Equity Securities

The following tables summarize unrealized losses on equity securities that were carried at estimated fair value based on quoted trading prices at December 31, 2011 and 2010. The unrealized losses were primarily the result of decreases in market value due to overall equity market declines. The tables set forth unrealized losses by duration and number of investment positions, together with the fair value of the related equity securities available for sale in a loss position:

	Unrealized Losses for Less than Twelve Months		No. of Investment Positions		Unrealized Losses for More than Twelve Months		No. of Investment Positions		Total Unrealized Losses
At December 31, 2011
Non-redeemable preferred stock	$	-		-	$	1,843		2	$	1,843
Industrial, miscellaneous and all other		955,400		79		378,024		14		1,333,424
Total unrealized losses	$	955,400		79	$	379,867		16	$	1,335,267
Fair Value	$	2,857,082			$	560,529			$	3,417,611

At December 31, 2010
Non-redeemable preferred stock	$	-		-	$	4,224		2	$	4,224
Industrial, miscellaneous and all other		192,742		42		164,622		13		357,364
Total unrealized losses	$	192,742		42	$	168,846		15	$	361,588
Fair Value	$	1,895,632			$	530,253			$	2,425,885

As of December 31, 2011, the average market value of the equity securities available for sale was 71.9% of the original investment and the average market value was 87.0% of the original investment as of December 31, 2010. The intent of the Company is to retain equity securities for a period of time sufficient to allow for the recovery in fair value. However, the Company may sell equity securities during a period in which the fair value has declined below the amount of the original investment. In certain situations, new factors, including changes in the business environment, can change the Company’s previous intent to continue holding a security. During 2011, 2010, and 2009, an other than temporary decline in the market value resulted in the recognition of an impairment loss on equity securities of $52,775, $23,922 and $-0-, respectively.

On a quarterly basis, the Company reviews its investment in industrial, miscellaneous and all other equity securities that are in a loss position. The review involves an analysis of the securities in relation to historical values, price earnings ratios, projected earnings and revenue growth rates. Based on the analysis a determination is made whether a security will likely recover from the loss position within a reasonable period of time. If it is unlikely that the investment will recover from the loss position, the loss is considered to be other than temporary, the security is written down to the impaired value and an impairment loss is recognized. No other than temporary impairment loss was considered to exist for these equity securities as of December 31, 2011 and December 31, 2010.

The fair values of fixed maturity securities are based on quoted market prices, when available. For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services, or in the case of private placements, are estimated by discounting expected future cash flows using a current market value applicable to the coupon rate, credit and maturity of the investments. The fair values for equity securities are based on quoted market prices.

The amortized cost and estimated fair value of fixed maturity securities at December 31, 2011, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Estimated Fair
	Cost		Value
Held to Maturity:
Due in 2012	$	985,359	$	993,962
Due in 2013 through 2016		19,284,419		20,765,747
Due in 2017 through 2021		50,127,588		52,829,557
Due after 2021		49,095,665		53,559,260
Mortgage-backed securities		6,575,178		6,572,564
Redeemable preferred stock		1,510,878		1,454,317
Total held to maturity	$	127,579,087	$	136,175,407

The amortized cost and estimated fair value of available for sale securities at December 31, 2011, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Equities are valued using the specific identification method.

	Amortized		Estimated Fair
	Cost		Value
Available for Sale:
Due in 2012	$	-	$	-
Due in 2013 through 2016		-		-
Due in 2017 through 2021		-		-
Due after 2021		-		-
Non-redeemable preferred stock		20,281		18,438
Common stock		7,250,991		6,280,954
Total available for sale	$	7,271,272	$	6,299,392

The Company’s realized gains and losses and other than temporary impairments from investments and other assets are summarized as follows:

	2011			2010			2009
Fixed maturity securities held
to maturity:
Gross realized gains	$	939,672		$	1,300,187		$	500,795
Gross realized losses		(162,716	)		(494,678	)		(151,069	)
Other than temporary impairments		(125,129	)		(150,059	)		(326,000	)

Securities available for sale:
Gross realized gains		590,455			686,788			1,018,217
Gross realized losses		(118,417	)		(61,530	)		(152,757	)
Other than temporary impairments		(52,775	)		(23,922	)		-

Other assets:
Gross realized gains		1,295,217			393,943			8,126
Gross realized losses		(79,858	)		(209,292	)		-
Other than temporary impairments		(662,831	)		(500,000	)		-
Total	$	1,623,618		$	941,437		$	897,312

