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3) Investments | 3 Months Ended
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Sep. 30, 2012
Notes |
3) Investments | 3) Investments The Company’s investments in fixed maturity securities held-to-maturity and equity securities available for sale as of September 30, 2012 are summarized as follows:
|  | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
September 30, 2012: |  |  |  |  |  |  |  |
Fixed maturity securities held to maturity carried at amortized cost: |  |  |  |  |  |  |  |
Bonds: |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. Government agencies |  | $ 2,607,083 |  | $ 548,554 |  | $ - |  | $ 3,155,637
Obligations of states and political subdivisions |  | 2,040,113 |  | 267,896 |  | (6,119) |  | 2,301,890
Corporate securities including public utilities |  | 119,561,259 |  | 16,644,289 |  | (648,386) |  | 135,557,162
Mortgage-backed securities |  | 5,298,258 |  | 344,811 |  | (111,241) |  | 5,531,828
Redeemable preferred stock |  | 1,510,878 |  | 79,742 |  | (2,000) |  | 1,588,620
Total fixed maturity securities held to maturity |  | $ 131,017,591 |  | $ 17,885,292 |  | $ (767,746) |  | $ 148,135,137
|  | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
September 30, 2012: |  |  |  |  |  |  |  |
Equity securities available for sale at estimated fair value: |  |  |  |  |  |  |  |
Non-redeemable preferred stock |  | $ 20,281 |  | $ 394 |  | $ (1,100) |  | $ 19,575
Common stock: |  |  |  |  |  |  |  |
Industrial, miscellaneous and all other |  | 6,295,937 |  | 339,392 |  | (1,250,016) |  | 5,385,313
Total equity securities available for sale at estimated fair value |  | $ 6,316,218 |  | $ 339,786 |  | $ (1,251,116) |  | $ 5,404,888
Mortgage loans on real estate and construction loans held for investment at amortized cost: |  |  |  |  |  |  |  |
Residential |  | $ 50,133,436 |  |  |  |  |  |
Residential construction |  | 5,589,673 |  |  |  |  |  |
Commercial |  | 32,408,903 |  |  |  |  |  |
Less: Allowance for loan losses |  | (4,263,375) |  |  |  |  |  |
Total mortgage loans on real estate and construction loans held for investment |  | $ 83,868,637 |  |  |  |  |  |
Real estate held for investment - net of depreciation |  | $ 3,596,336 |  |  |  |  |  |
Other real estate owned held for investment - net of depreciation |  | 59,562,388 |  |  |  |  |  |
Other real estate owned held for sale |  | 5,998,740 |  |  |  |  |  |
Total real estate |  | $ 69,157,464 |  |  |  |  |  |
Policy and other loans at amortized cost - net of allowance for doubtful accounts |  | $ 18,443,304 |  |  |  |  |  |
Short-term investments at amortized cost |  | $ 8,248,217 |  |  |  |  |  |
The Company’s investments in fixed maturity securities held to maturity and equity securities available for sale as of December 31, 2011 are summarized as follows:
|  | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
December 31, 2011: |  |  |  |  |  |  |  |
Fixed maturity securities held to maturity carried at amortized cost: |  |  |  |  |  |  |  |
Bonds: |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. Government agencies |  | $ 2,820,159 |  | $ 551,740 |  | $ - |  | $ 3,371,899
Obligations of states and political subdivisions |  | 3,024,425 |  | 309,986 |  | (13,156) |  | 3,321,255
Corporate securities including public utilities |  | 113,648,447 |  | 10,075,071 |  | (2,268,146) |  | 121,455,372
Mortgage-backed securities |  | 6,575,178 |  | 354,286 |  | (356,900) |  | 6,572,564
Redeemable preferred stock |  | 1,510,878 |  | 72,639 |  | (129,200) |  | 1,454,317
Total fixed maturity securities held to maturity |  | $ 127,579,087 |  | $ 11,363,722 |  | $ (2,767,402) |  | $ 136,175,407
|  | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
December 31, 2011: |  |  |  |  |  |  |  |
Equity securities available for sale at estimated fair value: |  |  |  |  |  |  |  |
