XML 25 R10.htm IDEA: XBRL DOCUMENT v2.4.0.8
3) Investments
 6 Months Ended
Jun. 30, 2013
Notes  
3) Investments

 

 

 3)   Investments

 

The Company’s investments in fixed maturity securities held to maturity and equity securities available for sale as of June 30, 2013 are summarized as follows:

 

Amortized Cost

Gross Unrealized Gains

 Gross Unrealized Losses

 Estimated Fair Value

June 30, 2013:

 

 

 

 

Fixed maturity securities held to maturity carried at amortized cost:

Bonds:

U.S. Treasury securities and obligations of U.S. Government agencies

 $         2,593,565

 $          384,329

 $              (730)

 $         2,977,164

Obligations of states and political subdivisions

            2,081,217

             217,749

            (10,076)

            2,288,890

Corporate securities including public utilities

        132,242,394

        11,345,205

       (1,232,902)

        142,354,697

Mortgage-backed securities

            5,290,909

             290,614

            (10,230)

            5,571,293

Redeemable preferred stock

               687,118

               45,804

              (1,400)

               731,522

Total fixed maturity securities held to maturity

 $     142,895,203

 $     12,283,701

 $    (1,255,338)

 $     153,923,566

 

 

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

June 30, 2013:

 

 

 

 

Equity securities available for sale at estimated fair value:

Common stock:

Industrial, miscellaneous and all other

 $       5,614,466

 $    341,538

 $       (865,510)

 $    5,090,494

Total equity securities available for sale at estimated fair value

 $       5,614,466

 $    341,538

 $       (865,510)

 $    5,090,494

Mortgage loans on real estate and construction loans held for investment at amortized cost:

Residential

$     48,095,617

Residential construction

          1,546,577

Commercial

        35,309,814

Less: Allowance for loan losses

        (4,413,927)

Total mortgage loans on real estate and construction loans held for investment

$     80,538,081

Real estate held for investment - net of depreciation

$     27,300,608

Other real estate owned held for investment - net of  depreciation

        61,235,783

Other real estate owned held for sale

                        -

Total real estate

$     88,536,391

Policy and other loans at amortized cost - net of allowance for doubtful accounts

$     19,207,592

Short-term investments at amortized cost

$     17,626,271

 

 

During the first quarter 2013, the Company reclassified its Other real estate owned held for sale to Other real estate owned held for investment. The properties are now being depreciated and are held as rental properties and are not listed for sale.

 

The Company’s investments in fixed maturity securities held to maturity and equity securities available for sale as of December 31, 2012 are summarized as follows:

 

Amortized Cost 

Gross Unrealized Gains

 Gross Unrealized Losses  

 Estimated Fair Value  

December 31, 2012:

 

 

 

 

Fixed maturity securities held to maturity carried at amortized cost:

Bonds:

U.S. Treasury securities and obligations of U.S. Government agencies

 $         2,602,589

 $          514,572

 $                    -

 $         3,117,161

Obligations of states and political subdivisions

            2,040,277

             285,241

              (3,982)

            2,321,536

Corporate securities including public utilities

        118,285,147

        16,230,468

          (607,322)

        133,908,293

Mortgage-backed securities

            5,010,519

             327,871

            (76,056)

            5,262,334

Redeemable preferred stock

            1,510,878

               98,087

              (1,200)

            1,607,765

Total fixed maturity securities held to maturity

 $     129,449,410

 $     17,456,239

 $       (688,560)

 $     146,217,089

 

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

December 31, 2012:

 

 

 

 

Equity securities available for sale at estimated fair value:

Non-redeemable preferred stock

 $            20,281

 $                 -

 $          (1,486)

 $         18,795

Common stock:

Industrial, miscellaneous and all other

          6,047,474

         309,752

         (970,909)

       5,386,317

Total equity securities available for sale at estimated fair value

 $       6,067,755

 $      309,752

 $      (972,395)

 $    5,405,112

Mortgage loans on real estate and construction loans held for investment at amortized cost:

Residential

$     50,584,923

Residential construction

          3,161,112

Commercial

        34,956,031

Less: Allowance for loan losses

        (4,239,861)

Total mortgage loans on real estate and construction loans held for investment

$     84,462,205

Real estate held for investment - net of depreciation

$       3,543,751

Other real estate owned held for investment - net of depreciation

        55,027,669

Other real estate owned held for sale

          5,682,610

Total real estate

$     64,254,030

Policy and other loans at amortized cost - net of allowance for doubtful accounts

