UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2019

or

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

For the Transition Period from _____ to _____

Commission File Number 000-09341

SECURITY NATIONAL FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

UTAH
87-0345941
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

123 West Election Road, Draper, Utah
84020
(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 of 1933, as amended (“Securities Act”).  [  ] Yes   [X] 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   [X] 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, as amended (“Exchange Act”) 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.  [X] 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).   [X] Yes   [  ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

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 [X]
 
Emerging growth company [  ]

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  [  ] Yes    [X] No

As of June 30, 2019, the aggregate market value of the registrant’s Class A common stock held by non-affiliates of the registrant was approximately $26,000,000 based on the $4.78 closing sale price of the Class A common stock as reported on The Nasdaq Stock Market.

As of March 30, 2020, there were outstanding 16,142,513 shares of Class A common stock, $2.00 par value per share, and 2,489,215 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, 2019

TABLE OF CONTENTS

   
Page
Part I
 
     
Item 1.
Business
3
     
Item 2.
Properties
11
     
Item 3.
Legal Proceedings
13
     
Item 4.
Mine Safety Disclosures
15
     
Part II
 
     
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
16
     
Item 6.
Selected Financial Data
18
     
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
     
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
29
     
Item 8.
Financial Statements and Supplementary Data
30
     
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
110
     
Item 9A.
Controls and Procedures
110
     
Item 9B.
Other Information
111
     
Part III
 

   
Item 10.
Directors, Executive Officers and Corporate Governance
112
     
Item 11.
Executive Compensation
116
     
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
126
     
Item 13.
Certain Relationships and Related Transactions, and Director Independence
128
     
Item 14.
Principal Accounting Fees and Services
129
     
Part IV
   
     
Item 15.
Exhibits, Financial Statement Schedules
129

2

PART I

Item 1.  Business

Security National Financial Corporation (the “Company”) operates in three main business segments: life insurance, cemetery and mortuary, and mortgages. The life insurance segment is engaged in the business of selling and servicing selected lines of life insurance, annuity products, and accident and health insurance. 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 and one cemetery in the state of California. The Company also engages in pre-need selling of funeral, cemetery, mortuary, and cremation services through its Utah and California 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 77 retail offices and one wholesale office in 21 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).

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), and Heber Valley Funeral Home, Inc. (2019).

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.

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, 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 other insurance subsidiaries, Memorial Insurance Company of America (“Memorial Insurance”), Southern Security Life Insurance Company, Inc. (“Southern Security”), Trans-Western Life Insurance Company (“Trans-Western”), First Guaranty Insurance Company (“First Guaranty”), and Kilpatrick Life Insurance Company (“Kilpatrick”), service and maintain policies that were purchased prior to their acquisition by Security National Life.
3

A funeral plan is a small face value life insurance policy that generally has face coverage of up to $25,000. 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, 2019:

   
2019
       
2018
   
2017
   
2016
       
2015
 
Life Insurance
                                     
Policy/Cert Count as of December 31
   
669,064
 
(1
)
   
531,831
     
533,065
     
531,775
 
(2
)
   
509,058
 
Insurance in force as of December 31 (omitted 000)
 
$
2,877,402
 
(1
)
 
$
1,838,488
   
$
1,759,148
   
$
1,672,081
 
(2
)
 
$
2,862,803
 
Premiums Collected (omitted 000)
 
$
78,253
 
(1
)
 
$
74,965
   
$
69,565
   
$
65,220
 
(2
)
 
$
55,780
 
_____________
 
(1)
Includes the acquisition of Kilpatrick
   
(2)
Includes the acquisition of First Guaranty and the termination of the reinsurance assumed from Servicemembers’ Group Life Insurance (“SGLI”)

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
 
Non‑Medical
 
 Birthday
 
Limits
 
 0‑50
 
$
100,000
 
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 inspection on the applicant, and an intelliscript prescription history inquiry. There are several underwriting classes in which an applicant can be placed.
4

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, 2019:

   
2019
       
2018
   
2017
   
2016
       
2015
 
Annuities Policy/Cert Count as of December 31
   
26,565
 
(1
)
   
22,313
     
22,729
     
21,364
 
(2
)
   
12,022
 
Deposits Collected (omitted 000)
 
$
10,400
 
(1
)
 
$
9,644
   
$
10,353
   
$
11,019
 
(2
)
 
$
8,069
 
_________
(1)
Includes the acquisition of Kilpatrick
(2)
Includes the acquisition of First Guaranty

Accident and Health

Products

With the acquisition of Capital Investors in 1994, the Company acquired a small block of accident and health policies. Since 1999, the Company has offered a low-cost comprehensive diver’s accident policy that provides worldwide coverage for medical expense reimbursement in the event of a diving accident. With the acquisition of Kilpatrick in 2019, the Company also acquired a small block of accident and health policies.

Markets and Distribution

The Company currently markets its diver’s accident policies through the internet.
5

The following table summarizes the accident and health insurance business for the five years ended December 31, 2019:

   
2019
       
2018
   
2017
   
2016
   
2015
 
Accident and Health Policy/Cert Count as of December 31
   
15,133
 
(1
)
   
3,763
     
4,069
     
4,761
     
5,185
 
Premiums Collected (omitted 000)
 
$
110
 
(1
)
 
$
98
   
$
104
   
$
113
   
$
119
 
________
(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, 2019, was $465,460,000, which represents approximately 16.2% 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 Board 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.
6

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 its wholly owned subsidiaries, SecurityNational Mortgage and EverLEND Mortgage, are 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 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, which are subsequently sold to investors. The Company uses internal and external funding sources to fund mortgage loans.

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 and some independent mortgage loan originators. The Company has a strong retail origination presence in the Utah, Florida, Nevada, and Texas markets in addition to one wholesale branch office located in Utah, with sales representatives in these and other states. 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 Kilpatrick Life Insurance Company

On December 13, 2019, the Company, through its wholly-owned subsidiary, Security National Life, completed a stock purchase transaction with Kilpatrick, a Louisiana domiciled insurance company, and Kilpatrick’s shareholders, to purchase all the outstanding shares of common stock of Kilpatrick.

Under the terms of the transaction, as set forth in the Stock Purchase Agreement, dated October 11, 2019, the Company paid purchase consideration at the closing of the transaction equal to $23,779,940 subject to a $1,400,000 holdback that was deposited into an interest bearing escrow account to be held for a period of eighteen months from the closing date.

Acquisition of Probst Family Funerals and Cremations and Heber Valley Funeral Home

On February 15, 2019, the Company, through its wholly-owned subsidiary, Memorial Mortuary Inc., completed an asset purchase transaction with Probst Family Funerals and Cremations, LLC. (“Probst Family Funerals”) and Heber Valley Funeral Home, Inc. (“Heber Valley Funeral Home”). These funeral homes are both located in Heber Valley, a community situated about 45 miles southeast of Salt Lake City.

Under the terms of the transaction, as set forth in the Asset Purchase Agreement, dated February 15, 2019, the Company paid the net purchase price of $3,315,647 for the business and assets of Probst Family Funerals and Heber Valley Funeral Home, subject to a $150,000 holdback. In August 2019, this escrow account was settled and $137,550 was paid to the prior owners.
7

Acquisition of Beta Capital Corp.

On June 1, 2018, the Company completed a stock purchase transaction with Beta Capital Corp. ("Beta Capital") and Ronald D. Maxson, the sole owner of all the outstanding shares of common stock of Beta Capital, to purchase all of the outstanding shares of common stock of Beta Capital.  Beta Capital is engaged in the operation of a factoring business with the principal purpose of providing funding for funeral homes and mortuaries. 

Under the terms of the transaction, as set forth in the Stock Purchase Agreement, dated June 1, 2018, the Company paid Mr. Maxson the purchase consideration at the closing of the transaction equal to the sum of (i) $890,000 in cash plus (ii)  the accounts receivable value of $2,515,783, representing the total amount of the Company's outstanding receivables as of the closing date of June 1, 2018, for a total closing payment of $3,405,783. From the $3,405,783 closing payment, a holdback amount equal to $175,000 was deposited into an interest bearing escrow account to be held for a period of eighteen months from the closing date to pay off any uncollected accounts receivable and other liabilities of Beta Capital as of the closing date. In November 2019, this escrow account was settled and $169,190 was paid to the prior owner.

Real Estate Development

The Company is capitalizing on the opportunity to develop commercial 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.  The Company plans to continue its development endeavors as the market demands.

Center53 Development

In 2015, the Company broke ground and commenced development on the first phase of its new corporate campus.  The anticipated project, comprising nearly 20 acres of land that is currently owned by the Company in the central valley of Salt Lake City, is envisioned to be a multi-year, phased development. At full development, the project will include nearly one million square-feet in six buildings, ranging from four to ten stories, and will be serviced by three parking structures with about 4,000 stalls. The first phase of the project includes a building and a parking garage consisting of nearly 200,000 square feet of office and retail space with 748 parking stalls. This phase of the campus was completed in July 2017 and is currently 71% leased. The Company continues to market this building to potential tenants. The second phase of the project includes a six story building of nearly 200,000 square feet and will be partially occupied by the Company. Construction preparation for the second phase began in March 2020, and the Company anticipates occupying a portion of the building in June 2021 as its corporate headquarters.

Sale of Dry Creek at East Village Apartments

On March 29, 2018, the Company through its wholly owned subsidiary, Security National Life, completed the sale of the Dry Creek at East Village (“Dry Creek”) apartments to a subsidiary of Dinapoli Capital Partners, LLC (“Dinapoli Capital”) pursuant to the terms of the Purchase and Sale Agreement, dated February 14, 2018, between Security National Life and Dinapoli Capital. The purchase price paid for the Dry Creek apartments was $57,000,000. From the proceeds that Security National Life received from the sale of the apartment complex, $26,802,904 was used to pay off an existing loan at Zions First National Bank, N.A., which was secured by a security interest in the apartment complex. A brokerage commission of $285,000 and legal fees and related costs were also paid from the purchase proceeds. The Company’s book basis in Dry Creek was approximately $34,250,000, and the Company recognized a gain of approximately $22,252,000 from the sale in the first quarter of 2018.

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 are licensed to do business. Such regulation could involve additional costs, restrict operations, or delay implementation of the Company’s business plans.
8

The Company’s life insurance subsidiaries are currently subject to regulation in Utah, Arkansas, 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 state insurance department, if they are deemed “extraordinary” under these statutes. 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’s subsidiary, First Guaranty, completed an examination by Louisiana for the three year period ending December 31, 2016. The Company’s subsidiary, Security National Life, has also completed examinations by Arkansas, Mississippi, Texas and Utah for the four year period ending December 31, 2017. The Company’s newly acquired subsidiary, Kilpatrick Life, is currently under examination for the three year period ending December 31, 2018. The Texas Department of Banking also audits pre-need insurance policies that are issued in the state of Texas.  Pre-need policies are 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 also indicates 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 and California. Reports are required to be kept on file on a yearly basis which include 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, procedures for loan origination and underwriting, licensing of brokers and loan officers, quality review audits and 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 under some of these regulations. In addition to the government regulations, the Company must meet loan requirements, and underwriting guidelines of various investors who purchase the loans.

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). The Company may be subject to the corporate Alternative Minimum Tax (AMT) for tax years ending prior to January 1, 2018. The Tax Cuts and Jobs Act (the “Tax Act”) repealed the corporate AMT for tax years beginning after December 31, 2017. Also, under the Tax 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 following subsidiaries 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: Memorial Insurance, Southern Security, and Trans-Western.
9

Competition

The life insurance industry is highly competitive. There are approximately 1,000 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 and California 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.

Employees

As of December 31, 2019, the Company had 1,125 full-time and 168 part-time employees.
10

Item 2.  Properties

The following table sets forth the location of the Company’s office facilities and certain other information relating to these properties.

