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Note 2: Investments
 12 Months Ended
Dec. 31, 2013
Notes  
Note 2: Investments

2)   Investments

 

The Company’s investments in fixed maturity securities held to maturity and equity securities available for sale as of December 31, 2013 are summarized as follows:

 

 

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Estimated Fair Value

 December 31, 2013:

 

 

 

 

 

 

 

 

Fixed maturity securities held to maturity carried at amortized cost:

 

 

 

 

 

 

 

 

 Bonds:

 

 

 

 

 

 

 

 

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

 

 $         2,284,261

 

 $          298,901

 

 $                      -

 

 $          2,583,162

     

 

 

 

 

 

 

 

 

 Obligations of states and political subdivisions

 

1,790,661

 

197,340

 

(9,404)

 

1,978,597

 

 

 

 

 

 

 

 

 

 Corporate securities including public utilities

 

134,257,468

 

10,513,448

 

(1,394,919)

 

143,375,997

 

 

 

 

 

 

 

 

 

 Mortgage-backed securities

 

4,522,081

 

206,617

 

(11,351)

 

4,717,347

 

 

 

 

 

 

 

 

 

 Redeemable preferred stock

 

612,023

 

               12,994

 

(5,900)

 

619,117

 

 

 

 

 

 

 

 

 

Total fixed maturity securities held to maturity

 

 $     143,466,494

 

 $     11,229,300

 

 $      (1,421,574)

 

 $      153,274,220

 

 

 

 

 

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Estimated Fair Value

 December 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities available for sale at estimated fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Industrial, miscellaneous and all other

 

 $          4,783,936

 

 $   240,206

 

 $     (525,386)

 

 $    4,498,756

 

 

 

 

 

 

 

 

 

 Total securities available for sale carried at estimated fair value

 

 $          4,783,936

 

 $   240,206

 

 $     (525,386)

 

 $    4,498,756

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Residential

 

  $        49,868,486

 

 

 

 

 

 

Residential construction

 

            12,912,473

 

 

 

 

 

 

 Commercial

 

            41,653,009

 

 

 

 

 

 

Less: Allowance for loan losses

 

            (1,652,090)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

  $      102,781,878

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate held for investment - net of depreciation

 

  $        99,760,475

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Policy and other loans at amortized cost:

 

 

 

 

 

 

 

 

 Policy loans

 

  $          7,520,376

 

 

 

 

 

 

 Other loans

 

            12,472,805

 

 

 

 

 

 

 Less: Allowance for doubtful accounts

 

               (269,175)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total policy and other loans at amortized cost

 

  $        19,724,006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments at amortized cost

 

  $        12,135,719

 

 

 

 

 

 

 

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:

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

Cost 

 

Gains

 

  Losses  

 

 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 securities available for sale carried 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

$       64,254,030

Policy and other loans at amortized cost:

Policy loans

$         8,075,101

Other loans

          12,618,445

Less: Allowance for doubtful accounts

             (505,030)

Total policy and other loans at amortized cost

$       20,188,516

Short-term investments at amortized cost

$       40,925,390

 

Fixed Maturity Securities

 

The following tables summarize unrealized losses on fixed maturities securities, which are carried at amortized cost, at December 31, 2013 and 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 December 31, 2013

 

 

 

 

 

 

 

 

 

 

 Redeemable Preferred Stock

 

 $            5,900

 

1

 

 $                    -

 

0

 

 $            5,900

Obligations of States and

 

 

 

 

 

 

 

 

 

 

    Political Subdivisions

 

               7,131

 

1

 

               2,273

 

1

 

               9,404

Corporate Securities

 

        1,134,415

 

72

 

           260,504

 

10

 

        1,394,919

Mortgage and other

 

 

 

 

 

 

 

 

 

 

asset-backed securities

 

               3,109

 

1

 

               8,242

 

1

 

             11,351

Total unrealized losses

 

 $     1,150,555

 

75

 

 $        271,019

 

12

 

 $     1,421,574

Fair Value

 

  $   22,002,277

 

 

 

  $     2,308,464

 

 

 

  $   24,310,741

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2012

 

 

 

 

 

 

 

 

 

 

Redeemable Preferred Stock

 

 $            1,200

 

1

 

 $                    -

 

0

 

 $            1,200

Obligations of States and

 

 

 

 

 

 

 

 

 

 

    Political Subdivisions

 

                       -

 

0

 

               3,982

 

2

 

               3,982

Corporate Securities

 

           191,662

 

16

 

           415,660

 

