# Security National Financial Corp: Form 10-Q for the period ended Jun 30, 2016

- Company: [Security National Financial Corp](/companies/snfca.md) (CIK 318673)
- Form: 10-Q
- Filed: 2016-08-15
- Accepted by EDGAR: Aug 15, 2016, 13:24 ET
- Period: 2016-06-30
- Accession: 0001096906-16-001835
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/318673/000109690616001835/security.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/318673/000109690616001835/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-04-01 to 2016-06-30 | $81.7m | us-gaap:Revenues |
| Revenue | 6 months, 2016-01-01 to 2016-06-30 | $147.8m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2016-04-01 to 2016-06-30 | $452.2k | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2016-01-01 to 2016-06-30 | $910.8k | us-gaap:CostOfGoodsAndServicesSold |
| Interest expense | 3 months, 2016-04-01 to 2016-06-30 | $1.2m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2016-01-01 to 2016-06-30 | $2.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2016-04-01 to 2016-06-30 | $2.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2016-01-01 to 2016-06-30 | $3.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-04-01 to 2016-06-30 | $5.4m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2016-01-01 to 2016-06-30 | $7.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-04-01 to 2016-06-30 | $0.37 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2016-01-01 to 2016-06-30 | $0.50 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-04-01 to 2016-06-30 | $0.38 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2016-01-01 to 2016-06-30 | $0.51 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-04-01 to 2016-06-30 | 14,376,949 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2016-01-01 to 2016-06-30 | 14,377,826 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2016-01-01 to 2016-06-30 | $17.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2016-01-01 to 2016-06-30 | $5.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Total assets | at 2016-06-30 | $769.7m | us-gaap:Assets |
| Total liabilities | at 2016-06-30 | $649.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2016-06-30 | $120.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 26,363 characters.

### 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 Company's insurance business includes funeral plans, interest sensitive life insurance, as well as other traditional life and accident insurance, and health insurance products. The Company places specific marketing emphasis on funeral plans through pre-need planning.

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 less 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 the person's death. On a per thousand dollar cost of insurance basis, these policies can be more expensive to the policy holder 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.

The following table shows the condensed financial results of the insurance operations for the three and six months ended June 30, 2016 and 2015. See Note 6 to the Condensed Consolidated Financial Statements.

| Revenues from external customers | Three months ended June 30 (in thousands of dollars) 2016 | 2015 | % Increase (Decrease) | Six months ended June 30 (in thousands of dollars) 2016 | 2015 | % Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Insurance premiums | $15,899 | $13,914 | 14% | $30,351 | $27,768 | 9% |
| Net investment income | 6,892 | 6,279 | 10% | 13,855 | 12,490 | 11% |
| Income from loan originations | 613 | 672 | (9%) | 1,085 | 1,113 | (3%) |
| Other | 166 | 612 | (73%) | 354 | 1,091 | (68%) |
| Total | $23,570 | $21,477 | 10% | $45,645 | $42,462 | 7% |
| Intersegment revenue | $3,359 | $2,859 | 17% | $6,462 | $5,678 | 14% |
| Earnings before income taxes | $2,504 | $2,115 | 18% | $3,569 | $3,519 | 1% |

Intersegment revenues are primarily interest income from the warehouse line provided to SecurityNational Mortgage Company. Profitability in the three months ended June 30, 2016 has increased due to an increase in net investment income, an increase in insurance premiums offset by a decrease in realized gains on investments and other assets.

### Cemetery and Mortuary Operations

The Company sells mortuary services and products through its seven mortuaries in Salt Lake City, Utah. The Company also sells cemetery products and services through its five cemeteries in Salt Lake City, Utah and one cemetery in San Diego County, California. Cemetery land sales and at-need product sales and services are recognized as revenue at the time of sale or when the services are performed. Pre-need cemetery product sales are deferred until the merchandise is delivered and services performed.

