Item 1A. Risk Factors 10
Item 1B. Unresolved Staff Comments 11
Item 2. Properties 11
Item 3. Legal Proceedings 15
Item 4. Mine Safety Disclosures 15
Part II
Item 6. [Reserved] 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 30
Item 8. Financial Statements and Supplementary Data 31
Item 9A. Controls and Procedures 112
Item 9B. Other Information 112
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 112
Part III
Item 10. Directors, Executive Officers and Corporate Governance 113
Item 11. Executive Compensation 118
Item 14. Principal Accounting Fees and Services 131
Part IV
Item 15. Exhibits, Financial Statement Schedules 131
Financial Statement Schedules 133
PART I
Item 1. Business
Security National
Financial Corporation (the “Company”) operates in three reportable 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. These products are marketed in 40 states through a commissioned sales force of independent
licensed insurance agents who may also sell insurance products of other companies. The cemetery and mortuary segment consists of eight
mortuaries and five cemeteries in the state of Utah, one cemetery in the state of California, and one cemetery and four mortuaries in
the state of New Mexico. The Company also engages in pre-need selling of funeral, cemetery, mortuary, and cremation services through its
Utah, California and New Mexico operations. Many of the insurance agents also sell pre-need funeral, cemetery, and cremation services.
The mortgage segment originates and underwrites or otherwise purchases residential and commercial loans for new construction, existing
homes, and other real estate projects. The mortgage segment operates through 113 retail offices in 23 states, and is an approved mortgage
lender in several other states.
The Company’s
design and structure are that each business segment is related to the other business segments and contributes to the profitability of
the other segments. The Company’s cemetery and mortuary segment provides a level of public awareness that assists in the sales and
marketing of insurance and pre-need cemetery and funeral products. The Company’s insurance segment invests their assets (including,
in part, pre-need funeral products and services) in investments authorized by the respective insurance departments of their states of
domicile. The Company also pursues growth through acquisitions. The Company’s mortgage segment provides mortgage loans and other
real estate investment opportunities.
The Company was organized
as a holding company in 1979 when Security National Life Insurance Company (“Security National Life”) became a wholly owned
subsidiary of the Company and the former stockholders of Security National Life became stockholders of the Company. Security National
Life was formed in 1965 and has acquired or purchased significant blocks of business which include Capital Investors Life Insurance Company
(1994), Civil Service Employees Life Insurance Company (1995), Southern Security Life Insurance Company (1998), Menlo Life Insurance Company
(1999), Acadian Life Insurance Company (2002), Paramount Security Life Insurance Company (2004), Memorial Insurance Company of America
(2005), Capital Reserve Life Insurance Company (2007), Southern Security Life Insurance Company, Inc. (2008), North America Life Insurance
Company (2011, 2015), Trans-Western Life Insurance Company (2012), Mothe Life Insurance Company (2012), DLE Life Insurance Company (2012),
American Republic Insurance Company (2015), First Guaranty Insurance Company (2016), and Kilpatrick Life Insurance Company (2019). In
August 2021, the Company sold Memorial Insurance Company of America.
The cemetery and mortuary operations have also grown
through the acquisition of other cemetery and mortuary companies. The cemetery and mortuary companies that the Company has acquired are
Holladay Memorial Park, Inc. (1991), Cottonwood Mortuary, Inc. (1991), Deseret Memorial, Inc. (1991), Probst Family Funerals and Cremations
L.L.C. (2019), Heber Valley Funeral Home, Inc. (2019), Rivera Funerals, Cremations and Memorial Gardens (2021), and Holbrook Mortuary
(2021).
In 1993, the Company formed SecurityNational Mortgage
Company (“SecurityNational Mortgage”) to originate and refinance residential mortgage loans. In 2012, the Company formed Green
Street Mortgage Services, Inc. (now known as EverLEND Mortgage Company) (“EverLEND Mortgage”) also to originate and refinance
residential mortgage loans. In December 2021, the Company ceased operations in EverLEND Mortgage and merged its operations into SecurityNational
Mortgage.
See Note 15 of the Notes to Consolidated Financial
Statements for additional information regarding business segments of the Company.
Life Insurance
Products
The Company,
through Security National Life, First Guaranty Insurance Company (“First Guaranty”), and Kilpatrick Life Insurance Company
(“Kilpatrick”), issues and distributes selected lines of life insurance and annuities. The Company’s life insurance
business includes funeral plans and interest-sensitive life insurance, as well as other traditional life, accident, and health insurance
products. The Company places specific marketing emphasis on funeral plans through pre-need planning. The Company’s insurance subsidiaries,
Southern Security Life Insurance Company, Inc. (“Southern Security”) and Trans-Western Life Insurance Company (“Trans-Western”),
do not actively write policies, but service and maintain policies that were purchased prior to their acquisition by Security National
Life.