Street
 
City
State
Function
Owned / Leased
 
Approximate
Square
Footage
   
Lease
Amount
 
Expiration
 
121 W. Election Rd., Suite 100
 
Draper
UT
Corporate Headquarters (1)
Owned
   
14,145
     
N/A
         
N/A
 
5300 S. 360 W.
 
Salt Lake City
UT
Corporate Headquarters (1)
Owned
   
36,000
     
N/A
         
N/A
 
5201 S. Green St.
 
Salt Lake City
UT
Mortgage and Insurance Operations
Owned
   
28,448
     
N/A
         
N/A
 
1044 River Oaks Dr.
 
Flowood
MS
Insurance Operations
Owned
   
5,522
     
N/A
         
N/A
 
5239 Greenpine Dr.
 
Murray
UT
Funeral Service Operations
Owned
   
1,642
     
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
 
4455 South 700 East
 
Salt Lake City
UT
Insurance Operations
Leased
   
16,134
   
$
22,520
 
/
 
mo
 
6/30/2021
 
1 Sanctuary Blvd. Suite 302A
 
Mandeville
LA
Insurance Sales
Leased
   
867
   
$
1,382
 
/
 
mo
 
6/30/2020
 
79 E. Main Street
 
Midway
UT
Funeral Service Sales
Leased
   
4,476
   
$
3,460
 
/
 
mo
 
10/31/2022
 
200 Market Way
 
Rainbow City
AL
Fast Funding Operations
Leased
   
12,850
   
$
10,490
 
/
 
mo
 
12/31/2025
 
6000 Pelham Rd.
 
Greenville
SC
Fast Funding Operations
Leased
   
4,483
   
$
4,109
 
/
 
mo
 
8/31/2022
 
4007 Seaboard Court, Suite 1
 
Portsmouth
VA
Fast Funding Operations
Leased
   
N/A
   
$
3,000
 
/
 
mo
 
5/31/2020
 
1819 S. Dobson Rd., Suite 202/203
 
Mesa
AZ
Mortgage Sales
Leased
   
2,397
   
$
2,447
 
/
 
mo
 
7/31/2021
 
17015 N. Scottsdale Rd., Suite 125
 
Scottsdale
AZ
Mortgage Sales
Leased
   
6,070
   
$
13,415
 
/
 
mo
 
4/30/2020
 
1930 S Alma School Rd., Suite B-201
 
Mesa
AZ
Mortgage Sales
Leased
   
1,762
   
$
1,909
 
/
 
mo
 
9/14/2020
 
4725 N. 19th Ave.
 
Phoenix
AZ
Mortgage Sales
Leased
   
600
   
$
250
 
/
 
mo
 
month to month
 
77 E. Weldon Ave., Suite 220
 
Phoenix
AZ
Mortgage Sales
Leased
   
1,500
   
$
2,000
 
/
 
mo
 
month to month
 
5100 N. 99th Ave., Suite 101/103
 
Phoenix
AZ
Mortgage Sales
Leased
   
2,540
   
$
3,175
 
/
 
mo
 
month to month
 
2828 N. Central Ave., Suite 1006/1018
 
Phoenix
AZ
Mortgage Sales
Leased
   
245
   
$
2,075
 
/
 
mo
 
month to month
 
2999 Douglas Blvd.
 
Roseville
CA
Mortgage Sales
Leased
   
1,515
   
$
3,485
 
/
 
mo
 
6/30/2020
 
1855 Gladys Ave., Suite 2
 
Signal Hill
CA
Mortgage Sales
Leased
   
200
   
$
100
 
/
 
mo
 
month to month
 
22775 Pine Lake Dr.
 
Colfax
CA
Mortgage Sales
Leased
   
200
   
$
20
 
/
 
mo
 
month to month
 
40977 Oak Dr.
 
Forest Falls
CA
Mortgage Sales
Leased
   
250
   
$
-
 
/
 
mo
 
month to month
 
5475 Tech Center Dr., Suite 100
 
Colorado Springs
CO
Mortgage Sales
Leased
   
3,424
   
$
3,852
 
/
 
mo
 
7/31/2020
 
8480 E. Orchard Rd., Suite 4200
 
Greenwood Village
CO
Mortgage Sales
Leased
   
4,631
   
$
9,841
 
/
 
mo
 
5/31/2021
 
1120 W. 122nd Ave., Suite 104
 
Denver
CO
Mortgage Sales
Leased
   
2,088
   
$
3,654
 
/
 
mo
 
10/31/2021
 
27 Main St., Suite C-104B
 
Edwards
CO
Mortgage Sales
Leased
   
680
   
$
1,600
 
/
 
mo
 
month to month
 
1145 Town Park Ave., Suite 2215
 
Lake Mary
FL
Mortgage Sales
Leased
   
9,390
   
$
19,829
 
/
 
mo
 
2/29/2020
 
8191 College Parkway, Suite 201
 
Ft Myers
FL
Mortgage Sales
Leased
   
4,676
   
$
3,917
 
/
 
mo
 
8/21/2021
 
1545 S. Belcher Rd., Suite B
 
Clearwater
FL
Mortgage Sales
Leased
   
N/A
   
$
3,073
 
/
 
mo
 
month to month
 
3689 Tampa Rd., Suite 324
 
Oldsmar
FL
Mortgage Sales
Leased
   
2,553
   
$
2,708
 
/
 
mo
 
2/28/2020
 
113th St. N. and 82nd Ave. N.
 
Seminole
FL
Mortgage Sales
Leased
   
N/A
   
$
2,100
 
/
 
mo
 
8/30/2020
 
136 Parliament Loop
 
Lake Mary
FL
Mortgage Sales
Leased
   
1,527
   
$
3,100
 
/
 
mo
 
11/30/2022
 
4370 Kukui Grove St., Suite 201
 
Lihue
HI
Mortgage Sales
Leased
   
864
   
$
1,331
 
/
 
mo
 
2/28/2020
 
116 N. 3rd St., Suite 12
 
Mccall
ID
Mortgage Sales
Leased
   
480
   
$
400
 
/
 
mo
 
month to month
 
7225-27 West Madison St.
 
