale of similar assets.
Restricted Assets: A portion of these assets include mutual funds, equity securities and fixed maturity securities that
have quoted market prices that are used to determine fair value. Also included are cash and cash equivalents and
participations in mortgage loans. The carrying amounts reported in the accompanying consolidated balance sheets for
these financial instruments approximate their fair values due to their short-term nature.
57
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
17)
Fair Value of Financial Instruments (Continued)
Cemetery Perpetual Care Trust Investments: A portion of these assets include equity securities and fixed maturity
securities that have quoted market prices that are used to determine fair value. Also included are cash and cash
equivalents. The carrying amounts reported in the accompanying consolidated balance sheets for these financial
instruments approximate their fair values due to their short-term nature
Loan Commitments and Forward Sale Commitments: The Company’s mortgage segment enters into loan
commitments with potential borrowers and forward sale commitments to sell loans to third-party investors. The
Company also uses a hedging strategy for these transactions. A loan commitment binds the Company to lend funds
to a qualified borrower at a specified interest rate and within a specified period of time, generally up to 30 days
after issuance of the loan commitment. Loan commitments are defined to be derivatives under GAAP and are
recognized at fair value on the consolidated balance sheets with changes in their fair values recorded in current
earnings.
The Company estimates the fair value of a loan commitment based on the change in estimated fair value of the
underlying mortgage loan, quoted MBS prices, estimates of the fair value of mortgage servicing rights, and an
estimate of the probability that the mortgage loan will fund within the terms of the commitment. The change in fair
value of the underlying mortgage loan is measured from the date the loan commitment is issued. Following issuance,
the value of a mortgage loan commitment can be either positive or negative depending upon the change in value of
the underlying mortgage loans. Fallout rates and other factors from the Company’s recent historical data are used
to estimate the quantity and value of mortgage loans that will fund within the terms of the commitments.
Call and Put Options: The Company uses quoted market prices to value its call and put options.
Additionally, there were no transfers between Level 1 and Level 2 in the fair value hierarchy.
The items shown under Level 3 are valued as follows:
Impaired Mortgage Loans Held for Investment: The Company believes that the fair value of these nonperforming
loans will approximate the unpaid principal balance expected to be recovered based on the fair value of the
underlying collateral. For residential and commercial properties, the collateral value is estimated by obtaining an
independent appraisal. The appraisal typically considers area comparables and property condition as well as
potential rental income that could be generated (particularly for commercial properties). For residential
construction loans, the collateral is typically incomplete, so fair value is estimated as the replacement cost using
data from a provider of building cost information to the real estate construction.
Impaired Real Estate Held for Investment: The Company believes that in an orderly market, fair value will
approximate the replacement cost of a home and the rental income provides a cash flow stream for investment
analysis. The Company believes the highest and best use of the properties are as income producing assets since it is
the Company’s intent to hold the properties as rental properties, matching the income from the investment in rental
properties with the funds required for future estimated policy claims.
It should be noted that for replacement cost, when determining the fair value of real estate held for investment, the
Company uses a provider of building cost information to the real estate construction industry. For the investment
analysis, the Company used market data based upon its real estate operation experience and projected the present
value of the net rental income over seven years. The Company also considers area comparables and property
condition when determining fair value.
In addition to this analysis performed by the Company, the Company depreciates Real Estate Held for Investment.
This depreciation reduces the book value of these properties and lessens the exposure to the Company from further
deterioration in real estate values.
Mortgage Servicing Rights: The Company initially recognizes MSRs at their estimated fair values derived from the
net cash flows associated with the servicing contracts, where the Company assumes the obligation to service the
loan in the sale transaction.
58
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
17)
Fair Value of Financial Instruments (Continued)
The following table summarizes Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on
a recurring basis by their classification in the consolidated balance sheet at December 31, 2019.
Assets accounted for at fair value on a
recurring basis
Fixed maturity securities available for sale
Equity securities
Loans held for sale
Restricted assets (1)
Restricted assets (2)
Cemetery perpetual care trust investments (1)
Cemetery perpetual care trust investments (2)
Derivatives - loan commitments (3)
Total assets accounted for at fair value on a
recurring basis
Liabilities accounted for at fair value on a
recurring basis
Derivatives - call options (4)
Derivatives - put options (4)
Derivatives - loan commitments (4)
Total liabilities accounted for at fair value
on a recurring basis
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
355,977,820
7,271,165
213,457,632
1,008,867
1,976,480
975,673
1,605,451
2,722,580
-
$
7,271,165
-
-
1,976,480
-
1,605,451
-
$
352,761,438
-
-
1,008,867
-
975,673
-
-
$
3,216,382
-
213,457,632
-
-
-
-
2,722,580
$
584,995,668
$
10,853,096
$
354,745,978
$
219,396,594
$
(62,265)
(22,282)
(231,347)
$
(62,265)
(22,282)
-
-
$
-
-
-
$
-
(231,347)
$
(315,894)
$
(84,547)
$
-
$
(231,347)
(1) Fixed maturity securities available for sale
(2) Mutual funds and equity securities
(3) Included in other assets on the consolidated balance sheets
(4) Included in other liabilities and accrued expenses on the consolidated balance sheets
For Level 3 assets and liabilities measured at fair value on a recurring basis as of December 31, 2019, the significant
unobservable inputs used in the fair value measurements were as follows:
Loans held for sale
Fair Value at
12/31/2019
Valuation
Technique
Significant
Unobservable
Input(s)
$ 213,457,632 Market approach Investor contract pricing as a
percentage of unpaid principal
balance
Range of Inputs
Minimum Maximum Weighted
Average
Value
103.0%
109.0%
Value
98.0%
Derivatives - loan commitments (net)
2,491,233 Market approach Fall-out factor
Initial-Value
Servicing
1.0%
N/A
0 bps
92.0%
N/A
318 bps
81.0%
N/A
79 bps
Fixed maturity securities available for sale
3,216,382 Broker quotes
Pricing quotes
$
95.02
$
115.80
$
107.98
59
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
17)
Fair Value of Financial Instruments (Continued)
Following is a summary of changes in the consolidated balance sheet line items measured using level 3 inputs:
Balance - December 31, 2018
Originations/purchases
Sales
Transfer to mortgage loans held for investment
Transfer from fixed maturity securities held to maturity
Total gains (losses):
Net Derivatives
Loan
Commitments
$
1,591,816
-
-
-
-
Loans Held for
Sale
$
136,210,853
2,606,839,175
(2,580,875,055)
(31,881,851)
Fixed Maturity
Securities
Available for Sale
-
$
-
-
-
3,216,382
Included in earnings (1)
Balance - December 31, 2019
899,417
83,164,510
-
$
2,491,233
$
213,457,632
$
3,216,382
(1) As a component of mortgage fee income on the consolidated statements of earnings
The following tables summarize Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on
a nonrecurring basis by their classification in the consolidated balance sheet at December 31, 2019.
