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3) Investments
 9 Months Ended
Sep. 30, 2014
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, 2014 are summarized as follows:

 

Amortized Cost 

Gross Unrealized Gains

 Gross Unrealized Losses  

 Estimated Fair Value  

September 30, 2014:

 

 

 

 

Fixed maturity securities held to maturity carried at amortized cost:

Bonds:

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

 $         1,875,494

 $          319,767

 $                    -

 $         2,195,261

Obligations of states and political subdivisions

            1,735,660

             230,895

              (5,449)

            1,961,106

Corporate securities including public utilities

        127,600,931

        15,174,250

       (257,852)

        142,517,329

Mortgage-backed securities

            3,716,520

             278,741

            (11,060)

            3,984,201

Redeemable preferred stock

               612,023

               20,107

                     -

               632,130

Total fixed maturity securities held to maturity

 $     135,540,628

 $     16,023,760

 $    (274,361)

 $     151,290,027

 

 

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

September 30, 2014:

 

 

 

 

Equity securities available for sale at estimated fair value:

Common stock:

Industrial, miscellaneous and all other

 $         7,139,879

 $      237,186

 $      (651,089)

 $    6,725,976

Total securities available for sale carried at estimated fair value

 $         7,139,879

 $      237,186

 $      (651,089)

 $    6,725,976

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

Residential

$       51,600,930

Residential construction

          29,632,638

Commercial

          43,403,890

Less: Allowance for loan losses

          (1,871,892)

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

$     122,765,566

Real estate held for investment - net of depreciation

$       105,643,820

Policy and other loans at amortized cost:

Policy loans

$         7,294,962

Other loans

          26,504,618

Less: Allowance for doubtful accounts

             (583,498)

Total policy and other loans at amortized cost

$       33,216,082

Short-term investments at amortized cost

$       25,024,278

 

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

 

Fixed Maturity Securities

 

The following tables summarize unrealized losses on fixed maturity securities, which are carried at amortized cost, at September 30, 2014 and December 31, 2013. 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, 2014

 

 

 

 

 

Obligations of states and political subdivisions

 $                    -

0

 $          5,449

1

$            5,449

Corporate securities including public utilities

             35,539

11

         222,312

14

           257,851

Mortgage-backed securities

               3,023

1

             8,038

1

             11,061

Redeemable preferred stock

                       -

0

                     -

0

                       -

Total unrealized losses

 $          38,562

12

 $      235,799

16

$        274,361

Fair Value

$     1,972,915

$   3,685,263

$     5,658,178

At December 31, 2013

Obligations of states and political subdivisions

 $            7,131

1

 $          2,273

1

 $            9,404

Corporate securities including public utilities

        1,134,415

72

         260,504

10

        1,394,919

Mortgage-backed securities

               3,109

1

             8,242

1

             11,351

Redeemable preferred stock

               5,900

1

                     -

0

               5,900

Total unrealized losses

 $     1,150,555

75

 $      271,019

12

 $     1,421,574

Fair Value

$   22,002,277

$   2,308,464

$   24,310,741

 

As of September 30, 2014, the average market value of the related fixed maturities was 95.4% of amortized cost and the average market value was 94.5% of amortized cost as of December 31, 2013. During the three months ended September 30, 2014 and 2013 an other than temporary decline in fair value resulted in the recognition of credit losses on fixed maturity securities of $30,000 and $30,000, respectively, and for the nine months ended September 30, 2014 and 2013 an other than temporary decline in fair value resulted in the recognition of credit losses on fixed maturity securities of $90,000 and $90,000, 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, 2014 and December 31, 2013. 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, 2014

 

 

 

 

 

Industrial, miscellaneous and all other

 $      180,607

157

 $      470,482

26

 $      651,089

Total unrealized losses

 $      180,607

157

 $      470,482

26

 $      651,089

Fair Value

$   2,012,391

$      706,005

$   2,718,396

At December 31, 2013

Industrial, miscellaneous and all other

 $      119,450

28

 $      405,936

28

 $      525,386

Total unrealized losses

 $      119,450

28

 $      405,936

28

 $      525,386

Fair Value

$      993,612

$      772,345

$   1,765,957

 

As of September 30, 2014, the average market value of the equity securities available for sale was 80.7% of the original investment and the average market value was 77.1% of the original investment as of December 31, 2013. 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 three and nine months ended September 30, 2014 and 2013, 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, 2014, 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 2014 

$            499,659

$            502,075

Due in 2015 through 2018

          27,866,510

          30,602,507

Due in 2019 through 2023

          36,361,408

          40,559,482

Due after 2023

          66,484,508

          75,009,632

Mortgage-backed securities

            3,716,520

            3,984,201

Redeemable preferred stock

               612,023

               632,130

Total held to maturity

 $     135,540,628

 $     151,290,027

 