Forest Park
IL
Mortgage Sales
Leased
   
1,800
   
$
2,200
 
/
 
mo
 
6/30/2020
 
9963 Crosspoint Blvd Suites 101/102
 
Indianapolis
IN
Mortgage Sales
Leased
   
N/A
   
$
1,350
 
/
 
mo
 
month to month
 
568 Greenluster Dr.
 
Covington
LA
Mortgage Sales
Leased
   
150
   
$
750
 
/
 
mo
 
month to month
 
4987 Fall Creek Rd. Suite 1
 
Branson
MO
Mortgage Sales
Leased
   
700
   
$
1,000
 
/
 
mo
 
month to month
 
7930 West Kenton Circle
 
Huntersville
NC
Mortgage Sales
Sub-Leased
   
951
   
$
1,918
 
/
 
mo
 
2/29/2020
 
801 Cascade Pointe Lane, Suite 101
 
Raleigh
NC
Mortgage Sales
Sub-Leased
   
2,000
   
$
2,961
 
/
 
mo
 
4/30/2020
 
1980 Festival Plaza Dr., Suite 850
 
Las Vegas
NV
Mortgage Sales
Leased
   
12,866
   
$
43,615
 
/
 
mo
 
5/31/2021
 
2370 Corporate Circle, Suite 200/270
 
Henderson
NV
Mortgage Sales
Leased
   
10,261
   
$
18,297
 
/
 
mo
 
4/30/2020
 
8720 Orion Place, Suite 160
 
Colombus
OH
Mortgage Sales
Leased
   
1,973
   
$
1,726
 
/
 
mo
 
6/30/2023
 
10610 SE Washington
 
Portland
OR
Mortgage Sales
Leased
   
506
   
$
600
 
/
 
mo
 
month to month
 
3311 NE MLK Jr Blvd., Suite 203
 
Portland
OR
Mortgage Sales
Leased
   
1,400
   
$
875
 
/
 
mo
 
month to month
 
10365 SE Sunnyside Rd., Suite 310
 
Clackamus
OR
Mortgage Sales
Leased
   
1,288
   
$
2,420
 
/
 
mo
 
11/30/2022
 
213 E. Butler, Suite E-1
 
Mauldin
SC
Mortgage Sales
Leased
   
250
   
$
-
 
/
 
mo
 
month to month
 
6263 Poplar Ave., Suite 900
 
Memphis
TN
Mortgage Sales
Leased
   
1,680
   
$
2,476
 
/
 
mo
 
3/31/2020
 
6640 Carothers Parkway, Suite 150
 
Franklin
TN
Mortgage Sales
Leased
   
3,229
   
$
8,199
 
/
 
mo
 
3/31/2020
 
208 Sunset Dr., Suites 403/404
 
Knoxville
TN
Mortgage Sales
Leased
   
2,476
   
$
3,817
 
/
 
mo
 
10/31/2022
 
6640 Carothers Parkway, Suite 110
 
Franklin
TN
Mortgage Sales
Leased
   
2,102
   
$
4,668
 
/
 
mo
 
4/30/2020
 
602 S Main St., Suite 200
 
Weatherford
TX
Mortgage Sales
Leased
   
1,000
   
$
1,865
 
/
 
mo
 
3/1/2020
 
52 Sugar Creek Center, Suite 150
 
Sugarland
TX
Mortgage Sales
Leased
   
1,788
   
$
3,994
 
/
 
mo
 
3/31/2020
 
1 Chisholm Trail Rd., Suite 210
 
Round Rock
TX
Mortgage Sales
Leased
   
3,402
   
$
4,961
 
/
 
mo
 
12/31/2020
 
3027 Marina Bay Dr., Suite 200
 
League City
TX
Mortgage Sales
Leased
   
1,225
   
$
2,118
 
/
 
mo
 
3/31/2020
 
11550 Fuqua, Suite 200
 
Houston
TX
Mortgage Sales
Leased
   
1,865
   
$
3,341
 
/
 
mo
 
4/30/2020
 
24668 Kingsland Blvd.
 
Katy
TX
Mortgage Sales
Leased
   
144
   
$
500
 
/
 
mo
 
month to month
 
1848 Norwood Plaza, Suite 213
 
Hurst
TX
Mortgage Sales
Leased
   
1,596
   
$
1,031
 
/
 
mo
 
month to month
 
17347 Village Green Dr., Suite 102
 
Houston
TX
Mortgage Sales
Leased
   
4,395
   
$
8,970
 
/
 
mo
 
12/1/2024
 
4100 Alpha Rd., Suite 650
 
Farmers Branch
TX
Mortgage Sales
Leased
   
2,935
   
$
4,158
 
/
 
mo
 
3/31/2020
 
1626 Lee Trevino, Suite A
 
El Paso
TX
Mortgage Sales
Leased
   
4,200
   
$
7,799
 
/
 
mo
 
12/31/2022
 
9737 Great Hills Trail, Suites 150, 200, 220
 
Austin
TX
Mortgage Sales
Sub-Leased
   
19,891
   
$
36,052
 
/
 
mo
 
8/31/2024
 
1213 East Alton Gloor Blvd., Suite H
 
Brownsville
TX
Mortgage Sales
Leased
   
2,000
   
$
2,200
 
/
 
mo
 
3/31/2020
 
7920 Belt Line Rd., Suite 720
 
Dallas
TX
Mortgage Sales
Leased
   
1,714
   
$
2,143
 
/
 
mo
 
month to month
 
5020 Collinwood Ave., Suite 100
 
Fort Worth
TX
Mortgage Sales
Leased
   
2,687
   
$
5,150
 
/
 
mo
 
1/31/2021
 
240 North Adams St., Suite 4
 
Eagle Pass
TX
Mortgage Sales
Leased
   
275
   
$
1,015
 
/
 
mo
 
12/31/2020
 
3000 Joe DiMaggio Blvd., Bldg 12 Suite 42
 
Round Rock
TX
Mortgage Sales
Leased
   
920
   
$
1,750
 
/
 
mo
 
5/15/2021
 
2408 Jacaman Road, Suite F
 
Laredo
TX
Mortgage Sales
Leased
   
N/A
   
$
900
 
/
 
mo
 
6/1/2020
 
1900 Country Club Dr., Suite 150
 
Mansfield
TX
Mortgage Sales
Leased
   
175
   
$
325
 
/
 
mo
 
month to month
 
3220 Gus Thomasson Rd.
 
Mesquite
TX
Mortgage Sales
Leased
   
130
   
$
1,000
 
/
 
mo
 
month to month
 
722 Kiowa Dr. West
 
Lake Kiowa
TX
Mortgage Sales
Leased
   
150
   
$
-
 
/
 
mo
 
month to month
 
1224 S. River Rd., Suites E3/B4
 
Saint George
UT
Mortgage Sales
Leased
   
1,900
   
$
1,869
 
/
 
mo
 
5/31/2020
 
1111 Brickyard Rd., Suite 107
 
Salt Lake City
UT
Mortgage Sales
Leased
   
4,857
   
$
4,408
 
/
 
mo
 
1/31/2020
 
170 S Interstate Plaza, Suite 230
 
Lehi
UT
Mortgage Sales
Leased
   
1,927
   
$
3,453
 
/
 
mo
 
7/31/2021
 
590 W. State Street
 
Pleasant Grove
UT
Mortgage Sales
Leased
   
250
   
$
500
 
/
 
mo
 
month to month
 
5965 S. Redwood Rd.
 
Taylorsville
UT
Mortgage Sales
Leased
   
2,000
   
$
600
 
/
 
mo
 
month to month
 
6575 S. Redwood Rd.
 
Taylorsville
UT
Mortgage Sales
Leased
   
3,323
   
$
5,221
 
/
 
mo
 
12/31/2022
 
126 W. Sego Lily Dr., Suite 260
 
Sandy
UT
Mortgage Sales
Leased
   
2,794
   
$
5,672
 
/
 
mo
 
8/31/2020
 
75 Towne Ridge Parkway, Suite 100
 
Sandy
UT
Mortgage Sales
Leased
   
6,867
   
$
15,737
 
/
 
mo
 
8/31/2023
 
1145 S. 800 E.
 
Orem
UT
Mortgage Sales
Leased
   
2,581
   
$
4,431
 
/
 
mo
 
1/31/2020
 
1133 North Main St., Suite 150
 
Layton
UT
Mortgage Sales
Sub-Leased
   
300
   
$
1,000
 
/
 
mo
 
month to month
 
497 S. Main
 
Ephraim
UT
Mortgage Sales
Leased
   
953
   
$
765
 
/
 
mo
 
9/30/2021
 
6965 S. Union Park, Suites 100, 190, 260, 300, 460, 470, & 480
 
Midvale
UT
Mortgage Sales
Leased
   
39,649
   
$
77,726
 
/
 
mo
 
6/30/2021
 
11240 S. River Heights Dr.
 
South Jordan
UT
Mortgage Sales
Leased
   
3,403
   
$
7,515
 
/
 
mo
 
11/30/2024
 
500 East Village Blvd.
 
Stansbury Park
UT
Mortgage Sales
Leased
   
1,950
   
$
3,088
 
/
 
mo
 
10/31/2024
 
1350 E. 300 S. 3rd Floor
 
Lehi
UT
Mortgage Sales
Leased
   
15,446
   
$
34,110
 
/
 
mo
 
12/22/2026
 
21430 Cedar Dr., Suite 200-202
 
Sterling
VA
Mortgage Sales
Leased
   
4,000
   
$
7,700
 
/
 
mo
 
10/31/2022
 
15640 NE Fourth Plain Blvd., Suite 220/221
 
Vancouver
WA
Mortgage Sales
Leased
   
360
   
$
425
 
/
 
mo
 
9/30/2020
 
5816 Ledgemont Ct.
 
Fitchburg
WI
Mortgage Sales
Leased
   
200
   
$
250
 
/
 
mo
 
month to month
 
1508 24th Ave., Suite 23
 
Kenosha
WI
Mortgage Sales
Leased
   
250
   
$
150
 
/
 
mo
 
month to month
 
27903 99th St.
 
Trevor
WI
Mortgage Sales
Leased
   
300
   
$
150
 
/
 
mo
 
month to month
 
                                         
________
(1)
The Company temporarily relocated its Corporate Headquarters from 5300 South 360 West, Salt Lake City, Utah to 121 W. Election Rd., Draper, Utah. The building at 5300 South 360 West was demolished in March 2020 as part of the second phase of the Center53 corporate campus development. The existing land will be used as the site to construct a building, which the Company anticipates occupying a part of the building in June 2021 as its new Corporate Headquarters.

The Company believes the office facilities it occupies are in good operating condition and adequate for current operations. The Company will enter into additional leases or modify existing leases to meet market demand.  Those leases will be month to month where possible.  As leases expire, the Company will either renew or find comparable leases or acquire additional office space.

11

Item 2.  Properties (Continued)

The following table summarizes the location and acreage of the six Company owned cemeteries, each of which includes one or more mausoleums:

       
Net Saleable Acreage
Name of Cemetery
Location
Date Acquired
Developed
Acreage (1)
Total Acreage (1)
Acres Sold
as Cemetery
Spaces (2)
Total Available
Acreage (1)
Memorial Estates, Inc.
         
Lakeview Cemetery
1640 East Lakeview Drive
Bountiful, Utah
1973
9
39
7
32
             
Mountain View Cemetery
3115 East 7800 South
Salt Lake City, Utah
1973
26
54
20
34
             
Redwood Cemetery (3)
6500 South Redwood Road
West Jordan, Utah
1973
28
71
35
36
             
Deseret Memorial Inc.
Lake Hills Cemetery (3)(6)
         
Lake Hills Cemetery
10055 South State Street
Sandy, Utah
1991
9
28
6
22
             
Holladay Memorial Park, Inc.
         
Holladay Memorial Park (3)
4900 South Memory Lane
Holladay, Utah
1991
12
14
7
7
             
California Memorial Estates, Inc.
         
Singing Hills Memorial Park (4)
2800 Dehesa Road
El Cajon, California
1995
8
97
6
91
_________
(1)
The acreage represents estimates of acres that are based upon survey reports, title reports, appraisal reports, or the Company’s inspection of the cemeteries. The Company estimates that there are approximately 1,200 spaces per developed acre.
(2)
Includes both reserved and occupied spaces.
(3)
Includes two granite mausoleums.
(4)
Includes an open easement.

12

Item 2. Properties (Continued)

The following table summarizes the location, square footage and the number of viewing rooms and chapels of the eight Company owned mortuaries:

   
Date
Viewing
 
Square
Name of Mortuary
Location
Acquired
Room(s)
Chapel(s)
Footage
Memorial Mortuary, Inc.
         
Memorial Mortuary
5850 South 900 East
       
 
Murray, Utah
1973
3
1
20,000
           
Affordable Funerals and Cremations, St. George
157 East Riverside Dr., No. 3A
2016
1
1
2,360
 
St. George, Utah
       
           
Memorial Estates, Inc.
         
Redwood Mortuary (1)
6500 South Redwood Rd.
       
 
West Jordan, Utah
1973
2
1
10,000
           
Mountain View Mortuary (1)
3115 East 7800 South
       
 
Salt Lake City, Utah
1973
2
1
16,000
           
Lakeview Mortuary (1)
1640 East Lakeview Dr.
       
 
Bountiful, Utah
1973
0
1
5,500
           
Lakehills Mortuary (1)
10055 South State St.
       
 
Sandy, Utah
1991
2
1
18,000
           
Cottonwood Mortuary, Inc.
         
Cottonwood Mortuary (1)
4670 South Highland Dr.
       
 
Holladay, Utah
1991
2
1
14,500
           
SN Probst LLC
         
Heber Valley Funeral Home
288 North Main St.
       
 
Heber City, Utah
2019
1
1
5,900
_________
(1)
These funeral homes also provide burial niches at their respective locations.

Item 3.  Legal Proceedings

Lehman Brothers Holdings Litigation – Delaware and New York

In January 2014, Lehman Brothers Holdings Inc. (“Lehman Holdings”) entered into a settlement with the Federal National Mortgage Association (Fannie Mae) concerning the mortgage loan claims that Fannie Mae had asserted against Lehman Holdings, which were based on alleged breaches of certain representations and warranties by Lehman Holdings in the mortgage loans it had sold to Fannie Mae.  Lehman Holdings had acquired these loans from Aurora Bank, FSB, formerly known as Lehman Brothers Bank, FSB, which in turn purchased the loans from residential mortgage loan originators, including SecurityNational Mortgage Company (“SecurityNational Mortgage”). A settlement based on similar circumstances was entered into between Lehman Holdings and the Federal Home Loan Mortgage Corporation (Freddie Mac) in February 2014.

Lehman Holdings filed a motion in May 2014 with the U.S. Bankruptcy Court of the Southern District of New York to require the mortgage loan originators, including SecurityNational Mortgage, to engage in non-binding mediations of the alleged indemnification claims against the mortgage loan originators relative to the Fannie Mae and Freddie Mac settlements with Lehman Holdings.  The mediation was not successful in resolving any issues between SecurityNational Mortgage and Lehman Holdings.

On January 26, 2016, SecurityNational Mortgage filed a declaratory judgment action against Lehman Holdings in the Superior Court for the State of Delaware.  In the Delaware action, SecurityNational Mortgage asserted its right to obtain a declaration of rights in that there are allegedly millions of dollars in dispute with Lehman Holdings pertaining to approximately 136 mortgage loans.  SecurityNational Mortgage sought a declaratory judgment as to its rights as it contends that it has no liability to Lehman Holdings as a result of Lehman Holdings’ settlements with Fannie Mae and Freddie Mac.  Lehman Holdings filed a motion in the Delaware court seeking to stay or dismiss the declaratory judgment action.  On August 24, 2016, the Court ruled that it would exercise its discretion to decline jurisdiction over the action and granted Lehman Holdings’ motion to dismiss.
13

On February 3, 2016, Lehman Holdings filed an adversary proceeding against approximately 150 mortgage loan originators, including SecurityNational Mortgage, in the U.S. Bankruptcy Court of the Southern District of New York seeking a declaration of rights similar in nature to the declaration that SecurityNational Mortgage sought in its Delaware lawsuit, and for damages relating to the alleged obligations of the defendants under  indemnification provisions of the alleged agreements, in amounts to be determined at trial, including interest, attorneys’ fees and costs incurred by Lehman Holdings in enforcing the obligations of the defendants. No response was required to be filed relative to the Complaint or the Amended Complaint dated March 7, 2016. A Case Management Order was entered on November 1, 2016.

On December 27, 2016, pursuant to the Case Management Order, Lehman Holdings filed a Second Amended Complaint against SecurityNational Mortgage, which eliminates the declaratory judgment claim but retains a similar claim for damages as in the Complaint. Many of the defendants, including SecurityNational Mortgage, filed a joint motion in the case asserting that the Bankruptcy Court does not have subject matter jurisdiction concerning the matter and that venue is improper. Lehman Holdings’ response memorandum was filed on May 31, 2017 and a reply memorandum of the defendants filing the motion was filed on July 14, 2017.  A hearing on the motion was held on June 12, 2018.

On August 13, 2018, the Court issued its Memorandum Decision and Order (“Decision”) denying the motion. On August 27, 2018, a number of the defendants, including SecurityNational Mortgage, filed a joint motion with the United States District Court (Case No. 18-mc-00392(VEC)) requesting that the Bankruptcy Court’s Decision be treated as findings of fact and conclusions of law, and for the District Court to review the Decision de novo as to jurisdiction. Included with the motion were proposed objections to the Bankruptcy Court’s Decision. On September 18, 2018, Lehman Holdings filed its response to the joint motion, and defendants’ reply was filed on October 2, 2018.

On September 17, 2018, certain defendants, including SecurityNational Mortgage, also filed a notice of appeal, and thereafter a motion for leave to file an interlocutory appeal as to the Bankruptcy Court’s Decision pertaining to jurisdiction and improper venue as a “protective” appeal should the District Court decide not to treat the Decision as findings of fact and conclusions of law. Separately, certain other defendants also filed a notice of appeal and motion for leave to file an interlocutory appeal with respect to the Bankruptcy Court’s Decision concerning improper venue. Lehman Holdings filed its response on October 22, 2018, and defendants filed a joint reply to Lehman Holdings’ response on November 26, 2018. The motions to file appeals were consolidated before Valerie Caproni, U.S. District Court Judge, Case No. 18-cv-08986 (VEC). Case No. 18-mc-00392 (VEC) was also before Judge Caproni.

On May 8, 2019, Judge Caproni issued her Opinion and Order denying the motion for an interlocutory appeal of the bankruptcy court’s ruling relative to jurisdiction and venue. Further, the judge denied the motion for immediate de novo review of the bankruptcy court’s ruling indicating that de novo review can be left for the future.

On October 1, 2018, Lehman Holdings filed a motion for leave to file Third Amended Complaints against numerous defendants including SecurityNational Mortgage. In addition to the Fannie Mae and Freddie Mac related loans, the amendments and supplements include additional mortgage loans sold to Lehman Holdings that were packaged for securitization (“RMBS loans”). The RMBS loans had allegedly been sold by defendants to Lehman Bank that, in turn, sold them to Lehman Holdings. The allegations pertaining to the RMBS loans include, e.g., purported breaches of representations and warranties made to the securitization trusts by Lehman Holdings. Lehman Holdings asserts that it made representations and warranties purportedly based in part by representations and warranties made to Lehman Bank by loan originators, including SecurityNational Mortgage.