A funeral plan
is a small face value life insurance policy that generally has face coverage of up to $30,000. The Company believes that funeral plans
represent a marketing niche that has lower competition because most insurance companies do not offer similar coverage. The purpose of
the funeral plan policy is to pay the costs and expenses incurred at the time of a person’s death. On a per thousand-dollar cost
of insurance basis, these policies can be more expensive to the policyholder than many types of non-burial insurance due to their low
face amount, requiring the fixed cost of the policy administration to be distributed over a smaller policy size, and the simplified underwriting
practices that result in higher mortality costs.
Markets
and Distribution
The Company is
licensed to sell insurance in 40 states. The Company, in marketing its life insurance products, seeks to locate, develop and service specific
niche markets. The Company’s funeral plan policies are sold primarily to persons who range in age from 45 to 85 and have low to
moderate income. A majority of the Company’s funeral plan premiums come from the states of Arkansas, California, Florida, Georgia,
Louisiana, Mississippi, Texas, and Utah.
The Company sells
its life insurance products through direct agents, brokers, and independent licensed agents who may also sell insurance products of other
companies. The commissions on life insurance products range from approximately 50% to 120% of first year premiums. In those cases, where
the Company utilizes its direct agents in selling such policies, those agents customarily receive advances against future commissions.
In some instances,
funeral plan insurance is marketed in conjunction with the Company’s cemetery and mortuary sales force. When it is marketed by that
group, the beneficiary is usually the Company’s cemeteries and mortuaries. Thus, death benefits that become payable under the policy
are paid to the Company’s cemetery and mortuary subsidiaries to the extent of services performed and products purchased.
In marketing
funeral plan insurance, the Company also seeks and obtains third-party endorsements from other cemeteries and mortuaries within its marketing
areas. Typically, these cemeteries and mortuaries will provide letters of endorsement and may share in mailing and other lead-generating
costs since these businesses are usually made the beneficiary of the policy. The following table summarizes the life insurance business
for the five years ended December 31, 2021:
Life Insurance
(1) Includes the acquisition of Kilpatrick
Underwriting
The factors considered
in evaluating an application for ordinary life insurance coverage can include the applicant’s age, occupation, general health, and
medical history. Upon receipt of a satisfactory (non-funeral plan insurance) application, which contains pertinent medical questions,
the Company issues insurance based upon its medical limits and requirements subject to the following general non-medical limits:
Age Nearest Birthday Non-Medical Limits
51-up Medical information
required (APS or exam)
When underwriting
life insurance, the Company will sometimes issue policies with higher premium rates for substandard risks.
The Company’s
funeral plan insurance is written on a simplified medical application with underwriting requirements being a completed application, a
phone interview of the applicant, and an intelliscript prescription history inquiry. There are several underwriting classes in which an
applicant can be placed.
Annuities
Products
The Company’s
annuity business includes single premium deferred annuities, flexible premium deferred annuities, and immediate annuities. A single premium
deferred annuity is a contract where the individual remits a sum of money to the Company, which is retained on deposit until such time
as the individual may wish to annuitize or surrender the contract for cash. A flexible premium deferred annuity gives the contract holder
the right to make premium payments of varying amounts or to make no further premium payments after his initial payment. These single and
flexible premium deferred annuities can have initial surrender charges. The surrender charges act as a deterrent to individuals who may
wish to prematurely surrender their annuity contracts. An immediate annuity is a contract in which the individual remits a sum of money
to the Company in return for the Company’s obligation to pay a series of payments on a periodic basis over a designated period of
time, such as an individual’s life, or for such other period as may be designated.
Annuities have
guaranteed interest rates that range from 1% to 6.5% per annum. Rates above the guaranteed interest rate credited are periodically modified
by the Board of Directors at its discretion. In order for the Company to realize a profit on an annuity product, the Company must maintain
an interest rate spread between its investment income and the interest rate credited to the annuities. Commissions, issuance expenses,
and general and administrative expenses are deducted from this interest rate spread.
Markets
and Distribution
The general market
for the Company’s annuities is middle to older age individuals. A major source of annuity sales come from direct agents and are
sold in conjunction with other insurance sales. If an individual does not qualify for a funeral plan, the agent will often sell that individual
an annuity to fund final expenses.
The following table summarizes
the annuity business for the five years ended December 31, 2021:
(1) Includes the acquisition of Kilpatrick
Accident and
Health
Products
Through its various
acquisitions, the Company occasionally acquires small blocks of accident and health policies, which it continues to service. The Company
offers a low-cost comprehensive diver’s accident policy that provides worldwide coverage for medical expense reimbursement in the
event of a diving accident.
Markets
and Distribution
The Company currently
markets its diver’s accident policies through the internet.
The following
table summarizes the accident and health insurance business for the five years ended December 31, 2021:
(1) Includes the acquisition of Kilpatrick
Reinsurance
The primary purpose
of reinsurance is to enable an insurance company to issue an insurance policy in an amount larger than the risk the insurance company
is willing to assume for itself. The insurance company remains obligated for the amounts reinsured (ceded) in the event the reinsurers
do not meet their obligations.