Assets accounted for at fair value on a
nonrecurring basis
Impaired mortgage loans held for investment
Impaired real estate held for investment
Total assets accounted for at fair value on
a nonrecurring basis
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
1,302,025
8,375,884
-
$
-
-
$
-
$
1,302,025
8,375,884
$
9,677,909
$
-
$
-
$
9,677,909
60
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
17)
Fair Value of Financial Instruments (Continued)
The following table summarizes Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on
a recurring basis by their classification in the consolidated balance sheet at December 31, 2018.
Assets accounted for at fair value on a
recurring basis
Equity securities
Loans held for sale
Restricted assets (1)
Cemetery perpetual care trust investments (1)
Derivatives - loan commitments (2)
Total assets accounted for at fair value on a
recurring basis
Liabilities accounted for at fair value on a
recurring basis
Derivatives - call options (3)
Derivatives - put options (3)
Derivatives - loan commitments (3)
Total liabilities accounted for at fair value
on a recurring basis
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
5,558,611
136,210,853
744,673
483,353
1,969,967
$
5,558,611
-
744,673
483,353
-
-
$
-
-
-
-
$
-
136,210,853
-
-
1,969,967
$
144,967,457
$
6,786,637
$
-
$
138,180,820
$
(4,629)
(296,053)
(378,151)
$
(4,629)
(296,053)
-
-
$
-
-
-
$
-
(378,151)
$
(678,833)
$
(300,682)
$
-
$
(378,151)
(1) Mutual funds and equity securities
(2) Included in other assets on the consolidated balance sheets
(3) Included in other liabilities and accrued expenses on the consolidated balance sheets
Following is a summary of changes in the consolidated balance sheet line items measured using level 3 inputs:
Balance - December 31, 2017
Originations
Sales
Transfer to mortgage loans held for investment
Total gains (losses):
Net Derivatives
Loan
Commitments
$
1,996,589
Loans Held for
Sale
$
133,414,188
2,194,607,543
(2,259,145,473)
(10,827,797)
Included in earnings (1)
(404,773)
78,162,392
Balance - December 31, 2018
$
1,591,816
$
136,210,853
(1) As a component of mortgage fee income on the consolidated statements of
earnings
61
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
17)
Fair Value of Financial Instruments (Continued)
The following tables summarize Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on
a nonrecurring basis by their classification in the consolidated balance sheet at December 31, 2018.
Assets accounted for at fair value on a
nonrecurring basis
Impaired mortgage loans held for investment
Impaired real estate held for investment
Total assets accounted for at fair value on
a nonrecurring basis
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
1,253,302
1,611,384
-
$
-
$
-
-
$
1,253,302
1,611,384
$
2,864,686
$
-
$
-
$
2,864,686
Fair Value of Financial Instruments Carried at Other Than Fair Value
ASC 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether
or not recognized in the balance sheet, for which it is practicable to estimate that value.
Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however,
there are inherent limitations in any estimation technique. Therefore, for substantially all financial instruments, the
fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized
in a sales transaction at December 31, 2019 and 2018.
The carrying values and estimated fair values for such financial instruments, and their corresponding placement in
the fair value hierarchy, are summarized as follows as of December 31, 2019:
Carrying Value
Level 1
Level 2
Level 3
Total Estimated
Fair Value
Assets
Mortgage loans held for investment
Residential
Residential construction
Commercial
Mortgage loans held for investment, net
Policy loans
Insurance assignments, net (1)
Restricted assets (2)
Cemetery perpetual care trust investments (2)
Mortgage servicing rights, net
Liabilities
Bank and other loans payable
Policyholder account balances (3)
Future policy benefits - annuities (3)
$
$
110,253,678
88,651,967
37,788,901
236,694,546
14,762,805
39,614,939
2,275,756
524,000
17,155,529
-
$
-
-
$
-
-
-
-
-
-
-
$
-
-
$
-
-
-
-
-
-
$
$
115,320,638
88,651,967
39,289,462
243,262,067
14,762,805
39,614,939
2,289,679
536,553
22,784,571
$
$
115,320,638
88,651,967
39,289,462
243,262,067
14,762,805
39,614,939
2,289,679
536,553
22,784,571
$
(217,572,612)
(45,154,180)
(113,579,830)
-
$
-
-
-
$
-
-
$
(217,572,612)
(41,828,469)
(117,304,614)
$
(217,572,612)
(41,828,469)
(117,304,614)
(1) Included in other investments and policy loans on the consolidated balance sheets
(2) Mortgage loans held for investment
(3) Included in future policy benefits and unpaid claims on the consolidated balance sheets
62
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
17)
Fair Value of Financial Instruments (Continued)
The carrying values and estimated fair values for such financial instruments, and their corresponding placement in
the fair value hierarchy, are summarized as follows as of December 31, 2018:
Assets
Fixed maturity securities, held to maturity
Mortgage loans held for investment
Residential
Residential construction
Commercial
Mortgage loans held for investment, net
Policy loans
Insurance assignments, net (1)
Restricted assets (2)
Restricted assets (3)
Cemetery perpetual care trust investments (2)
Mortgage servicing rights, net
Liabilities
Bank and other loans payable
Policyholder account balances (4)
Future policy benefits - annuities (4)
Carrying Value
Level 1
Level 2
Level 3
Total Estimated
Fair Value
$
232,078,723
$
-
$
229,668,844
$
5,082,014
$
234,750,858
$
87,947,566
70,886,702
27,630,801
186,465,069
6,424,325
34,146,868
1,258,397
1,799,268
990,390
20,016,822
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
$
-
-
1,271,687
-
983,410
-
92,503,553
70,886,702
28,359,205
191,749,460
6,424,325
34,168,868
$
-
1,810,185
-
28,885,316
$
92,503,553
70,886,702
28,359,205
191,749,460
6,424,325
34,168,868
1,271,687
1,810,185
983,410
28,885,316
$
(187,521,188)
(46,479,853)
(98,137,615)
-
$
-
-
-
$
-
-
$
(187,521,188)
(37,348,289)
(97,641,146)
$
(187,521,188)
(37,348,289)
(97,641,146)
(1) Included in other investments and policy loans on the consolidated balance sheets
(2) Fixed maturity securities held to maturity
(3) Participation in mortgage loans held for investment
(4) Included in future policy benefits and unpaid claims on the consolidated balance sheets
The methods, assumptions and significant valuation techniques and inputs used to estimate the fair value of financial
instruments are summarized as follows:
Fixed Maturity Securities Held to Maturity: 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.