The alleged RMBS loans in dispute with SecurityNational Mortgage allegedly involve millions of dollars pertaining to approximately 577 mortgage loans in addition to the Fannie Mae and Freddie Mac related loans. Lehman Holdings also moved the Court to simultaneously allow alternative dispute resolution procedures to take place including potential mediation. Over objections, at a hearing on October 29, 2018, the Court granted Lehman Holdings’ motion to amend or supplement its complaints adding the RMBS loans, and also to mandate alternative dispute resolution procedures affecting many defendants, including SecurityNational Mortgage.
14

Instead of filing a Third Amended Complaint to include the RMBS loans referenced above, Lehman Holdings filed the matter against SecurityNational Mortgage as a new complaint ("RMBS Complaint") (United States Bankruptcy Court, Southern District of New York, Adversary Proceeding 18-01819) pertaining to the approximately 577 RMBS loans, in addition to the Second Amended Complaint already on file. The RMBS Complaint seeks alleged damages relating to obligations under alleged contractual indemnification provisions in an amount to be determined at trial, interest, costs and expenses incurred by LBHI in enforcing alleged obligations, including attorneys' fees and costs and any expert witness fees incurred in litigation; and such other relief as the Court deems just and proper. SecurityNational Mortgage denies any liability to Lehman Holdings and intends to vigorously protect and defend its position.

In response to a Court order, certain defendants referenced in the Second Amended Complaint and the RMBS Complaints negotiated with Lehman Holdings concerning an amended case management order pertaining to certain case procedures and management for both lawsuits including, but not limited to, timing for filing motions and answering the complaints, and provisions concerning discovery such as document production, taking depositions, and use of experts. At a hearing held on March 7, 2019, the Court considered differences of the parties as to the content of an amended case management order, and thereafter signed an amended case management order dated March 13, 2019. SecurityNational Mortgage filed an answer and amended answer in the Fannie Mae and Freddie Mac case, and in the RMBS case. Discovery is in process.

Lehman Holdings sent an Indemnification Alternative Dispute Resolution Notice to SecurityNational Mortgage dated August 1, 2019. SecurityNational Mortgage sent its Statement of Position to Lehman Brothers Holdings dated September 3, 2019 in response to the notice. Thereafter, Lehman Holdings sent its Reply dated October 2, 2019 to SecurityNational Mortgage. On January 9, 2020, SecurityNational Mortgage submitted further information to the mediator. Mediation was set to take place on January 23, 2020 in New York.

On January 15, 2020, SecurityNational Mortgage filed a motion to dismiss Lehman Holdings’ RMBS action in the Bankruptcy Court for lack of subject matter jurisdiction and standing. It was not filed in the Bankruptcy Court but in the United States District Court for the Southern District of New York. The District Court referred the matter to a magistrate judge for general pretrial, which “includes scheduling, discovery, non-dispositive pretrial motions, and settlement,” as well as for “a Report and Recommendation” as to the pending motion. The final disposition of the motion will be with the District Court judge. Lehman Holdings has asked the District Court to transfer the case to one of two other judges allegedly due to related matters. No action has been taken by the District Court on the request.

However, a briefing schedule is in place before the original assigned magistrate judge. Lehman Holdings’ response brief to SecurityNational Mortgage’s motion is due March 6, 2020, and SecurityNational Mortgage’s reply brief is due April 6, 2020. In view of SecurityNational Mortgage’s motion to dismiss, Lehman Holdings requested that the mediation set for January 23, 2020 be adjourned “pending resolution of your [SecurityNational Mortgage] motion by the court.” On January 17, 2020, the mediator adjourned the scheduled mediation without a date.

The Company is not a party to any other material legal proceedings outside the ordinary course of business or to any other legal proceedings, which if adversely determined, would have a material adverse effect on its financial condition or results of operation.

Item 4.  Mine Safety Disclosures

Not applicable.
15

PART II

Item 5.  Market for the Registrant’s Common Stock, Related Security Holder Matters, and Issuer Purchases of Equity Securities

The Company’s Class A common stock trades on The NASDAQ National Market under the symbol “SNFCA.” As of March 27, 2019, the closing stock price of the Class A common stock was $3.77 per share. The following were the high and low market closing stock prices for the Class A common stock by quarter as reported by NASDAQ since January 1, 2018:

   
Price Range (1)
 
   
High
   
Low
 
Period (Calendar Year)
           
2018
           
First Quarter
 
$
4.90
   
$
3.92
 
Second Quarter
 
$
4.99
   
$
4.67
 
Third Quarter
 
$
5.03
   
$
4.58
 
Fourth Quarter
 
$
5.35
   
$
4.68
 
                 
2019
               
First Quarter
 
$
5.34
   
$
4.50
 
Second Quarter
 
$
5.38
   
$
4.53
 
Third Quarter
 
$
5.20
   
$
4.55
 
Fourth Quarter
 
$
5.74
   
$
4.58
 
                 
2020
               
First Quarter (through March 27, 2020)
 
$
6.25
   
$
3.77
 
________
(1)
 Stock prices have been adjusted retroactively for the effect of annual 5% stock dividends.

The Class C common stock is not registered or traded on a national exchange. See Note 12 of the Notes to Consolidated Financial Statements.

The Company has never paid a cash dividend on its Class A or Class C common stock. The Company currently anticipates that all of its earnings will be retained for use in the operation and expansion of its business and does not intend to pay any cash dividends on its Class A or Class C common stock in the foreseeable future. Any future determination as to cash dividends will depend upon the earnings and financial position of the Company and such other factors as the Board of Directors may deem appropriate. A 5% stock dividend on Class A and Class C common stock has been paid each year from 1990 through 2019.

On September 7, 2018, the Board of Directors of the Company approved a Stock Repurchase Plan that authorized the repurchase of 300,000 shares of the Company's Class A Common Stock in the open market. The repurchased shares of Class A common stock will be held as treasury shares to be used as the Company's employer matching contribution to the Employee 401(k) Retirement Savings Plan. The following table shows the Company’s repurchase activity of its common stock during the three months ended December 31, 2019 under its Stock Repurchase Plan.

Period
 
(a) Total
Number of
Class A
Shares
Purchased
   
(b) Average
Price Paid
per Class
A Share
   
(c) Total
Number of
Class A
Shares
 Purchased as
Part of Publicly Announced
 Plan or
 Program
   
(d) Maximum
Number of
Class A
Shares that
 May Yet Be Purchased
 Under the
 Plan or
 Program
 
10/1/2019-10/31/2019
   
8,790
   
$
5.01
     
-
     
182,007
 
11/1/2019-11/30/2019
   
10,000
   
$
5.36
     
-
     
172,007
 
12/1/2019-12/31/2019
   
10,000
   
$
5.73
     
-
     
162,007
 
                                 
Total
   
28,790
   
$
5.41
     
-
     
162,007
 

16

The graph below compares the cumulative total stockholder return of the Company’s Class A common stock with the cumulative total return on the Standard & Poor’s 500 Stock Index and the Standard & Poor’s Insurance Index for the period from December 31, 2015 through December 31, 2019. The graph assumes that the value of the investment in the Company’s Class A common stock and in each of the indexes was $100 at December 31, 2015 and that all dividends were reinvested.

The comparisons in the graph below are based on historical data and are not intended to forecast the possible future performance of the Company’s Class A common stock.



 
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
SNFC
100
104
88
91
109
S & P 500
100
110
131
123
158
S & P Insurance
100
115
131
113
143

The stock performance graph set forth above is required by the Securities and Exchange Commission and shall not be deemed to be incorporated by reference by any general statement incorporating by reference this Form 10-K into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed soliciting material or filed under such acts.

As of December 31, 2019, there were 2,647 record holders of Class A common stock and 64 record holders of Class C common stock.
17

Item 6.  Selected Financial Data

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 trends or events which the Company expects to continue: (i) increased attention to “niche” insurance products, such as the Company’s funeral plan policies and traditional whole life products; (ii) emphasis on cemetery and mortuary business; and (iii) capitalizing on relatively low interest rates by originating mortgage loans.

Insurance Operations

The following table shows the condensed financial results for the Company’s insurance operations for the years ended December 31, 2019 and 2018.  See Note 15 of the Notes to Consolidated Financial Statements.

   
Years ended December 31
(in thousands of dollars)
 
   
2019
   
2018
   
2019 vs 2018 % Increase (Decrease)
 
Revenues from external customers:
                 
Insurance premiums
 
$
81,861
   
$
75,929
     
8
%
Net investment income
   
41,611
     
38,720
     
7
%
Gains (losses) on investments and other assets
   
138
     
21,396
     
(99
%)
Other
   
2,129
     
1,637
     
30
%
Total
 
$
125,739
   
$
137,682
     
(9
%)
Intersegment revenue
 
$
4,455
   
$
3,973
     
12
%
Earnings before income taxes
 
$
6,565
   
$
30,124
     
(78
%)

Intersegment revenues for the Company’s insurance operations were primarily interest income from the warehouse lines provided to its mortgage lending affiliates to fund loans held for sale. Profitability in 2019 decreased due to the one-time gain of $22,252,000 on the sale of Dry Creek at East Village Apartments that was recognized in 2018, offset by increases in investment income, and increases in insurance premiums. These increases were partially offset by increases in benefits and expenses.

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, 2019 and 2018. See Note 15 of the Notes to Consolidated Financial Statements.

   
Years ended December 31
(in thousands of dollars)
 
   
2019
   
2018
   
2019 vs 2018 % Increase (Decrease)
 
Revenues from external customers:
                 
Mortuary revenues
 
$
6,541
   
$
5,514
     
19
%
Cemetery revenues
   
8,755
     
8,213
     
7
%
Net investment income
   
580
     
283
     
105
%
Gains on investments and other assets
   
530
     
2,301
     
(77
%)
Other
   
95
     
129
     
(26
%)
Total
 
$
16,501
   
$
16,440
     
0
%
Earnings before income taxes
 
$
2,660
   
$
3,916
     
(32
%)

18

Included in net investment income was net rental income from residential and commercial properties purchased from Security National Life. Memorial Estates purchased these properties from financing provided by Security National Life. The rental income was offset by property insurance, taxes, maintenance expenses and depreciation. Memorial Estates recorded depreciation on these properties of $452,000 and $598,000 for the twelve months ended December 31, 2019 and 2018, respectively. Profitability in 2019 has decreased due to a one-time gain on the sale of assets of Deseret Mortuary recognized in 2018, offset by increases in cemetery and mortuary revenues for 2019.

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 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 19% of its loan origination volume. These mortgage loans are serviced by either SecurityNational Mortgage or an approved third-party sub-servicer.

For the twelve months ended December 31, 2019 and 2018, SecurityNational Mortgage originated 10,885 loans ($2,534,399,000 total volume) and 10,252 loans ($2,150,933,000 total volume), respectively. For the twelve months ended December 31, 2019 and 2018, EverLEND Mortgage originated 275 loans ($72,440,000 total volume) and 173 loans ($43,675,000 total volume), respectively.

The following table shows the condensed financial results for the Company’s mortgage operations for the years ended 2019 and 2018.  See Note 15 of the Notes to Consolidated Financial Statements.

   
Years ended December 31
(in thousands of dollars)
 
   
2019
   
2018
   
2019 vs 2018 % Increase (Decrease)
 
Revenues from external customers:
                 
Income from loan originations
 
$
38,394
   
$
35,769
     
7
%
Secondary gains from investors
   
93,582
     
80,417
     
16
%
Net investment income
   
829
     
910
     
(9
%)
Gains on investments and other assets
   
60
     
243
     
(75
%)
Other
   
7,956
     
8,157
     
(2
%)
Total
 
$
140,821
   
$
125,496
     
12
%
Earnings before income taxes
 
$
4,718
   
$
(7,860
)
   
160
%

Included in other revenues is service fee income. The increase in revenues for the Company’s mortgage operations for the twelve months ended December 31, 2019 as compared to December 31, 2018 was due to an increase in mortgage loan originations and refinancings, and subsequent sales into the secondary market.

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 estimate potential losses on loans sold. The estimated liability for indemnification losses is included in other liabilities and accrued expenses and, as of December 31, 2019 and 2018, the balances were $4,046,000 and $3,605,000, respectively.
19

Mortgage Loan Loss Litigation

For a description of the litigation involving SecurityNational Mortgage and Lehman Brothers holdings, see Part I, Item 3. Legal Proceedings.