The Company currently
cedes and assumes certain risks with various authorized unaffiliated reinsurers pursuant to reinsurance treaties, which are generally
renewed annually. The premiums paid by the Company are based on a number of factors, primarily including the age of the insured and the
risk ceded to the reinsurer.
It is the Company’s
policy to retain no more than $100,000 of ordinary insurance per insured life, with the excess risk being reinsured. The total amount
of life insurance reinsured by other companies as of December 31, 2021, was $364,471,000, which represented approximately 12.7% of the
Company’s life insurance in force on that date.
See “Management’s
Discussion and Analysis of Results of Operations and Financial Condition” and “Notes to Consolidated Financial Statements”
for additional disclosure and discussion regarding reinsurance.
Investments
The investments
that support the Company’s life insurance and annuity obligations are determined by the investment committees of the Company’s
subsidiaries and ratified by the full boards of directors of the respective subsidiaries. A significant portion of the Company’s
investments must meet statutory requirements governing the nature and quality of permitted investments by its insurance subsidiaries.
The Company maintains a diversified investment portfolio consisting of common stocks, preferred stocks, municipal bonds, corporate bonds,
mortgage loans, real estate, and other securities and investments.
See “Management’s
Discussion and Analysis of Results of Operations and Financial Condition” and “Notes to Consolidated Financial Statements”
for additional disclosure and discussion regarding investments.
Cemetery and
Mortuary
Products
Through its cemetery
and mortuary segment, the Company markets a variety of products and services both on a pre-need basis (prior to death) and an at-need
basis (at the time of death). The products include: plots, interment vaults, mausoleum crypts, markers, caskets, urns and other death
care related products. These services include: professional services of funeral directors, opening and closing of graves, use of chapels
and viewing rooms, and use of automobiles and clothing. The Company has a mortuary at each of its cemeteries, other than Holladay Memorial
Park and Singing Hills Memorial Park, and has six separate stand-alone mortuary facilities.
Markets
and Distribution
The Company’s pre-need
cemetery and mortuary sales are marketed to persons of all ages but are generally purchased by persons 45 years of age and older. The
Company is limited in its geographic distribution of these products to areas lying within an approximate 20-mile radius of its mortuaries
and cemeteries. The Company’s at-need sales are similarly limited in geographic area.
The Company actively seeks
to sell its cemetery and funeral products to customers on a pre-need basis. The Company employs cemetery sales representatives on a commission
basis to sell these products. Many of these pre-need cemetery and mortuary sales representatives are also licensed insurance salesmen
and sell funeral plan insurance. In some instances, the Company’s cemetery and mortuary facilities are the named beneficiaries of
the funeral plan policies.
Potential customers are located
via telephone sales prospecting, responses to letters mailed by the pre-planning consultants, newspaper inserts, referrals, and door-to-door
canvassing. The Company trains its sales representatives and helps generate leads for them.
Mortgage Loans
Products
The Company,
through SecurityNational Mortgage is active in the residential real estate market. SecurityNational Mortgage is approved by the U.S. Department
of Housing and Urban Development (HUD), the Federal National Mortgage Association (Fannie Mae), and other secondary market investors,
to originate a variety of residential mortgage loan products, which are subsequently sold to investors. EverLEND Mortgage is also approved
by the U.S. Department of Housing and Urban Development (HUD), and other secondary market investors, to originate a variety of residential
mortgage loan products. The Company uses internal and external funding sources to fund mortgage loans. In December 2021, the Company
ceased operations in EverLEND Mortgage and merged its operations into SecurityNational Mortgage.
Security National
Life originates and funds commercial real estate loans, residential construction loans, and land development loans for internal investment.
Markets
and Distribution
The Company’s
residential mortgage lending services are marketed primarily to real estate brokers, builders and directly with consumers. The Company
has a strong retail origination presence in the Utah, Florida, Texas, Nevada and Arizona markets and is experiencing rapid growth with
sales representatives in these and many other states across the country. See “Management’s Discussion and Analysis of Results
of Operations and Financial Condition” and “Notes to Consolidated Financial Statements” for additional disclosure and
discussion regarding mortgage loans.
Recent Acquisitions
and Other Business Activities
Acquisitions
Acquisition
of Rivera Funerals, Cremations and Memorial Gardens
On December 21,
2021, the Company, through Memorial Estates Inc., completed a business combination transaction with Rivera Funerals, Cremations and Memorial
Gardens. The mortuaries and cemetery are located in New Mexico.
Under the terms
of the transaction, as set forth in the Asset Purchase Agreement, dated December 21, 2021, Memorial Estates Inc. paid a net purchase price
of $10,693,395 for the business and assets of Rivera Funerals, Cremations and Memorial Gardens, subject to holdback amounts held by Memorial
Estates, Inc. in the total amount of $1,120,000. Pursuant to the Asset Purchase Agreement, Memorial Estates, Inc. is to use $70,000 of
the holdback amount to pay, perform and discharge when due, trade accounts payable of Rivera Funerals, Cremations and Memorial Gardens
to third parties that remained unpaid. Unapplied portions of the remaining $1,050,000 holdback amount are to be released and paid by Memorial
Estates Inc. in annual payments of up to $105,000 each, beginning on the first anniversary date of the closing date and continuing thereafter
on the anniversary dates of the closing date.