Non-redeemable preferred stock |  | $ 20,281 |  | $ - |  | $ (1,843) |  | $ 18,438
Common stock: |  |  |  |  |  |  |  |
Industrial, miscellaneous and all other |  | 7,250,991 |  | 363,387 |  | (1,333,424) |  | 6,280,954
Total equity securities available for sale at estimated fair value |  | $ 7,271,272 |  | $ 363,387 |  | $ (1,335,267) |  | $ 6,299,392
Mortgage loans on real estate and construction loans held for investment at amortized cost: |  |  |  |  |  |  |  |
Residential |  | $ 54,344,327 |  |  |  |  |  |
Residential construction |  | 17,259,666 |  |  |  |  |  |
Commercial |  | 48,433,147 |  |  |  |  |  |
Less: Allowance for loan losses |  | (4,881,173) |  |  |  |  |  |
Total mortgage loans on real estate and construction loans held for investment |  | $ 115,155,967 |  |  |  |  |  |
Real estate held for investment - net of depreciation |  | $ 3,786,780 |  |  |  |  |  |
Other real estate owned held for investment - net of depreciation |  | 46,398,095 |  |  |  |  |  |
Other real estate owned held for sale |  | 5,793,900 |  |  |  |  |  |
Total real estate |  | $ 55,978,775 |  |  |  |  |  |
Policy and other loans at amortized cost - net of allowance for doubtful accounts |  | $ 18,463,277 |  |  |  |  |  |
Short-term investments at amortized cost |  | $ 6,932,023 |  |  |  |  |  |
Fixed Maturity Securities The following tables summarize unrealized losses on fixed maturity securities, which are carried at amortized cost, at September 30, 2012 and December 31, 2011. The unrealized losses were primarily related to interest rate fluctuations. The tables set forth unrealized losses by duration and number of investment positions, together with the fair value of the related fixed maturity securities:
|  | Unrealized Losses for Less than Twelve Months |  | No. of Investment Positions |  | Unrealized Losses for More than Twelve Months |  | No. of Investment Positions |  | Total Unrealized Loss
At September 30, 2012 |  |  |  |  |  |  |  |  |  |
Obligations of states and political subdivisions |  | $ - |  | - |  | $ 6,119 |  | 2 |  | $ 6,119
Corporate securities including public utilities |  | 129,509 |  | 23 |  | 518,877 |  | 11 |  | 648,386
Mortgage-backed securities |  | - |  | - |  | 111,241 |  | 4 |  | 111,241
Redeemable preferred stock |  | - |  | - |  | 2,000 |  | 1 |  | 2,000
Total unrealized losses |  | $ 129,509 |  | 23 |  | $ 638,237 |  | 18 |  | $ 767,746
Fair Value |  | $ 4,701,177 |  |  |  | $ 7,091,113 |  |  |  | $ 11,792,290
At December 31, 2011 |  |  |  |  |  |  |  |  |  |
Obligations of states and political subdivisions |  | $ - |  | - |  | $ 13,156 |  | 2 |  | $ 13,156
Corporate securities including public utilities |  | 1,544,224 |  | 47 |  | 723,922 |  | 12 |  | 2,268,146
Mortgage-backed securities |  | 161,300 |  | 3 |  | 195,600 |  | 1 |  | 356,900
Redeemable preferred stock |  | 800 |  | 1 |  | 128,400 |  | 1 |  | 129,200
Total unrealized losses |  | $ 1,706,324 |  | 51 |  | $ 1,061,078 |  | 16 |  | $ 2,767,402
Fair Value |  | $ 24,249,533 |  |  |  | $ 3,762,892 |  |  |  | $ 28,012,425
As of September 30, 2012, the average market value of the related fixed maturities was 93.9% of amortized cost and the average market value was 91.0% of amortized cost as of December 31, 2011. During the nine months ended September 30, 2012 and 2011 an other than temporary decline in fair value resulted in the recognition of credit losses on fixed maturity securities of $135,000 and $95,129, respectively. On a quarterly basis, the Company reviews its available-for-sale fixed investment securities related to corporate securities and other public utilities, consisting of bonds and preferred stocks that are in a loss position. The review involves an analysis of the securities in relation to historical values, and 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 fixed maturity securities as of September 30, 2012 and 2011. Equity Securities The following tables summarize unrealized losses on equity securities that were carried at estimated fair value based on quoted trading prices at September 30, 2012 and December 31, 2011. The unrealized losses were primarily the result of decreases in fair 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 September 30, 2012 |  |  |  |  |  |  |  |  |  |
