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Trust Investments

6 Months Ended

Jun. 30, 2020

Preneed Trust Investments [Abstract]

TRUST INVESTMENTS

Preneed trust investments represent trust fund assets that we are generally permitted to withdraw as the services and merchandise are provided to customers. Preneed funeral and cemetery contracts are secured by payments from customers, less amounts not required by law to be deposited into trust. Preneed trust investments are reduced by the trust earnings we have been allowed to withdraw in certain states prior to our performance. These earnings are recognized as earned, in Other revenue, when a service is performed or merchandise is delivered. Trust management fees charged by CSV RIA are included as revenue in the period in which they are earned.

Cemetery perpetual care trust investments represent a portion of the proceeds from the sale of cemetery property interment rights which we are required by various state laws to deposit into perpetual care trust funds. The income earned from these perpetual care trusts offsets maintenance expenses for cemetery property and memorials. This trust fund income is recognized, as earned, in Other revenue.

Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy. Our Level 1 investments include cash, U.S. treasury debt, common stock and equity mutual funds. Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of similar securities in active markets or inputs other than quoted prices that can corroborate observable market data. These investments are fixed income securities, including foreign debt, corporate debt, preferred stocks, mortgage-backed securities and fixed income mutual funds and other investments, all of which are classified within Level 2 of the valuation hierarchy. We review and update our fair value hierarchy classifications quarterly. See Note 8 to the Consolidated Financial Statements included herein for further information of the fair value measurement.

As of June 30, 2020, we have net unrealized losses of $10.8 million in our trusts. At June 30, 2020, these net unrealized losses represented 4% of our original cost basis of $242.1 million. The decline in fair value is largely due to changes in interest rates and other market conditions. Our trusts have been and continue to be impacted by adverse conditions in the U.S. and global financial markets primarily as a result of COVID-19. Our investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk. In addition, we do not intend to sell and it is likely that we will not be required to sell the securities prior to their anticipated recovery.

Changes in unrealized gains and/or losses related to these securities are reflected in Other comprehensive income and offset by the Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus interests in those unrealized gains and/or losses. There is no impact on earnings until such time that the loss is realized in the trusts, allocated to the preneed contracts and the services are performed or the merchandise is delivered, causing the contract to be withdrawn from the trust in accordance with state regulations.

For available-for-sale debt securities in an unrealized loss position, we first assess whether we intend to sell or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If our assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any unrealized loss that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

We rely on our trust investments to provide funding for the various contractual obligations that arise upon maturity of the underlying preneed contracts. Because of the long-term relationship between the establishment of trust investments and the required performance of the underlying contractual obligations, the impact of current market conditions that may exist at any given time is not necessarily indicative of our ability to generate profit on our future performance obligations.

Preneed Cemetery Trust Investments

The components of Preneed cemetery trust investments on our Consolidated Balance Sheet at December 31, 2019 and June 30, 2020 are as follows (in thousands):



	December 31, 2019			June 30, 2020
Preneed cemetery trust investments, at market value	$	74,572		$	74,914
Less: allowance for contract cancellation	(2,190		)	(2,345		)
Preneed cemetery trust investments	$	72,382		$	72,569

The cost and market values associated with preneed cemetery trust investments at June 30, 2020 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	2,844	$	—	$	—		$	2,844
Fixed income securities:
Foreign debt	2	12,628		867		(1,014		)	12,481
Corporate debt	2	15,911		794		(1,500		)	15,205
Preferred stock	2	13,586		334		(1,341		)	12,579
Mortgage-backed securities	2	394		—		(227		)	167
Common stock	1	27,093		5,453		(7,544		)	25,002
Mutual funds:
Fixed Income	2	5,700		494		(277		)	5,917
Trust securities		$	78,156	$	7,942	$	(11,903	)	$	74,195
Accrued investment income		$	719						$	719
Preneed cemetery trust investments									$	74,914
Market value as a percentage of cost									94.9		%

The estimated maturities of the fixed income securities included above are as follows (in thousands):



Due in one year or less	$	1
Due in one to five years	8,738
Due in five to ten years	9,703
Thereafter	21,990
Total fixed income securities	$	40,432

