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3) Investments | 9 Months Ended
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Sep. 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 September 30, 2013 are summarized as follows:
|  | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
September 30, 2013: |  |  |  |  |  |  |  |
Fixed maturity securities held to maturity carried at amortized cost: |  |  |  |  |  |  |  |
Bonds: |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. Government agencies |  | $ 2,287,767 |  | $ 357,964 |  | $ - |  | $ 2,645,731
Obligations of states and political subdivisions |  | 1,789,947 |  | 193,721 |  | (9,275) |  | 1,974,393
Corporate securities including public utilities |  | 134,811,745 |  | 12,177,008 |  | (1,380,808) |  | 145,607,945
Mortgage-backed securities |  | 5,132,905 |  | 240,671 |  | (8,847) |  | 5,364,729
Redeemable preferred stock |  | 687,118 |  | 30,300 |  | (8,800) |  | 708,618
Total fixed maturity securities held to maturity |  | $ 144,709,482 |  | $ 12,999,664 |  | $ (1,407,730) |  | $ 156,301,416
|  | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
September 30, 2013: |  |  |  |  |  |  |  |
Equity securities available for sale at estimated fair value: |  |  |  |  |  |  |  |
Common stock: |  |  |  |  |  |  |  |
Industrial, miscellaneous and all other |  | $ 5,583,487 |  | $ 365,385 |  | $ (819,232) |  | $ 5,129,640
Total equity securities available for sale at estimated fair value |  | $ 5,583,487 |  | $ 365,385 |  | $ (819,232) |  | $ 5,129,640
Mortgage loans on real estate and construction loans held for investment at amortized cost: |  |  |  |  |  |  |  |
Residential |  | $ 47,668,697 |  |  |  |  |  |
Residential construction |  | 9,885,587 |  |  |  |  |  |
Commercial |  | 37,567,592 |  |  |  |  |  |
Less: Allowance for loan losses |  | (4,150,360) |  |  |  |  |  |
Total mortgage loans on real estate and construction loans held for investment |  | $ 90,971,516 |  |  |  |  |  |
Real estate held for investment - net of depreciation |  | $ 40,610,932 |  |  |  |  |  |
Other real estate owned held for investment - net of depreciation |  | 58,985,129 |  |  |  |  |  |
Other real estate owned held for sale |  | - |  |  |  |  |  |
Total real estate |  | $ 99,596,061 |  |  |  |  |  |
Policy and other loans at amortized cost - net of allowance for doubtful accounts |  | $ 19,548,139 |  |  |  |  |  |
Short-term investments at amortized cost |  | $ 18,457,264 |  |  |  |  |  |
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 September 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 September 30, 2013 |  |  |  |  |  |  |  |  |  |
Obligations of states and political subdivisions |  | $ 6,963 |  | 1 |  | $ 2,312 |  | 1 |  | $ 9,275
U.S. Treasury Securities And Obilgations of U.S. Government Agencies |  | $ - |  | 0 |  | $ - |  | 0 |  | -
Corporate securities including public utilities |  | 1,154,057 |  | 74 |  | 226,751 |  | 7 |  | 1,380,808
Mortgage-backed securities |  | - |  | 0 |  | 8,847 |  | 1 |  | 8,847
Redeemable preferred stock |  | 8,800 |  | 1 |  | - |  | 0 |  | 8,800
Total unrealized losses |  | $ 1,169,820 |  | 76 |  | $ 237,910 |  | 9 |  | $ 1,407,730
Fair Value |  | $ 24,899,980 |  |  |  | $ 2,468,225 |  |  |  | $ 27,368,205
At December 31, 2012 |  |  |  |  |  |  |  |  |  |
Obligations of states and political subdivisions |  | $ - |  | 0 |  | $ 3,982 |  | 2 |  | $ 3,982
Corporate securities including public utilities |  | 191,662 |  | 16 |  | 415,660 |  | 9 |  | 607,322
Mortgage-backed securities |  | - |  | 0 |  | 76,056 |  | 3 |  | 76,056
Redeemable preferred stock |  | 1,200 |  | 1 |  | - |  | 0 |  | 1,200
Total unrealized losses |  | $ 192,862 |  | 17 |  | $ 495,698 |  | 14 |  | $ 688,560
Fair Value |  | $ 4,609,268 |  |  |  | $ 3,972,091 |  |  |  | $ 8,581,359
As of September 30, 2013, the average market value of the related fixed maturities was 95.1% of amortized cost and the average market value was 92.6% of amortized cost as of December 31, 2012. During the nine months ended September 30, 2013 and 2012 an other than temporary decline in fair value resulted in the recognition of credit losses on fixed maturity securities of $90,000 and $135,000, respectively. On a quarterly basis, the Company reviews its fixed maturity 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 September 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 September 30, 2013 |  |  |  |  |  |  |  |  |  |
