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3) Investments

6 Months Ended

Jun. 30, 2015

Notes

3) Investments

3) Investments

The Company’s investments in fixed maturity securities held to maturity and equity securities available for sale as of June 30, 2015 are summarized as follows:

		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
June 30, 2015
Fixed maturity securities held to maturity carried at amortized cost:
Bonds:
U.S. Treasury securities and obligations of U.S. Government agencies		$ 1,862,291		$ 305,024		$ (3,620)		$ 2,163,695
Obligations of states and political subdivisions		1,858,861		201,771		(3,726)		2,056,906
Corporate securities including public utilities		124,811,868		12,115,612		(1,207,359)		135,720,121
Mortgage-backed securities		3,255,965		232,136		(1,147)		3,486,954
Redeemable preferred stock		612,023		23,838		-		635,861
Total fixed maturity securities held to maturity		$ 132,401,008		$ 12,878,381		$ (1,215,852)		$ 144,063,537

		Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
June 30, 2015

Equity securities available for sale at estimated fair value:

Common stock:

Industrial, miscellaneous and all other		$ 7,972,306		$ 150,184		$ (1,097,080)		$ 7,025,410

Total equity securities available for sale at estimated fair value		$ 7,972,306		$ 150,184		$ (1,097,080)		$ 7,025,410

Mortgage loans on real estate and construction loans held for investment at amortized cost:
Residential		$ 49,704,426
Residential construction		28,342,809
Commercial		34,576,436
Less: Allowance for loan losses		(1,875,775)
Total mortgage loans on real estate and construction loans held for investment		$ 110,747,896

Real estate held for investment - net of depreciation		$ 114,724,603

Policy and other loans at amortized cost:
Policy loans		$ 7,095,642
Other loans		29,268,405
Less: Allowance for doubtful accounts		(876,318)

Total policy and other loans at amortized cost		$ 35,487,729

Short-term investments at amortized cost		$ 21,326,531

The Company’s investments in fixed maturity securities held to maturity and equity securities available for sale as of December 31, 2014 are summarized as follows:

		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
December 31, 2014:
Fixed maturity securities held to maturity carried at amortized cost:
Bonds:
U.S. Treasury securities and obligations of U.S. Government agencies		$ 1,873,146		$ 345,715		$ -		$ 2,218,861
Obligations of states and political subdivisions		1,736,489		221,893		(5,278)		1,953,104
Corporate securities including public utilities		126,533,483		15,841,536		(980,357)		141,394,662
Mortgage-backed securities		4,263,206		305,381		(11,894)		4,556,693
Redeemable preferred stock		612,023		22,032		-		634,055
Total fixed maturity securities held to maturity		$ 135,018,347		$ 16,736,557		$ (997,529)		$ 150,757,375

		Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
December 31, 2014:

Equity securities available for sale at estimated fair value:

Common stock:

Industrial, miscellaneous and all other		$ 7,179,010		$ 393,873		$ (820,133)		$ 6,752,750

Total securities available for sale carried at estimated fair value		$ 7,179,010		$ 393,873		$ (820,133)		$ 6,752,750

Mortgage loans on real estate and construction loans held for investment at amortized cost:
Residential		$ 53,592,433
Residential construction		33,071,938
Commercial		35,388,756
Less: Allowance for loan losses		(2,003,055)

Total mortgage loans on real estate and construction loans held for investment		$ 120,050,072

Real estate held for investment - net of depreciation		$ 111,411,351

Policy and other loans at amortized cost:
Policy loans		$ 7,011,012
Other loans		27,807,829
Less: Allowance for doubtful accounts		(693,413)

Total policy and other loans at amortized cost		$ 34,125,428

Short-term investments at amortized cost		$ 27,059,495

Fixed Maturity Securities

The following tables summarize unrealized losses on fixed maturity securities, which are carried at amortized cost, at June 30, 2015 and December 31, 2014. The unrealized losses were primarily related to interest rate fluctuations. The tables set forth unrealized losses by duration and number of investment positions, together with the fair value of the related fixed maturity securities:

		Unrealized Losses for Less than Twelve Months		No. of Investment Positions		Unrealized Losses for More than Twelve Months		No. of Investment Positions		Total Unrealized Loss
At June 30, 2015
U.S. treasury securities and obligations of U.S. government agencies		$ 3,620		1		$ -		0		$ 3,620
Obligations of states and political subdivisions		-				3,726		1		3,726
Corporate securities including public utilities		947,259		63		252,472		8		1,199,731
Mortgage-backed securities		1,147		1		7,628		2		8,775
Total unrealized losses		$ 952,026		65		$ 263,826		11		$ 1,215,852
Fair Value		$ 18,942,023				$ 2,519,794				$ 21,461,817

