XML 22 R11.htm IDEA: XBRL DOCUMENT
v3.19.2

3) Investments | 6 Months Ended
--- | ---
Jun. 30, 2019
Notes |
3) Investments | 3) Investments The Company’s investments as of June 30, 2019 are summarized as follows:
|  | Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
June 30, 2019 |  |  |  |  |  |  |  |
Fixed maturity securities held to maturity carried at amortized cost: |  |  |  |  |  |  |  |
Bonds: |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. Government agencies |  | $ 42,197,238 |  | $ 592,789 |  | $ (82,086) |  | $ 42,707,941
Obligations of states and political subdivisions |  | 6,103,022 |  | 79,100 |  | (10,582) |  | 6,171,540
Corporate securities including public utilities |  | 157,441,604 |  | 14,001,117 |  | (846,167) |  | 170,596,554
Mortgage-backed securities |  | 16,979,038 |  | 628,906 |  | (55,141) |  | 17,552,803
Redeemable preferred stock |  | 103,197 |  | 12,112 |  |  |  | 115,309
Total fixed maturity securities held to maturity |  | $ 222,824,099 |  | $ 15,314,024 |  | $ (993,976) |  | $ 237,144,147
Equity securities at estimated fair value: |  |  |  |  |  |  |  |
Common stock: |  |  |  |  |  |  |  |
Industrial, miscellaneous and all other |  | $ 7,558,408 |  | $ 891,797 |  | $ (848,644) |  | $ 7,601,561
Total equity securities at estimated fair value |  | $ 7,558,408 |  | $ 891,797 |  | $ (848,644) |  | $ 7,601,561
Mortgage loans held for investment at amortized cost: |  |  |  |  |  |  |  |
Residential |  | $ 84,093,609 |  |  |  |  |  |
Residential construction |  | 74,712,638 |  |  |  |  |  |
Commercial |  | 32,009,118 |  |  |  |  |  |
Less: Unamortized deferred loan fees, net |  | (1,200,446) |  |  |  |  |  |
Less: Allowance for loan losses |  | (1,292,914) |  |  |  |  |  |
Total mortgage loans held for investment |  | $ 188,322,005 |  |  |  |  |  |
Real estate held for investment net of accumulated depreciation: |  |  |  |  |  |  |  |
Residential |  | $ 26,386,608 |  |  |  |  |  |
Commercial |  | 93,082,739 |  |  |  |  |  |
Total real estate held for investment |  | $ 119,469,347 |  |  |  |  |  |
Other investments and policy loans at amortized cost: |  |  |  |  |  |  |  |
Policy loans |  | $ 6,265,560 |  |  |  |  |  |
Insurance assignments |  | 35,789,203 |  |  |  |  |  |
Federal Home Loan Bank stock (1) |  | 2,606,500 |  |  |  |  |  |
Other investments |  | 4,348,750 |  |  |  |  |  |
Less: Allowance for doubtful accounts |  | (1,399,272) |  |  |  |  |  |
Total other investments and policy loans |  | $ 47,610,741 |  |  |  |  |  |
Accrued investment income |  | $ 3,894,701 |  |  |  |  |  |
Total investments |  | $ 589,722,454 |  |  |  |  |  |
(1) Includes $806,500 of Membership stock and $1,800,000 of Activity stock due to short-term borrowings. |  |
The Company’s investments as of December 31, 2018 are summarized as follows:
|  | Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
December 31, 2018: |  |  |  |  |  |  |  |
Fixed maturity securities held to maturity carried at amortized cost: |  |  |  |  |  |  |  |
Bonds: |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. Government agencies |  | $ 52,017,683 |  | $ 264,891 |  | $ (727,798) |  | $ 51,554,776
Obligations of states and political subdivisions |  | 6,959,237 |  | 32,274 |  | (111,271) |  | 6,880,240
Corporate securities including public utilities |  | 157,639,860 |  | 7,002,864 |  | (3,704,137) |  | 160,938,587
Mortgage-backed securities |  | 15,358,746 |  | 227,398 |  | (308,864) |  | 15,277,280
Redeemable preferred stock |  | 103,197 |  | 1,903 |  | (5,125) |  | 99,975
Total fixed maturity securities held to maturity |  | $ 232,078,723 |  | $ 7,529,330 |  | $ (4,857,195) |  | $ 234,750,858
Equity securities at estimated fair value: |  |  |  |  |  |  |  |
Common stock: |  |  |  |  |  |  |  |
Industrial, miscellaneous and all other |  | $ 6,312,158 |  | $ 422,528 |  | $ (1,176,075) |  | $ 5,558,611
Total equity securities at estimated fair value |  | $ 6,312,158 |  | $ 422,528 |  | $ (1,176,075) |  | $ 5,558,611
Mortgage loans held for investment at amortized cost: |  |  |  |  |  |  |  |
Residential |  | $ 89,935,600 |  |  |  |  |  |
Residential construction |  | 71,366,544 |  |  |  |  |  |
Commercial |  | 27,785,927 |  |  |  |  |  |