Mortgage Loans Held for Investment: The estimated fair value of the Company’s mortgage loans held for investment
is determined using various methods. The Company’s mortgage loans are grouped into three categories: Residential,
Residential Construction and Commercial. When estimating the expected future cash flows, it is assumed that all loans
will be held to maturity, and any loans that are non-performing are evaluated individually for impairment.
Residential – The estimated fair value of mortgage loans is determined through a combination of discounted
cash flows (estimating expected future cash flows of interest payments and discounting them using current
interest rates from single family mortgages) and considering pricing of similar loans that were sold recently.
Residential Construction – These loans are primarily short in maturity. Accordingly, the estimated fair value
is determined to be the carrying value.
Commercial – The estimated fair value is determined by estimating expected future cash flows of interest
payments and discounting them using current interest rates for commercial mortgages.
Policy Loans: The carrying amounts reported in the accompanying consolidated balance sheet for these financial
instruments approximate their fair values because they are fully collateralized by the cash surrender value of the
underlying insurance policies.
63
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
17)
Fair Value of Financial Instruments (Continued)
Insurance Assignments, Net: These investments are short in maturity. Accordingly, the carrying amounts reported in
the accompanying consolidated balance sheet for these financial instruments approximate their fair values.
Bank and Other Loans Payable: The carrying amounts reported in the accompanying consolidated balance sheet
for these financial instruments approximate their fair values due to their relatively short-term maturities and
variable interest rates.
Policyholder Account Balances and Future Policy Benefits-Annuities: Future policy benefit reserves for interest-
sensitive insurance products are computed under a retrospective deposit method and represent policy account balances
before applicable surrender charges. Policy benefits and claims that are charged to expense include benefit claims
incurred in the period in excess of related policy account balances. Interest crediting rates for interest-sensitive
insurance products ranged from 1.5% to 6.5%. The fair values for these investment-type insurance contracts are
estimated based on the present value of liability cash flows.
The fair values for the Company’s insurance contracts other than investment-type contracts are not required to be
disclosed. However, the fair values of liabilities under all insurance contracts are taken into consideration in the
Company’s overall management of interest rate risk, such that the Company’s exposure to changing interest rates is
minimized through the matching of investment maturities with amounts due under insurance contracts.
18)
Accumulated Other Comprehensive Income
The following summarizes the changes in accumulated other comprehensive income:
Cumulative effect adjustment upon adoption of new accounting standard
(ASU 2016-01) for equity securities
$
-
$
(603,170)
December 31
2019
2018
Unrealized gains on fixed maturity securities available for sale
Reclassification adjustment for net realized gains in net income
Net unrealized gains before taxes
Tax expense
Net
Unrealized gains on restricted assets (1)
Tax expense
Net
Unrealized gains on cemetery perpetual care trust investments (1)
Tax expense
Net
Unrealized gains for foreign currency translations adjustments
Tax expense
Net
Other comprehensive income changes
_______________
(1) Fixed maturity securities available for sale
17,315,770
-
17,315,770
(3,636,311)
13,679,459
35,550
(8,856)
26,694
29,904
(7,449)
22,455
972
(243)
729
13,729,337
$
-
-
-
-
-
-
-
-
-
-
-
(3,761)
938
(2,823)
(605,993)
$
64
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
18)
Accumulated Other Comprehensive Income (Continued)
The following is the accumulated balances of other comprehensive income as of December 31, 2019:
Unrealized gains on fixed maturity securities available for sale
Unrealized gains on restricted assets (1)
Unrealized gains on cemetery perpetual care trust investments (1)
Foreign currency translation adjustments
Other comprehensive income (loss)
(1) Fixed maturity securities available for sale
Beginning
Balance
December 31,
2018
$ -
-
-
(2,823)
$ (2,823)
Ending
Balance
December 31,
2019
$ 13,679,459
26,694
22,455
(2,094)
$ 13,726,514
Change for
the period
$ 13,679,459
26,694
22,455
729
$ 13,729,337
The following is the accumulated balances of other comprehensive income as of December 31, 2018:
Unrealized gains on equity securities, restricted assets and
cemetery perpetual care trust investments
Foreign currency translation adjustments
Other comprehensive income (loss)
Beginning
Balance
December 31,
2017
Change for
the period
Ending
Balance
December 31,
2018
$ 603,170
-
$ 603,170
$ (603,170) (1) $ -
(2,823)
(2,823)
$ (2,823)
$ (605,993)
(1) Cumulative effect adjustment upon adoption of new accounting standard (ASU 2016-01)
65
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
19)
Derivative Instruments
The following table shows the fair value and notional amounts of derivative instruments as of December 31, 2019 and
2018.