The cost and market values associated with preneed cemetery trust investments at December 31, 2019 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	5,729	$	—	$	—		$	5,729
Fixed income securities:
Foreign debt	2	5,609		312		(243		)	5,678
Corporate debt	2	16,916		1,044		(649		)	17,311
Preferred stock	2	14,206		904		(164		)	14,946
Mortgage-backed securities	2	517		—		(114		)	403
Common stock	1	28,569		2,766		(3,017		)	28,318
Mutual funds:
Fixed income	2	1,463		72		(85		)	1,450
Trust Securities		$	73,009	$	5,098	$	(4,272	)	$	73,835
Accrued investment income		$	737						737
Preneed cemetery trust investments									$	74,572
Market value as a percentage of cost									101.1		%

The following table summarized our fixed income securities within our preneed cemetery trust investments in an unrealized loss position at June 30, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):



	June 30, 2020
	In Loss Position Less than 12 months					In Loss Position Greater than 12 months					Total
	Fair market value		Unrealized Losses			Fair market value		Unrealized Losses			Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	3,149	$	(334	)	$	311	$	(680	)	$	3,460	$	(1,014	)
Corporate debt	3,140		(989		)	4,227		(511		)	7,367		(1,500		)
Preferred stock	9,882		(1,341		)	—		—			9,882		(1,341		)
Mortgage-backed securities	—		—			167		(227		)	167		(227		)
Total fixed income securities with an unrealized loss	$	16,171	$	(2,664	)	$	4,705	$	(1,418	)	$	20,876	$	(4,082	)



	December 31, 2019
	In Loss Position Less than 12 months					In Loss Position Greater than 12 months					Total
	Fair market value		Unrealized Losses			Fair market value		Unrealized Losses			Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	268	$	(42	)	$	758	$	(201	)	$	1,026	$	(243	)
Corporate debt	1,368		(168		)	4,520		(481		)	5,888		(649		)
Preferred stock	4,135		(164		)	—		—			4,135		(164		)
Mortgage-backed securities	—		—			402		(114		)	402		(114		)
Total fixed income securities with an unrealized loss	$	5,771	$	(374	)	$	5,680	$	(796	)	$	11,451	$	(1,170	)

Preneed cemetery trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2020 are as follows (in thousands):



	Three months ended June 30,						Six months ended June 30,
	2019			2020			2019			2020
Investment income	$	414		$	653		$	985		$	972
Realized gains	2,363			1,619			3,821			3,535
Realized losses	(1,001		)	(2,200		)	(1,636		)	(3,572		)
Expenses and taxes	(407		)	(438		)	(685		)	(625		)
Net change in deferred preneed cemetery receipts held in trust	(1,369		)	366			(2,485		)	(310		)
	$	—		$	—		$	—		$	—

Purchases and sales of investments in the preneed cemetery trusts for the three and six months ended June 30, 2019 and 2020 are as follows (in thousands):



	Three months ended June 30,						Six months ended June 30,
	2019			2020			2019			2020
Purchases	$	(8,186	)	$	(13,597	)	$	(10,258	)	$	(32,454	)
Sales	10,026			12,135			13,899			25,366

Preneed Funeral Trust Investments

The components of Preneed funeral trust investments on our Consolidated Balance Sheet at December 31, 2019 and June 30, 2020 are as follows (in thousands):



	December 31, 2019			June 30, 2020
Preneed funeral trust investments, at market value	$	99,246		$	93,110
Less: allowance for expected credit losses and cancellations	(2,911		)	(2,875		)
Preneed funeral trust investments	$	96,335		$	90,235

The cost and market values associated with preneed funeral trust investments at June 30, 2020 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	19,920	$	—	$	—		$	19,920
Fixed income securities:
U.S treasury debt	1	820		13		—			833
Foreign debt	2	12,400		857		(955		)	12,302
Corporate debt	2	14,637		738		(1,432		)	13,943
Preferred stock	2	12,871		316		(1,295		)	11,892
Mortgage-backed securities	2	433		1		(226		)	208
Common stock	1	25,825		5,377		(7,052		)	24,150
Mutual funds:
Fixed income	2	4,942		462		(189		)	5,215
Other investments	2	3,982		—		—			3,982
Trust securities		$	95,830	$	7,764	$	(11,149	)	$	92,445
Accrued investment income		$	665						$	665
Preneed funeral trust investments									$	93,110
Market value as a percentage of cost									96.5		%