The amortized cost and estimated fair value of available for sale securities at September 30, 2014, 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 2014

 $                   -

 $                       -

Due in 2015 through 2018

                      -

                          -

Due in 2019 through 2023

                      -

                          -

Due after 2023

                      -

                          -

    Non-redeemable preferred stock

                      -

                          -

Common stock

       7,139,879

           6,725,976

Total available for sale

 $    7,139,879

 $        6,725,976

 

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

2014

2013

2014

2013

Fixed maturity securities held to maturity:

Gross realized gains

 $      211,403

 $        60,330

 $      258,951

 $        75,734

Gross realized losses

         (66,459)

         (20,796)

         (68,742)

         (35,964)

Other than temporary impairments

         (30,000)

         (30,000)

         (90,000)

         (90,000)

Securities available for sale:

Gross realized gains

           77,386

           59,041

         214,303

         298,423

Gross realized losses

         (27,651)

                   -

         (38,918)

           (2,678)

Other than temporary impairments

                   -

                   -

                   -

                   -

Other assets:

Gross realized gains

         352,151

           96,152

         720,082

         841,972

Gross realized losses

        (116,920)

                   -

        (116,921)

                   -

Other than temporary impairments

        (353,776)

                   -

        (353,776)

        (115,922)

Total

$        46,134

$      164,727

$      524,979

$      971,565

 

 

The net carrying amount of held to maturity securities sold was $1,599,184 and $1,455,835 for the nine months ended September 30, 2014 and the year ended December 31, 2013, respectively.  The net realized loss related to these sales was $60,169 and $-0- for the three months ended September 30, 2014 and 2013, respectively, and the net realized gain related to these sales was $18,051 and $11,009 for the nine months ended September 30, 2014 and 2013, 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 September 30, 2014, 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

2014

2013

2014

2013

Fixed maturity securities

 $     2,036,407

 $     2,131,804

 $     6,212,852

 $     6,141,648

Equity securities

            73,110

            53,123

          163,109

          157,612

Mortgage loans on real estate

        2,216,711

        1,151,536

        5,605,882

        3,189,020

Real estate

        2,125,374

        2,048,994

        6,416,939

        4,492,517

Policy and other loans

          195,138

          211,387

          574,393

          610,618

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

        3,831,378

        2,263,234

        8,512,479

        6,855,865

Gross investment income

      10,478,118

        7,860,078

      27,485,654

      21,447,280

Investment expenses

      (2,286,156)

      (2,606,031)

      (6,943,905)

      (6,166,172)

Net investment income

 $     8,191,962

 $     5,254,047

 $   20,541,749

 $   15,281,108

 

Net investment income includes income earned by the restricted assets of the cemeteries and mortuaries of $96,730 and $93,801 for the three months ended September 30, 2014 and 2013, respectively, and $268,729 and $259,810 for the nine months ended September 30, 2014 and 2013, 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 $9,285,577 at September 30, 2014 and $9,215,222 at December 31, 2013. 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%, maturity dates range from six 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 September 30, 2014, the Company had 39%, 22%, 13%, 10%, and 4% of its mortgage loans from borrowers located in the states of Utah, California, Texas, Florida, and Nevada, respectively. The mortgage loans on real estate balances on the consolidated balance sheet are reflected net of an allowance for loan losses of $1,871,892 and $1,652,090 at September 30, 2014 and December 31, 2013, 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, 2014

Allowance for credit losses:

Beginning balance - January 1, 2014

 $        187,129

 $     1,364,847

 $        100,114

 $     1,652,090

   Charge-offs

                       -

            (38,444)

                       -

            (38,444)

   Provision

                       -

           258,246

                       -

           258,246

Ending balance -September 30, 2014

 $        187,129

 $     1,584,649

 $        100,114

 $     1,871,892

Ending balance: individually evaluated for impairment

 $                    -

 $        153,446

 $                    -

 $        153,446

Ending balance: collectively evaluated for impairment

 $        187,129

 $     1,431,203

 $        100,114

 $     1,718,446

Ending balance: loans acquired with deteriorated credit quality

 $                    -

 $                    -

 $                    -

 $                    -

Mortgage loans:

Ending balance

 $   43,403,890

 $   51,600,930

 $   29,632,638

 $ 124,637,458

Ending balance: individually evaluated for impairment

 $                    -

 $     1,387,426

 $                    -

 $     1,387,426

Ending balance: collectively evaluated for impairment

 $   43,403,890

 $   50,213,504

 $   29,632,638

 $ 123,250,032

Ending balance: loans acquired with deteriorated credit quality

 $                    -

 $                    -

 $                    -

 $                    -

December 31, 2013

Allowance for credit losses:

Beginning balance - January 1, 2013

 $                    -

 $     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 - December 31, 2013

 $        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

 $                    -

 $                    -

 $                    -

 $                    -

 

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, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 $                       -

 $                       -

 $                        -

 $                          -

 $                          -

 $    43,403,890

 $      43,403,890

 $           (187,129)

 $        43,216,761

Residential

           1,525,136

         2,082,232

          5,433,523

             1,387,426

           10,428,317

           41,172,613

           51,600,930

          (1,584,649)

            50,016,281

Residential   Construction

                           -

                           -

                64,895

                              -

                  64,895

        29,567,743

          29,632,638

                (100,114)

          29,532,524

Total

 $       1,525,136

 $     2,082,232

 $       5,498,418

 $         1,387,426

 $       10,493,212

 $     114,144,246

 $     124,637,458

 $       (1,871,892)

 $    122,765,566

December 31, 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

(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, 2014

With no related allowance recorded:

   Commercial

$                  -

$                   -

 $                  -

$                  -

$                   -

   Residential

                     -

                      -

                     -

                     -

                      -

   Residential construction

                     -

                      -

                     -

                     -

                      -

With an allowance recorded:

   Commercial

$                  -

$                   -

$                  -

$                  -

$                   -

   Residential

       1,387,426

       1,387,426

         153,446

       1,387,426

                      -

   Residential construction

                     -

                      -

                     -

                     -

                      -

Total:

   Commercial

$                  -

$                   -

$                  -

$                  -

$                   -

   Residential

       1,387,426

       1,387,426

         153,446

       1,387,426

                      -

   Residential construction

                     -

                      -

                     -

                     -

                      -

December 31, 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

                     -

                      -

                     -

                     -

                      -

 

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, 2014

December 30, 2013

September 30, 2014

December 30, 2013

September 30, 2014

December 30, 2013

September 30, 2014

December 30, 2013

Performing

 $  43,403,890

 $ 36,679,264

 $   44,779,981

 $  42,482,658

 $ 29,567,743

 $  12,847,578

 $     117,751,614

 $   92,009,500

Nonperforming

                              -

        4,973,745

         6,820,949

         7,385,828

               64,895

               64,895

           6,885,844

        12,424,468

Total

 $  43,403,890

 $  41,653,009

 $   51,600,930

 $  49,868,486

 $ 29,632,638

 $   12,912,473

 $  124,637,458

 $ 104,433,968

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 $522,000 and $678,000 as of September 30, 2014 and December 31, 2013, 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, 2014

As of December 31, 2013

Commercial

 $                                  -

 $                   4,973,745

Residential

                       6,820,949

                      7,385,828

Residential construction

                            64,895

                           64,895

Total

 $                    6,885,844

 $                 12,424,468

 

Loan Loss Reserve

 

The mortgage loan loss reserve is an estimate of probable losses at the balance sheet date that the Company will realize in the future on mortgage loans sold to third party investors.

 

The loan loss reserve analysis involves mortgage loans that have been sold to third party investors where the Company has received a demand from the investor. There are generally three types of demands: make whole, repurchase, or indemnification. These types of demands are more particularly described as follows:

 

Make whole demand – A make whole demand occurs when an investor forecloses on a property and then sells the property. The make whole amount is calculated as the difference between the original unpaid principal balance, accrued interest and fees, less the sale proceeds.

 

Repurchase demand – A repurchase demand usually occurs when there is a significant payment default, error in underwriting or detected loan fraud.

 

Indemnification demand – On certain loans the Company has negotiated a set fee that is to be paid in lieu of repurchase. The fee varies by investor and by loan product type.

 

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 2014

As of December 31 2013

Balance, beginning of period

 $                5,506,532

 $               6,035,295

Provisions for losses

                   2,006,876

                  1,846,285

Charge-offs

                    (700,228)

                (2,375,048)

Balance, end of period

 $                6,813,180

 $               5,506,532

 

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. SecurityNational Mortgage disagrees with the repurchase demands and notices of potential claims from third party investors. Furthermore, SecurityNational Mortgage believes there is potential to resolve the alleged claims by third party investors on acceptable terms. If SecurityNational Mortgage is unable to resolve such claims on acceptable terms, legal action may ensue. In the event of legal action by any third party investor, SecurityNational Mortgage believes it has significant defenses to any such action and intends to vigorously defend itself against such action.