The following table shows the condensed financial results of the Cemetery and Mortuary operations for the three and six months ended June 30, 2016 and 2015. See Note 6 to the Condensed Consolidated Financial Statements.

| Revenues from external customers | Three months ended June 30 (in thousands of dollars) 2016 | 2015 | % Increase (Decrease) | Six months ended June 30 (in thousands of dollars) 2016 | 2015 | % Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Mortuary revenues | $1,286 | $1,112 | 16% | $2,652 | $2,354 | 13% |
| Cemetery revenues | 2,349 | 2,027 | 16% | 4,368 | 3,781 | 16% |
| Other | 178 | 76 | 134% | 124 | 178 | (30%) |
| Total | $3,813 | $3,215 | 19% | $7,144 | $6,313 | 13% |
| Earnings (loss) before income taxes | $760 | $152 | 400% | $1,229 | $561 | 119% |

Included in other revenue is 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 is offset by property insurance, taxes, maintenance expenses and interest payments made to Security National Life. Memorial Estates has recorded depreciation on these properties of $180,000 and $229,000 for the three months ended June 30, 2016 and 2015, respectively, and $367,000 and $451,000 for the six months ended June 30, 2016 and 2015, respectively.

### Mortgage Operations

#### Overview

The Company's wholly owned subsidiaries, SecurityNational Mortgage Company and EverLEND Mortgage Company (formerly known as Green Street Mortgage Services, Inc.), 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), to originate mortgage loans that qualify for government insurance in the event of default by the borrower. SecurityNational Mortgage and EverLEND Mortgage obtain mortgage loans originated in retail offices and through independent brokers. Mortgage loans originated by the Company's mortgage subsidiaries are funded through loan purchase agreements from Security National Life and unaffiliated financial institutions.

The Company's mortgage subsidiaries receive fees from the borrowers and secondary fees from third party investors that purchase their loans. Loans originated by SecurityNational Mortgage 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 30% of its loan origination volume. These loans are serviced by an approved third party sub-servicer.

For the six months ended June 30, 2016 and 2015, SecurityNational Mortgage originated and sold 7,413 loans ($1,414,207,000 total volume) and 7,636 loans ($1,445,989,000 total volume), respectively. For the six months ended June 30, 2016 and 2015, EverLEND Mortgage originated and sold -0- loans ($-0- total volume) and 79 loans ($17,949,000 total volume), respectively.

The following table shows the condensed financial results of the mortgage operations for the three and six months ended June 30, 2016 and 2015. See Note 6 to the Condensed Consolidated Financial Statements.

| Revenues from external customers | Three months ended June 30 (in thousands of dollars) 2016 | 2015 | % Increase (Decrease) | Six months ended June 30 (in thousands of dollars) 2016 | 2015 | % Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Income from loan originations | $45,650 | $42,334 | 8% | $79,003 | $76,590 | 3% |
| Secondary gains from investors | 8,707 | 9,014 | (3%) | 15,962 | 14,724 | 8% |
| Total | $54,357 | $51,348 | 6% | $94,965 | $91,314 | 4% |
| Earnings before income taxes | $4,717 | $3,965 | 19% | $6,034 | $5,150 | 17% |

The increase in earnings for the three and six months ended June 30, 2016 was due to higher service release premiums received on mortgage loans sold to investors and an increase in loan origination fee income.

### 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 its potential losses on loans sold. The amounts expensed for loan losses for the three months ended June 30, 2016 and 2015 were $829,000 and $2,252,000, respectively, and for the six months ended June 30, 2016 and 2015 were $1,415,000 and $2,919,000, respectively. The estimated liability for indemnification losses was included in other liabilities and accrued expenses and, as of June 30, 2016 and December 31, 2015, the balances were $4,062,000 and $2,806,000, respectively.

### Mortgage Loan Loss Demands

### Inquiry Regarding FHA Insured Loans

SecurityNational Mortgage has been cooperating with the U.S. Department of Justice and the Office of the Inspector General for the Department of Housing and Urban Development (HUD) in a civil investigation regarding compliance with requirements relating to certain mortgage loans insured by the Federal Housing Administration (FHA). No demand has been made from FHA and SecurityNational Mortgage has not established a liability for this matter absent a specific demand because it is not able to estimate a range of reasonably potential loss due to significant uncertainties resulting from: the absence of any specific demand from FHA, the potential remedies that SecurityNational Mortgage may have, including possible defenses, and the lack of information concerning the performance of its FHA insured originations, the majority of which SecurityNational Mortgage does not service. The investigation has focused on loans originated by SecurityNational Mortgage on or after January 1, 2006. The FHA mortgage loans that SecurityNational Mortgage originated between January 1, 2006 and May 21, 2013 totaled approximately 45,900 loans with an original principal balance of approximately $7.9 billion.

