UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2022
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the Transition Period from _____ to _____
Commission
File Number 000-09341
SECURITY
NATIONAL FINANCIAL CORPORATION
(Exact
name of registrant as specified in its charter)
433 West Ascension Way, Salt Lake City, Utah 84123
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (801) 264-1060
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol Name of exchange on which registered
Class A Common Stock SNFCA The Nasdaq Global Select Market
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐
Yes ☒ No
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act.
☐
Yes ☒ No
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
☒
Yes ☐ No
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). ☒ Yes ☐ No
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☒
Emerging growth company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As
of June 30, 2022, the aggregate market value of the registrant’s Class A common stock held by non-affiliates of the registrant
was approximately $42,000,000 based on the $8.46 closing sale price of the Class A common stock as reported on The Nasdaq Global Select
Market.
As
of March 27, 2023, there were outstanding 18,807,013 shares of Class A common stock, $2.00 par value per share, and 2,888,923 shares
of Class C common stock, $2.00 par value per share.
Documents
Incorporated by Reference
None.
Security
National Financial Corporation
Form
10-K
For
the Fiscal Year Ended December 31, 2022
TABLE
OF CONTENTS
Page
Part I
Item 1. Business 3
Item 1A. Risk Factors 10
Item 1B. Unresolved Staff Comments 11
Item 2. Properties 11
Item 3. Legal Proceedings 16
Item 4. Mine Safety Disclosures 16
Part II
Item 6. [Reserved] 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 31
Item 8. Financial Statements and Supplementary Data 32
Item 9A. Controls and Procedures 119
Item 9B. Other Information 119
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 119
Part III
Item 10. Directors, Executive Officers and Corporate Governance 120
Item 11. Executive Compensation 120
Item 14. Principal Accounting Fees and Services 120
Part IV
Item 15. Exhibits, Financial Statement Schedules 120
Financial Statement Schedules 122
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 cemetery and mortuary locations. 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 118 retail offices
in 26 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 its
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, 2022:
Life Insurance
(1) 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, 2022:
(1) 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, 2022:
(1) 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, 2022, was $346,749,000, which represented approximately
12.1% 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, billboards and other
outside advertising, 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. The Company
uses internal and external funding sources to fund mortgage loans. In December 2021, the Company ceased operations through 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 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. used
$70,000 of the holdback amount to pay trade accounts payable of Rivera Funerals, Cremations and Memorial Gardens to third parties that
remained unpaid at the time of purchase. The remaining $1,050,000 holdback amount is to be released and paid by Memorial Estates Inc.
in annual payments of up to $105,000 each, beginning in January 2023.
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 is expected to 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 is currently 100% leased. 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 last examined in 2021 (First Guaranty Insurance), 2022 (Security National Life, Southern Security and
Trans-Western) and 2021 (Kilpatrick Life). Its most recent final examination reports have been approved by the insurance departments
and are public record.
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, pricing, 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, 2022, the Company employed 1,422 full-time and 202 part-time employees. Of the full-time employees, 934 were employed
by the mortgage segment, 368 by the life insurance segment, and 120 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, 2022, 826 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.
Available
Information
The
Company’s internet address is securitynational.com. The Company’s investor relations website is investor.securitynational.com
and the Company promptly makes available on this website, free of charge, the reports that it files or furnishes with the Securities
and Exchange Commission.
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
None.
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
81 Broadmoor Ct. Novato CA Mortgage Sales Leased 100 $ 1,000 / mo month to month
4501 Mohawk Dr. Larkspur CO Mortgage Sales Leased 250 $ 50 / mo month to month
5982 s Zeno Ct Aurora CO Mortgage Sales Leased 50 $ - / mo month to month
Item
2. Properties (Continued)
315 Cece Way Mccall ID Mortgage Sales Leased 100 $ - / mo month to month
110 Awendaw Way, Greenville SC Mortgage Sales Leased 50 $ - / 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.
Item
2. Properties (Continued)
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:
Name of Mortuary Location Date Acquired Viewing Room(s) Chapel(s) Square Footage
Item
3. Legal Proceedings
The
Company is not a party to any material legal proceedings outside the ordinary course of business or to any other legal proceedings, which
if adversely determined, would be expected to have a material adverse effect on its financial condition or results of operation.
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 27,
2023, the closing stock price of the Class A common stock was $6.09 per share. As of March 27, 2023, there were 1,801 registered stockholders
of record of the Company’s Class A common stock and 44 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, 2021:
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 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
the years 2021 and 2022.
On
December 27, 2022, the Company executed a 10b5-1 agreement with a broker to repurchase the Company’s Class A Common Stock. Under
the terms of the agreement, the broker is permitted to repurchase up to $1,000,000 of the Company’s Class A Common Stock. The agreement
is subject to the daily time, price and volume conditions of Rule 10b-18. The initial term of the agreement is for one year and may be
amended with written consent. The purchases under the 10b5-1 agreement are subject to the 2020 amended stock repurchase plan.
The
following table shows the Company’s repurchase activity of its common stock during the three months ended December 31, 2022 under
its Stock Repurchase Plan.
(1) Includes fees and commissions paid on stock repurchases.
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,
2018 through December 31, 2022. 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, 2018 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 the housing market by originating
mortgage loans. The Company has adjusted its strategies to respond to the changing economic circumstances resulting from COVID-19.
Insurance
Operations
The
following table shows the condensed financial results for the Company’s insurance operations for the years ended December 31, 2022
and 2021. 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 (459 ) 4,555 (110 %)
Other than temporary impairments - (40 ) 100 %
Intersegment
revenues for the Company’s insurance operations were comprised primarily of interest income from the warehouse lines provided to