At December 31, 2014
Obligations of states and political subdivisions		$ -		0		$ 5,278		1		$ 5,278
Corporate securities including public utilities		548,310		21		432,047		11		980,357
Mortgage-backed securities		3,966		1		7,928		1		11,894
Total unrealized losses		$ 552,276		22		$ 445,253		13		$ 997,529
Fair Value		$ 7,081,352				$ 2,777,587				$ 9,858,939

As of June 30, 2015, the average market value of the related fixed maturities was 94.6% of amortized cost and the average market value was 90.8% of amortized cost as of December 31, 2014. During the three months ended June 30, 2015 and 2014 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 six months ended June 30, 2015 and 2014 an other than temporary decline in fair value resulted in the recognition of credit losses on fixed maturity securities of $60,000 and $60,000, 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 June 30, 2015 and December 31, 2014. The unrealized losses were primarily the result of decreases in fair value due to overall equity market declines. The tables set forth unrealized losses by duration and number of investment positions, together with the fair value of the related equity securities available-for-sale in a loss position:

		Unrealized Losses for Less than Twelve Months		No. of Investment Positions		Unrealized Losses for More than Twelve Months		No. of Investment Positions		Total Unrealized Losses
At June 30, 2015
Industrial, miscellaneous and all other		$ 501,595		208		$ 595,485		36		$ 1,097,080
Total unrealized losses		$ 501,595		208		$ 595,485		36		$ 1,097,080
Fair Value		$ 3,789,136				$ 687,502				$ 4,476,638

At December 31, 2014
Industrial, miscellaneous and all other		$ 327,389		138		$ 492,744		27		$ 820,133
Total unrealized losses		$ 327,389		138		$ 492,744		27		$ 820,133
Fair Value		$ 2,162,425				$ 676,706				$ 2,839,131

As of June 30, 2015, the average market value of the equity securities available for sale was 80.3% of the original investment and the average market value was 77.6% of the original investment as of December 31, 2014. 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 months ended June 30, 2015 and 2014, an other than temporary decline in the fair value resulted in the recognition of an impairment loss on equity securities of $25,311 and $-0-, respectively, and for the six months ended June 30, 2015 and 2014, an other than temporary decline in the fair value resulted in the recognition of an impairment loss on equity securities of $51,207 and $-0-, 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 June 30, 2015, 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 2015		$ 1,498,127		$ 1,519,903
Due in 2016 through 2019		31,328,324		34,364,866
Due in 2020 through 2024		28,140,265		30,502,468
Due after 2024		67,566,304		73,553,485
Mortgage-backed securities		3,255,965		3,486,954
Redeemable preferred stock		612,023		635,861
Total held to maturity		$ 132,401,008		$ 144,063,537

The amortized cost and estimated fair value of available for sale securities at June 30, 2015, 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.

		Cost		Estimated Fair Value
Available for Sale:
Common stock		$ 7,972,306		$ 7,025,410
Total available for sale		$ 7,972,306		$ 7,025,410

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

		Three Months Ended June 30				Six Months Ended June 30
		2015		2014		2015		2014
Fixed maturity securities held to maturity:
Gross realized gains		$ 273,061		$ 47,548		$ 359,057		$ 47,548
Gross realized losses		(49,594)		(2,284)		(59,370)		(2,284)
Other than temporary impairments		(30,000)		(30,000)		(60,000)		(60,000)

Securities available for sale:
Gross realized gains		42,289		72,397		130,009		125,650
Gross realized losses		-		-		(1,016)		-
Other than temporary impairments		(25,311)		-		(51,207)		-

Other assets:
Gross realized gains		267,097		222,191		524,237		367,931
Gross realized losses		(32,077)		-		(32,077)		-
Other than temporary impairments		-		-		-		-
Total		$ 445,465		$ 309,852		$ 809,633		$ 478,845

The net carrying amount of held to maturity securities sold was $2,543,312 and $872,882 for the six months ended June 30, 2015 and 2014, respectively. The net realized gain related to these sales was $330,373 and $42,118 for the six months ended June 30, 2015 and 2014, respectively.

There were no investments, aggregated by issuer, in excess of 10% of shareholders’ equity (before net unrealized gains and losses on available for sale securities) at June 30, 2015, other than investments issued or guaranteed by the United States Government.

