(11) The Company leases this facility for $103,800 per year. The lease expires in December 2003.
The Company's investment policy is to invest predominately in fixed maturity securities, mortgage loans, and warehouse 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 $51,530,000 as of December 31, 2002 compared to $49,271,000 as of December 31, 2001. This represents 51% of the total insurance related investments in 2002 as compared to 55% in 2001. 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 December 31, 2002, 4% ($1,903,000) and at December 31, 2001, 5% ($2,534,000) of the Company's total bond investments were invested in bonds in rating categories three through six which are considered non-investment grade.
-200 bps -100 bps +100 bps +200 bps -------- -------- -------- -------- Change in Market Value (in thousands) $4,960 $3,275 $(4,335) $(10,258)
The Coinsurance Agreement further provided Security National Life the right to assume all right, title and interest to the reinsured policies, as well as other similar policies written by Acadian under similar terms and conditions in the state of Mississippi from September 30, 2002, through termination of the Coinsurance Agreement, with an Assumption Reinsurance Agreement, at any time but in any event not later than nine months subsequent to December 16, 2002, subject to all regulatory approvals as required by law. In the event Acadian were to come under any supervision by a state regulator or in the event Acadian were to apply for or consent in the appointment of, or the taking of possession by, a receiver, custodian, regulator, trustee or liquidator of itself or of all or a substantial part of its assets, make a general assignment for the benefit of its creditors, commence a voluntary case under the Federal Bankruptcy Code, file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization or winding up, Security National Life and Acadian were to be deemed to have converted the Coinsurance Agreement to an Assumption Reinsurance Agreement one day prior to such insolvency or other actions and Security National Life was to be deemed to have assumed the reinsurance policies as of one day prior to the date thereof.
We have audited the accompanying consolidated balance sheet of Security National Financial Corporation and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the three years in the period ended December 31, 2002. In connection with our audits of the consolidated financial statements, we have also audited the amounts included in the consolidated financial statement schedules as listed in the accompanying index under Item 8. These consolidated financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedules based on our audits.
December 31, ------------ 2002 2001 ---- ---- Liabilities: - ------------ Future life, annuity, and other policy benefits $215,980,207 $140,504,866 Unearned premium reserve 1,914,700 1,785,977 Bank loans payable 16,113,227 8,461,900 Notes and contracts payable 3,160,009 3,635,776 Deferred pre-need cemetery and funeral contracts revenues and estimated future cost of pre-need sales 10,002,396 9,338,353 Accounts payable 1,553,777 1,319,319 Funds held under reinsurance treaties 1,334,964 1,379,640 Other liabilities and accrued expenses 10,182,382 5,552,799 Income taxes 8,103,882 6,874,597 ------------- ------------- Total liabilities 268,345,544 178,853,227
Participating business constitutes 2%, 2%, and 2% of insurance in force for 2002, 2001 and 2000, respectively. The provision for policyholders' dividends included in policyholder obligations is based on dividend scales anticipated by management. Amounts to be paid are determined by the Board of Directors.
The weighted average fair value of each option granted in 2002 under the 1993 Plan is estimated at $2.88 as of the grant date using the Black Scholes option-pricing model with the following assumptions: dividend yield of 5%, volatility of 74%, risk-free interest rate of 3.8%, and an expected life of five to ten years.
Securities available for sale: Gross realized gains 354 6 884,199 Gross realized losses (1,424) (111) (463,466) Other assets 985,275 (9,130) -- ----------- -------- -------- Total $1,020,820 $10,428 $423,805 =========== ======== ========
The Company paid $462,983, $564,327 and $94,365 in income taxes for 2002, 2001 and 2000, respectively. The Company's income tax expense (benefit) is summarized as follows:
In accordance with SFAS 128, the basic and diluted earnings per share amounts were calculated as follows:
Effect of dilutive securities: Employee stock options 169,543 382 17,265 Stock appreciation rights 1,828 -- -- ---------- ---------- ----------
December 31, ------------ 2002 2001 ---- ----- Assets Cash $(3,870) $1,065
2003 $ 2,083,136 2004 3,019,075 2005 2,715,818 2006 1,574,384 2007 1,402,596 Thereafter 2,688,318 ------------- Total $13,483,327 ===========