Acquisition
of Holbrook Mortuary
On December 28,
2021, the Company, through its wholly-owned subsidiary, Memorial Mortuary Inc., completed a business combination transaction with Holbrook
Mortuary located in Salt Lake City, Utah.
Under the terms
of the transaction, as set forth in the Asset Purchase Agreement, dated December 28, 2021, Memorial Mortuary Inc. paid a net purchase
price of $3,051,747 for the business and assets of Holbrook Mortuary.
Real Estate
Development
The Company is capitalizing
on the opportunity to develop commercial and residential assets on its existing properties. The cost to acquire existing for-sale assets
currently exceeds the replacement costs, thus creating the opportunity for development and redevelopment of the land that the Company
currently owns. The Company has developed, or is in the process of developing, assets that have an initial development cost exceeding
$100,000,000, primarily relating to the Center53 Development. The Company plans to continue its development endeavors as based upon its
assessment of the market demand.
Center53
Development
Center53 Development is an
office development project comprising nearly 20 acres of land that is currently owned by the Company in the central valley of Salt Lake
City. At final completion, the multi-year, phased development will create a campus atmosphere and include nearly one million square-feet
of office space in five buildings, ranging from four to eleven stories, and will be serviced by three parking structures with about 4,000
stalls. In 2015, the Company broke ground and commenced development on the first phase which included a six-story building of nearly 200,000
square feet and a parking garage with 748 parking stalls. The first phase of the project was completed in July 2017 and is currently 100%
leased. The second phase of the project began in March 2020 and includes a second six story building of nearly 221,000 square feet and
a parking garage with approximately 870 stalls. The Company began its occupancy of a portion of the building in October 2021 and the remainder
of the building has been leased, with occupancy planned for April 2022. The Company plans to initiate future phases of the Center53 Development
for additional Class A office space in the central valley of Salt Lake City.
Regulation
The Company’s insurance subsidiaries are subject
to comprehensive regulation in the jurisdictions in which they do business under statutes and regulations administered by state insurance
commissioners. Such regulation relates to, among other things, prior approval of the acquisition of a controlling interest in an insurance
company; standards of solvency which must be met and maintained; licensing of insurers and their agents; nature of and limitations on
investments; deposits of securities for the benefit of policyholders; approval of policy forms and premium rates; periodic examinations
of the affairs of insurance companies; annual and other reports required to be filed on the financial condition of insurers or for other
purposes; and requirements regarding aggregate reserves for life policies and annuity contracts, policy claims, unearned premiums, and
other matters. The Company’s insurance subsidiaries are subject to this type of regulation in any state in which they conduct relevant
business. Such regulation may cause unforeseen costs and operational restrictions, and delay implementation of the Company’s business
plans.
The Company’s
life insurance subsidiaries are currently subject to regulation in Utah, Louisiana, Mississippi and Texas under insurance holding company
legislation, and other states where applicable. Generally, intercompany transfers of assets and dividend payments from insurance subsidiaries
are subject to prior notice of approval from the relevant state insurance department where, they are deemed “extraordinary”
under relevant state law. The insurance subsidiaries are required, under state insurance laws, to file detailed annual reports with the
supervisory agencies in each of the states in which they do business. Their business and accounts are also subject to examination by these
agencies. The Company was notified in December 2020, that each of its life insurance subsidiaries had been selected for examination for
the year ended December 31, 2020 and the periods since their last examinations. The Company was last examined in 2016 (First Guaranty
Insurance), 2017 (Security National Life, Southern Security and Trans-Western) and 2019 (Kilpatrick Life). As of March 2022, the Utah,
Mississippi and Texas insurance departments had completed their examination and provided final examination reports to the Company.
The Texas Department
of Banking also audits pre-need insurance policies that are issued in the state of Texas. Pre-need policies include the life and annuity
products sold as the funding mechanism for funeral plans through funeral homes by Security National agents. The Company is required to
send the Texas Department of Banking an annual report that summarizes the number of policies in force and the face amount or death benefit
for each policy. This annual report is also required to indicate the number of new policies issued for that year, all death claims paid
that year, and all premiums received.
The Company’s
cemetery and mortuary subsidiaries are subject to the Federal Trade Commission’s comprehensive funeral industry rules and to state
regulations in the various states where such operations are domiciled. The morticians must be licensed by the respective state in which
they provide their services. Similarly, the mortuaries and cemeteries are governed and licensed by state statutes and city ordinances
in Utah, California and New Mexico. The subsidiaries are required to keep annual reports on file including financial information concerning
the number of spaces sold and, where applicable, funds provided to the Endowment Care Trust Fund. Licenses are issued annually on the
basis of such reports. The cemeteries maintain city or county licenses where they conduct business.