Less: Unamortized deferred loan fees, net |  | (1,275,030) |  |  |  |  |  |
Less: Allowance for loan losses |  | (1,347,972) |  |  |  |  |  |
Total mortgage loans held for investment |  | $ 186,465,069 |  |  |  |  |  |
Real estate held for investment net of accumulated depreciation: |  |  |  |  |  |  |  |
Residential |  | $ 29,507,431 |  |  |  |  |  |
Commercial |  | 92,050,791 |  |  |  |  |  |
Total real estate held for investment |  | $ 121,558,222 |  |  |  |  |  |
Other investments and policy loans at amortized cost: |  |  |  |  |  |  |  |
Policy loans |  | $ 6,424,325 |  |  |  |  |  |
Insurance assignments |  | 35,239,396 |  |  |  |  |  |
Federal Home Loan Bank stock (1) |  | 2,548,700 |  |  |  |  |  |
Other investments |  | 3,497,762 |  |  |  |  |  |
Less: Allowance for doubtful accounts |  | (1,092,528) |  |  |  |  |  |
Total other investments and policy loans |  | $ 46,617,655 |  |  |  |  |  |
Accrued investment income |  | $ 3,566,146 |  |  |  |  |  |
Total investments |  | $ 595,844,426 |  |  |  |  |  |
(1) Includes $708,700 of Membership stock and $1,840,000 of Activity stock due to short-term borrowings. |  |  |
Fixed Maturity Securities The following tables summarize unrealized losses on fixed maturity securities held to maturity, which are carried at amortized cost, at June 30, 2019 and December 31, 2018. The unrealized losses were primarily related to interest rate fluctuations. The tables set forth unrealized losses by duration with the fair value of the related fixed maturity securities:
|  | Unrealized Losses for Less than Twelve Months |  | Fair Value |  | Unrealized Losses for More than Twelve Months |  | Fair Value |  | Total Unrealized Loss | Fair Value
At June 30, 2019 |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. Government Agencies |  | $ - |  | $ - |  | $ 82,086 |  | $ 20,491,005 |  | $ 82,086 | $ 20,491,005
Obligations of states and political subdivisions |  | 114 |  | 200,992 |  | 10,468 |  | 1,288,630 |  | 10,582 | 1,489,622
Corporate securities |  | 187,944 |  | 4,835,513 |  | 658,223 |  | 10,460,880 |  | 846,167 | 15,296,393
Mortgage and other asset-backed securities |  | 23,369 |  | 222,869 |  | 31,772 |  | 1,117,283 |  | 55,141 | 1,340,152
Total unrealized losses |  | $ 211,427 |  | $ 5,259,374 |  | $ 782,549 |  | $ 33,357,798 |  | $ 993,976 | $ 38,617,172
At December 31, 2018 |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. Government Agencies |  | $ 10,519 |  | $ 695,863 |  | $ 717,279 |  | $ 39,930,052 |  | $ 727,798 | $ 40,625,915
Obligations of states and political subdivisions |  | 6,643 |  | 1,791,257 |  | 104,628 |  | 2,889,517 |  | 111,271 | 4,680,774
Corporate securities |  | 2,514,549 |  | 61,090,431 |  | 1,189,588 |  | 11,767,349 |  | 3,704,137 | 72,857,780
Mortgage and other asset-backed securities |  | 79,896 |  | 1,705,296 |  | 228,968 |  | 2,690,065 |  | 308,864 | 4,395,361
Redeemable preferred stock |  | 5,125 |  | 90,000 |  | - |  | - |  | 5,125 | 90,000
Total unrealized losses |  | $ 2,616,732 |  | $ 65,372,847 |  | $ 2,240,463 |  | $ 57,276,983 |  | $ 4,857,195 | $ 122,649,830
There were 75 securities with fair value of 97.5% of amortized cost at June 30, 2019. There were 361 securities with fair value of 96.2% of amortized cost at December 31, 2018. No credit losses have been recognized for the three and six months ended June 30, 2019 and 2018. On a quarterly basis, the Company evaluates its fixed maturity securities held to maturity. This evaluation includes a review of current ratings by the National Association of Insurance Commissions (“NAIC”). Securities with a rating of 1 or 2 are considered investment grade and are not reviewed for impairment. Securities with ratings of 3 to 5 are evaluated for impairment. Securities with a rating of 6 are automatically determined to be impaired and are written down. The evaluation involves an analysis of the securities in relation to historical values, interest payment history, projected earnings and revenue growth rates as well as a review of the reason for a downgrade in the NAIC rating. Based on the analysis of a security that is rated 3 to 5, a determination is made whether the security will likely make interest and principal payments in accordance with the terms of the financial instrument. If it is unlikely that the security will meet contractual obligations, the loss is considered to be other than temporary, the security is written down to the new anticipated market value and an impairment loss is recognized. Impairment losses are treated as credit losses as the Company holds fixed maturity securities to maturity unless the underlying conditions have changed in the financial instrument to require an impairment. 