The net carrying amount for sales of securities classified as held to maturity was $12,341,156, $16,220,943 and $1,700,388, for the years ended December 31, 2011, 2010 and 2009, respectively. The net realized gain related to these sales was $462,267, $346,225 and $181,285, for the years ended December 31, 2011, 2010 and 2009, respectively. Certain circumstances lead to these decisions to sell. The Company sold held to maturity securities in 2009 that experienced significant deterioration in their value and were liquidated to avoid a potential complete loss in the bond investments of Lehman Brothers and General Motors. Bonds categorized as held to maturity and sold in 2010 were liquidated in order to meet an unexpected increase in mortgage funding demand and the non-renewal of an expired loan purchase agreement with a warehouse bank by SecurityNational Mortgage during the latter part of 2010. This was a rare and unusual event in the history of the Company. In 2011, the Company sold certain held to maturity bonds in gain positions to reduce its risk in certain industries or companies.

Other than investments issued or guaranteed by the United States Government, there is one long-term mortgage loan investment in the amount of $8,500,000 which exceeds 10% of shareholders’ equity (before net unrealized gains and losses on available for sale securities) at December 31, 2011.

Major categories of net investment income are as follows:

	2011			2010			2009
Fixed maturity securities	$	7,762,894		$	6,761,254		$	7,140,920
Equity securities		272,011			238,929			794,845
Mortgage loans on real estate		7,084,995			6,154,760			5,462,533
Real estate		2,288,537			2,387,489			2,147,981
Policy, student and other loans		835,312			897,945			811,684
Short-term investments, principally gains on sale of mortgage loans		6,255,581			7,215,927			7,896,518
Gross investment income		24,499,330			23,656,304			24,254,481
Investment expenses		(4,488,626	)		(5,040,320	)		(4,339,409	)
Net investment income	$	20,010,704		$	18,615,984		$	19,915,072

Net investment income includes net investment income earned by the restricted assets of the cemeteries and mortuaries of $626,688, $635,652 and $576,689 for 2011, 2010 and 2009, respectively.

Net investment income on real estate consists primarily of rental revenue received under short-term leases. Investment expenses consist primarily of depreciation, property taxes, operating expenses of real estate and an estimated portion of administrative expenses relating to investment activities.

Securities on deposit for regulatory authorities as required by law amounted to $9,593,318 at December 31, 2011 and $9,302,578 at December 31, 2010. The restricted securities are included in various assets under investments on the accompanying consolidated balance sheets.

Mortgage Loans

Mortgage loans consist of first and second mortgages. The mortgage loans bear interest at rates ranging from 2.0 % to 10.5%, maturity dates range from three months to 30 years and are secured by real estate. Concentrations of credit risk arise when a number of mortgage loan debtors have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. Although the Company has a diversified mortgage loan portfolio consisting of residential mortgages, commercial loans and residential construction loans and requires collateral on all real estate exposures, a substantial portion of its debtors’ ability to honor obligations is reliant on the economic stability of the geographic region in which the debtors do business. At December 31, 2011, the Company has 37%, 11% and 11% of its mortgage loans from borrowers located in the states of Utah, Florida and California, respectively. The mortgage loans on real estate balances on the consolidated balance sheet are reflected net of an allowance for loan losses of $4,881,173 and $7,070,442 at December 31, 2011 and 2010, respectively.

The Company establishes a valuation allowance for credit losses in its portfolio.

The following is a summary of the allowance for loan losses as a contra-asset account for the periods presented:

Allowance for Credit Losses and Recorded Investment in Mortgage Loans
For the Years Ended December 31, 2011, and 2010

	Commercial		Residential			Residential Construction			Total
2011
Allowance for credit losses:
Beginning balance	$	-	$	6,212,072		$	858,370		$	7,070,442
Charge-offs		-		(2,994,715	)		(430,274	)		(3,424,989	)
Provision		-		1,121,448			114,272			1,235,720
Ending balance	$	-	$	4,338,805		$	542,368		$	4,881,173

Ending balance: individually evaluated for impairment	$	-	$	738,975		$	250,524		$	989,499

Ending balance: collectively evaluated for impairment	$	-	$	3,599,830		$	291,844		$	3,891,674

Ending balance: loans acquired with deteriorated credit quality	$	-	$	-		$	-		$	-

Mortgage loans:
Ending balance	$	48,433,147	$	54,344,327		$	17,259,666		$	120,037,140