The estimated maturities of the fixed income securities included above are as follows (in thousands):



Due in one year or less	$	—
Due in one to five years	9,528
Due in five to ten years	8,481
Thereafter	21,169
Total fixed income securities	$	39,178

The cost and market values associated with preneed funeral trust investments at December 31, 2019 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	24,160	$	—	$	—		$	24,160
Fixed income securities:
U.S. treasury debt	1	822		—		—			822
Foreign debt	2	5,587		309		(232		)	5,664
Corporate debt	2	16,109		992		(646		)	16,455
Preferred stock	2	14,094		874		(198		)	14,770
Mortgage-backed securities	2	585		—		(117		)	468
Common stock	1	27,652		2,773		(2,869		)	27,556
Mutual funds:
Equity	1	772		617		(4		)	1,385
Fixed income	2	4,364		107		(107		)	4,364
Other investments	2	2,902		—		—			2,902
Trust securities		$	97,047	$	5,672	$	(4,173	)	$	98,546
Accrued investment income		$	700						$	700
Preneed funeral trust investments									$	99,246
Market value as a percentage of cost									101.5		%

The following table summarized our fixed income securities within our preneed funeral trust investment in an unrealized loss position at June 30, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):



	June 30, 2020
	In Loss Position Less than 12 months					In Loss Position Greater than 12 months					Total
	Fair market value		Unrealized Losses			Fair market value		Unrealized Losses			Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	3,093	$	(332	)	$	288	$	(623	)	$	3,381	$	(955	)
Corporate debt	3,125		(984		)	4,012		(448		)	7,137		(1,432		)
Preferred stock	9,493		(1,295		)	—		—			9,493		(1,295		)
Mortgage-backed securities	4		—			175		(226		)	179		(226		)
Total fixed income securities with an unrealized loss	$	15,715	$	(2,611	)	$	4,475	$	(1,297	)	$	20,190	$	(3,908	)



	December 31, 2019
	In Loss Position Less than 12 months					In Loss Position Greater than 12 months					Total
	Fair market value		Unrealized Losses			Fair market value		Unrealized Losses			Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	274	$	(43	)	$	723	$	(189	)	$	997	$	(232	)
Corporate debt	1,403		(172		)	4,433		(474		)	5,836		(646		)
Preferred stock	4,412		(198		)	—		—			4,412		(198		)
Mortgage-backed securities	—		—			439		(117		)	439		(117		)
Total fixed income securities with an unrealized loss	$	6,089	$	(413	)	$	5,595	$	(780	)	$	11,684	$	(1,193	)

Preneed funeral trust investment security transactions recorded in Other, net on the Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2020 are as follows (in thousands):



	Three months ended June 30,						Six months ended June 30,
	2019			2020			2019			2020
Investment income	$	409		$	604		$	982		$	862
Realized gains	2,486			1,606			3,806			4,157
Realized losses	(1,007		)	(2,053		)	(424		)	(3,182		)
Expenses and taxes	(513		)	(253		)	(285		)	(350		)
Net change in deferred preneed funeral receipts held in trust	(1,375		)	96			(4,079		)	(1,487		)
	$	—		$	—		$	—		$	—

Purchases and sales of investments in the preneed funeral trusts for the three and six months ended June 30, 2019 and 2020 are as follows (in thousands):



	Three months ended June 30,						Six months ended June 30,
	2019			2020			2019			2020
Purchases	$	(8,436	)	$	(13,153	)	$	(19,195	)	$	(31,691	)
Sales	10,816			11,888			13,601			27,856

Cemetery Perpetual Care Trust Investments

Care trusts’ corpus on our Consolidated Balance Sheet represent the corpus of those trusts plus undistributed income. The components of Care trusts’ corpus as of December 31, 2019 and June 30, 2020 are as follows (in thousands):



	December 31, 2019			June 30, 2020
Cemetery perpetual care trust investments, at market value	$	64,047		$	63,228
Obligations due to (from) trust	(631		)	(916		)
Care trusts’ corpus	$	63,416		$	62,312