Fair Values and Notional Amounts of Derivative Instruments
December 31, 2019
December 31, 2018
Balance Sheet
Location
Notional
Amount
Asset Fair
Value
Liability
Fair Value
Notional
Amount
Asset Fair
Value
Liability
Fair Value
Derivatives not designated
as hedging instruments:
Loan commitments
Call options
Put options
T otal
Other assets and
Other liabilities
Other liabilities
Other liabilities
$224,202,514
$2,722,580
$231,347
$ 93,758,218
$1,969,967
$378,151
1,813,500
1,573,100
$227,589,114
--
--
$2,722,580
62,265
22,282
$315,894
805,500
4,861,700
$ 99,425,418
--
--
$1,969,967
4,629
296,053
$678,833
The following table shows the gain (loss) on derivatives for the periods presented. There were no gains or losses
reclassified from accumulated other comprehensive income into income or gains or losses recognized in income on
derivatives ineffective portion or any amounts excluded from effective testing.
Derivative
Loan commitments
Classification
Mortgage fee income
Call and put options
Gains on investments and
other assets
Net Amount Gain (Loss)
Years ended December 31
2019
2018
$
899,417
$
(404,773)
$
626,208
$
187,786
66
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
20)
Acquisitions
Kilpatrick Life Insurance Company
On December 13, 2019, the Company, through its wholly owned subsidiary, Security National Life Insurance
Company (“Security National Life”) completed a stock purchase transaction with Kilpatrick Life Insurance
Company, a Louisiana domiciled life insurance company (“Kilpatrick Life”) and its shareholders, which resulted
in the purchase of all the outstanding shares of common stock of Kilpatrick Life. The closing of the transaction was
subject to approval by the Louisiana Department of Insurance of the change of control of Kilpatrick Life, which
was received on December 12, 2019. Under the terms of the transaction, the total Purchase Price that Security
National Life paid for all the shares held by the Kilpatrick shareholders was $23,779,940 subject to a $1,400,000
holdback, as agreed with the shareholders.
Kilpatrick Life has been in operation since 1932 and provides life insurance products and services through insurance
plans such as permanent and term life insurance, asset protection plans, graded whole life insurance, and annuities.
Additionally, it provides insurance services for emergencies and pre‐arranged funeral services. Kilpatrick Life is
based in Shreveport, Louisiana with additional offices in Jena, Alexandria, Minden, and Arcadia, Louisiana.
Kilpatrick Life employs a staff of almost 120 associates in four offices in Louisiana and is licensed to operate in
Louisiana, Texas, Arkansas, Oklahoma, and Mississippi with the home office located in Shreveport, LA. It is the
mission of Kilpatrick Life to continue providing the utmost service and protection for its policyholders for
generations to come.
Prior to the stock purchase transaction, Security National life and Kilpatrick Life entered into a coinsurance
agreement, effective October 1, 2019. After the effective date, Security National Life, as coinsurer, agreed to be
responsible for and was obligated with respect to 100% of the contractual liabilities under the Kilpatrick Life’s life
insurance policies in accordance with the terms and conditions of the policies and applicable law. Unless otherwise
directed by Security National Life, as coinsurer, Kilpatrick Life continued to administer the policies on behalf of
Security National Life, as coinsurer, for the duration of the coinsurance agreement.
As part of the coinsurance agreement, effective October 1, 2019, Security National Life acquired the following
assets and assumed the following contractual liabilities.
Other investments and policy loans
Real estate held for investment
Mortgage loans held for investment
Receivables
Total assets acquired
Future policy benefits and unpaid claims
Other liabilities and accrued expenses
Total liabilities assumed
Cash received for reinsurance assumed
$
9,124,459
2,850,000
200,000
131,258
12,305,717
(165,404,970)
(5,259,341)
(170,664,311)
158,358,594
$
Contemporaneous with the stock purchase transaction, both Kilpatrick Life and Security National Life, as coinsurer,
agreed terminate the coinsurance agreement, to require the recapture of the life insurance policies by Kilpatrick Life
and provided notification to the Louisiana Department of Insurance. The final settlement and transfer of the
coinsurance trust assets from Security National Life back to Kilpatrick Life occurred shortly thereafter.
67
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
20)
Acquisitions (Continued)
The estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition, on December
13, 2019, are shown in the following table. At the time of acquisition some of these assets and liabilities became
intercompany items, and the Company has eliminated them for consolidation.
Fixed maturity securities, available for sale
Fixed maturity securities, held to maturity
Mortgage loans held for investment
Real estate held for investment
Other investments
Accrued investment income
Total investments
Cash and cash equivalents
Receivables, net
Receivables from reinsurers
Property and equipment, net
Value of business acquired
Deferred taxes
Other
Total assets acquired
$
22,766,520
16,436
8,011,660
2,708,557
446,655
183,527
34,133,355
(1)
(1)
6,900,654
5,407,736
168,105,064
1,498,245
4,962,831
167,344
712,323
221,887,552
Future policy benefits and unpaid claims
Accounts payable
Other liabilities and accrued expenses
Income taxes
Total liabilities assumed
Fair value of net assets acquired/consideration paid
(189,071,407)
(283,304)
(7,870,944)
(881,957)
(198,107,612)
23,779,940
$
Fair value of net assets acquired/consideration paid,
net of cash acquired
$
16,879,286
(1) Receivable from reinsurers of $162,907,008 and receivables, net of
$5,000,000 were settled with the recapture of the coinsurance agreement
by Kilpatrick Life from Security National Life.