Industrial, miscellaneous and all other |  | $ 142,874 |  | 36 |  | $ 676,358 |  | 39 |  | $ 819,232
Total unrealized losses |  | $ 142,874 |  | 36 |  | $ 676,358 |  | 39 |  | $ 819,232
Fair Value |  | $ 1,394,029 |  |  |  | $ 1,312,798 |  |  |  | $ 2,706,827
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 September 30, 2013, the average market value of the equity securities available for sale was 76.8% 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 nine months ended September 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 September 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 |  | $ 500,000 |  | $ 531,645
Due in 2014 through 2017 |  | 20,761,134 |  | 22,545,722
Due in 2018 through 2022 |  | 45,332,609 |  | 50,475,862
Due after 2022 |  | 72,295,716 |  | 76,674,840
Mortgage-backed securities |  | 5,132,905 |  | 5,364,729
Redeemable preferred stock |  | 687,118 |  | 708,618
Total held to maturity |  | $ 144,709,482 |  | $ 156,301,416
The amortized cost and estimated fair value of available for sale securities at September 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 |  | 5,583,487 |  | 5,129,640
Total available for sale |  | $ 5,583,487 |  | $ 5,129,640
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
|  | 2013 |  | 2012 |  | 2013 |  | 2012
Fixed maturity securities held to maturity: |  |  |  |  |  |  |  |
Gross realized gains |  | $ 60,330 |  | $ 266,801 |  | $ 75,734 |  | $ 404,056
Gross realized losses |  | (20,796) |  | (1,292) |  | (35,964) |  | (1,626)
Other than temporary impairments |  | (30,000) |  | (45,000) |  | (90,000) |  | (135,000)
Securities available for sale: |  |  |  |  |  |  |  |
Gross realized gains |  | 59,041 |  | 139,352 |  | 298,423 |  | 291,932
Gross realized losses |  | - |  | - |  | (2,678) |  | (5,705)
Other than temporary impairments |  | - |  | - |  | - |  | -
Other assets: |  |  |  |  |  |  |  |
Gross realized gains |  | 96,152 |  | 27,244 |  | 841,972 |  | 114,113
Gross realized losses |  | - |  | (209,484) |  | - |  | (222,163)
Other than temporary impairments |  | - |  | (395,315) |  | (115,922) |  | (395,315)
Total |  | $ 164,727 |  | $ (217,694) |  | $ 971,565 |  | $ 50,292
The net carrying amount of held to maturity securities sold was $949,859 and $2,174,300 for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively. The net realized gain related to these sales was $11,009 and $271,364 for the nine months ended September 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 September 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 September 30 |  | Nine Months Ended September 30
| 2013 |  | 2012 |  | 2013 |  | 2012
Fixed maturity securities | $ 2,131,804 |  | $ 1,949,665 |  | $ 6,141,648 |  | $ 5,803,282
Equity securities | 53,123 |  | 65,839 |  | 157,612 |  | 197,563
Mortgage loans on real estate | 1,151,536 |  | 1,404,396 |  | 3,189,020 |  | 4,492,457
Real estate | 2,048,994 |  | 1,282,918 |  | 4,492,517 |  | 3,627,574
Policy and other loans | 211,387 |  | 192,197 |  | 610,618 |  | 610,472
Short-term investments, principally gains on sale of mortgage loans and other | 2,263,234 |  | 2,193,680 |  | 6,855,865 |  | 6,240,791
Gross investment income | 7,860,078 |  | 7,088,695 |  | 21,447,280 |  | 20,972,139
Investment expenses | (2,606,031) |  | (1,517,744) |  | (6,166,172) |  | (4,250,770)
Net investment income | $ 5,254,047 |  | $ 5,570,951 |  | $ 15,281,108 |  | $ 16,721,369
Net investment income includes income earned by the restricted assets of the cemeteries and mortuaries of $93,801 and $78,855 for the three months ended September 30, 2013 and 2012 respectively, and $259,810 and $247,844 for nine months ended September 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 $8,884,387 at September 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 September 30, 2013, the Company had 36%, 24%, 10%, 7% and 5% of its mortgage loans from borrowers located in the states of Utah, California, Texas, Oklahoma 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 $4,150,360 and $4,239,861 at September 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