9

 

           607,322

Mortgage and other

 

 

 

 

 

 

 

 

 

 

asset-backed securities

 

                       -

 

0

 

             76,056

 

3

 

             76,056

Total unrealized losses

 

 $        192,862

 

17

 

 $        495,698

 

14

 

 $        688,560

Fair Value

 

  $     4,609,268

 

 

 

  $     3,972,091

 

 

 

  $     8,581,359

 

 

As of December 31,2013 the average market value of the related fixed maturities was 94.5% of amortized cost and the average market value was 92.6% of amortized cost as of December 31, 2012.  During 2013, 2012 and 2011, an other than temporary decline in market value resulted in the recognition of credit losses on fixed maturity securities of $120,000, $165,000 and $125,129, 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.

 

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, 2013 and 2012. 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, 2013

 

 

 

 

 

 

 

 

 

 

 Non-redeemable preferred stock

 

 $                  -

 

0

 

 $                  -

 

0

 

 $                  -

 Industrial, miscellaneous and all other

 

         119,449

 

28

 

         405,936

 

28

 

         525,386

 Total unrealized losses

 

 $      119,449

 

28

 

 $      405,936

 

28

 

 $      525,386

Fair Value

 

  $      993,612

 

 

 

  $      772,345

 

 

 

  $   1,765,957

 

 

 

 

 

 

 

 

 

 

 

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 December 31, 2013, the average market value of the equity securities available for sale was 77.1% 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 2013, 2012, and 2011, an other than temporary decline in the market value resulted in the recognition of an impairment loss on equity securities of $100,304, $247,317 and $52,775, 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.

 

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, 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

 

Estimated Fair

 

 

   Cost   

 

    Value      

Held to Maturity:

 

 

 

 

 Due in 2014

 

 $ 4,045,462

 

 $ 4,138,092

 Due in 2015 through 2018

 

            28,050,184

 

            31,240,450

 Due in 2019 through 2023

 

            38,927,206

 

            42,074,139

 Due after 2023

 

            67,309,538

 

            70,485,075

 Mortgage-backed securities

 

              4,522,081

 

              4,717,347

 Redeemable preferred stock

 

                 612,023

 

                 619,117

Total held to maturity

 

 $ 143,466,494

 

 $153,274,220

 

The amortized cost and estimated fair value of available for sale securities at December 31, 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

 

 Estimated Fair

 

 

 Cost

 

     Value      

Available for Sale:

 

 

 

 

 Due in 2014

 

 $                          -

 

 $                          -

 Due in 2015 through 2018

 

                             -

 

                             -

 Due in 2019 through 2023

 

                             -

 

                             -

 Due after 2023

 

                             -

 

                             -

 Non-redeemable preferred stock

 

                             -

 

                             -

 Common stock

 

              4,783,936

 

              4,498,756

Total available for sale

 

 $           4,783,936

 

 $           4,498,756

 

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

 

 

 

 

 2013

 

 2012

 

 2011

Fixed maturity securities held

 

 

 

 

 

 

to maturity:

 

 

 

 

 

 

Gross realized gains

 

 $      97,238

 

 $    470,874

 

 $    939,672

Gross realized losses

 

(41,164)

 

         (3,875)

 

      (162,716)

      Other than temporary impairments

 

      (120,000)

 

      (165,000)

 

      (125,129)

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

Gross realized gains

 

       540,990

 

       392,033

 

       590,455

Gross realized losses

 

         (2,678)

 

         (5,705)

 

      (118,417)

      Other than temporary impairments

 

      (100,304)

 

      (247,317)

 

       (52,775)

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

Gross realized gains

 

       824,203

 

       794,346

 

     1,295,217

Gross realized losses

 

            (538)

 

      (223,163)

 

       (79,858)

      Other than temporary impairments

 

      (115,922)

 

      (795,315)

 

      (662,831)

Total

 

 $  1,081,825

 

 $    216,878

 

 $  1,623,618

 

 

 The net carrying amount for sales of securities classified as held to maturity was $1,455,835, $2,174,300 and $12,341,156, for the years ended December 31, 2013, 2012 and 2011, respectively.  The net realized gain related to these sales was $12,533, $271,364 and $530,637, for the years ended December 31, 2013, 2012 and 2011, respectively. Certain circumstances lead to these decisions to sell.  

 

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 December 31, 2013, other than investments issued or guaranteed by the United States Government.