Non-redeemable preferred stock |  | $ - |  | - |  | $ 1,100 |  | 1 |  | $ 1,100
Industrial, miscellaneous and all other |  | 148,049 |  | 36 |  | 1,101,967 |  | 50 |  | 1,250,016
Total unrealized losses |  | $ 148,049 |  | 36 |  | $ 1,103,067 |  | 51 |  | $ 1,251,116
Fair Value |  | $ 1,390,452 |  |  |  | $ 1,638,714 |  |  |  | $ 3,029,166
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
As of September 30, 2012, the average market value of the equity securities available for sale was 70.8% of the original investment and the average market value was 71.9% of the original investment as of December 31, 2011. 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 the nine months ended September 30, 2012 and 2011, there was no other than temporary decline in fair value. 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 September 30, 2012 and 2011. 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 September 30, 2012, 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 Cost |  | Estimated Fair Value
Held to Maturity: |  |  |  |
Due in 2012 |  | $ 300,706 |  | $ 301,899
Due in 2013 through 2016 |  | 17,444,315 |  | 19,009,264
Due in 2017 through 2021 |  | 50,211,439 |  | 56,777,245
Due after 2021 |  | 56,251,995 |  | 64,926,282
Mortgage-backed securities |  | 5,298,258 |  | 5,531,828
Redeemable preferred stock |  | 1,510,878 |  | 1,588,620
Total held to maturity |  | $ 131,017,591 |  | $ 148,135,138
The amortized cost and estimated fair value of available for sale securities at September 30, 2012, 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 Cost |  | Estimated Fair Value
Available for Sale: |  |  |  |
Due in 2012 through 2015 |  | $ - |  | $ -
Due in 2013 through 2016 |  | - |  | -
Due in 2017 through 2021 |  | - |  | -
Due after 2021 |  | - |  | -
Non-redeemable preferred stock |  | 20,281 |  | 19,575
Common stock |  | 6,295,937 |  | 5,385,313
Total available for sale |  | $ 6,316,218 |  | $ 5,404,888
The Company’s realized gains and losses, other than temporary impairments from investments and other assets, are summarized as follows:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2012 |  | 2011 |  | 2012 |  | 2011
Fixed maturity securities held to maturity: |  |  |  |  |  |  |  |
Gross realized gains |  | $ 266,801 |  | $ 80,069 |  | $ 404,056 |  | $ 400,026
Gross realized losses |  | (1,292) |  | (11,086) |  | (1,626) |  | (142,907)
Other than temporary impairments |  | (45,000) |  | (30,000) |  | (135,000) |  | (95,129)
Securities available for sale: |  |  |  |  |  |  |  |
Gross realized gains |  | 139,352 |  | 48,680 |  | 291,932 |  | 503,804
Gross realized losses |  | - |  | (30) |  | (5,705) |  | (34,834)
Other than temporary impairments |  | - |  | - |  | - |  | -
Other assets: |  |  |  |  |  |  |  |
Gross realized gains |  | 27,244 |  | 146,253 |  | 114,114 |  | 1,182,905
Gross realized losses |  | (209,484) |  | (37,406) |  | (222,163) |  | (79,858)
Other than temporary impairments |  | (395,315) |  | - |  | (395,315) |  | -
Total |  | $ (217,694) |  | $ 196,480 |  | $ 50,292 |  | $ 1,734,007