Ending balance: individually evaluated for impairment	$	2,758,235	$	4,611,995		$	5,645,865		$	13,016,095

Ending balance: collectively evaluated for impairment	$	45,674,912	$	49,732,332		$	11,613,801		$	107,021,045

Ending balance: loans acquired with deteriorated credit quality	$	-	$	-		$	-		$	-

2010
Allowance for credit losses:
Beginning balance	$	-	$	5,917,792		$	891,011		$	6,808,803
Charge-offs		-		(335,853	)		(32,641	)		(368,494	)
Provision		-		630,133			-			630,133
Ending balance	$	-	$	6,212,072		$	858,370		$	7,070,442

Ending balance: individually evaluated for impairment	$	-	$	5,131,779		$	740,000		$	5,871,779

Ending balance: collectively evaluated for impairment	$	-	$	1,080,293		$	118,370		$	1,198,663

Ending balance: loans acquired with deteriorated credit quality	$	-	$	-		$	-		$	-

Mortgage loans:
Ending balance	$	24,502,781	$	60,285,273		$	18,436,495		$	103,224,549

Ending balance: individually evaluated for impairment	$	439,794	$	7,236,095		$	2,085,467		$	9,761,356

Ending balance: collectively evaluated for impairment	$	24,062,987	$	53,049,178		$	16,351,028		$	93,463,193

Ending balance: loans acquired with deteriorated credit quality	$	-	$	-		$	-		$	-

The following is a summary of the aging of mortgage loans for the periods presented.

Age Analysis of Past Due Mortgage Loans
Years Ended December 31, 2011 and 2010

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days 1)		In Foreclosure 1)		Total Past Due		Current		Total Mortgage Loans		Allowance for Loan Losses			Net Mortgage Loans
2011
Commercial	$	-	$	-	$	1,053,500	$	2,758,235	$	3,811,735	$	44,621,412	$	48,433,147	$	-		$	48,433,147
Residential		2,478,084		2,058,261		5,500,340		4,611,995		14,648,680		39,695,647		54,344,327		(4,338,805	)		50,005,522
Residential Construction		859,651		682,532		309,651		5,645,865		7,497,699		9,761,967		17,259,666		(542,368	)		16,717,298

Total	$	3,337,735	$	2,740,793	$	6,863,491	$	13,016,095	$	25,958,114	$	94,079,026	$	120,037,140	$	(4,881,173	)	$	115,155,967

2010
Commercial	$	-	$	734,756	$	-	$	439,794	$	1,174,550	$	23,328,231	$	24,502,781	$	-		$	24,502,781
Residential		767,970		782,174		3,537,616		7,236,095		12,323,855		47,961,418		60,285,273		(6,212,072	)		54,073,201
Residential Construction		849,375		1,543,593		994,046		2,085,467		5,472,481		12,964,014		18,436,495		(858,370	)		17,578,125

Total	$	1,617,345	$	3,060,523	$	4,531,662	$	9,761,356	$	18,970,886	$	84,253,663	$	103,224,549	$	(7,070,442	)	$	96,154,107

1) There was not any interest income recognized on loans past due greater than 90 days or in foreclosure.

Impaired Mortgage Loans

Impaired mortgage loans include loans with a related specific valuation allowance or loans whose carrying amount has been reduced to the expected collectible amount because the impairment has been considered other than temporary. The recorded investment in and unpaid principal balance of impaired loans along with the related loan specific allowance for losses, if any, for each reporting period and the average recorded investment and interest income recognized during the time the loans were impaired were as follows:

Impaired Loans
For the Years Ended December 31, 2011, and 2010

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
2011
With no related allowance recorded:
Commercial	$	3,811,735	$	3,811,735			$	3,811,735	$	-
Residential		5,500,340		5,500,340				5,500,340		-
Residential construction		309,651		309,651				309,651		-

With an allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Residential		4,611,995		4,611,995		738,975		4,611,995		-
Residential construction		5,645,865		5,645,865		250,524		5,645,865		-

Total:
Commercial	$	3,811,735	$	3,811,735	$	-	$	3,811,735	$	-
Residential		10,112,335		10,112,335		738,975		10,112,335		-
Residential construction		5,955,516		5,955,516		250,524		5,955,516		-

2010
With no related allowance recorded:
Commercial	$	439,794	$	439,794			$	439,794	$	-
Residential		3,537,616		3,537,616				3,537,616		-
Residential construction		994,046		994,046				994,046		-

With an allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Residential		7,236,095		7,236,095		5,131,779		7,236,095		-
Residential construction		2,085,467		2,085,467		740,000		2,085,467		-

Total:
Commercial	$	439,794	$	439,794	$	-	$	439,794	$	-
Residential		10,773,711		10,773,711		5,131,779		10,773,711		-
Residential construction		3,079,513		3,079,513		740,000		3,079,513		-

Credit Risk Profile Based on Performance Status

The Company’s mortgage loan portfolio is monitored based on performance of the loans. Monitoring a mortgage loan increases when the loan is delinquent or earlier if there is an indication of impairment. The Company defines non-performing mortgage loans as loans 90 days or greater delinquent or on non-accrual status.