$     20,188,516

Short-term investments at amortized cost

$     40,925,390

 

Fixed Maturity Securities

 

The following tables summarize unrealized losses on fixed maturity securities, which are carried at amortized cost, at June 30, 2013 and December 31, 2012. 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 June 30, 2013

 

 

 

 

 

Obligations of states and political subdivisions

 $            7,729

2

 $          2,347

1

 $          10,076

U.S. Treasury Securities And Obilgations of U.S. Government Agencies

 $               730

1

                  730

Corporate securities including public utilities

        1,009,999

65

         222,903

4

        1,232,902

Mortgage-backed securities

                    26

1

           10,204

1

             10,230

Redeemable preferred stock

               1,400

1

                     -

0

               1,400

Total unrealized losses

 $     1,019,884

70

 $      235,454

6

 $     1,255,338

Fair Value

$   24,070,395

$   1,335,927

$   25,406,322

 

 

 

As of June 30, 2013, the average market value of the related fixed maturities was 95.3% of amortized cost and the average market value was 92.6% of amortized cost as of December 31, 2012. During the six months ended June 30, 2013 and 2012 an other than temporary decline in fair value resulted in the recognition of credit losses on fixed maturity securities of $60,000 and $90,000, 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.

 

Equity Securities

 

The following tables summarize unrealized losses on equity securities that were carried at estimated fair value based on quoted trading prices at June 30, 2013 and December 31, 2012. 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 June 30, 2013

 

 

 

 

 

Industrial, miscellaneous and all other

 $      159,125

32

 $      706,385

38

 $      865,510

Total unrealized losses

 $      159,125

32

 $      706,385

38

 $      865,510

Fair Value

$   1,295,661

$   1,194,695

$   2,490,356

At December 31, 2012

Non-redeemable preferred stock

 $             686

1

 $             800

1

 $          1,486

Industrial, miscellaneous and all other

         236,293

39

         734,616

44

         970,909

Total unrealized losses

 $      236,979

40

 $      735,416

45

 $      972,395

Fair Value

$   1,422,436

$   1,493,538

$   2,915,974

 

 

 

As of June 30, 2013, the average market value of the equity securities available for sale was 74.2% of the original investment and the average market value was 75.0% of the original investment as of December 31, 2012. 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 six months ended June 30, 2013 and 2012, 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.

 

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 June 30, 2013, 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 2013 

 $         1,452,716

 $         1,470,386

Due in 2014 through 2017

          20,953,006

          22,670,126

Due in 2018 through 2022

          45,701,322

          50,130,774

Due after 2022

          68,810,132

          73,349,465

Mortgage-backed securities

            5,290,909

            5,571,293

Redeemable preferred stock

               687,118

               731,522

Total held to maturity

 $     142,895,203

 $     153,923,566

 

 

The amortized cost and estimated fair value of available for sale securities at June 30, 2013, 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 2013

 $                   -

 $                       -

Due in 2014 through 2017

                      -

                          -

Due in 2018 through 2022

                      -

                          -

Due after 2022

                      -

                          -

Non-redeemable preferred stock

                      -

                          -

Common stock

       5,614,466

           5,090,494

Total available for sale

 $    5,614,466

 $        5,090,494

 

 

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

 

Three Months Ended June 30

Six Months Ended June 30

2013

2012

2013

2012

Fixed maturity securities held to maturity:

Gross realized gains

 $          2,512

 $      129,651

 $        15,404

 $      137,255

Gross realized losses

           (9,693)

                   -

         (15,168)

              (334)

Other than temporary impairments

         (30,000)

         (45,000)

         (60,000)

         (90,000)

Securities available for sale:

Gross realized gains

         105,426

           15,372

         239,382

         152,580

Gross realized losses

           (1,942)

                   -

           (2,678)

           (5,705)

Other than temporary impairments

                           -  

                   -

Other assets:

Gross realized gains

           35,034

           54,583

         745,820

           86,870

Gross realized losses

             8,845

         (12,680)

         (12,680)

Other than temporary impairments

        (115,922)

                   -

        (115,922)

Total

$        (5,740)

$      141,926

$      806,838

$      267,986

 

 

 

 

 

The net carrying amount of held to maturity securities sold was $505,976 and $2,174,300 for the six months ended June 30, 2013 and the year ended December 31, 2012, respectively.  The net realized gain related to these sales was $1,524 and $271,364 for the six months ended June 30, 2013 and the year ended December 31, 2012, respectively. Certain circumstances lead to these decisions to sell. In 2013 and 2012, 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 June 30, 2013, other than investments issued or guaranteed by the United States Government.