The net carrying amount of held to maturity securities sold was $1,976,273 and$12,341,156 for the nine months ended September 30, 2012 and the year ended December 31, 2011, respectively. The net realized gain related to these sales was $273,447 and $462,267 for the nine months ended September 30, 2012 and the year ended December 31, 2011, respectively. Certain circumstances lead to these decisions to sell. In 2012 and 2011, the Company sold certain held to maturity bonds in gain positions to reduce its risk in certain industries or companies. There were no investments, aggregated by issuer, in excess of 10% of shareholders’ equity (before net unrealized gains and losses on available-for-sale securities) at September 30, 2012, other than investments issued or guaranteed by the United States Government. Major categories of net investment income are as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2012 |  | 2011 |  | 2012 |  | 2011
Fixed maturity securities | $ 1,949,666 |  | $ 2,033,778 |  | $ 5,803,282 |  | $ 5,773,035
Equity securities | 65,839 |  | 70,589 |  | 197,563 |  | 197,480
Mortgage loans on real estate | 1,566,734 |  | 1,839,705 |  | 5,700,159 |  | 4,881,213
Real estate | 1,058,147 |  | 787,465 |  | 3,018,346 |  | 1,496,912
Policy and other loans | 192,198 |  | 195,843 |  | 610,472 |  | 619,972
Short-term investments, principally gains on sale of mortgage loans and other | 2,172,955 |  | 1,509,731 |  | 6,216,686 |  | 4,423,576
Gross investment income | 7,005,539 |  | 6,437,111 |  | 21,546,508 |  | 17,392,188
Investment expenses | (1,272,967) |  | (1,329,521) |  | (3,621,990) |  | (3,296,792)
Net investment income | $ 5,732,572 |  | $ 5,107,590 |  | $ 17,924,518 |  | $ 14,095,396
Net investment income includes income earned by the restricted assets of the cemeteries and mortuaries of $247,844 and $240,240 for nine months ended September 30, 2012 and 2011, 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 $9,549,475 at September 30, 2012 and $9,593,318 at December 31, 2011. The restricted securities are included in various assets under investments on the accompanying condensed 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%per annum, 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 live or do business. At September 30, 2012, the Company had 27%, 19% and 12% of its mortgage loans from borrowers located in the states of Utah, California and Florida, respectively. The mortgage loans on real estate balances on the consolidated balance sheet are reflected net of an allowance for loan losses of $4,263,375 and $4,881,173 at September 30, 2012 and December 31, 2011, 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
| Commercial |  | Residential |  | Residential Construction |  | Total
September 30, 2012 |  |  |  |  |  |  |
Allowance for credit losses: |  |  |  |  |  |  |
Beginning balance - January 1, 2012 | $ - |  | $ 4,338,805 |  | $ 542,368 |  | $ 4,881,173
Charge-offs | - |  | (364,127) |  | (490,886) |  | (855,013)
Provision | - |  | 237,215 |  | - |  | 237,215
Ending balance -September 30, 2012 | $ - |  | $ 4,211,893 |  | $ 51,482 |  | $ 4,263,375
Ending balance: individually evaluated for impairment | $ - |  | $ 866,394 |  | $ 23,557 |  | $ 889,951
Ending balance: collectively evaluated for impairment | $ - |  | $ 3,345,499 |  | $ 27,925 |  | $ 3,373,424
Ending balance: loans acquired with deteriorated credit quality | $ - |  | $ - |  | $ - |  | $ -
Mortgage loans: |  |  |  |  |  |  |
Ending balance | $ 32,408,903 |  | $ 50,133,436 |  | $ 5,589,673 |  | $ 88,132,012
Ending balance: individually evaluated for impairment | $ 761,652 |  | $ 5,329,240 |  | $ 1,559,358 |  | $ 7,650,250
Ending balance: collectively evaluated for impairment | $ 31,647,251 |  | $ 44,804,196 |  | $ 4,030,315 |  | $ 80,481,762
Ending balance: loans acquired with deteriorated credit quality | $ - |  | $ - |  | $ - |  | $ -
December 31, 2011 |  |  |  |  |  |  |
Allowance for credit losses: |  |  |  |  |  |  |
Beginning balance - January 1, 2011 | $ - |  | $ 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 - December 31, 2011 | $ - |  | $ 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 | $ - |  | $ - |  | $ - |  | $ -