The Company’s
mortgage subsidiaries are subject to the rules and regulations of the U.S. Department of Housing and Urban Development (HUD), and to various
state licensing acts and regulations and the Consumer Financial Protection Bureau (CFPB). These regulations, among other things, specify
minimum capital requirements and; procedures for loan origination and underwriting, licensing of brokers and loan officers and, quality
review audits and specify the fees that can be charged to borrowers. Each year, the Company is required to have an audit completed for
each mortgage subsidiary by an independent registered public accounting firm to verify compliance with the relevant regulations. In addition
to the government regulations, the Company must meet loan requirements, and underwriting guidelines of various investors who purchase
the loans. EverLEND Mortgage is not required to have an audit for 2021 since it ceased operations in December 2021.
Income Taxes
The Company’s
insurance subsidiaries, Security National Life, First Guaranty and Kilpatrick, are taxed under the Life Insurance Company Tax Act of 1984.
Under the act, life insurance companies are taxed at standard corporate rates on life insurance company taxable income. Life insurance
company taxable income is gross income less general business deductions and reserves for future policyholder benefits (with modifications).
Under The Tax Cuts and Jobs Act, December 31, 2017 policyholder surplus account balances result in taxable income over a period of eight
years.
Security National
Life, First Guaranty and Kilpatrick calculate their life insurance taxable income after establishing a provision representing a portion
of the costs of acquisition of such life insurance business. The effect of the provision is that a certain percentage of the Company’s
premium income is characterized as deferred expenses and recognized over a five or ten-year period. The Tax Act changed this recognition
period for amounts deferred after December 31, 2017 to a five or fifteen-year period.
The Company’s
non-life insurance company subsidiaries are taxed in general under the regular corporate tax provisions. The Company’s subsidiaries
Southern Security and Trans-Western are regulated as life insurance companies but do not meet the Internal Revenue Code definition of
a life insurance company, so they are taxed as insurance companies other than life insurance companies.
Competition
The life insurance
industry is highly competitive. There are approximately 800 legal reserve life insurance companies in business in the United States. These
insurance companies differentiate themselves through marketing techniques, product features, price, and customer service. The Company’s
insurance subsidiaries compete with a large number of insurance companies, many of which have greater financial resources, a longer business
history, and more diversified line of insurance products than the Company. In addition, such companies generally have a larger sales force.
Further, the Company competes with mutual insurance companies which may have a competitive advantage because all profits accrue to policyholders.
Because the Company is smaller by industry standards and lacks broad diversification of risk, it may be more vulnerable to losses than
larger, better-established companies. The Company believes that its policies and rates for the markets it serves are generally competitive.
The cemetery
and mortuary industry is also highly competitive. In the Utah, California and New Mexico markets where the Company competes, there are
a number of cemeteries and mortuaries which have longer business histories, more established positions in the community, and stronger
financial positions than the Company. In addition, some of the cemeteries with which the Company must compete for sales are owned by municipalities
and, as a result, can offer lower prices than can the Company. The Company bears the cost of a pre-need sales program that is not incurred
by those competitors which do not have a pre-need sales force. The Company believes that its products and prices are generally competitive
with those in the industry.
The mortgage
industry is highly competitive with a large number of mortgage companies and banks in the same geographic area in which the Company is
operating. The mortgage industry in general is sensitive to changes in interest rates and the refinancing market is particularly vulnerable
to changes in interest rates.
Human Capital
Management
As of December 31, 2021, the
Company employed 1,619 full-time and 114 part-time employees. Of the full-time employees, 1,118 were employed by the mortgage segment,
384 by the life insurance segment, and 116 by the cemetery and mortuary segment. The Company requires monthly acknowledgement of its anti-discrimination
and anti-harassment policies and communicates to its employees how to report concerns that relate to their employment experience.
Employee Benefits
All eligible employees may
elect coverage under the Company’s group health (including health savings and flexible spending), retirement, supplemental life
and voluntary benefit programs. As of December 31, 2021, 878 employees had elected to participate in the Company’s group health
insurance plans.
The Company has an employee
safe harbor retirement plan that qualifies under section 401(k) of the Internal Revenue Code and contributes a matching contribution based
on the employee’s contribution and years of service.
The Company provides other
time off benefits such as paid sick and paid vacation time. The Company provides discounts on pre-need and death benefits to tenured employees.
Additionally, the Company offers an employee assistance program that provides 24/7 counseling services for employees who may be facing
challenges outside of the workplace.
Item 1A. Risk Factors
As a smaller
reporting company, the Company is not required to provide information typically disclosed under this item.
Item 1B. Unresolved Staff
Comments
As a smaller
reporting company, the Company is not required to provide information typically disclosed under this item.
Item 2. Properties
The following
tables set forth the location of the Company’s office facilities and certain other information relating to these properties.