 

Major categories of net investment income are as follows:

 

Three Months Ended June 30

Six Months Ended June 30

2013

2012

2013

2012

Fixed maturity securities

 $     2,056,804

 $     1,943,272

 $     4,009,843

 $     3,853,617

Equity securities

            38,729

            68,146

          104,489

          131,723

Mortgage loans on real estate

        1,011,446

        1,491,924

        2,051,221

        3,091,896

Real estate

        1,363,662

        1,249,142

        2,441,324

        2,343,277

Policy and other loans

          196,096

          189,947

          399,231

          418,275

Short-term investments,  principally gains on sale of mortgage loans and other

        2,371,299

        2,006,325

        4,578,893

        4,043,731

Gross investment income

        7,038,036

        6,948,756

      13,585,001

      13,882,519

Investment expenses

      (2,011,992)

      (1,383,384)

      (3,557,940)

      (2,732,101)

Net investment income

 $     5,026,044

 $     5,565,372

 $   10,027,061

 $   11,150,418

 

 

 

Net investment income includes income earned by the restricted assets of the cemeteries and mortuaries of $166,009 and $168,989 for six months ended June 30, 2013 and 2012, 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 $9,186,316     at June 30, 2013 and $9,190,012 at December 31, 2012. 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 June 30, 2013, the Company had 29%, 27%, 12% and 10% of its mortgage loans from borrowers located in the states of Utah, California, Texas 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 $4,413,927 and $4,239,861 at June 30, 2013 and December 31, 2012, 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

June 30, 2013

Allowance for credit losses:

Beginning balance - January 1, 2013

 $     -

 $  4,193,674

 $   46,187

 $  4,239,861

 Charge-offs

      -

   (116,808)

      -

   (116,808)

 Provision

   187,129

   (87,811)

   191,556

   290,874

Ending balance -June 30, 2013

 $  187,129

 $  3,989,055

 $  237,743

 $  4,413,927

Ending balance: individually evaluated for impairment

 $     -

 $  638,689

 $  137,629

 $  776,318

Ending balance: collectively evaluated for impairment

 $  187,129

 $  3,350,366

 $  100,114

 $  3,637,609

Ending balance: loans acquired with deteriorated credit quality

 $     -

 $     -

 $     -

 $     -

Mortgage loans:

Ending balance

 $ 35,309,814

 $ 48,095,617

 $  1,546,577

 $ 84,952,008

Ending balance: individually evaluated for impairment

 $     -

 $  3,224,378

 $  226,629

 $  3,451,007

Ending balance: collectively evaluated for impairment

 $ 35,309,814

 $ 44,871,239

 $  1,319,948

 $ 81,501,001

Ending balance: loans acquired with deteriorated credit quality

 $     -

 $     -

 $     -

 $     -

December 31, 2012

Allowance for credit losses:

Beginning balance - January 1, 2012

 $     -

 $  4,338,805

 $  542,368

 $  4,881,173

 Charge-offs

      -

   (560,699)

   (514,442)

  (1,075,141)

 Provision

      -

   415,568

    18,261

   433,829

Ending balance - December 31, 2012

 $     -

 $  4,193,674

 $   46,187

 $  4,239,861

Ending balance: individually evaluated for impairment

 $     -

 $  692,199

 $     -

 $  692,199

Ending balance: collectively evaluated for impairment

 $     -

 $  3,501,475

 $   46,187

 $  3,547,662

Ending balance: loans acquired with deteriorated credit quality

 $     -

 $     -

 $     -

 $     -

Mortgage loans:

Ending balance

 $ 34,956,031

 $ 50,584,923

 $  3,161,112

 $ 88,702,066

Ending balance: individually evaluated for impairment

 $     -

 $  4,692,517

 $  1,346,126

 $  6,038,643

Ending balance: collectively evaluated for impairment

 $ 34,956,031

 $ 45,892,406

 $  1,814,986

 $ 82,663,423

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2013

Commercial

 $          -

 $     327,608

 $   143,252

 $         -

 $      470,860

 $  34,838,954

 $  35,309,814

 $  (187,129)