The following is a summary of the aging of mortgage loans for the periods presented:
Age Analysis of Past Due Mortgage Loans
| 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
September 30, 2012 |  |  |  |  |  |  |  |
Commercial | $ - | $ - | $ 125,554 | $ 761,652 | $ 887,206 | $ 31,521,697 | $ 32,408,903 | $ - | $ 32,408,903
Residential | 1,773,999 | 2,354,104 | 3,978,403 | 5,329,240 | 13,435,746 | 36,697,690 | 50,133,436 | (4,211,893) | 45,921,543
Residential Construction | - | - | 974,758 | 1,559,358 | 2,534,116 | 3,055,557 | 5,589,673 | (51,482) | 5,538,191
Total | $ 1,773,999 | $ 2,354,104 | $ 5,078,715 | $ 7,650,250 | $ 16,857,068 | $ 71,274,944 | $ 88,132,012 | $ (4,263,375) | $ 83,868,637
December 31, 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
1) Interest income is not 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
| Recorded Investment |  | Unpaid Principal Balance |  | Related Allowance |  | Average Recorded Investment |  | Interest Income Recognized
September 30, 2012 |  |  |  |  |  |  |  |  |
With no related allowance recorded: |  |  |  |  |  |  |  |  |
Commercial | $ 887,206 |  | $ 887,206 |  | $ - |  | $ 887,206 |  | $ -
Residential | 3,978,403 |  | 3,978,403 |  | - |  | 3,978,403 |  | -
Residential construction | 974,758 |  | 974,758 |  | - |  | 974,758 |  | -
With an allowance recorded: |  |  |  |  |  |  |  |  |
Commercial | $ - |  | $ - |  | $ - |  | $ - |  | $ -
Residential | 5,329,240 |  | 5,329,240 |  | 866,394 |  | 5,329,240 |  | -
Residential construction | 1,559,358 |  | 1,559,358 |  | 23,557 |  | 1,559,358 |  | -
Total: |  |  |  |  |  |  |  |  |
Commercial | $ 887,206 |  | $ 887,206 |  | $ - |  | $ 887,206 |  | $ -
Residential | 9,307,643 |  | 9,307,643 |  | 866,394 |  | 9,307,643 |  | -
Residential construction | 2,534,116 |  | 2,534,116 |  | 23,557 |  | 2,534,116 |  | -
December 31, 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 |  | -
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 past due 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
| Commercial |  | Residential |  | Residential Construction |  | Total
| September 30, 2012 |  | December 31, 2011 |  | September 30, 2012 |  | December 31, 2011 |  | September 30, 2012 |  | December 31, 2011 |  | September 30, 2012 |  | December 31, 2011
Performing | $ 31,521,697 |  | $ 44,621,412 |  | $ 40,825,793 |  | $ 44,231,992 |  | $ 3,055,557 |  | $ 11,304,150 |  | $ 75,403,047 |  | $ 100,157,554
Nonperforming | 887,206 |  | 3,811,735 |  | 9,307,643 |  | 10,112,335 |  | 2,534,116 |  | 5,955,516 |  | 12,728,965 |  | 19,879,586
Total | $ 32,408,903 |  | $ 48,433,147 |  | $ 50,133,436 |  | $ 54,344,327 |  | $ 5,589,673 |  | $ 17,259,666 |  | $ 88,132,012 |  | $ 120,037,140
Non-Accrual Mortgage Loans Once a loan is past due 90 days, it is the Company’s policy 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 $1,909,000 and $2,308,000 as of September 30, 2012 and December 31, 2011, respectively. The following is a summary of mortgage loans on a nonaccrual status for the periods presented.
| Mortgage Loans on Nonaccrual Status
| As of September 30, |  | As of December 31,
| 2012 |  | 2011
Commercial | $ 887,206 |  | $ 3,811,735
Residential | 9,307,643 |  | 10,112,335
Residential construction | 2,534,116 |  | 5,955,516
Total | $ 12,728,965 |  | $ 19,879,586
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 that is included in other liabilities and accrued expenses:
| As of September 30, |  | As of December 31,
| 2012 |  | 2011
Balance, beginning of period | $ 2,337,875 |  | $ 5,899,025
Provisions for losses | 3,237,928 |  | 1,667,805
Charge-offs | (420,922) |  | (5,228,955)
Balance, end of period | $ 5,154,881 |  | $ 2,337,875
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.

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