### Mortgage Loan Loss Litigation

For a description of the litigation involving SecurityNational Mortgage and Lehman Brothers and Aurora Loan Services, reference is to Part II, Item 1. Legal Proceedings.

### Consolidation

### Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015

Total revenues increased by $5,699,000, or 7.5%, to $81,740,000 for the three months ended June 30, 2016, from $76,041,000 for the comparable period in 2015. Contributing to this increase in total revenues was a $2,748,000 increase in mortgage fee income, a $1,985,000 increase in insurance premiums and other considerations, a $545,000 increase in net investment income, a $502,000 increase in net mortuary and cemetery sales, a $274,000 increase in other revenues, and a $25,000 decrease in other than temporary impairments on investments . This increase in total revenues was partially offset by a $380,000 decrease in realized gains on investments and other assets.

Insurance premiums and other considerations increased by $1,985,000, or 14.3%, to $15,900,000 for the three months ended June 30, 2016, from $13,915,000 for the comparable period in 2015. This increase was primarily due to an increase in renewal premiums and an increase in first year premiums as a result of increased insurance sales.

Net investment income increased by $545,000, or 6.3%, to $9,136,000 for the three months ended June 30, 2016, from $8,591,000 for the comparable period in 2015. This increase was primarily attributable to a $505,000 increase in mortgage loan interest, a $441,000 increase in insurance assignment income, and a $354,000 increase in rental income from real estate owned. This increase was partially offset by a $390,000 increase in investment expenses, a $232,000 decrease in short-term investment income, and a $133,000 decrease in fixed maturity securities income.

Net mortuary and cemetery sales increased by $502,000, or 16.6%, to $3,520,000 for the three months ended June 30, 2016, from $3,018,000 for the comparable period in 2015. This increase was primarily due to an increase in at-need sales and pre-need sales in both the cemetery and mortuary operations.

Realized gains on investments and other assets decreased by $380,000, or 75.9%, to $121,000 in realized gains for the three months ended June 30, 2016, from $501,000 in realized gains for the comparable period in 2015. This decrease in realized gains on investments and other assets was primarily attributable to a $376,000 decrease in realized gains on other assets, and a $29,000 decrease in realized gains on fixed maturity securities. This decrease was partially offset by a $25,000 increase in realized gains on securities available for sale.

Mortgage fee income increased $2,748,000, or 5.6%, to $51,478,000, for the three months ended June 30, 2016, from $48,730,000 for the comparable period in 2015. This increase was primarily due to increased mortgage loan originations.

Other revenues increased by $274,000, or 20.4%, to $1,615,000 for the three months ended June 30, 2016, from $1,341,000 for the comparable period in 2015. This increase was due to an increase in mortgage servicing fees.

Total benefits and expenses were $73,759,000, or 90.2% of total revenues, for the three months ended June 30, 2016, as compared to $69,809,000, or 91.8% of total revenues, for the comparable period in 2015.

Death benefits, surrenders and other policy benefits, and future policy benefits increased by an aggregate of $532,000 or 4.2%, to $13,208,000 for the three months ended June 30, 2016, from $12,676,000 for the comparable period in 2015. This increase was primarily the result of a $1,271,000 increase in future policy benefits, and a $41,000 increase in surrender and other policy benefits. This increase was partially offset by a $780,000 decrease in death benefits.

Amortization of deferred policy and pre-need acquisition costs and value of business acquired increased by $530,000, or 45.0%, to $1,708,000 for the three months ended June 30, 2016, from $1,178,000 for the comparable period in 2015. This increase was primarily due to an increase in insurance sales expenses.

Selling, general and administrative expenses increased by $3,064,000, or 5.7%, to $57,156,000 for the three months ended June 30, 2016, from $54,092,000 for the comparable period in 2015. This increase was primarily the result of a $2,331,000 increase in personnel expenses resulting from increased salaries for existing employees and the hiring of new employees, a $1,799,000 increase in commissions resulting from an increase in sales, a $462,000 increase in advertising, and a $30,000 increase in other expenses. This increase was partially offset by a $1,424,000 decrease in provision for loan loss reserve, a $62,000 decrease in rent and rent related expenses, and a $61,000 decrease in costs related to funding mortgage loans.

Interest expense decreased by $139,000, or 10.1%, to $1,235,000 for the three months ended June 30, 2016, from $1,374,000 for the comparable period in 2015. This decrease was primarily due to a decrease in interest expense on mortgage warehouse lines. This decrease was partially offset by an increase in interest expense due to the completion of the Dry Creek at East Village Apartments development in December 2015, resulting from interest from the bank loan that had been capitalized during the construction phase of each building and now being expensed.