 $ 35,122,685

Residential

     3,758,237

       255,547

      7,317,706

      3,224,378

     14,555,868

    33,539,749

      48,095,617

     (3,989,055)

      44,106,562

Residential  Construction

              -

              -

        64,895

        226,629

        291,524

      1,255,053

       1,546,577

       (237,743)

       1,308,834

Total

 $ 3,758,237

 $     583,155

 $   7,525,853

 $     3,451,007

 $ 15,318,252

 $  69,633,756

 $   84,952,008

 $ (4,413,927)

 $  80,538,081

December 31, 2012

Commercial

 $     581,984

 $        -

 $  143,252

 $         -

 $      725,236

 $  34,230,795

 $  34,956,031

 $         -

 $  34,956,031

Residential

     2,963,259

     1,345,247

     5,208,742

       4,692,517

     14,209,765

     36,375,158

     50,584,923

     (4,193,674)

      46,391,249

Residential  Construction

              -

              -

       288,468

       1,346,126

       1,634,594

       1,526,518

         3,161,112

        (46,187)

       3,114,925

Total

 $   3,545,243

 $   1,345,247

 $ 5,640,462

 $ 6,038,643

 $ 16,569,595

 $ 72,132,471

 $ 88,702,066

 $(4,239,861)

 $ 84,462,205

(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

June 30, 2013

With no related allowance recorded:

  Commercial  

$ 143,252

$ 143,252

 $   -

$ 143,252

$   -

 Residential

7,317,706

7,317,706

   -

7,317,706

   -

 Residential construction

  64,895

  64,895

   -

  64,895

   -

With an allowance recorded:

  Commercial

$   -

$   -

$   -

$   -

$   -

 Residential

3,224,378

3,224,378

 638,689

3,224,378

   -

 Residential construction

  226,629

  226,629

 137,629

  226,629

   -

Total:

 Commercial

$ 143,252

$ 143,252

$   -

$ 143,252

$   -

 Residential

10,542,084

10,542,084

 638,689

10,542,084

   -

 Residential construction

  291,524

  291,524

 137,629

  291,524

   -

December 31, 2012

With no related allowance recorded:

  Commercial  

$ 143,252

$ 143,252

 $   -

$ 143,252

$   -

 Residential

5,208,742

5,208,742

   -

5,208,742

   -

 Residential construction

1,634,594

1,634,594

   -

1,634,594

   -

With an allowance recorded:

  Commercial  

$   -

$   -

$   -

$   -

$   -

 Residential

4,692,517

4,692,517

 692,199

4,692,517

   -

 Residential construction

   -

   -

   -

   -

   -

Total:

 Commercial

$ 143,252

$ 143,252

$   -

$ 143,252

$   -

 Residential

9,901,259

9,901,259

 692,199

9,901,259

   -

 Residential construction

1,634,594

1,634,594

   -

1,634,594

   -

 

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

 

June  30, 2013

December 31, 2012

June  30, 2013

December 31, 2012

June  30, 2013

December 31, 2012

June  30, 2013

December 31, 2012

Performing

$35,166,562

$34,812,779

$37,553,533

$40,683,664

$1,255,053

$1,526,518

$73,975,148

$77,022,961

Nonperforming

 143,252

 143,252

 10,542,084

 9,901,259

 291,524

 1,634,594

 10,976,860

 11,679,105

Total

$35,309,814

$34,956,031

$48,095,617

$50,584,923

$1,546,577

$3,161,112

$84,952,008

$88,702,066

 

 

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 $1,750,608 and $1,925,000 as of June 30, 2013 and December 31, 2012, respectively.

 

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

 

 

Mortgage Loans on Nonaccrual Status

 As of June 30

 As of December 31

 

2013

2012

Commercial

 $            143,252

 $           143,252

Residential

           10,542,084

           9,901,259

Residential construction

             291,524

           1,634,594

Total

 $         10,976,860

 $         11,679,105

 

 

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 June 30

As of December 31

 

2013

2012

Balance, beginning of period

 $        6,035,295

 $        2,337,875

Provisions for losses

          1,180,908

         4,053,051

Charge-offs

          (555,802)

          (355,631)

Balance, end of period

 $        6,660,401

 $        6,035,295

 

 

The Company believes the loan loss reserve represents probable loan losses incurred as of the balance sheet date. Existing conditions in the mortgage industry make it extremely difficult to determine with absolute certainty that the loan loss reserve is adequate for potential unknown claims that could be 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.