Significant Accounting Policies

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 with generally accepted accounting principles in the United States of America (“GAAP”), premiums and other considerations received for interest sensitive products are reflected as increases in liabilities for policyholder account balances and not as revenues. Revenues reported for these products consist of policy charges for the cost of insurance, administration charges, amortization of policy initiation fees and surrender charges assessed against policyholder account balances. Surrender benefits paid relating to these products are reflected as decreases in liabilities for policyholder account balances and not as expenses.

The Company receives investment income earned from the funds deposited into account balances, a portion of which is passed through to the policyholders in the form of interest credited. Interest credited to policyholder account balances and benefit claims in excess of policyholder account balances are reported as expenses in the consolidated financial statements.

Premiums and other considerations received for traditional life insurance products are recognized as revenues when due. Future policy benefits are recognized as expenses over the life of the policy by means of the provision for future policy benefits.

The costs related to acquiring new business, including certain costs of issuing policies and other variable selling expenses (principally commissions), defined as deferred policy acquisition costs, are capitalized and amortized into expense. For nonparticipating traditional life products, these costs are amortized over the premium paying period of the related policies, in proportion to the ratio of annual premium revenues to total anticipated premium revenues. Such anticipated premium revenues are estimated using the same assumptions used for computing liabilities for future policy benefits and are generally “locked in” at the date the policies are issued. For interest sensitive products, these costs are amortized generally in proportion to expected gross profits from surrender charges and investment, mortality and expense margins. This amortization is adjusted when the Company revises the estimate of current or future gross profits or margins. For example, deferred policy acquisition costs are amortized earlier than originally estimated when policy terminations are higher than originally estimated or when investments backing the related policyholder liabilities are sold at a gain prior to their anticipated maturity.

Death and other policyholder benefits reflect exposure to mortality risk and fluctuate from year to year on the level of claims incurred under insurance retention limits. The profitability of the Company is primarily affected by fluctuations in mortality, other policyholder benefits, expense levels, interest spreads (i.e., the difference between interest earned on investments and interest credited to policyholders) and persistency. The Company has the ability to mitigate adverse experience through sound underwriting, asset and liability duration matching, sound actuarial practices, adjustments to credited interest rates, policyholder dividends and cost of insurance charges.

Cemetery and Mortuary Operations

Pre-need sales of funeral services and caskets, including revenue and costs associated with the sales of pre-need funeral services and caskets, are deferred until the services are performed or the caskets are delivered.

Pre-need sales of cemetery interment rights (cemetery burial property), including revenue and costs associated with the sales of pre-need cemetery interment rights, are recognized in accordance with the retail land sales provisions of GAAP. Under GAAP, recognition of revenue and associated costs from constructed cemetery property must be deferred until a minimum percentage of the sales price has been collected. Revenues related to the pre-need sale of unconstructed cemetery property will be deferred until such property is constructed and meets the criteria of GAAP, described above.

Pre-need sales of cemetery merchandise (primarily markers and vaults), including revenue and costs associated with the sales of pre-need cemetery merchandise, are deferred until the merchandise is delivered, fulfilling the performance obligation.
20

Pre-need sales of cemetery services (primarily merchandise delivery and installation fees and burial opening and closing fees), including revenue and costs associated with the sales of pre-need cemetery services, are deferred until the services are performed.

Prearranged funeral and pre-need cemetery customer obtaining costs, including costs incurred related to obtaining new pre-need cemetery and prearranged funeral business are accounted for under the guidance of the provisions of GAAP. Obtaining costs, which include only costs that vary with and are primarily related to the acquisition of new pre-need cemetery and prearranged funeral business, are deferred until the merchandise is delivered or services are performed.

Revenues and costs for at‑need sales are recorded when a valid contract exists, the services are performed, collection is reasonably assured, and there are no significant company obligations remaining.

Mortgage Operations

Mortgage fee income consists of origination fees, processing fees, interest income and certain other income related to the origination and sale of mortgage loans. The Company has elected to use fair value accounting for all mortgage loans that are held for sale. Accordingly, all revenues and costs are now recognized when the mortgage loan is funded and any changes in fair value are shown as a component of mortgage fee income.

The Company, through its mortgage subsidiaries, sells mortgage loans to third-party investors without recourse, unless defects are identified in the representations and warranties made at loan sale. It may be required, however, to repurchase a loan or pay a fee instead of repurchase under certain events, which include the following:

Failure to deliver original documents specified by the investor,
   
The existence of misrepresentation or fraud in the origination of the loan,
   
The loan becomes delinquent due to nonpayment during the first several months after it is sold,
   
Early pay-off of a loan, as defined by the agreements,
   
Excessive time to settle a loan,
   
Investor declines purchase, and
   
Discontinued product and expired commitment.

Loan purchase commitments generally specify a date 30 to 45 days after delivery upon which the underlying loans should be settled. Depending on market conditions, these commitment settlement dates can be extended at a cost to the Company.

It is the Company’s policy to cure any documentation problems regarding such loans at a minimal cost for up to a six-month time period and to pursue efforts to enforce loan purchase commitments from third-party investors concerning the loans. The Company believes that six months allows adequate time to remedy any documentation issues, to enforce purchase commitments, and to exhaust other alternatives. Remedial methods include the following:

Research reasons for rejection,
   
Provide additional documents,
   
Request investor exceptions,
   
Appeal rejection decision to purchase committee, and
   
Commit to secondary investors.
 
Once purchase commitments have expired and other alternatives to remedy are exhausted, which could be earlier than the six-month time period, the loans are repurchased and transferred to mortgage loans held for investment at the lower of cost or fair value and the previously recorded sales revenue that was to be received from a third-party investor is written off against the loan loss reserve. Any loan that later becomes delinquent is evaluated by the Company at that time and any impairment is adjusted accordingly.
 
Determining lower of cost or market. Cost for loans held for sale is equal to the amount paid to the warehouse bank and the amount originally funded by the Company. Market value, while often difficult to determine, is based on the following guidelines:
 
For loans that are committed, the Company uses the commitment price.
   
For loans that are non-committed that have an active market, the Company uses the market price.
   
For loans that are non-committed where there is no market but there is a similar product, the Company uses the market value for the similar product.
   
For loans that are non-committed where no active market exists, the Company determines that the unpaid principal balance best approximates the market value, after considering the fair value of the underlying real estate collateral, estimated future cash flows, and loan interest rate.

21

The appraised value of the real estate underlying the original mortgage loan adds significance to the Company’s determination of fair value because, if the loan becomes delinquent, the Company has sufficient value to collect the unpaid principal balance or the carrying value of the loan, thus minimizing credit risk.

The majority of loans originated are sold to third-party investors. The amounts expected to be sold to investors are shown on the consolidated balance sheets as loans held for sale.

Use of Significant Accounting Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures. It is reasonably possible that actual experience could differ from the estimates and assumptions utilized which could have a material impact on the financial statements. The following is a summary of our significant accounting estimates, and critical issues that impact them:

Loan Commitments

The Company estimates the fair value of a mortgage loan commitment based on the change in estimated fair value of the underlying mortgage loan, quoted mortgage backed security (“MBS”) prices, estimates of the fair value of mortgage servicing rights, and an estimate of the probability that the mortgage loan will fund within the terms of the commitment net of estimated commission expense. The change in fair value of the underlying mortgage loan is measured from the date the mortgage loan commitment is issued and is shown net of related expenses. Following issuance, the value of a loan commitment can be either positive or negative depending upon the change in value of the underlying mortgage loans. Fallout rates and other factors from the Company’s recent historical data are used to estimate the quantity and value of mortgage loans that will fund within the terms of the commitments.

Deferred Acquisition Costs

Amortization of deferred policy acquisition costs for interest sensitive products is dependent upon estimates of current and future gross profits or margins on this business. Key assumptions used include the following: yield on investments supporting the liabilities, amount of interest or dividends credited to the policies, amount of policy fees and charges, amount of expenses necessary to maintain the policies, amount of death and surrender benefits, and the length of time the policies will stay in force.

For nonparticipating traditional life products, these costs are amortized over the premium paying period of the related policies in proportion to the ratio of annual premium revenues to total anticipated premium revenues. Such anticipated premium revenues are estimated using the same assumption used for computing liabilities for future policy benefits and are generally “locked in” at the date the policies are issued.

Value of Business Acquired

Value of business acquired is the present value of estimated future profits of the acquired business and is amortized similar to deferred acquisition costs. The critical issues explained for deferred acquisition costs would also apply for value of business acquired.

Mortgage Loans Foreclosed to Real Estate Held for Investment

These properties are recorded at the lower of cost or fair value upon foreclosure. The Company believes that in an orderly market, fair value approximates the replacement cost of a home and the rental income provides a cash flow stream for investment analysis. The Company believes the highest and best use of the properties are as income producing assets since it is the Company’s intent to hold the properties as rental properties, matching the income from the investment in rental properties with the funds required for estimated future policy benefits. Accordingly, the fair value determination is generally weighted more heavily toward the rental analysis. The fair value is also estimated by obtaining an independent appraisal, which typically considers area comparables and property condition.
22

Future Policy Benefits

Reserves for future policy benefits for traditional life insurance products requires the use of many assumptions, including the duration of the policies, mortality experience, expenses, investment yield, lapse rates, surrender rates, and dividend crediting rates.

These assumptions are made based upon historical experience, industry standards and a best estimate of future results and, for traditional life products, include a provision for adverse deviation. For traditional life insurance, once established for a particular series of products, these assumptions are generally held constant.

Unearned Revenue

The universal life products the Company sells have significant policy initiation fees (front-end load) that are deferred and amortized into revenues over the estimated expected gross profits from surrender charges and investment, mortality and expense margins. The same issues that impact deferred acquisition costs would apply to unearned revenue.

Deferred Pre-need Cemetery and Funeral Contracts Revenues and Estimated Future Cost of Pre-need Sales

The revenue and cost associated with the sales of pre-need cemetery merchandise and funeral services are deferred until the merchandise is delivered or the service is performed.

The Company, through its cemetery and mortuary operations, provides a guaranteed funeral arrangement wherein a prospective customer can receive future goods and services at guaranteed prices. To accomplish this, the Company, through its life insurance operations, sells to the customer an increasing benefit life insurance policy that is assigned to the mortuaries. If, at the time of need, the policyholder or potential mortuary customer utilizes one of the Company’s facilities, the guaranteed funeral arrangement contract that has been assigned will provide the funeral goods and services at the contracted price. The increasing life insurance policy will cover the difference between the original contract prices and current prices. Risks may arise if the difference cannot be fully met by the life insurance policy.

Mortgage Servicing Rights

Mortgage Service Rights (“MSR”) arise from contractual agreements between the Company and third-party investors (or their agents) when mortgage loans are sold. Under these contracts, the Company is obligated to retain and provide loan servicing functions on the loans sold, in exchange for fees and other remuneration. The servicing functions typically performed include, among other responsibilities, collecting and remitting loan payments; responding to borrower inquiries; accounting for principal and interest; holding custodial (impound) funds for payment of property taxes and insurance premiums; counseling delinquent mortgagors; and supervising the acquisition of real estate owned and property dispositions. The Company initially accounts for MSRs at fair value and subsequently accounts for them using the amortization method. MSR amortization is determined by amortizing the MSR balance in proportion to, and over the period of the estimated future net servicing income of the underlying financial assets. The Company periodically assesses MSRs accounted for using the amortization method for impairment.

Mortgage Allowance for Loan Losses and Loan Loss Reserve

The Company provides for losses on its mortgage loans held for investment through an allowance for loan losses (a contra-asset account) and through the mortgage loan loss reserve (a liability account). The allowance for loan losses is an allowance for losses on the Company’s mortgage loans held for investment. The allowance is comprised of two components. The first component is an allowance for collectively evaluated impairment that is based upon the Company’s historical experience in collecting similar receivables. The second component is based upon individual evaluation of loans that are determined to be impaired.

Upon determining impairment, the Company establishes an individual impairment allowance based upon an assessment of the fair value of the underlying collateral. In addition, when a mortgage loan is past due more than 90 days, the Company does not accrue any interest income. When a loan becomes delinquent, the Company proceeds to foreclose on the real estate and all expenses for foreclosure are expensed as incurred. Once foreclosed, an adjustment for the lower of cost or fair value is made, if necessary, and the amount is classified as real estate held for investment. The Company will rent the properties until it is deemed desirable to sell them.