1044 River Oaks Dr. Flowood MS Insurance Operations Owned 5,522 N/A N/A
1818 Marshall St. Shreveport LA Insurance Operations Owned 12,274 N/A N/A
812 Sheppard St. Minden LA Insurance Sales Owned 1,560 N/A N/A
909 Foisy Ave. Alexandria LA Insurance Sales Owned 8,059 N/A N/A
1550 N. Third St. Jena LA Insurance Sales Owned 1,737 N/A N/A
40977 Oak Dr. Forest Falls CA Mortgage Sales Leased 250 $ - / mo month to month
7315 Shady Oak Dr. Downey CA Mortgage Sales Leased 100 $ 50 / mo month to month
4501 Mohawk Dr. Larkspur CO Mortgage Sales Leased 250 $ 50 / mo month to month
5982 S. Zenos Ct. Larkspur CO Mortgage Sales Leased 50 $ - / mo month to month
Item 2. Properties
(Continued)
110 Awendaw Way Greenville SC Mortgage Sales Leased 50 $ - / mo month to month
7241 Bahne Rd. Fairview TN Mortgage Sales Leased 50 $ - / mo month to month
23227 Red River Dr. Katy TX Mortgage Sales Leased 144 $ 750 / mo month to month
Item 2. Properties
(Continued)
420 N. SR 198 Salem UT Mortgage Sales Leased 1,000 $ 1,200 / mo month to month
2701 Currant St. Lynden WA Mortgage Sales Leased 1,500 $ 50 / mo month to month
27903 99th St. Trevor WI Mortgage Sales Leased 300 $ 150 / mo month to month
The Company believes
the office facilities it occupies are in good operating condition and adequate for current operations. The Company plans to enter into
additional leases or modify existing leases based on its assessments of market demand. Those leases are expected to be month to month
where possible. As leases expire, the Company plans to either renew or find comparable leases or acquire additional office space.
The following table summarizes
the location and acreage of the seven Company owned cemeteries, each of which includes one or more mausoleums:
Net Saleable Acreage
(2) Includes both reserved and occupied spaces.
(3) Includes two granite mausoleums.
(4) Includes an open easement.
Item 2. Properties
(Continued)
The following
table summarizes the location, square footage and the number of viewing rooms and chapels of the twelve Company owned mortuaries:
Date Viewing Square
Name of Mortuary Location Acquired Room(s) Chapel(s) Footage
Item 3. Legal Proceedings
Settlement Agreement and Mutual Release with Lehman
Brothers Holdings Inc.
From 2004 to early 2008, SecurityNational Mortgage
Company (“SecurityNational Mortgage”), a wholly owned subsidiary of the Company, originated “limited documentation”
or “reduced documentation” loans which were sold to certain affiliates of Lehman Brothers Holdings Inc. (“Lehman Holdings”).
Certain of these loans became the subject of disputes between SecurityNational Mortgage and Lehman Holdings and certain Lehman Holdings
affiliates. Lehman Holdings filed a Petition for Relief under Chapter 11 of the United States Bankruptcy Code in 2008. In May of 2011,
SecurityNational Mortgage filed a complaint in U.S. District Court against certain Lehman Holdings affiliates. In June of 2011, Lehman
Holdings filed a complaint in Federal District Court against SecurityNational Mortgage, both the complaint filed in May 2011 and that
filed in June 2011 were later resolved. In 2016, certain other pending loan disputes between SecurityNational Mortgage and Lehman Holdings
became the subject of an unsuccessful, non-binding alternate dispute resolution mediation proceeding.
Thereafter, in 2016, Lehman Holdings filed an adversary
proceeding complaint against approximately 150 mortgage loan originators, including SecurityNational Mortgage, in the U.S. Bankruptcy
Court of the Southern District of New York, which included seeking damages relating to the alleged obligations of the defendants under
indemnification provisions of 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. The complaint was later amended with the latest amended
complaint filed against SecurityNational Mortgage on December 27, 2016, seeking damages to be determined at trial, including interest,
attorneys’ fees and costs. This complaint involved approximately 135 mortgage loans, there being millions of dollars allegedly in
dispute. These claims against SecurityNational Mortgage were asserted as a result of Lehman Holdings’ earlier settlements with the
Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Corporation (“Freddie Mac”).
In 2018, Lehman Holdings filed a separate adversary
proceeding complaint against SecurityNational Mortgage. This adversary proceeding allegedly involved approximately 577 mortgage loans
relative to private securitization trusts (“RMBS Loans”) and millions of dollars in damages. Thereafter, Lehman Holdings made
a filing that effectively reduced the number of RMBS Loans to 248. This proceeding was in addition to the above-referenced proceeding
involving the Fannie Mae and Freddie Mac mortgage loans. As with the above-referenced proceeding, damages were sought including interest,
costs, and attorneys’ fees.
SecurityNational Mortgage, as well as other defendants,
have been involved in written discovery, and production of documents relative to the cases, and the filing of motions. The deposition
phase of the cases was yet to begin, as well as the later expert witness phase. Those phases would require substantial expenditures of
legal fees and costs.