Comprehensive income for the three months ended June 30, 2016 and 2015 amounted to gains of $5,109,000 and $4,453,000, respectively. This $656,000 increase in comprehensive income was primarily the result of a $1,505,000 increase in net income, and a $177,000 increase in unrealized gains in securities available for sale. This increase was partially offset by a $1,026,000 decrease in unrealized gains from derivatives related to mortgage loans.

### Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015

Total revenues increased by $7,664,000, or 5.5%, to $147,754,000 for the six months ended June 30, 2016, from $140,090,000 for the comparable period in 2015. Contributing to this increase in total revenues was a $2,696,000 increase in mortgage fee income, a $2,583,000 increase in insurance premiums and other considerations, a $1,714,000 increase in net investment income, a $876,000 increase in net mortuary and cemetery sales, and a $489,000 increase in other revenues. This increase in total revenues was partially offset by a $702,000 decrease in realized gains on investments and other assets.

Insurance premiums and other considerations increased by $2,583,000, or 9.3%, to $30,351,000 for the six months ended June 30, 2016, from $27,768,000 for the comparable period in 2015. This increase was primarily due to an increase in renewal premiums and an increase in first year premiums as a result of increased insurance sales.

Net investment income increased by $1,714,000, or 10.4%, to $18,128,000 for the six months ended June 30, 2016, from $16,414,000 for the comparable period in 2015. This increase was primarily attributable to a $1,072,000 increase in rental income from real estate owned, a $767,000 increase in insurance assignment income, a $665,000 increase in mortgage loan interest, and a $111,000 increase in short-term investment income. This increase was partially offset by an $844,000 increase in investment expenses, a $63,000 decrease in fixed maturity securities income, and a $24,000 decrease in policy loan income.

Net mortuary and cemetery sales increased by $876,000, or 14.9%, to $6,766,000 for the six months ended June 30, 2016, from $5,890,000 for the comparable period in 2015. This increase was primarily due to an increase in at-need sales and pre-need sales in both the cemetery and mortuary operations.

Realized gains on investments and other assets decreased by $702,000, or 76.3%, to $219,000 in realized gains for the six months ended June 30, 2016, from $921,000 in realized gains for the comparable period in 2015. This decrease in realized gains on investments and other assets was primarily attributable to a $572,000 decrease in realized gains on other assets, a $108,000 decrease in realized gains on fixed maturity securities, and a $22,000 decrease in realized gains on securities available for sale.

Mortgage fee income increased $2,696,000 or 3.1%, to $89,248,000 for the six months ended June 30, 2016, from $86,552,000 for the comparable period in 2015. This increase was primarily due to increased mortgage loan originations during the second quarter of 2016.

Other revenues increased by $489,000, or 18.4%, to $3,146,000 for the six months ended June 30, 2016, from $2,657,000 for the comparable period in 2015. This increase was due to an increase in mortgage servicing fees.

Total benefits and expenses were $136,922,000, or 92.7% of total revenues, for the six months ended June 30, 2016, as compared to $130,860,000, or 93.4% of total revenues, for the comparable period in 2015.

Death benefits, surrenders and other policy benefits, and future policy benefits increased by an aggregate of $272,000 or 1.1%, to $25,710,000 for the six months ended June 30, 2016, from $25,438,000 for the comparable period in 2015. This increase was primarily the result of a $1,251,000 increase in future policy benefits. This increase was partially offset by an $884,000 decrease in death benefits, and a $94,000 decrease in surrender and other policy benefits.

Amortization of deferred policy and pre-need acquisition costs and value of business acquired increased by $1,575,000, or 67.2%, to $3,920,000 for the six months ended June 30, 2016, from $2,345,000 for the comparable period in 2015. This increase was primarily due to an increase in insurance sales expenses.

Selling, general and administrative expenses increased by $4,311,000, or 4.3%, to $104,081,000 for the six months ended June 30, 2016, from $99,770,000 for the comparable period in 2015. This increase was primarily the result of a $5,215,000 increase in personnel expenses, resulting from increased salaries for existing employees and the hiring of new employees, a $425,000 increase in other expenses, a $123,000 increase in advertising, a $118,000 increase in rent and rent related expenses, a $75,000 increase in commissions. This increase was partially offset by a $1,504,000 decrease in provision for loan loss reserve, $89,000 decrease in costs related to funding mortgage loans, and a $52,000 decrease in depreciation on property and equipment.