The mortgage loan loss reserve is an estimate of probable losses at the balance sheet date that the Company will realize in the future on mortgage loans sold to third-party investors. The Company may be required to reimburse third-party investors for costs associated with early payoff of loans within the first six months of such loans and to repurchase loans where there is a default in any of the first four monthly payments to the investors or, in lieu of repurchase, to pay a negotiated fee to the investors. The Company’s estimates are based upon historical loss experience and the best estimate of the probable loan loss liabilities.
23

Upon completion of a transfer that satisfies the conditions to be accounted for as a sale, the Company initially measures at fair value liabilities incurred in a sale relating to any guarantee or recourse provisions in the event of defects in the representations and warranties made at loan sale. The Company accrues a monthly allowance for indemnification losses to investors based on total production. This estimate is based on the Company’s historical experience and is included as a component of mortgage fee income. Subsequent updates to the recorded liability from changes in assumptions are recorded in selling, general and administrative expenses. The estimated liability for indemnification losses is included in other liabilities and accrued expenses.

The Company believes the allowance for loan losses and the loan loss reserve represent probable loan losses incurred as of the balance sheet date.

Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities require various estimates and judgments and may be affected favorably or unfavorably by various internal and external factors.  These estimates and judgments occur in the calculation of certain deferred tax assets and liabilities that arise from temporary differences in the recognition of revenues and expenses for tax and financial reporting purposes and in estimating the ultimate amount of deferred tax assets recoverable in future periods. Factors affecting the deferred tax assets and liabilities include, but are not limited to, changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, and changes to overall levels of pre-tax earnings.  Changes in these estimates, judgments or factors may result in an increase or decrease to the Company’s deferred tax assets and liabilities with a related increase or decrease in the Company’s provision for income taxes.

Results of Consolidated Operations

2019 Compared to 2018

Total revenues increased by $3,442,000, or 1.2%, to $283,061,000 for 2019 from $279,619,000 for the fiscal year 2018. Contributing to this increase in total revenues was a $15,490,000 increase in mortgage fee income, a $5,932,000 increase in insurance premiums and other considerations, a $3,106,000 increase in net investment income, a $1,570,000 increase in net cemetery and mortuary sales, and a $257,000 increase in other revenues. This increase in total revenues was offset by a $23,213,000 decrease in gains on investments and other assets.

Insurance premiums and other considerations increased by $5,932,000, or 7.8%, to $81,861,000 for 2018, from $75,929,000 for the comparable period in 2018. This increase was primarily due to an increase in renewal premiums due to the growth of the Company in recent years, particularly in whole life products, which resulted in more premium paying business in force.

Net investment income increased by $3,106,000, or 7.8%, to $43,019,000 for 2019, from $39,913,000 for the comparable period in 2018. This increase was primarily attributable to a $1,315,000 increase in insurance assignment income, a $625,000 decrease in investment expenses, a $560,000 increase in interest income from cash and cash equivalents, a $408,000 increase in rental income from real estate held for investment, a $331,000 increase in fixed maturity securities income, a $145,000 increase in policy loan income, and a $76,000 increase in equity securities income. This increase was partially offset by a $311,000 decrease in interest from mortgage loans held for investment and a $43,000 decrease in income from other investments.

Net mortuary and cemetery sales increased by $1,570,000, or 11.4%, to $15,296,000 for 2019, from $13,726,000 for the comparable period in 2018. This increase was primarily due to a $1,019,000 increase in at-need sales in the mortuary operations and a $915,000 increase in at-need sales in the cemetery operations. This increase was partially offset by a $364,000 decrease in pre-need sales in the cemetery operations.

Gains on investments and other assets decreased by $23,213,000, or 97.0%, to $728,000 in gains for 2019, from $23,941,000 in gains for the comparable period in 2018. This decrease in gains on investments and other assets was primarily attributable to the $22,252,000 gain that was realized on the sale of Dry Creek at East Village Apartments in the first quarter of 2018 and an impairment loss of $2,769,000 recognized in 2019 on a commercial real estate property held for investment. The Company elected to conduct a review of the property’s value after it received an unsolicited offer to buy and also obtained an independent appraisal from an outside commercial real estate valuation firm. This decrease was also the result of a $1,556,000 gain that was realized on the sale of assets of Deseret Mortuary in the second quarter of 2018. This decrease was partially offset by a $2,570,000 increase in gains on equity securities mostly attributable to increases in the fair value of these securities. Due to the adoption of Accounting Standards Update (“ASU”) 2016-01 on January 1, 2018, these changes in fair value are now recognized in earnings instead of other comprehensive income. This decrease was also partially offset by a $443,000 increase in gains on fixed maturity securities and a $351,000 increase in gains on other assets.
24

Mortgage fee income increased by $15,790,000, or 13.6%, to $131,976,000 for 2019, from $116,186,000 for the comparable period in 2018. This increase was primarily due to $13,165,000 increase in secondary gains on loans sold to third-party investors from increased lending volumes, a $2,054,000 increase in other loan fees and interest income, a $505,000 decrease in the provision for loan loss reserve, and a net increase of $66,000 in the fair value of loans held for sale and loan commitments.

Other revenues increased by $257,000, or 2.6%, to $10,180,000 for 2019 from $9,923,000 for the comparable period in 2018. This increase was primarily due to a $630,000 increase in experience refunds on reinsurance due to the coinsurance agreement with Kilpatrick Life Insurance Company (“Kilpatrick”) prior to the acquisition of Kilpatrick by the Company. This increase was partially offset by a $349,000 decrease in mortgage loan servicing fee revenue.

Total benefits and expenses were $269,117,000, or 95.1% of total revenues for 2019, as compared to $253,438,000, or 90.6% of total revenues, for the comparable period in 2018.

Death benefits, surrenders and other policy benefits, and future policy benefits increased by an aggregate of $4,963,000, or 7.8%, to $68,480,000 for 2019, from $63,517,000 for the comparable period in 2018. This increase was primarily the result of a $5,292,000 increase in death benefits and a $434,000 increase in surrenders and other policy benefits. This increase was partially offset by a $763,000 decrease in future policy benefits.

Amortization of deferred policy and pre-need acquisition costs and value of business acquired increased by $3,003,000, or 25.8%, to $14,634,000 for 2019, from $11,631,000 for the comparable period in 2018. This increase was primarily due to an increase in the average outstanding balance of deferred policy and pre-need acquisition costs.

Selling, general and administrative expenses increased by $6,563,000, or 3.9%, to $175,737,000 for 2019, from $169,174,000 for the comparable period in 2018. This increase was primarily due to a $6,472,000 increase in commission expenses due to an increase in mortgage loan originations, a $3,908,000 increase in other expenses, and a $182,000 increase in advertising expenses. This increase was partially offset by a $3,148,000 decrease in personnel expenses due to the efforts of the Mortgage segment to reduce costs and restructure internal processes, a $550,000 decrease in rent and rent related expenses, a $156,000 decrease in depreciation on property and equipment, and a $145,000 decrease in costs related to funding mortgage loans.

Interest expense increased by $430,000, or 6.2%, to $7,387,000 for 2019, from $6,957,000 for the comparable period in 2018. This increase was primarily due to a $373,000 increase in interest expense on mortgage warehouse lines and a $163,000 increase in interest expense on bank loans for real estate held for investment. This increase was partially offset by a decrease of $105,000 in interest on funds withheld reinsurance.

Cost of goods and services sold of the cemeteries and mortuaries increased by $719,000, or 33.3%, to $2,878,000 for 2019, from $2,159,000 for the comparable period in 2018. This increase was primarily due to a $292,000 increase in costs related to cemetery at-need sales, a $268,000 increase in costs related to mortuary at-need sales, and a $159,000 increase in costs related to cemetery pre-need sales.

Income tax expense decreased by $1,444,000, or 32.1%, to $3,050,000 for 2019, from $4,494,00 for the comparable period in 2018.  This decrease was primarily due to a decrease in earnings before income taxes for 2019 compared to 2018.

Risks

The following is a description of the most significant risks facing the Company and how it mitigates those risks:

Legal and Regulatory Risks. Changes in the legal or regulatory environment in which the Company operates may create additional expenses and risks not anticipated by the Company in developing and pricing its products. Regulatory initiatives designed to reduce insurer profits, new legal theories or insurance company insolvencies through guaranty fund assessments may create costs for the insurer beyond those recorded in the consolidated financial statements. In addition, changes in tax law with respect to mortgage interest deductions or other public policy or legislative changes may affect the Company’s mortgage sales. Also, the Company may be subject to further regulations in the cemetery and mortuary business. The Company mitigates these risks by offering a wide range of products and by diversifying its operations, thus reducing its exposure to any single product or jurisdiction, and also by employing underwriting practices that identify and minimize the adverse impact of such risks.
25

Mortgage Industry Risks. Developments in the mortgage industry and credit markets can adversely affect the Company’s ability to sell its mortgage loans to investors, which can impact the Company’s financial results by requiring it to assume the risk of holding and servicing any unsold loans.

The mortgage loan loss reserve is an estimate of probable losses at the balance sheet date that the Company could realize in the future on mortgage loans sold to third-party investors. The Company’s mortgage subsidiaries may be required to reimburse third-party investors for costs associated with early payoff of loans within the first six months of such loans and to repurchase loans where there is a default in any of the first four monthly payments to the investors or, in lieu of repurchase, to pay a negotiated fee to the investors. The Company’s estimates are based upon historical loss experience and the best estimate of the probable loan loss liabilities.

Upon completion of a transfer that satisfies the conditions to be accounted for as a sale, the Company initially measures at fair value liabilities incurred in a sale relating to any guarantee or recourse provisions. The initial reserve for loan losses in years ended December 31, 2019 and 2018 were $643,000 and $1,148,000, respectively, and the charge has been included in mortgage fee income. The estimated liability for indemnification losses is included in other liabilities and accrued expenses and, as of December 31, 2019 and 2018, the balances were $4,046,000 and $3,605,000, respectively. The Company believes the loan loss reserve represent probable loan losses incurred as of December 31, 2019. There is a risk, however, that future loan losses may exceed the loan loss reserve.

At various times third-party investors have asserted that SecurityNational Mortgage sold mortgage loans that allegedly contained borrower misrepresentations or experienced early payment defaults, or that were otherwise allegedly defective or not in compliance with loan purchase agreements involving SecurityNational Mortgage.  As a result of these claims, third-party investors have made demands at times that SecurityNational Mortgage repurchase certain alleged defective mortgage loans that were sold to such investors or indemnify them against any losses related to such loans.

The total amount of potential claims by third-party investors is difficult to determine.  The Company has reserved and accrued $4,046,000 as of December 31, 2019 to settle all such investor related claims.  The Company believes that the reserve for mortgage loan losses, which includes provisions for probable losses and indemnification on loans held for sale, is reasonable based on available information.  Moreover, the Company has successfully negotiated acceptable settlement terms with other third-party investors that asserted claims for mortgage loan losses against SecurityNational Mortgage.

SecurityNational Mortgage disagrees with the repurchase demands and notices of potential claims from third-party investors. Furthermore, SecurityNational Mortgage believes there is potential to resolve the alleged claims by the third-party investors on acceptable terms. If SecurityNational Mortgage is unable to resolve such claims on acceptable terms, legal action may ensue. In the event of legal action by any third-party investor, SecurityNational Mortgage believes it has significant defenses to any such action and intends to vigorously defend itself against such action.

As of December 31, 2019, the Company’s mortgage loans held for investment portfolio consisted of $8,895,000 in mortgage loans with delinquencies more than 90 days. Of this amount, $1,651,000 of the loans were in foreclosure proceedings. The Company has not received or recognized any interest income on the $8,895,000 in mortgage loans with delinquencies more than 90 days. During the twelve months ended December 31, 2019, the Company increased its allowance for loan losses by $105,000 and during the twelve months ended December 31, 2018, the Company decreased its allowance for loan losses by $415,000, which was charged to bad debt expense and included in selling, general and administrative expenses for the period. The allowances for loan losses as of December 31, 2019 and 2018 were $1,453,000 and $1,348,000, respectively.