Kilpatrick Life’s revenues and net loss since the date of acquisition were $1,461,011 and $848,031, respectively.
Probst Family Funerals and Cremations and Heber Valley Funeral Home
On February 15, 2019, the Company, through its wholly-owned subsidiary, Memorial Mortuary Inc., completed an
asset purchase transaction with Probst Family Funerals and Cremations, LLC. (“Probst Family Funerals”) and Heber
Valley Funeral Home, Inc. (“Heber Valley Funeral Home”). These funeral homes are both located in Heber Valley, a
community situated about 45 miles southeast of Salt Lake City.
Under the terms of the transaction, as set forth in the Asset Purchase Agreement, dated February 15, 2019, Memorial
Mortuary Inc. paid a net purchase price of $3,315,647 for the business and assets of Probst Family Funerals and Heber
Valley Funeral Home, subject to a $150,000 holdback. In August 2019, this escrow account was settled and $137,550
was paid to the prior owners.
68
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
20)
Acquisitions (Continued)
The estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition were as follows:
Cash
Property and equipment
Receivables
Goodwill
Other
Total assets acquired
$
53,859
2,475,526
13,620
754,018
21,800
3,318,823
Bank and other loans payable
Total liabilities assumed
Fair value of net assets acquired/consideration paid
(3,176)
(3,176)
3,315,647
$
Fair value of net assets acquired/consideration paid,
net of cash acquired
$
3,261,788
Probst Family Funerals and Heber Valley Funeral Home’s revenues and net earnings since the date of acquisition
were $796,992 and $97,400, respectively.
Beta Capital Corp.
On June 1, 2018, the Company completed a stock purchase transaction with Beta Capital Corp. ("Beta Capital")
and Ronald D. Maxson ("Maxson"), the sole owner of all the outstanding shares of common stock of Beta Capital,
to purchase all of the outstanding shares of common stock of Beta Capital. Beta Capital is engaged in the operation
of a factoring business with the principal purpose of providing funding for funeral homes and mortuaries.
Under the terms of the transaction, as set forth in the Stock Purchase Agreement, dated June 1, 2018, by and among
the Company, Beta Capital and Maxson, the Company paid Maxson the purchase consideration at the closing of
the transaction equal to the sum of (i) $890,000 in cash plus (ii) the accounts receivable value of $2,515,783,
representing the total amount of the Company's outstanding receivables as of the closing date of June 1, 2018, for
a total closing payment of $3,405,783. From the $3,405,783 closing payment, a holdback amount equal to $175,000
was deposited into an interest bearing escrow account. In November 2019, this escrow account was settled and
$169,190 was paid to the prior owner.
The estimated fair values of the assets acquired at the date of acquisition were as follows:
Other investments - insurance assignments
Other - customer list intangible asset
Total assets acquired
Fair value of net assets acquired/consideration paid
$
$
2,515,783
890,000
3,405,783
3,405,783
69
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
21) Mortgage Servicing Rights
The Company reports MSRs pursuant to the accounting policy discussed in Note 1 of the Notes to Consolidated
Financial Statements.
The following table presents the MSR activity for the periods presented.
Amortized cost:
Balance before valuation allowance at beginning of year
MSR additions resulting from loan sales
Amortization (1)
Application of valuation allowance to write down MSRs
with other than temporary impairment
Balance before valuation allowance at year end
Valuation allowance for impairment of MSRs:
Balance at beginning of year
Additions
Application of valuation allowance to write down MSRs
with other than temporary impairment
Balance at year end
Mortgage servicing rights, net
December 31
2019
2018
$
20,016,822
4,194,502
(7,055,795)
$
21,376,937
3,922,816
(5,282,931)
-
17,155,529
$
-
20,016,822
$
$
-
-
$
-
-
-
$
-
-
$
-
$
17,155,529
$
20,016,822
Estimated fair value of MSRs at year end
$
22,784,571
$
28,885,316
(1) Included in other expenses on the consolidated statements of earnings
The following table summarizes the Company’s estimate of future amortization of its existing MSRs carried at
amortized cost. This projection was developed using the assumptions made by management in its December 31,
2019 valuation of MSRs. The assumptions underlying the following estimate will change as market conditions and
portfolio composition and behavior change, causing both actual and projected amortization levels to change over
time. Therefore, the following estimates will change in a manner and amount not presently determinable by
management.
Estimated MSR
Amortization
2020
2021
2022
2023
2024
Thereafter
Total
$
2,999,452
2,376,277
1,971,249
1,631,010
1,359,492
6,818,049
17,155,529
$
70
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
21) Mortgage Servicing Rights (Continued)
During the years ended December 31, 2019 and 2018, the Company collected the following contractual servicing fee
income and late fee income as reported in other revenues on the consolidated statements of earnings:
Contractual servicing fees
Late fees
Total
2019
7,212,164
365,477
7,577,641
$
$
2018
7,561,226
319,244
7,880,470
$
$
The following is a summary of the unpaid principal balances (“UPB”) of the servicing portfolio for the periods
presented:
Years Ended December 31
2019
2018
Servicing UPB
$
2,804,139,415
$
2,941,231,563
The following key assumptions were used in determining MSR value:
Prepayment
Average
Discount
Speeds
Life(Years)
Rate
December 31, 2019
December 31, 2018
15.30
11.70
5.27
6.33
9.51
9.51
71
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
22)
Future Policy Benefits and Unpaid Claims
The Company reports future policy benefits and unpaid claims pursuant to the accounting policy discussed in Note
1 of the Notes to Consolidated Financial Statements.
The following table provides information regarding future policy benefits and unpaid claims and the related receivable
from reinsurers.