Interest expense decreased by $60,000, or 2.6%, to $2,299,000 for the six months ended June 30, 2016, from $2,359,000 for the comparable period in 2015. This decrease was primarily due to a decrease in interest expense on mortgage warehouse lines. This decrease was partially offset by an increase in interest expense due to the completion of the Dry Creek at East Village Apartments development in December 2015, resulting from interest from the bank loan that had been capitalized during the construction phase of each building and now being expensed.

Comprehensive income for the six months ended June 30, 2016 and 2015 amounted to gains of $8,020,000 and $7,608,000, respectively. This $412,000 increase in comprehensive income was primarily the result of a $1,435,000 increase in net income, and a $703,000 increase in unrealized gains in securities available for sale. This increase was partially offset by a $1,726,000 decrease in derivatives related to mortgage loans.

### 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 interest earned on mortgages 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 six months ended June 30, 2016, the Company's operations provided cash of $17,231,000. This was due primarily to an increase in cash collected on mortgage loans sold to investors. During the six months ended June 30, 2015, the Company’s operations used cash of $18,838,000. This was due primarily to an increase in cash paid on mortgage loans sold to investors.

The Company's liability for future life, annuity and other 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 fair 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 that 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 to invest predominantly in fixed maturity securities, real estate, mortgage loans, and warehousing of mortgage loans 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 $143,437,000 and $144,946,000 as of June 30, 2016 and December 31, 2015, respectively. This represents 33.5% and 35.8% of the total investments as of June 30, 2016 and December 31, 2015, respectively. Generally, all bonds owned by the life insurance subsidiaries are rated by the National Association of Insurance Commissioners (NAIC). Under this rating system, there are six categories used for rating bonds. At June 30, 2016, 9.9% (or $14,241,000) and at December 31, 2015, 8.3% (or $11,990,000) of the Company's total bond investments were invested in bonds in rating categories three through six, which were considered non‑investment grade.

The Company has classified certain of its fixed income securities, including high-yield securities, in its portfolio as available for sale, with the remainder classified as held to maturity. In accordance with Company policy, however, any such securities purchased in the future will be classified as held to maturity. Notwithstanding, business conditions may develop in the future which may indicate a need for a higher level of liquidity in the investment portfolio. In that event, the Company believes it could sell short-term investment grade securities before liquidating higher yielding longer-term securities.

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 June 30, 2016 and December 31, 2015, the life insurance subsidiary was in compliance with the regulatory criteria.

The Company's total capitalization of stockholders' equity, bank debt and notes payable was $162,742,000 as of June 30, 2016, as compared to $152,154,000 as of December 31, 2015. Stockholders' equity as a percent of total capitalization was 73.8% and 73.1% as of June 30, 2016 and December 31, 2015, respectively.

Lapse rates measure the amount of insurance terminated during a particular period. The Company's lapse rate for life insurance in 2015 was 7.4% as compared to a rate of 7.0% for 2014. The 2016 lapse rate to date has been approximately the same as 2015.

At June 30, 2016, $36,720,000 of the Company's consolidated stockholders' equity represented the statutory stockholders' equity of the Company's life insurance subsidiaries. The life insurance subsidiaries cannot pay a dividend to the Company, its parent company, without approval of state insurance regulatory authorities.

## Controls and procedures

As filed, 1,712 characters.

#### Disclosure Controls and Procedures

As of June 30, 2016, the Company carried out an evaluation, under the supervision and with the participation of its Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed in the Securities and Exchange Commission (SEC) reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time period specified by the SEC's rules and forms and that such information is accumulated and communicated to management, including the Company's CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. The officers have concluded that the Company's disclosure controls and procedures were effective as of June 30, 2016, and that the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, the Company's financial condition, results of operations and cash flows for the periods presented in conformity with United States Generally Accepted Accounting Principles (GAAP).

#### Changes in Internal Control over Financial Reporting

There have been no changes in the Company's internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Filed Aug 15, 2016.
Source: SEC EDGAR, the filing index for accession 0001096906-16-001835. Last ingested by Listed: Nov 9, 2026, 23:01 ET. No prices; not investment advice.