Major categories of net investment income are as follows:

	Three Months Ended June 30				Six Months Ended June 30
	2015		2014		2015		2014
Fixed maturity securities	$ 2,144,989		$ 2,067,324		$ 4,125,684		$ 4,176,445
Equity securities	55,298		50,752		114,716		89,999
Mortgage loans on real estate	1,790,538		1,837,060		3,641,164		3,389,171
Real estate	2,233,781		2,126,566		4,354,352		4,291,565
Policy and other loans	188,639		181,687		377,185		379,255
Short-term investments, principally gains on sale of mortgage loans and other	4,738,607		2,781,988		8,964,392		4,681,101
Gross investment income	11,151,852		9,045,377		21,577,493		17,007,536
Investment expenses	(2,561,179)		(2,338,090)		(5,163,976)		(4,657,749)
Net investment income	$ 8,590,673		$ 6,707,287		$ 16,413,517		$ 12,349,787

Net investment income includes income earned by the restricted assets of the cemeteries and mortuaries of $93,564 and $77,254 for the three months ended June 30, 2015 and 2014, respectively, and $186,486 and $171,999 for the six months ended June 30, 2015 and 2014, respectively.

Net investment income on real estate consists primarily of rental revenue.

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 $9,070,319 at June 30, 2015 and $8,886,001 at December 31, 2014. 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 June 30, 2015, the Company had 40%, 15%, 15%, 9%, and 7% 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 $1,875,775 and $2,003,055 at June 30, 2015 and December 31, 2014, respectively.

The following is a summary of the allowance for loan losses as a contra-asset account for the periods presented:

Allowance for Credit Losses and Recorded Investment in Mortgage Loans

	Commercial		Residential		Residential Construction		Total
June 30, 2015
Allowance for credit losses:
Beginning balance - January 1, 2015	$ 187,129		$ 1,715,812		$ 100,114		$ 2,003,055
Charge-offs	-		-		-		-
Provision	-		(127,280)		-		(127,280)
Ending balance -June 30, 2015	$ 187,129		$ 1,588,532		$ 100,114		$ 1,875,775

Ending balance: individually evaluated for impairment	$ -		$ 217,192		$ -		$ 217,192

Ending balance: collectively evaluated for impairment	$ 187,129		$ 1,371,340		$ 100,114		$ 1,658,583

Ending balance: loans acquired with deteriorated credit quality	$ -		$ -		$ -		$ -

Mortgage loans:
Ending balance	$ 34,576,436		$ 49,704,426		$ 28,342,809		$ 112,623,671

Ending balance: individually evaluated for impairment	$ -		$ 2,320,452		$ -		$ 2,320,452

Ending balance: collectively evaluated for impairment	$ 34,576,436		$ 47,383,974		$ 28,342,809		$ 110,303,219

Ending balance: loans acquired with deteriorated credit quality	$ -		$ -		$ -		$ -

December 31, 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	-		389,409		-		389,409
Ending balance - December 31, 2014	$ 187,129		$ 1,715,812		$ 100,114		$ 2,003,055

Ending balance: individually evaluated for impairment	$ -		$ 153,446		$ -		$ 153,446

Ending balance: collectively evaluated for impairment	$ 187,129		$ 1,562,366		$ 100,114		$ 1,849,609

Ending balance: loans acquired with deteriorated credit quality	$ -		$ -		$ -		$ -

Mortgage loans:
Ending balance	$ 35,388,756		$ 53,592,433		$ 33,071,938		$ 122,053,127

Ending balance: individually evaluated for impairment	$ -		$ 1,556,182		$ 414,499		$ 1,970,681

Ending balance: collectively evaluated for impairment	$ 35,388,756		$ 52,036,251		$ 32,657,439		$ 120,082,446

Ending balance: loans acquired with deteriorated credit quality	$ -		$ -		$ -		$ -

The following is a summary of the aging of mortgage loans for the periods presented:

Age Analysis of Past Due Mortgage Loans

	30-59 Days Past Due		60-89 Days Past Due	Greater Than 90 Days (1)	In Foreclosure (1)	Total Past Due	Current	Total Mortgage Loans	Allowance for Loan Losses	Net Mortgage Loans
June 30, 2015

Commercial	$ -		$ -	$ -	$ -	$ -	$ 34,576,436	$ 34,576,436	$ (187,129)	$ 34,389,307
Residential	756,115		624,651	4,278,185	2,320,452	7,979,403	41,725,023	49,704,426	(1,588,532)	48,115,894
Residential Construction	-		-	64,895	-	64,895	28,277,914	28,342,809	(100,114)	28,242,695