Life
Annuities
Policyholder account balances
Accident and health
Other policyholder funds
Reported but unpaid claims
Incurred but not reported claims
Years Ended
$
2019
654,585,723
113,579,831
45,154,180
667,428
4,530,227
4,891,922
2,191,607
2018
466,232,621
$
98,137,615
46,479,853
482,693
4,431,296
3,365,872
1,269,764
Gross future policy benefits and unpaid claims
$
825,600,918
$
620,399,714
Receivable from reinsurers
Life
Annuities
Accident and health
Reported but unpaid claims
Incurred but not reported claims
Total receivable from reinsurers
11,040,398
4,038,007
90,113
569,250
10,000
6,702,328
4,078,666
-
33,108
6,000
15,747,768
10,820,102
Net future policy benefits and unpaid claims
$
809,853,150
$
609,579,612
72
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
23)
Revenues from Contracts with Customers
The Company reports revenues from contracts with customers pursuant to ASC No. 606, Revenue from Contracts
with Customers.
Contracts with Customers
Information about Performance Obligations and Contract Balances
The Company’s cemetery and mortuary segment sells a variety of goods and services to customers in both at-need
and pre-need situations. Due to the timing of the fulfillment of the obligation, revenue is deferred until that
obligation is fulfilled. The total contract liability for future obligations is included in deferred pre-need cemetery
and mortuary contract revenues on the consolidated balance sheets and, as of December 31, 2019 and 2018, the
balances were $12,607,978 and 12,508,625, respectively.
The Company’s three types of future obligations are as follows:
Pre-need Merchandise and Service Revenue: All pre-need merchandise and service revenue is deferred and the
funds are placed in trust until the need arises, the merchandise is received or the service is performed. The trust is
then relieved, and the revenue and commissions are recognized. As of December 31, 2019 and 2018, the balances
were $12,325,437 and $12,175,943, respectively.
At-need Specialty Merchandise Revenue: At-need specialty merchandise revenue consists of customizable
merchandise ordered from a manufacturer such as markers and bases. When specialty merchandise is ordered, it
can take time to manufacture and deliver the product. Revenue is deferred until the at-need merchandise is received.
As of December 31, 2019 and 2018, the balances were $282,541 and $327,302, respectively. Deferred revenue for
at-need specialty revenue is not placed in trust.
Deferred Pre-need Land Revenue: Deferred pre-need revenue and corresponding commissions are deferred until
10% of the funds are received from the customer through regular monthly payments. As of December 31, 2019 and
2018, the balances were $-0- and $5,380, respectively. Deferred pre-need land revenue is not placed in trust.
Complete payment of the contract does not constitute fulfillment of the performance obligation. Goods or services
are deferred until such time the service is performed or merchandise is received. Pre-need contracts are required to
be paid in full prior to a customer using a good or service from a pre-need contract. Goods and services from pre-
need contracts can be transferred when paid in full from one owner to another. In such cases, the Company will act
as an agent in transferring the requested goods and services. A transfer of goods and services does not fulfill an
obligation and revenue remains deferred.
The opening and closing balances of the Company’s receivables, contract assets and contract liabilities are as
follows:
Opening (1/1/2019)
Closing (12/31/2019)
Increase/(decrease)
Opening (1/1/2018)
Closing (12/31/2018)
Increase/(decrease)
Contract Balances
Receivables (1)
2,816,225
$
2,778,879
(37,346)
Contract Asset
-
$
-
-
Contract Liability
$
12,508,625
12,607,978
99,353
Contract Balances
Receivables (1)
$
3,608,379
2,816,225
(792,154)
Contract Asset
$
-
-
-
Contract Liability
$
12,873,068
12,508,625
(364,443)
(1) Included in Receivables, net on the consolidated balance sheets
73
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
23)
Revenues from Contracts with Customers (Continued)
The following table disaggregates the opening and closing balances of the Company’s contract balances.
Contract Balances
Pre-need merchandise and services
At-need specialty merchandise
Pre-need land sales
Opening (1/1/2019)
Contract Asset
$
-
-
-
$
-
Pre-need merchandise and services
At-need specialty merchandise
Pre-need land sales
Closing (12/31/2019)
-
$
-
-
$
-
Contract Liability
$
12,175,943
327,302
5,380
12,508,625
12,325,437
282,541
-
12,607,978
$
$
$
Contract Balances
Pre-need merchandise and services
At-need specialty merchandise
Pre-need land sales
Opening (1/1/2018)
Contract Asset
-
$
-
-
$
-
Pre-need merchandise and services
At-need specialty merchandise
Pre-need land sales
Closing (12/31/2018)
-
$
-
-
$
-
Contract Liability
$
12,620,596
236,572
15,900
12,873,068
12,175,943
327,302
5,380
12,508,625
$
$
$
The amount of revenue recognized for the years ended December 31, 2019 and 2018 that was included in the
opening contract liability balance was $3,558,103 and $2,623,903, respectively.
The difference between the opening and closing balances of the Company’s contract assets and contract liabilities
primarily results from the timing difference between the Company’s performance and the customer’s payment.
Disaggregation of Revenue
The following table disaggregates revenue for the Company’s cemetery and mortuary contracts.
Years Ended December 31
2019
2018
Major goods/service lines
At-need
Pre-need
Timing of Revenue Recognition
Goods transferred at a point in time
Services transferred at a point in time
$
$
12,334,777
2,961,458
15,296,235
$
$
10,391,976
3,334,542
13,726,518
$
$
10,133,723
5,162,512
15,296,235
$
9,100,851
4,625,667
13,726,518
$
74
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
23)
Revenues from Contracts with Customers (Continued)
Significant Judgments and Estimates
The Company's cemetery and mortuary segment recognizes revenue on future performance obligations when goods
are delivered and when services are performed and is not determined by the terms or payments of the contract as
long as any good or service is paid in full prior to delivery. Prices are determined based on the market at the time a
contract is created. Goods or services are not partially completed. There are no significant judgements, estimations
or allocation methods when revenue should be recognized.
Practical Expedients
The Company has not elected to use any of the practical expedients under ASC 606.
Contract Costs
The Company's cemetery and mortuary segment defers certain costs associated with obtaining a contract on future
obligations.