The Company’s performing and non-performing mortgage loans were as follows:

Mortgage Loan Credit Exposure
Credit Risk Profile Based on Payment Activity
As of December 31, 2011, and 2010

	Commercial				Residential				Residential Construction				Total
	2011		2010		2011		2010		2011		2010		2011		2010

Performing	$	44,621,412	$	24,062,987	$	44,231,992	$	49,511,562	$	11,304,150	$	15,356,982	$	100,157,554	$	88,931,531
Nonperforming		3,811,735		439,794		10,112,335		10,773,711		5,955,516		3,079,513		19,879,586		14,293,018

Total	$	48,433,147	$	24,502,781	$	54,344,327	$	60,285,273	$	17,259,666	$	18,436,495	$	120,037,140	$	103,224,549

Non-Accrual Mortgage Loans

Once a loan is past due 90 days, it is the policy of the Company to end the accrual of interest income on the loan and write off any income that had been accrued. Interest not accrued on these loans totals $2,023,000 and $1,852,000 as of December 31, 2011 and 2010, respectively.

The following is a summary of mortgage loans on a nonaccrual status for the periods presented.

	Mortgage Loans on Nonaccrual Status
	As of December 31, 2011, and 2010

	2011		2010
Commercial	$	3,811,735	$	439,794
Residential		10,112,335		10,773,711
Residential construction		5,955,516		3,079,513

Total	$	19,879,586	$	14,293,018

Principal Amounts Due

The amortized cost and contractual payments on mortgage loans on real estate and construction loans held for investment by category as of December 31, 2011 are shown below. Expected principal payments may differ from contractual obligations because certain borrowers may elect to pay off mortgage obligations with or without early payment penalties.

			Principal		Principal		Principal
			Amounts		Amounts		Amounts
			Due in		Due in		Due
	Total		2012			2013-2016	Thereafter
Residential	$	54,344,327	$	1,888,024	$	5,911,105	$	46,545,198
Residential Construction		17,259,666		17,259,666		-		-
Commercial		48,433,147		29,132,743		12,225,603		7,074,801
Total	$	120,037,140	$	48,280,433	$	18,136,708	$	53,619,999

Loan Loss Reserve

When a repurchase demand is received from a third party investor, the relevant data is reviewed and captured so that an estimated future loss can be calculated. The key factors that are used in the estimated loss calculation are as follows: (i) lien position, (ii) payment status, (iii) claim type, (iv) unpaid principal balance, (v) interest rate, and (vi) validity of the demand. Other data is captured and is useful for management purposes; the actual estimated loss is generally based on these key factors. The Company conducts its own review upon the receipt of a repurchase demand. In many instances, the Company is able to resolve the issues relating to the repurchase demand by the third party investor without having to make any payments to the investor.

The following is a summary of the loan loss reserve which is included in other liabilities and accrued expenses:

	Years Ended December 31,
	2011			2010
Balance, beginning of period	$	5,899,025		$	11,662,897
Provisions for losses		1,667,805			4,534,231
Charge-offs		(5,228,955	)		(10,298,103	)
Balance, at December 31	$	2,337,875		$	5,899,025

The Company believes the loan loss reserve represents probable loan losses incurred as of the balance sheet date. The loan loss reserve may not be adequate, however, for claims asserted by third party investors. Actual loan loss experience could change, in the near-term, from the established reserve based upon claims asserted by third party investors. If SecurityNational Mortgage is unable to negotiate acceptable terms with the third party investors, legal action may ensue in an effort to obtain amounts that the third party investors claim are allegedly due. In the event of legal action, if SecurityNational Mortgage is not successful in its defenses against claims asserted by these third party investors to the extent that a substantial judgment is entered against SecurityNational Mortgage which is beyond its capacity to pay, SecurityNational Mortgage may be required to curtail or cease operations.