Interest Rate Risk. The risk that interest rates will change, which may cause a decrease in the value of the Company’s investments or impair the ability of the Company to market its mortgage and cemetery and mortuary products. This change in rates may cause certain interest-sensitive products to become uncompetitive or may cause disintermediation. The Company mitigates this risk by charging fees for non-conformance with certain policy provisions, by offering products that transfer this risk to the purchaser, and by attempting to match the maturity schedule of its assets with the expected payouts of its liabilities. To the extent that liabilities come due more quickly than assets mature, the Company might have to borrow funds or sell assets prior to maturity and potentially recognize a loss on the sale.
26

Mortality and Morbidity Risks. The risk that the Company’s actuarial assumptions may differ from actual mortality and morbidity experiences may cause the Company’s products to be underpriced, may cause the Company to liquidate insurance or other claims earlier than anticipated, and other potentially adverse consequences to the business. The Company minimizes this risk through sound underwriting practices, asset and liability duration matching, and sound actuarial practices.

COVID-19. Since December 31, 2019, the outbreak of the novel strain of coronavirus, specifically identified as "COVID-19", has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its operating subsidiaries in future periods. Further, these uncertainties have the potential to negatively affect the risk of credit default for the issuers of the Company’s debt securities and individual borrowers with mortgage loans held by the Company.

Estimates.  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

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

Liquidity and Capital Resources

The Company’s life insurance subsidiaries and cemetery and mortuary subsidiaries realize cash flow from premiums, contract payments and sales on personal services rendered for cemetery and mortuary business, from interest and dividends on invested assets, and from the proceeds from the maturity of held to maturity investments or sale of other investments. The mortgage subsidiaries realize cash flow from fees generated by originating and refinancing mortgage loans and fees on mortgage loans held for sale that are sold to investors. The Company considers these sources of cash flow to be adequate to fund future policyholder and cemetery and mortuary liabilities, which generally are long-term, and adequate to pay current policyholder claims, annuity payments, expenses related to the issuance of new policies, the maintenance of existing policies, debt service, and to meet current operating expenses.

During the twelve months ended December 31, 2019, the Company's operations used cash of $75,602,000. This increase was primarily due to originations of mortgage loans held for sale. During the twelve months ended December 31, 2018, the Company’s operations provided cash of $7,009,000. This was primarily due to an increase in cash collected on loans held for sale.

The Company’s liability for future policy benefits is expected to be paid out over the long-term due to the Company’s market niche of selling funeral plans. Funeral plans are small face value life insurance that will pay the costs and expenses incurred at the time of a person’s death. A person generally will keep these policies in force and will not surrender them prior to a person’s death. Because of the long-term nature of these liabilities, the Company is able to hold to maturity its bonds, real estate and mortgage loans thus reducing the risk of liquidating these long-term investments as a result of any sudden changes in market values.

The Company attempts to match the duration of invested assets with its policyholder and cemetery and mortuary liabilities. The Company may sell investments other than those held to maturity in the portfolio to help in this timing. The Company purchases short-term investments on a temporary basis to meet the expectations of short-term requirements of the Company’s products. The Company’s investment philosophy is intended to provide a rate of return, which will persist during the expected duration of policyholder and cemetery and mortuary liabilities regardless of future interest rate movements.

The Company’s investment policy is also to invest predominantly in fixed maturity securities, real estate, mortgage loans, and warehousing of mortgage loans held for sale on a short-term basis before selling the loans to investors in accordance with the requirements and laws governing the life insurance subsidiaries. Bonds owned by the insurance subsidiaries amounted to $355,613,000 (at estimated fair value) and $231,976,000 (at amortized cost) as of December 31, 2019 and 2018, respectively. This represents 45.5% and 38.9% of the total investments as of December 31, 2019, and 2018, respectively. Generally, all bonds owned by the life insurance subsidiaries are rated by the National Association of Insurance Commissioners. Under this rating system, there are six categories used for rating bonds. At December 31, 2019, 2.2% (or $7,633,000) and at December 31, 2018, 3.6% (or $8,413,000) of the Company’s total bond investments were invested in bonds in rating categories three through six, which are considered non‑investment grade.
27

On December 31, 2019, the Company changed the classification of its bonds to available for sale from held to maturity. As a result, bonds available for sale are carried at estimated fair value instead of amortized cost. See Note 2 of the Notes to Consolidated Financial Statements for additional disclosures regarding the change in classification.

See Note 2 of the Notes to Consolidated Financial Statements for the schedule of the maturity of fixed maturity securities and for the schedule of principal payments for mortgage loans held for investment.

See Note 7 of the Notes to Consolidated Financial Statements for a description of the Company’s sources of liquidity.

If market conditions were to cause interest rates to change, the fair value of the Company’s fixed income portfolio, which includes bonds, preferred stocks and mortgage loans held for investment, could change by the following amounts based on the respective basis point swing (the change in the fair values were calculated using a modeling technique):

   
-200 bps
   
-100 bps
    +100 bps      +200 bps  
Change in Fair Value (in thousands)
 
$
52,282
   
$
23,017
   
$
(14,014
)
 
$
4,386
 

The Company is subject to risk-based capital guidelines established by statutory regulators requiring minimum capital levels based on the perceived risk of assets, liabilities, disintermediation, and business risk. At December 31, 2019 and 2018, the capital levels of the life insurance subsidiaries exceeded the regulatory criteria.

The Company’s total capitalization of stockholders’ equity, and bank loans and other loans payable was $414,283,000 as of December 31, 2019, as compared to $359,172,000 as of December 31, 2018. Stockholders’ equity as a percent of total capitalization was 47.5% and 47.8% as of December 31, 2019 and December 31, 2018, respectively. Bank loans and other loans payable increased by $30,051,000 for the twelve months ended December 31, 2019 as compared to December 31, 2018, thus limiting the increase in the stockholders’ equity percentage.

Lapse rates measure the amount of insurance terminated during a particular period. The Company’s lapse rate for life insurance was 9.8% in 2019 as compared to a rate of 9.9% for 2018.

At December 31, 2019, the combined statutory capital and surplus of the Company’s life insurance subsidiaries was $74,140,000. The life insurance subsidiaries cannot pay a dividend to its parent company without the approval of state insurance regulatory authorities.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements to encourage companies to provide prospective information about their businesses without fear of litigation so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in such statements. The Company desires to take advantage of the “safe harbor” provisions of the act.

This Annual Report on Form 10-K contains forward-looking statements, together with related data and projections, about the Company’s projected financial results and its future plans and strategies. However, actual results and needs of the Company may vary materially from forward-looking statements and projections made from time to time by the Company on the basis of management’s then-current expectations. The business in which the Company is engaged involves changing and competitive markets, which may involve a high degree of risk, and there can be no assurance that forward-looking statements and projections will prove accurate.

Factors that may cause the Company’s actual results to differ materially from those contemplated or projected, forecast, estimated or budgeted in such forward looking statements include among others, the following possibilities: (i) heightened competition, including the intensification of price competition, the entry of new competitors, and the introduction of new products by new and existing competitors; (ii) adverse state and federal legislation or regulation, including decreases in rates, limitations on premium levels, increases in minimum capital and reserve requirements, benefit mandates and tax treatment of insurance products; (iii) fluctuations in interest rates causing a reduction of investment income or increase in interest expense and in the market value of interest rate sensitive investment; (iv) failure to obtain new customers, retain existing customers or reductions in policies in force by existing customers; (v) higher service, administrative, or general expenses due to the need for additional advertising, marketing, administrative or management information systems expenditures; (vi) loss or retirement of key executives or employees; (vii) increases in medical costs; (viii) changes in the Company’s liquidity due to changes in asset and liability matching; (ix) restrictions on insurance underwriting based on genetic testing and other criteria; (x) adverse changes in the ratings obtained by independent rating agencies; (xi) failure to maintain adequate reinsurance; (xii) possible claims relating to sales practices for insurance products and claim denials; (xiii) adverse trends in mortality and morbidity; (xiv) deterioration of real estate markets; and (xv) lawsuits in the ordinary course of business.
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Off-Balance Sheet Agreements

At December 31, 2019, the Company was contingently liable under a standby letter of credit aggregating $625,405, to be used as collateral to cover any contingency related to additional risk assessments pertaining to the Company's captive insurance program. The Company does not expect any material losses to result from the issuance of the standby letter of credit because claims are not expected to exceed premiums paid.

The total of the Company’s unfunded residential construction loan and land development loan commitments as of December 31, 2019, was approximately $33,036,000.

In 2016, the Company, through its wholly-owned subsidiary 5300 Development, LLC, entered into a Construction Loan Agreement with a bank. Under the terms of this Agreement, the Company agrees to pay the bank the current outstanding principal up to $40,740,000 plus interest. These funds are being used for the construction of phase 1 of the Company’s new Center53 corporate campus development in Salt Lake City, Utah. As of December 31, 2019, the Company has used $33,913,000 of these funds.

Contractual Obligations

The Company’s contractual obligations as of December 31, 2019, and the payments due by period are shown in the following table:

   
Less than
1 year
   
1-3 years
   
4-5 years
   
over
5 years
   
Total
 
Bank and other loans payable
   
192,985,602
     
5,408,387
     
2,466,203
     
16,712,420
     
217,572,612
 
Non-cancelable operating leases
   
4,241,547
     
4,712,587
     
2,445,058
     
2,919,074
     
14,318,266
 
Future policy benefits (1)
   
8,630,570
     
36,211,003
     
50,924,810
     
718,220,779
     
813,987,162
 
   
$
205,857,719
   
$
46,331,977
   
$
55,836,071
   
$
737,852,273
   
$
1,045,878,040
 
________
(1)
Amounts represent the present value of future policy benefits, net of estimated future premiums.

Casualty Insurance Program

In conjunction with the Company’s casualty insurance program, limited equity interests are held in a captive insurance entity. This program permits the Company to self-insure a portion of losses, to gain access to a wide array of safety-related services, to pool insurance risks and resources in order to obtain more competitive pricing for administration and reinsurance and to limit its risk of loss in any particular year. The maximum exposure to loss related to the Company’s involvement with this entity is limited to approximately $625,405, which is collateralized under a standby letter of credit issued on the insurance entity’s behalf. See Note 10, “Reinsurance, Commitments and Contingencies,” for additional discussion of commitments associated with the insurance program.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company, the Company is not required to provide information typically disclosed under this item.
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Item 8.  Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
   
Page No.
Financial Statements:
 
   
 
Report of Independent Registered Public Accounting Firm
31
     
 
Consolidated Balance Sheets, December 31, 2019 and 2018
32
     
 
Consolidated Statements of Earnings for the Years Ended December 31, 2019 and 2018
34
     
 
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019 and 2018
35
     
 
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2019 and 2018
36
     
 
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018
37
     
 
Notes to Consolidated Financial Statements
39

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Deloitte & Touche LLP
111 South Main Street
Suite 1500
Salt Lake City, UT  84111
USA
Tel:   +1 801 328 4706
Fax:  +1 801 366 7900
www.deloitte.com


 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of Security National Financial Corporation:
 
Opinion on the Financial Statements
 
We have audited the accompanying consolidated balance sheets of Security National Financial Corporation and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years then ended, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
 
Basis for Opinion
 
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 
 
Salt Lake City, UT
March 30, 2020
 
We have served as the Company's auditor since 2017.
 