Pre-need Merchandise and Service Revenue: Pre-need merchandise and service revenues are deferred until the
goods or services are delivered. Recognition can be years until the obligations are satisfied. Commissions and other
costs are capitalized and deferred until the obligation is satisfied. Other costs include rent on pre-need offices and
training rooms, and call center costs. Costs that are allocated based on a percentage include family service advisor
compensation, bonuses, utilities and supplies that are all used to procure a pre-need sale.
At-need Specialty Merchandise Revenue: At-need specialty merchandise is ordered from a third-party manufacturer.
Generally, at-need specialty merchandise is ordered and received within 90 days of order. These orders are also
short-term in nature and are deferred until the product is received from the manufacturer and the obligation is
satisfied.
Deferred Pre-need Land Revenue: Revenue is recognized on pre-need land sales when the customer has paid at
least 10% toward the land price. In cases, where customers pay less than 10%, the revenue and associated
commissions are deferred until such time when 10% of the contract price is received.
The following table disaggregates contract costs that are included in deferred policy and pre-need contract
acquisition costs on the consolidated balances sheets.
Years Ended December 31
2019
2018
Pre-need merchandise and services
At-need specialty merchandise
Pre-need land sales
$
$
3,590,266
10,688
-
3,600,954
3,575,032
15,926
1,237
3,592,195
$
$
75
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
24)
Leases
On January 1, 2019, the Company adopted Accounting Standards Update No. 2016-02 regarding Leases ASC Topic
842. See Note 1 regarding the adoption of this standard.
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property,
plant, or equipment (an identified asset) for a period of time in exchange for consideration. The Company determines
if a contract is a lease at the inception of the contract. At the commencement date of a lease, the Company measures
the lease liability at the present value of the lease payments over the lease term, discounted using the discount rate for
the lease. The Company uses the rate implicit in the lease, if available, otherwise the Company uses its incremental
borrowing rate. Also, at the commencement date of a lease, the Company measures the cost of the related right-of-use
asset which consists of the amount of the initial measurement of the lease liability, any lease payments made to the
lessor at or before the commencement date, minus any lease incentives received and any initial direct costs incurred
by the Company.
Information about the Nature of Leases and Subleases
The Company leases office space and equipment from third-parties under various non-cancelable agreements. The
Company has operating leases for office space for its segments in areas where it conducts business. The Company
subleases some of this office space. The Company also has finance leases for certain equipment, such as copy machines
and postage machines. The Company does not have any lease agreements with variable lease payments. The Company
has not included any options to extend or terminate leases in the recognition of the right-of-use assets or lease liabilities
because of the uncertainty that they will be exercised. No residual value guarantees have been provided to the
Company. The Company does not have any restrictions or covenants imposed by leases.
Leases that have not Commenced
The Company does not have any leases that have not commenced that create significant rights or obligations for the
Company.
Related Party Lease Transactions
The Company does not have any related party lease transactions that require disclosure as of December 31, 2019.
Short-term Leases
The Company made an accounting policy election not to apply the recognition requirements of ASC 842 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.
Significant Judgments and Assumptions
The Company does not use any significant judgments or assumptions regarding the determination of whether a contract
contains a lease; the allocation of the consideration in a contract between lease and nonlease components; or the
determination of the discount rates for the leases.
76
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
24)
Leases (Continued)
The following table presents the Company’s total lease cost recognized in earnings, amounts capitalized as right-of-
use assets and cash flows from lease transactions for the period presented:
Year Ended
December 31
2019
Lease Cost
Finance lease cost:
Amortization of right-of-use assets (1)
Interest on lease liabilities (2)
Operating lease cost (3)
Short-term lease cost (3)(4)
Sublease income (3)
Total lease cost
$
38,351
9,001
5,706,490
233,318
(663,242)
5,323,918
$
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases
Finance leases
Weighted-average remaining lease term (in years)
Finance leases
Operating leases
Weighted-average discount rate
Finance leases
Operating leases
$
5,567,761
9,001
95,931
$
16,544,406
252,763
3.23
4.67
5.47%
5.06%
(1) Included in Depreciation on property and equipment on the consolidated statements of
earnings
(2) Included in Interest expense on the consolidated statements of earnings
(3) Included in Rent and rent related expenses on the consolidated statements of earnings
(4) Includes leases with a term of 12 months or less
77
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
24)
Leases (Continued)
The following table presents the maturity analysis of the Company’s lease liabilities.
Finance Leases Operating Leases
Lease payments due in:
2020
2021
2022
2023
2024
Thereafter
Total undiscounted lease payments
Less: Discount on cash flows
Present value of lease liabilities
$
$
62,756
45,086
32,646
25,408
2,542
-
168,438
(14,999)
153,439
4,241,547
2,932,404
1,780,183
1,383,538
1,061,520
2,919,074
14,318,266
(2,912,290)
11,405,976
$
$
The following table presents the Company’s right-of-use assets and lease liabilities for the period presented:
Balance Sheet Location
Year Ended
December 31
2019
Operating Leases
Right-of-use assets
Other assets
$
11,267,247
Lease liabilities
Other liabilities and accrued expenses
$
11,405,976
Finance Leases
Right-of-use assets
Accumulated amortization
Right-of-use assets, net
Property and equipment, net
$
$
248,565
(98,351)
150,214
Lease liabilities
Bank and other loans payable
$
153,439
The Company is also a lessor and has operating lease agreements with various tenants that lease its commercial and
residential properties. See Note 2 for information about the Company’s real estate held for investment.