 

Major categories of net investment income are as follows:

 

 

 

 2013

 

 2012

 

 2011

 Fixed maturity securities

 $  8,265,949

 

 $  7,731,051

 

 $  7,762,894

 Equity securities

        210,491

 

        264,063

 

        272,011

 Mortgage loans on real estate

     4,666,910

 

     5,543,777

 

     5,422,399

 Real estate

     6,658,185

 

     4,927,128

 

     3,741,263

 Policy, student and other loans

        799,703

 

        830,683

 

        835,312

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

     8,952,584

 

     8,716,257

 

     6,255,581

Gross investment income

   29,553,822

 

   28,012,959

 

   24,289,460

 Investment expenses

    (9,199,820)

 

    (6,097,382)

 

    (5,719,383)

 Net investment income

 $ 20,354,002

 

 $ 21,915,577

 

 $ 18,570,077

 

 

  Net investment income includes net investment income earned by the restricted assets of the cemeteries and mortuaries of $341,430, $352,488 and $328,247 for 2013, 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 $9,215,222 at December 31, 2013 and $9,190,012 at December 31, 2012. 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, 2013, the Company has 36%, 22%, 9% and 9% of its mortgage loans from borrowers located in the states of Utah, California, Florida and Texas, respectively. The mortgage loans on real estate balances on the consolidated balance sheet are reflected net of an allowance for loan losses of $1,652,090 and $4,239,861 at December 31, 2013 and 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

For the Years Ended December 31, 2013, and 2012

 

 

 

 

 

 

 

 

 

  Commercial

 

  Residential

 

  Residential Construction

 

  Total

2013

 

 

 

 

 

 

 

Allowance for credit losses:

 

 

 

 

 

 

 

 Beginning balance

 $                  -

 

 $   4,193,674

 

 $        46,187

 

 $     4,239,861

   Charge-offs

                     -

 

    (2,670,794)

 

       (137,629)

 

       (2,808,423)

   Provision

         187,129

 

       (158,033)

 

         191,556

 

           220,652

 Ending balance

 $      187,129

 

 $   1,364,847

 

 $      100,114

 

 $     1,652,090

 

 

 

 

 

 

 

 

 Ending balance: individually evaluated for impairment

 $                  -

 

 $      152,745

 

 $                  -

 

 $        152,745

 

 

 

 

 

 

 

 

 Ending balance: collectively evaluated for impairment

 $      187,129

 

 $   1,212,102

 

 $      100,114

 

 $     1,499,345

 

 

 

 

 

 

 

 

 Ending balance: loans acquired with deteriorated credit quality

 $                  -

 

 $                  -

 

 $                  -

 

 $                    -

 

 

 

 

 

 

 

 

Mortgage loans:

 

 

 

 

 

 

 

 Ending balance

 $ 41,653,009

 

 $ 49,868,486

 

 $ 12,912,473

 

 $ 104,433,968

 

 

 

 

 

 

 

 

 Ending balance: individually evaluated for impairment

 $                  -

 

 $   1,518,327

 

 $                  -

 

 $     1,518,327

 

 

 

 

 

 

 

 

 Ending balance: collectively evaluated for impairment

 $ 41,653,009

 

 $ 48,350,159

 

 $ 12,912,473

 

 $ 102,915,641

 

 

 

 

 

 

 

 

 Ending balance: loans acquired with deteriorated credit quality

 $                  -

 

 $                  -

 

 $                  -

 

 $                    -

 

 

 

 

 

 

 

 

2012

 

 

 

 

 

 

 

Allowance for credit losses:

 

 

 

 

 

 

 

 Beginning balance

 $                  -

 

 $   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

 $                  -

 

 $   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

 Years Ended December 31, 2013 and 2012

 

 

 

 

 

 

 

 

 

 

 

 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

2013

 

 

 

 

 

 

 

 

 

 Commercial

 $                        -

 $                       -

 $                       -

 $       4,973,745

 $       4,973,745

 $     36,679,264

 $           41,653,009

 $           (187,129)

 $        41,465,880

 Residential

           1,646,953

          1,604,847

          5,867,501

             1,518,327

         10,637,628

         39,230,858

              49,868,486

          (1,364,847)

           48,503,639

 Residential   Construction

                            -

                           -

               64,895

                             -

                 64,895

          12,847,578

                12,912,473

                (100,114)

             12,812,359

 

 

 

 

 

 

 

 

 

 

Total

 $       1,646,953

 $      1,604,847

 $     5,932,396

 $       6,492,072

 $     15,676,268

 $     88,757,700

 $        104,433,968

 $      (1,652,090)

 $       102,781,878

 