September 30, 2013 |  |  |  |  |  |  |
Allowance for credit losses: |  |  |  |  |  |  |
Beginning balance - January 1, 2013 | $ - |  | $ 4,193,674 |  | $ 46,187 |  | $ 4,239,861
Charge-offs | - |  | (380,375) |  | - |  | (380,375)
Provision | 187,129 |  | (87,811) |  | 191,556 |  | 290,874
Ending balance -September 30, 2013 | $ 187,129 |  | $ 3,725,488 |  | $ 237,743 |  | $ 4,150,360
Ending balance: individually evaluated for impairment | $ - |  | $ 301,870 |  | $ 137,629 |  | $ 439,499
Ending balance: collectively evaluated for impairment | $ 187,129 |  | $ 3,423,618 |  | $ 100,114 |  | $ 3,710,861
Ending balance: loans acquired with deteriorated credit quality | $ - |  | $ - |  | $ - |  | $ -
Mortgage loans: |  |  |  |  |  |  |
Ending balance | $ 37,567,592 |  | $ 47,668,697 |  | $ 9,885,587 |  | $ 95,121,876
Ending balance: individually evaluated for impairment | $ - |  | $ 2,008,714 |  | $ 226,629 |  | $ 2,235,343
Ending balance: collectively evaluated for impairment | $ 37,567,592 |  | $ 45,659,983 |  | $ 9,658,958 |  | $ 92,886,533
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
September 30, 2013 |  |  |  |  |  |  |  |
Commercial | $ - | $ - | $ - | $ - | $ - | $ 37,567,592 | $ 37,567,592 | $ (187,129) | $ 37,380,463
Residential | 1,938,382 | 968,459 | 8,117,303 | 2,008,714 | 13,032,858 | 34,635,839 | 47,668,697 | (3,725,488) | 43,943,209
Residential Construction | - | - | 64,895 | 226,629 | 291,524 | 9,594,063 | 9,885,587 | (237,743) | 9,647,844
Total | $ 1,938,382 | $ 968,459 | $ 8,182,198 | $ 2,235,343 | $ 13,324,382 | $ 81,797,494 | $ 95,121,876 | $ (4,150,360) | $ 90,971,516
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
September 30, 2013 |  |  |  |  |  |  |  |  |
With no related allowance recorded: |  |  |  |  |  |  |  |  |
Commercial | $ - |  | $ - |  | $ - |  | $ - |  | $ -
Residential | 8,117,303 |  | 8,117,303 |  | - |  | 8,117,303 |  | -
Residential construction | 64,895 |  | 64,895 |  | - |  | 64,895 |  | -
With an allowance recorded: |  |  |  |  |  |  |  |  |
Commercial | $ - |  | $ - |  | $ - |  | $ - |  | $ -
Residential | 2,008,714 |  | 2,008,714 |  | 301,870 |  | 2,008,714 |  | -
Residential construction | 226,629 |  | 226,629 |  | 137,629 |  | 226,629 |  | -
Total: |  |  |  |  |  |  |  |  |
Commercial | $ - |  | $ - |  | $ - |  | $ - |  | $ -
Residential | 10,126,017 |  | 10,126,017 |  | 301,870 |  | 10,126,017 |  | -
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
| September 30, 2013 |  | December 31, 2012 |  | September 30, 2013 |  | December 31, 2012 |  | September 30, 2013 |  | December 31, 2012 |  | September 30, 2013 |  | December 31, 2012
Performing | $37,567,592 |  | $34,812,779 |  | $37,542,681 |  | $40,683,664 |  | $9,594,063 |  | $1,526,518 |  | $84,704,336 |  | $77,022,961
Nonperforming | - |  | 143,252 |  | 10,126,016 |  | 9,901,259 |  | 291,524 |  | 1,634,594 |  | 10,417,540 |  | 11,679,105
Total | $37,567,592 |  | $34,956,031 |  | $47,668,697 |  | $50,584,923 |  | $9,885,587 |  | $3,161,112 |  | $95,121,876 |  | $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 $1,688,713 and $1,925,000 as of September 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 September 30 |  | As of December 31
| 2013 |  | 2012
Commercial | $ - |  | $ 143,252
Residential | 10,126,016 |  | 9,901,259
Residential construction | 291,524 |  | 1,634,594
Total | $ 10,417,540 |  | $ 11,679,105
Loan Loss Reserve When a repurchase demand is received from a third party investor, the data is reviewed and captured. The key factors that are captured 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 also captured and is useful for management purposes. 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
| 2013 |  | 2012
Balance, beginning of period | $ 6,035,295 |  | $ 2,337,875
Provisions for losses | 1,614,769 |  | 4,053,051
Charge-offs | (418,382) |  | (355,631)
Balance, end of period | $ 7,231,682 |  | $ 6,035,295
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. The Company believes the loan loss reserve represents a sufficient amount to resolve investor claims as of the balance sheet date.

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