Total	$ 756,115		$ 624,651	$ 4,343,080	$ 2,320,452	$ 8,044,298	$ 104,579,373	$ 112,623,671	$ (1,875,775)	$110,747,896

December 31, 2014
Commercial	$ -		$ -	$ -	$ -	$ -	$ 35,388,756	$ 35,388,756	$ (187,129)	$ 35,201,627
Residential	1,631,142		1,174,516	5,464,901	1,556,182	9,826,741	43,765,692	53,592,433	(1,715,812)	51,876,621
Residential Construction	-		-	64,895	414,499	479,394	32,592,544	33,071,938	(100,114)	32,971,824

Total	$ 1,631,142		$ 1,174,516	$ 5,529,796	$ 1,970,681	$ 10,306,135	$ 111,746,992	$ 122,053,127	$ (2,003,055)	$120,050,072

(1) Interest income is not recognized on loans past due greater than 90 days or in foreclosure.

Impaired Mortgage Loans

Impaired mortgage loans include loans with a related specific valuation allowance or loans whose carrying amount has been reduced to the expected collectible amount because the impairment has been considered other than temporary. The recorded investment in and unpaid principal balance of impaired loans along with the related loan specific allowance for losses, if any, for each reporting period and the average recorded investment and interest income recognized during the time the loans were impaired were as follows:

Impaired Loans

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
June 30, 2015
With no related allowance recorded:
Commercial	$ -		$ -		$ -		$ -		$ -
Residential	-		-		-		-		-
Residential construction	-		-		-		-		-

With an allowance recorded:
Commercial	$ -		$ -		$ -		$ -		$ -
Residential	2,320,452		2,320,452		217,192		2,320,452		-
Residential construction	-		-		-		-		-

Total:
Commercial	$ -		$ -		$ -		$ -		$ -
Residential	2,320,452		2,320,452		217,192		2,320,452		-
Residential construction	-		-		-		-		-

December 31, 2014
With no related allowance recorded:
Commercial	$ -		$ -		$ -		$ -		$ -
Residential	-		-		-		-		-
Residential construction	414,499		414,499		-		414,499		-

With an allowance recorded:
Commercial	$ -		$ -		$ -		$ -		$ -
Residential	1,556,182		1,556,182		153,446		1,556,182		-
Residential construction	-		-		-		-		-

Total:
Commercial	$ -		$ -		$ -		$ -		$ -
Residential	1,556,182		1,556,182		153,446		1,556,182		-
Residential construction	414,499		414,499		-		414,499		-

Credit Risk Profile Based on Performance Status

The Company’s mortgage loan portfolio is monitored based on performance of the loans. Monitoring a mortgage loan increases when the loan is delinquent or earlier if there is an indication of impairment. The Company defines non-performing mortgage loans as loans 90 days past due or on non-accrual status.

The Company’s performing and non-performing mortgage loans were as follows:

Mortgage Loan Credit Exposure
Credit Risk Profile Based on Payment Activity

	Commercial				Residential				Residential Construction				Total
	June 30, 2015		December 31, 2014		June 30, 2015		December 31, 2014		June 30, 2015		December 31, 2014		June 30, 2015		December 31, 2014

Performing	$34,576,436		$ 35,388,756		$43,105,790		$ 46,571,350		$ 28,277,914		$ 32,592,544		$ 105,960,140		$114,552,650
Nonperforming	-		-		6,598,636		7,021,083		64,895		479,394		6,663,531		7,500,477

Total	$34,576,436		$ 35,388,756		$ 49,704,426		$ 53,592,433		$ 28,342,809		$ 33,071,938		$ 112,623,671		$122,053,127

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 $595,000 and $535,000 as of June 30, 2015 and December 31, 2014, respectively.

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

	Mortgage Loans on Nonaccrual Status

	As of June 30 2015		As of December 31 2014
Residential	$ 6,598,636		$ 7,021,083
Residential construction	64,895		479,394
Total	$ 6,663,531		$ 7,500,477

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 June 30 2015		As of December 31 2014
Balance, beginning of period	$ 1,718,150		$ 5,506,532
Provisions for losses	2,919,210		3,053,403
Charge-offs	(384,540)		(6,841,785)
Balance, end of period	$ 4,252,820		$ 1,718,150

The Company believes the loan loss reserve represents probable loan losses incurred as of the balance sheet date. Actual loan loss experience could change, in the near-term, from the established reserve based upon claims that could be asserted by third party investors. SecurityNational Mortgage believes there is potential to resolve any 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.

- Definition

The entire disclosure for investments in certain debt and equity securities.

+ References + Details