 

 

 

 

 

 

 

 

 

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)  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, 2013, and 2012

 

 

 

 

 

 

 

 

 

 

 

Recorded Investment

 

Unpaid Principal Balance

 

Related Allowance

 

 Average Recorded Investment

 

Interest Income Recognized

2013

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

    Commercial

  $                -

 

  $                  -

 

  $                -

 

  $                      -

 

  $                -

    Residential

                    -

 

                      -

 

                    -

 

                          -

 

                    -

    Residential construction

                    -

 

                      -

 

                    -

 

                          -

 

                    -

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

    Commercial

  $                -

 

  $                  -

 

  $                -

 

  $                      -

 

  $                -

    Residential

     1,518,327

 

       1,518,327

 

        152,745

 

           1,518,327

 

                    -

    Residential construction

                    -

 

                      -

 

                    -

 

                          -

 

                    -

 

 

 

 

 

 

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

    Commercial

  $                -

 

  $                  -

 

  $                -

 

  $                      -

 

  $                -

    Residential

     1,518,327

 

       1,518,327

 

        152,745

 

           1,518,327

 

                    -

    Residential construction

                    -

 

                      -

 

                    -

 

                          -

 

                    -

 

 

 

 

 

 

 

 

 

 

2012

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

    Commercial

  $                -

 

  $                  -

 

  $                -

 

  $                      -

 

  $                -

    Residential

                    -

 

                      -

 

                    -

 

                          -

 

                    -

    Residential construction

     1,346,126

 

       1,346,126

 

                    -

 

           1,346,126

 

                    -

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

    Commercial

  $                -

 

  $                  -

 

  $                -

 

  $                      -

 

  $                -

    Residential

     4,692,517

 

       4,692,517

 

        692,199

 

           4,692,517

 

                    -

    Residential construction

                    -

 

                      -

 

                    -

 

                          -

 

                    -

 

 

 

 

 

 

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

    Commercial

  $                -

 

  $                  -

 

  $                -

 

  $                      -

 

  $                -

    Residential

     4,692,517

 

       4,692,517

 

        692,199

 

           4,692,517

 

                    -

    Residential construction

     1,346,126

 

       1,346,126

 

                    -

 

           1,346,126

 

                    -

 

 

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, 2013, and 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Commercial

 

 Residential

 

 Residential Construction

 

 Total

 

 2013

 

 2012

 

 2013

 

 2012

 

 2013

 

 2012

 

 2013

 

 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Performing

 $ 36,679,264

 

 $   34,812,779

 

 $     42,482,658

 

 $ 40,683,664

 

 $    12,847,578

 

 $       1,526,518

 

 $        92,009,500

 

 $    77,022,961

 Non-performing

        4,973,745

 

             143,252

 

            7,385,828

 

         9,901,259

 

                64,895

 

          1,634,594

 

             12,424,468

 

          11,679,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 $  41,653,009

 

 $   34,956,031

 

 $     49,868,486

 

 $ 50,584,923

 

 $     12,912,473

 

 $         3,161,112

 

 $       104,433,968

 

 $   88,702,066

 

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 $678,000 and $1,925,000 as of December 31, 2013 and 2012, respectively.

 

The following is a summary of mortgage loans on a non-accrual status for the periods presented.

 

 

Mortgage Loans on Non-accrual Status

 

As of December 31, 2013, and 2012

 

 

 

 

 

 2013

 

 2012

 Commercial

 $ 4,973,745

 

 $ 143,252

 Residential

              7,385,828

 

               9,901,259

 Residential construction

                   64,895

 

               1,634,594

Total

 $ 12,424,468

 

 $ 11,679,105

 

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, 2013 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

 

2014

 

 2015-2018

 

 Thereafter

Residential 

 $      49,868,486

 

 $    1,137,636

 

 $ 13,466,462

 

 $ 35,264,388

Residential Construction

         12,912,473

 

     12,445,469

 

     467,004

 

                  -

Commercial

         41,653,009

 

     18,046,708

 

    14,103,421

 

      9,502,880

Total

 $    104,433,968

 

 $  31,629,813

 

 $ 28,036,887

 

 $ 44,767,268

 

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

 

 

 2013

 

 2012

 Balance, beginning of period

 

 $          6,035,295

 

 $          2,337,875

 Provisions for losses

 

             1,846,285

 

             4,053,051

 Charge-offs

 

           (2,375,048)

 

              (355,631)

 Balance, at December 31

 

 $          5,506,532

 

 $          6,035,295

 

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.