The following table reflects the cost and fair market values associated with the trust investments held in perpetual care trust funds at June 30, 2020 (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	1,646	$	—	$	—		$	1,646
Fixed income securities:
Foreign debt	2	10,794		707		(872		)	10,629
Corporate debt	2	13,182		757		(1,213		)	12,726
Preferred stock	2	12,332		288		(1,234		)	11,386
Mortgage-backed securities	2	316		—		(181		)	135
Common stock	1	22,459		4,517		(6,288		)	20,688
Mutual funds:
Fixed Income	2	5,336		380		(318		)	5,398
Trust securities		$	66,065	$	6,649	$	(10,106	)	$	62,608
Accrued investment income		$	620						$	620
Cemetery perpetual care investments									$	63,228
Market value as a percentage of cost									94.8		%

The estimated maturities of the fixed income securities included above are as follows (in thousands):



Due in one year or less	$	—
Due in one to five years	7,115
Due in five to ten years	7,936
Thereafter	19,825
Total fixed income securities	$	34,876

The following table reflects the cost and fair market values associated with the trust investments held in perpetual care trust funds at December 31, 2019 (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	4,624	$	—	$	—		$	4,624
Fixed income securities:
Foreign debt	2	4,200		238		(175		)	4,263
Corporate debt	2	11,658		802		(534		)	11,926
Preferred stock	2	10,782		666		(106		)	11,342
Mortgage-backed securities	2	324		—		(71		)	253
Common stock	1	21,594		3,399		(1,911		)	23,082
Mutual funds:
Equity	1	233		146		(1		)	378
Fixed income	2	7,156		618		(107		)	7,667
Trust securities		$	60,571	$	5,869	$	(2,905	)	$	63,535
Accrued investment income		$	512						$	512
Cemetery perpetual care investments									$	64,047
Market value as a percentage of cost									104.9		%

The following table summarized our fixed income securities within our perpetual care trust investment in an unrealized loss position at June 30, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):



	June 30, 2020
	In Loss Position Less than 12 months					In Loss Position Greater than 12 months					Total
	Fair market value		Unrealized Losses			Fair market value		Unrealized Losses			Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	2,833	$	(272	)	$	276	$	(600	)	$	3,109	$	(872	)
Corporate debt	2,523		(795		)	3,772		(418		)	6,295		(1,213		)
Preferred stock	8,849		(1,234		)	—		—			8,849		(1,234		)
Mortgage-backed securities	—		—			134		(181		)	134		(181		)
Total fixed income securities with an unrealized loss	$	14,205	$	(2,301	)	$	4,182	$	(1,199	)	$	18,387	$	(3,500	)



	December 31, 2019
	In Loss Position Less than 12 months					In Loss Position Greater than 12 months					Total
	Fair market value		Unrealized Losses			Fair market value		Unrealized Losses			Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	168	$	(26	)	$	549	$	(149	)	$	717	$	(175	)
Corporate debt	1,057		(196		)	3,253		(338		)	4,310		(534		)
Preferred stock	2,989		(106		)	—		—			2,989		(106		)
Mortgage-backed securities	—		—			252		(71		)	252		(71		)
Total fixed income securities with an unrealized loss	$	4,214	$	(328	)	$	4,054	$	(558	)	$	8,268	$	(886	)

Perpetual care trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2020 are as follows (in thousands):



	Three months ended June 30,						Six months ended June 30,
	2019			2020			2019			2020
Realized gains	$	670		$	439		$	1,024		$	1,148
Realized losses	(270		)	(606		)	(441		)	(1,285		)
Net change in Care trusts’ corpus	(400		)	167			(583		)	137
Total	$	—		$	—		$	—		$	—

Perpetual care trust investment security transactions recorded in Other revenue on our Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2020 are as follows (in thousands):



	Three months ended June 30,				Six months ended June 30,
	2019		2020		2019			2020
Investment income	$	1,107	$	1,942	$	2,194		$	3,347
Realized gain (losses), net	10		27		(280		)	(9		)
Total	$	1,117	$	1,969	$	1,914		$	3,338

Purchases and sales of investments in the perpetual care trusts for the three and six months ended June 30, 2019 and 2020 are as follows (in thousands):



	Three months ended June 30,						Six months ended June 30,
	2019			2020			2019			2020
Purchases	$	(5,117	)	$	(11,066	)	$	(14,274	)	$	(25,678	)
Sales	6,278			9,458			7,980			22,152