78
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
25)
Quarterly Financial Data (Unaudited)
2019
Three Months Ended
March 31
$
61,493,835
59,061,676
2,432,159
(501,841)
1,930,318
$0.11
$0.11
$
June 30
68,445,182
63,821,339
4,623,843
(1,143,789)
3,480,054
$0.19
$0.19
September 30
$
75,379,659
70,619,837
4,759,822
(1,142,408)
3,617,414
$0.20
$0.20
December 31
77,742,254
$
75,614,143
2,128,111
(262,378)
1,865,733
$0.10
$0.10
2018
Three Months Ended
March 31
$
82,076,109
60,888,928
21,187,181
(4,261,258)
16,925,923
$0.95
$0.94
$
June 30
68,865,126
64,702,895
4,162,231
(924,014)
3,238,217
$0.18
$0.18
September 30
67,223,093
$
65,011,295
2,211,798
(198,052)
2,013,746
$0.11
$0.11
December 31
61,454,399
$
62,835,219
(1,380,820)
889,013
(491,807)
($0.03)
($0.03)
Revenues
Benefits and expenses
Earnings before income taxes
Income tax expense
Net earnings
Net earnings per common share (1)
Net earnings per common share
assuming dilution (1)
Revenues
Benefits and expenses
Earnings before income taxes
Income tax expense
Net earnings
Net earnings per common share (1)
Net earnings per common share
assuming dilution (1)
_______________________
(1) Earnings per share amounts have been adjusted retroactively for the effect of annual stock dividends.
26)
Subsequent Events
COVID-19
Since December 31, 2019, the outbreak of the novel strain of coronavirus, specifically identified as "COVID-
19", has resulted in governments worldwide enacting emergency measures to combat the spread of the virus.
These measures, which include the implementation of travel bans, self-imposed quarantine periods and social
distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global
equity markets have experienced significant volatility and weakness. Governments and central banks have
reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The
duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government
and central bank interventions. It is not possible to reliably estimate the length and severity of these
developments and the impact on the financial results and condition of the Company and its operating
subsidiaries in future periods. Further, these uncertainties have the potential to negatively affect the risk of
credit default for the issuers of the Company’s debt securities and individual borrowers with mortgage loans
held by the Company.
79
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Market for the Registrant’s Common Stock, Related Security Holder Matters, and Issuer Purchases of
Equity Securities
The Company’s Class A common stock trades on The NASDAQ National Market under the symbol “SNFCA.”
As of March 27, 2019, the closing stock price of the Class A common stock was $3.77 per share. The following
were the high and low market closing stock prices for the Class A common stock by quarter as reported by
NASDAQ since January 1, 2018:
Period (Calendar Year)
2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2019
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2020
Price Range (1)
High
Low
$4.90
$4.99
$5.03
$5.35
$5.34
$5.38
$5.20
$5.74
$3.92
$4.67
$4.58
$4.68
$4.50
$4.53
$4.55
$4.58
First Quarter (through March 27, 2020)
$6.25
$3.77
_____________
(1) Stock prices have been adjusted retroactively for the effect of annual 5% stock dividends.
The Class C common stock is not registered or traded on a national exchange. See Note 12 of the Notes to
Consolidated Financial Statements.
The Company has never paid a cash dividend on its Class A or Class C common stock. The Company currently
anticipates that all of its earnings will be retained for use in the operation and expansion of its business and does
not intend to pay any cash dividends on its Class A or Class C common stock in the foreseeable future. Any future
determination as to cash dividends will depend upon the earnings and financial position of the Company and such
other factors as the Board of Directors may deem appropriate. A 5% stock dividend on Class A and Class C
common stock has been paid each year from 1990 through 2019
.
80
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Market for the Registrant’s Common Stock, Related Security Holder Matters, and Issuer Purchases of
Equity Securities (Continued)
On September 7, 2018, the Board of Directors of the Company approved a Stock Repurchase Plan that authorized
the repurchase of 300,000 shares of the Company's Class A Common Stock in the open market. The repurchased
shares of Class A common stock will be held as treasury shares to be used as the Company's employer matching
contribution to the Employee 401(k) Retirement Savings Plan. The following table shows the Company’s
repurchase activity of its common stock during the three months ended December 31, 2019 under its Stock
Repurchase Plan.
(a) Total
Number of
Class A Shares
Purchased
8,790
10,000
10,000
(b) Average
Price Paid per
Class A Share
$
5.01
$
5.36
$
5.73
(c) Total Number of
Class A Shares
Purchased as Part of
Publicly Announced
Plan or Program
-
-
-
Period
10/1/2019-10/31/2019
11/1/2019-11/30/2019
12/1/2019-12/31/2019
Total
28,790
$
5.41
-
(d) Maximum Number of
Class A Shares that May
Yet Be Purchased Under
the Plan or Program
182,007
172,007
162,007
162,007
81
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Market for the Registrant’s Common Stock, Related Security Holder Matters, and Issuer Purchases of
Equity Securities (Continued)
The graph below compares the cumulative total stockholder return of the Company’s Class A common stock
with the cumulative total return on the Standard & Poor’s 500 Stock Index and the Standard & Poor’s Insurance
Index for the period from December 31, 2015 through December 31, 2019. The graph assumes that the value
of the investment in the Company’s Class A common stock and in each of the indexes was $100 at December
31, 2015 and that all dividends were reinvested.
The comparisons in the graph below are based on historical data and are not intended to forecast the possible
future performance of the Company’s Class A common stock.
$600
$550
$500
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
SNFC
S & P 500
S & P Insurance
SNFC
S & P 500
S & P Insurance
12/31/15
100
100
100
12/31/16
104
110
115
12/31/17
88
131
131
12/31/18
91
123
113
12/31/19
109
158
143
The stock performance graph set forth above is required by the Securities and Exchange Commission and shall
not be deemed to be incorporated by reference by any general statement incorporating by reference this Form 10-
K into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as
amended, except to the extent that the Company specifically incorporates this information by reference, and shall
not otherwise be deemed soliciting material or filed under such acts.
As of December 31, 2019, there were 2,647 record holders of Class A common stock and 64 record holders of
Class C common stock.
82
5300 South 360 West | Salt Lake City, UT 84123
www.SecurityNational.com | 1(800) 574-7117