31


SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

   
December 31
 
Assets
 
2019
   
2018
 
Investments:
           
Fixed maturity securities, available for sale, at estimated fair value
 
$
355,977,820
   
$
-
 
Fixed maturity securities, held to maturity, at amortized cost
   
-
     
232,078,723
 
Equity securities, available for sale, at estimated fair value
   
7,271,165
     
5,558,611
 
Mortgage loans held for investment (net of allowances for loan losses of $1,453,037 and $1,347,972 for 2019 and 2018)
   
236,694,546
     
186,465,069
 
Real estate held for investment (net of accumulated depreciation of $12,788,739 and $16,739,578 for 2019 and 2018)
   
102,756,946
     
121,558,222
 
Real estate held for sale
   
14,097,627
     
-
 
Other investments and policy loans (net of allowances for doubtful accounts of $1,448,026 and $1,092,528 for 2019 and 2018)
   
60,245,269
     
46,617,655
 
Accrued investment income
   
4,833,232
     
3,566,146
 
Total investments
   
781,876,605
     
595,844,426
 
Cash and cash equivalents
   
127,754,719
     
142,199,942
 
Loans held for sale at estimated fair value
   
213,457,632
     
136,210,853
 
Receivables (net of allowances for doubtful accounts of $1,724,156 and $1,519,842 for 2019 and 2018)
   
9,236,330
     
8,935,343
 
Restricted assets (including $2,985,347 and $744,673 for 2019 and 2018 at estimated fair value)
   
13,935,317
     
10,981,562
 
Cemetery perpetual care trust investments (including $2,581,124 and $483,353 for 2019 and 2018 at estimated fair value)
   
4,411,864
     
4,335,869
 
Receivable from reinsurers
   
15,747,768
     
10,820,102
 
Cemetery land and improvements
   
9,519,950
     
9,878,427
 
Deferred policy and pre-need contract acquisition costs
   
94,701,920
     
89,362,096
 
Mortgage servicing rights, net
   
17,155,529
     
20,016,822
 
Property and equipment, net
   
14,600,394
     
7,010,778
 
Value of business acquired
   
9,876,647
     
5,765,190
 
Goodwill
   
3,519,588
     
2,765,570
 
Other
   
18,649,812
     
6,684,143
 
Total Assets
 
$
1,334,444,075
   
$
1,050,811,123
 

See accompanying notes to consolidated financial statements.
32

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)

   
December 31
 
Liabilities and Stockholders' Equity
 
2019
   
2018
 
Liabilities
           
Future policy benefits and unpaid claims
 
$
825,600,918
   
$
620,399,714
 
Unearned premium reserve
   
3,621,697
     
3,920,473
 
Bank and other loans payable
   
217,572,612
     
187,521,188
 
Deferred pre-need cemetery and mortuary contract revenues
   
12,607,978
     
12,508,625
 
Cemetery perpetual care obligation
   
3,933,719
     
3,821,979
 
Accounts payable
   
5,056,983
     
2,883,349
 
Other liabilities and accrued expenses
   
50,652,591
     
31,821,624
 
Income taxes
   
18,686,972
     
16,122,998
 
Total liabilities
   
1,137,733,470
     
878,999,950
 
Stockholders’ Equity
               
Preferred Stock:
               
Preferred stock - non-voting-$1.00 par value; 5,000,000 shares authorized; none issued or outstanding
   
-
     
-
 
Common Stock:
               
Class A: common stock - $2.00 par value; 20,000,000 shares authorized; issued 16,107,779 shares in 2019 and 15,304,798 shares in 2018
   
32,215,558
     
30,609,596
 
Class B: non-voting common stock - $1.00 par value; 5,000,000 shares authorized; none issued or outstanding
   
-
     
-
 
Class C: convertible common stock - $2.00 par value; 3,000,000 shares authorized; issued 2,500,887 shares in 2019 and 2,193,643 shares in 2018
   
5,001,774
     
4,387,286
 
Additional paid-in capital
   
46,091,112
     
41,821,778
 
Accumulated other comprehensive income, net of taxes
   
13,726,514
     
(2,823
)
Retained earnings
   
101,256,229
     
95,201,732
 
Treasury stock, at cost - 490,823 Class A shares and -0- Class C shares in 2019; 302,541 Class A shares and -0- Class C shares in 2018
   
(1,580,582
)
   
(206,396
)
Total stockholders’ equity
   
196,710,605
     
171,811,173
 
Total Liabilities and Stockholders’ Equity
 
$
1,334,444,075
   
$
1,050,811,123
 

See accompanying notes to consolidated financial statements.
33

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS

   
Years Ended
December 31
 
   
2019
   
2018
 
Revenues:
           
Insurance premiums and other considerations
 
$
81,860,610
   
$
75,928,910
 
Net investment income
   
43,019,473
     
39,913,267
 
Net mortuary and cemetery sales
   
15,296,235
     
13,726,518
 
Gains on investments and other assets
   
728,367
     
23,941,179
 
Mortgage fee income
   
131,976,082
     
116,185,853
 
Other
   
10,180,163
     
9,923,000
 
Total revenues
   
283,060,930
     
279,618,727
 
                 
Benefits and expenses:
               
Death benefits
   
41,591,057
     
36,298,789
 
Surrenders and other policy benefits
   
3,320,748
     
2,886,298
 
Increase in future policy benefits
   
23,568,497
     
24,332,088
 
Amortization of deferred policy and pre-need acquisition costs and value of business acquired
   
14,634,577
     
11,631,346
 
Selling, general and administrative expenses:
               
    Commissions
   
56,762,891
     
50,291,352
 
    Personnel
   
64,221,270
     
67,368,952
 
    Advertising
   
4,784,558
     
4,602,591
 
    Rent and rent related
   
7,055,456
     
7,605,375
 
    Depreciation on property and equipment
   
1,711,369
     
1,867,001
 
    Costs related to funding mortgage loans
   
6,278,954
     
6,423,944
 
    Other
   
34,922,761
     
31,014,999
 
Interest expense
   
7,386,688
     
6,956,707
 
Cost of goods and services sold – cemeteries and mortuaries
   
2,878,169
     
2,158,895
 
Total benefits and expenses
   
269,116,995
     
253,438,337
 
                 
Earnings before income taxes
   
13,943,935
     
26,180,390
 
Income tax expense
   
(3,050,416
)
   
(4,494,311
)
Net earnings
 
$
10,893,519
   
$
21,686,079
 
                 
Net earnings per Class A equivalent common share (1)
 
$
0.60
   
$
1.21
 
                 
Net earnings per Class A equivalent common share -  assuming dilution (1)
 
$
0.60
   
$
1.19
 
                 
Weighted average Class A equivalent common shares outstanding (1)
   
18,104,681
     
17,968,062
 
                 
Weighted average Class A equivalent common shares outstanding-assuming dilution (1)
   
18,229,116
     
18,188,665
 
_________
(1)
Earnings per share amounts have been adjusted retroactively for the effect of annual stock dividends. The weighted-average shares outstanding includes the weighted-average Class A common shares and the weighted-average Class C common shares determined on an equivalent Class A common stock basis. Net earnings per common share represent net earnings per equivalent Class A common share.

See accompanying notes to consolidated financial statements.
34

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

   
Years Ended
December 31
 
   
2019
   
2018
 
Net earnings
 
$
10,893,519
   
$
21,686,079
 
Other comprehensive income:
               
  Unrealized gains on fixed maturity securities available for sale
   
17,315,770
     
-
 
  Unrealized gains on restricted assets
   
35,550
     
-
 
  Unrealized gains on cemetery perpetual care trust investments
   
29,904
         
  Foreign currency translation adjustments
   
972
     
(3,761
)
  Other comprehensive income, before income tax
   
17,382,196
     
(3,761
)
  Income tax benefit (expense)
   
(3,652,859
)
   
938
 
  Other comprehensive income (loss), net of income tax
   
13,729,337
     
(2,823
)
Comprehensive income
 
$
24,622,856
   
$
21,683,256
 

See accompanying notes to consolidated financial statements.
35

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

   
Class A
Common Stock
   
Class C
Common Stock
   
Additional
Paid-in
Capital
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Retained
 Earnings
   
Treasury
 Stock
   
Total
 
Balance at December 31, 2017
   
29,071,154
     
4,178,748
     
38,125,042
     
603,170
     
77,520,951
     
(931,075
)
   
148,567,990
 
                                                         
Cumulative effect adjustment upon adoption of new accounting standard (ASU 2016-01)
                           
(603,170
)
   
603,170
             
-
 
Net earnings
   
-
     
-
     
-
     
-
     
21,686,079
     
-
     
21,686,079
 
Other comprehensive loss
   
-
     
-
     
-
     
(2,823
)
   
-
     
-
     
(2,823
)
Stock based compensation expense
   
-
     
-
     
237,123
     
-
     
-
     
-
     
237,123
 
Exercise of stock options
   
76,946
     
-
     
(19,534
)
   
-
     
-
     
-
     
57,412
 
Sale of treasury stock
   
-
     
-
     
540,713
     
-
     
-
     
940,200
     
1,480,913
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
-
     
(215,521
)
   
(215,521
)
Stock dividends
   
1,461,120
     
208,914
     
2,938,434
     
-
     
(4,608,468
)
   
-
     
-
 
Conversion Class C to Class A
   
376
     
(376
)
   
-
     
-
     
-
     
-
     
-
 
Balance at December 31, 2018
   
30,609,596
     
4,387,286
     
41,821,778
     
(2,823
)
   
95,201,732
     
(206,396
)
   
171,811,173
 
                                                         
Net earnings
   
-
     
-
     
-
     
-
     
10,893,519
     
-
     
10,893,519
 
Other comprehensive income
   
-
     
-
     
-
     
13,729,337
     
-
     
-
     
13,729,337
 
Stock based compensation expense
   
-
     
-
     
256,996
     
-
     
-
     
-
     
256,996
 
Exercise of stock options
   
65,034
     
382,886
     
415,990
     
-
     
-
     
-
     
863,910
 
Sale of treasury stock
   
-
     
-
     
529,858
     
-
     
-
     
165,702
     
695,560
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
-
     
(1,539,888
)
   
(1,539,888
)
Stock dividends
   
1,534,356
     
238,174
     
3,066,490
     
-
     
(4,839,022
)
   
-
     
(2
)
Conversion Class C to Class A
   
6,572
     
(6,572
)
   
-
     
-
     
-
     
-
     
-
 
Balance at December 31, 2019
 
$
32,215,558
   
$
5,001,774
   
$
46,091,112
   
$
13,726,514
   
$
101,256,229
   
$
(1,580,582
)
 
$
196,710,605
 

See accompanying notes to consolidated financial statements.
36

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

     
Years Ended
December 31
 
   
2019
   
2018
 
Cash flows from operating activities:
           
Net earnings
 
$
10,893,519
   
$
21,686,079
 
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
               
Gains on investments and other assets
   
(728,367
)
   
(23,941,179
)
Depreciation
   
5,183,658
     
5,456,185
 
Provision for loan losses and doubtful accounts
   
1,202,688
     
377,683
 
Net amortization of deferred fees and costs, premiums and discounts
   
(887,605
)
   
(1,110,363
)
Provision for deferred income taxes
   
(1,857,897
)
   
(2,605,401
)
Policy and pre-need acquisition costs deferred
   
(19,176,531
)
   
(19,544,569
)
Policy and pre-need acquisition costs amortized
   
13,787,037
     
10,807,777
 
Value of business acquired amortized
   
847,540
     
823,569
 
Mortgage servicing rights, additions
   
(4,194,502
)
   
(3,922,816
)
Amortization of mortgage servicing rights
   
7,055,795
     
5,282,931
 
Stock based compensation expense
   
256,996
     
237,123
 
Benefit plans funded with treasury stock
   
695,560
     
1,480,913
 
Net change in fair value of loans held for sale
   
(2,498,097
)
   
(3,736,209
)
Originations of loans held for sale
   
(2,606,839,175
)
   
(2,194,607,543
)
Proceeds from sales of loans held for sale
   
2,580,875,055
     
2,259,145,473
 
Net gains on sales of loans held for sale
   
(80,666,413
)
   
(74,426,183
)
Change in assets and liabilities:
               
Land and improvements held for sale
   
358,477
     
64,506
 
Future policy benefits and unpaid claims
   
18,394,928
     
21,710,347
 
Other operating assets and liabilities
   
1,695,259
     
3,830,947
 
Net cash provided by (used in) operating activities
   
(75,602,075
)
   
7,009,270
 
Cash flows from investing activities:
               
Purchases of fixed maturity securities
   
(110,601,438
)
   
(37,488,774
)
Calls and maturities of fixed maturity securities
   
26,624,182
     
32,993,161
 
Purchase of equity securities
   
(3,264,028
)
   
(3,354,274
)
Sales of equity securities
   
2,639,729
     
2,886,492
 
Net changes in restricted assets
   
(1,254,991
)
   
(241,665
)
Net changes in cemetery perpetual care trust investments
   
299,897
     
1,207,622
 
Mortgage loans held for investment, other investments and policy loans made
   
(572,171,590
)
   
(505,060,464
)
Payments received for mortgage loans held for investment, other investments and policy loans
   
556,352,676
     
535,354,544
 
Purchases of property and equipment
   
(1,839,293
)
   
(1,282,704
)
Sales of property and equipment
   
54,496
     
2,016,156
 
Purchases of real estate held for investment
   
(8,572,556
)
   
(29,193,332
)
Sales of real estate held for investment
   
11,614,927
     
68,875,269
 
Cash received for reinsurance assumed
   
158,358,594
     
-
 
Cash paid for purchase of subsidiaries, net of cash acquired
   
(20,141,074
)
   
(3,405,783
)
Net cash provided by investing activities
   
38,099,531
     
63,306,248
 

37

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

    
Years Ended
December 31
 
   
2019
   
2018