On February 1, 2021, SecurityNational Mortgage executed
a settlement agreement with Lehman Holdings in relation to these two adversary proceedings wherein all mortgage loan related claims were
resolved, thereby ending all liabilities asserted by Lehman Holdings and conclusively ending all proceedings between SecurityNational
Mortgage and Lehman Holdings. The full amount of SecurityNational Mortgage’s settlement payment was accounted for in the Company’s
loan loss reserve as of December 31, 2020 and was paid during the first quarter 2021.
Item
4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market
for the Registrant’s Common Stock, Related Stockholder Matters, and Issuer Purchases of Equity Securities
The Company’s
Class A common stock trades on The Nasdaq Global Select Market under the symbol “SNFCA.”
As of March 22, 2022, the closing stock price of the Class A common stock was $10.08 per share. As of March 22, 2022, there were 1,881
registered stockholders of record of the Company’s Class A common stock and 49 registered stockholders of record of the Company’s
Class C common stock. Because many of the Company’s shares of Class A common stock are held by brokers and other institutions on
behalf of the stockholders, the Company is unable to estimate the total number of stockholders represented by these record holders.
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, 2020:
Price Range (1)
High Low
Period (Calendar Year)
(1)
Stock prices have been adjusted retroactively for the effect of annual 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. The Company has paid a 5% stock dividend on Class
A and Class C common stock each year from 1990 through 2019, a 7.5% stock dividend for year 2020, and a 5.0% stock dividend for year 2021.
In September
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 Company amended the Stock Repurchase Plan on December 4, 2020. The amendment authorized the
repurchase of a total of 1,000,000 shares of the Company’s Class A Common Stock in the open market. Any repurchased shares of Class
A common stock are to be held as treasury shares to be used as the Company’s employer matching contribution to the Employee 401(k)
Retirement Savings Plan and for shares held in the Deferred Compensation Plan. The following table shows the Company’s repurchase
activity of its common stock during the three months ended December 31, 2021 under its Stock Repurchase Plan.
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, 2017 through December 31, 2021. 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, 2017
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.
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.
Item 6. [Reserved]
As a smaller
reporting company, the Company is not required to provide information typically disclosed under this item.
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company’s
operations over the last several years generally reflect three strategies which the Company expects to continue: (i) increased attention
to “niche” insurance products, such as the Company’s funeral plan policies and traditional whole life products; (ii)
increased emphasis on cemetery and mortuary business; and (iii) capitalizing on an improving housing market by originating mortgage loans.
The Company has adjusted its strategies to respond to the changing economic circumstances resulting from the COVID-19 pandemic.
Insurance
Operations
The following table shows the condensed financial
results for the Company’s insurance operations for the years ended December 31, 2021 and 2020. See Note 15 of the Notes to Consolidated
Financial Statements.
Years ended December 31 (in thousands of dollars)
Revenues from external customers:
Gains (losses) on investments and other assets 4,555 2,089 118 %
Other than temporary impairments (40 ) (371 ) (89 )%
Intersegment revenues for the Company’s insurance
operations were comprised primarily of interest income from the warehouse lines provided to the Company’s mortgage lending affiliates
to fund loans held for sale. Profitability in 2021 increased due to a $7,234,000 increase in insurance premiums, a $2,466,000 increase
in gains on investments and other assets, a $1,280,000 increase in net investment income, a $661,000 increase in other revenues, a $550,000
decrease in selling, general and administrative expenses, a $331,000 decrease in other than temporary impairments, and a $44,000 decrease
in interest expense. This increase was partially offset by a $4,377,000 increase in death, surrenders and other policy benefits ($2,305,000
of which was related to COVID-19 related deaths), a $2,695,000 increase in future policy benefits, a $1,993,000 increase in amortization
of deferred policy acquisition costs, and a $453,000 decrease in intersegment revenue.
In response to
the COVID-19 pandemic, the Company’s life insurance sales force began using virtual and tele sales processes to market products.
During the third quarter 2021, the life insurance sales force returned to in person sales, however, it continues to use virtual and tele
sales where needed. As of December 31, 2021, approximately 75% of insurance operations office staff were working in the office with the
flexibility for hybrid-remote or completely remote working arrangements as needed.
Cemetery and Mortuary Operations
The following table shows the condensed financial
results for the Company’s cemetery and mortuary operations for the years ended December 31, 2021 and 2020. See Note 15 of the Notes
to Consolidated Financial Statements.
Years ended December 31 (in thousands of dollars)
Revenues from external customers:
Gains on investments and other assets 1,512 (163 ) 1028 %
Profitability in 2021 increased due to a $2,682,000
increase in cemetery pre-need sales, a $1,675,000 increase in gains on investments and other assets (which, in turn, was primarily attributable
to a $1,092,000 increase in gains on real estate sales) and a $582,000 increase in the fair value of equity securities classified as restricted
assets and cemetery perpetual care trust investments, an $846,000 increase in net investment income, a $518,000 increase in mortuary at-need
sales, and a $490,000 increase in cemetery at-need sales. This increase was partially offset by a $2,559,000 increase in selling, general
and administrative expenses, and a $451,000 increase in costs of goods sold.
In response to the COVID-19 pandemic, the cemetery
and mortuary’s pre-need sales force began using virtual selling processes to market its products and services including some in
home sales as local regulations permitted. During the third quarter 2021, the sales force returned mostly to in home sales, however, it
continues to use virtual selling where needed. Currently, the cemetery and mortuary operations office staff works in the office with the
flexibility for hybrid-remote or completely remote working arrangements as needed.
Mortgage Operations
The Company’s
wholly owned subsidiaries, SecurityNational Mortgage and EverLEND Mortgage Company, are mortgage lenders incorporated under the laws of
the State of Utah and approved and regulated by the Federal Housing Administration (FHA), a department of the U.S. Department of Housing
and Urban Development (HUD), which originate mortgage loans that qualify for government insurance in the event of default by the borrower,
in addition to various conventional mortgage loan products. SecurityNational Mortgage and EverLEND Mortgage originate and refinance mortgage
loans on a retail basis. Mortgage loans originated or refinanced by the Company’s mortgage subsidiaries are funded through loan
purchase agreements with Security National Life, Kilpatrick Life and unaffiliated financial institutions.
The Company’s
mortgage subsidiaries receive fees from borrowers that are involved in mortgage loan originations and refinancings, and secondary fees
earned from third party investors that purchase the mortgage loans originated by the mortgage subsidiaries. Mortgage loans originated
by the mortgage subsidiaries are generally sold with mortgage servicing rights released to third-party investors or retained by SecurityNational
Mortgage. SecurityNational Mortgage currently retains the mortgage servicing rights on approximately 54% of its loan origination volume.
These mortgage loans are serviced by either SecurityNational Mortgage or an approved third-party sub-servicer. In December 2021,
the Company ceased operations in EverLEND Mortgage and merged its operations into SecurityNational Mortgage.
For the twelve
months ended December 31, 2021 and 2020, SecurityNational Mortgage originated 19,342 loans ($5,502,894,000 total volume) and 21,206 loans
($5,472,503,000 total volume), respectively. For the twelve months ended December 31, 2021 and 2020, EverLEND Mortgage originated 323
loans ($108,295,000 total volume) and 511 loans ($154,511,000 total volume), respectively.
Record low mortgage
interest rates that prevailed during the third quarter of 2020 and into the first quarter of 2021 trended higher through the second, third
and fourth quarters of 2021. Production volumes remained strong in the second, third and fourth quarters of 2021, particularly for purchase
mortgage transactions but were below those experienced during the earlier low interest rate period.
The following table shows the condensed financial
results for the Company’s mortgage operations for the years ended December 31, 2021 and 2020. See Note 15 of the Notes to Consolidated
Financial Statements.
Years ended December 31 (in thousands of dollars)
Revenues from external customers:
Change in fair value of loans held for sale (8,783 ) 10,413 (184 )%
Change in fair value of loan commitments (3,113 ) 7,637 (141 )%
Gains on investments and other assets 199 0 100 %
Included in other revenues is service fee income.
Profitability in 2021 has decreased due to a $19,197,000 decrease in the fair value of loans held
for sale, a $15,009,000 increase in personnel expenses, a $10,750,000 decrease in the fair value of loan commitments, a $4,662,000 increase
in other expenses, a $4,225,000 decrease in income from loan originations, a $1,342,000 decrease in secondary gains from investors, a
$664,000 increase in costs related to funding mortgage loans, a $520,000 increase in advertising expenses, a $477,000 increase in rent
and rent related expenses, a $192,000 decrease in net investment income, a $117,000 decrease in intersegment revenues, and a $90,000 increase
in other intersegment expenses. These decreases were partially offset by a $16,506,000 decrease in the provision for loan loss reserve,
a $6,551,000 increase in other revenues, a $5,917,000 decrease in commissions, a $1,281,000 decrease in interest expense, a $470,000 decrease
in intersegment interest expense, a $199,000 increase in gains on investments and other assets, and a $97,000 decrease in depreciation
on property and equipment.
In response to
the COVID-19 pandemic, the mortgage operations has integrated employee work from home accommodations into its standard operating procedures.
A large percentage of fulfillment employees are in office in 2021 compared to 2020, however the flexibility remains to accommodate in
office or work from home functionality.
Mortgage Loan Loss Settlements
Future loan losses can be extremely difficult to estimate.
However, management believes that the Company’s reserve methodology and its current practice of property preservation allow it to
make reasonable estimates of potential losses on mortgage loans sold. The estimated liability for indemnification losses is included in
other liabilities and accrued expenses and, as of December 31, 2021 and 2020, the balances were $2,447,000 and $20,584,000, respectively.
Mortgage Loan Loss Litigation
For a description of the litigation involving SecurityNational
Mortgage and Lehman Brothers Holdings, see Part I, Item 3. Legal Proceedings.
Critical
Accounting Policies and Estimates
The following
is a brief summary of the Company’s significant accounting policies and a review of the Company’s most critical accounting
estimates. See Note 1 of the Notes to Consolidated Financial Statements.
Insurance
Operations
In accordance