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 amortized cost and estimated fair value of fixed maturity securities held to maturity, at June 30, 2019, 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 1 year |  | $ 6,201,791 |  | $ 6,240,536
Due in 2-5 years |  | 66,350,604 |  | 67,872,915
Due in 5-10 years |  | 66,900,191 |  | 70,594,910
Due in more than 10 years |  | 66,289,278 |  | 74,767,674
Mortgage-backed securities |  | 16,979,038 |  | 17,552,803
Redeemable preferred stock |  | 103,197 |  | 115,309
Total held to maturity |  | $ 222,824,099 |  | $ 237,144,147
The Company is a member of the Federal Home Loan Bank of Des Moines (“FHLB”). The Company currently has deposited a total of $60,000,000, par value, of United States Treasury fixed maturity securities with FHLB. These securities generate interest income for the Company and are available to use as collateral on any cash borrowings from the FHLB. As of June 30, 2019, the Company owed $45,000,000 to the FHLB. This amount owed was paid in July 2019. Equity Securities The fair values for equity securities are based on quoted market prices. The Company recognizes the changes (unrealized gains and losses) in the fair value of these equity securities through earnings as part of gains on investments and other assets on the condensed consolidated statements of earnings instead of other comprehensive income on the condensed consolidated balance sheets. Investment Related Earnings The Company’s net realized gains and losses from sales, calls, and maturities, unrealized gains and losses on equity securities, and other than temporary impairments are summarized as follows:
|  | Three Months Ended June 30 |  | Six Months Ended June 30 |
|  | 2019 |  | 2018 |  | 2019 |  | 2018 |
Fixed maturity securities held to maturity: |  |  |  |  |  |  |  |  |
Gross realized gains |  | $ 163,038 |  | $ 259,503 |  | $ 248,626 |  | $ 287,635 |
Gross realized losses |  | (69,622) |  | (260,702) |  | (105,015) |  | (569,633) |
Equity securities: |  |  |  |  |  |  |  |  |
Gains (losses) on securities sold |  | 41,088 |  | (39,797) |  | 52,664 |  | (25,146) |
Unrealized gains and (losses) on securities held at the end of the period |  | 14,016 |  | 158,993 |  | 775,224 |  | (213,048) |
Other assets: |  |  |  |  |  |  |  |  |
Gross realized gains |  | 688,289 |  | 2,294,404 |  | 1,793,223 |  | 25,246,127 | (1)
Gross realized losses |  | (1,862,702) |  | (84,172) |  | (1,983,954) |  | (376,767) |
Total |  | $ (1,025,893) |  | $ 2,328,229 |  | $ 780,768 |  | $ 24,349,168 |
(1) Includes a one-time gain of $22,252,000 from the sale of Dry Creek at East Village Apartments. |  |  |  |  |
The net realized gains and losses on the sale of securities are recorded on the trade date, and the cost of the securities sold is determined using the specific identification method. The carrying amount of held to maturity securities sold was $662,972 and $2,432,180 for the six months ended June 30, 2019 and 2018, respectively. The net realized loss related to these sales was $53,097 and $314,643 for the six months ended June 30, 2019 and 2018, respectively. Although the Company has the positive intent and ability to buy and hold a fixed maturity security to maturity, the Company will sell a security prior to maturity if conditions and circumstances have changed within the entity that issued the security to increase the risk of default to an unacceptable level. Major categories of net investment income are as follows:
| Three Months Ended June 30 |  | Six Months Ended June 30
| 2019 |  | 2018 |  | 2019 |  | 2018
Fixed maturity securities held to maturity | $ 2,528,689 |  | $ 2,510,842 |  | $ 5,032,554 |  | $ 5,040,682
Equity securities | 74,730 |  | 53,620 |  | 152,651 |  | 111,912
Mortgage loans held for investment | 4,525,817 |  | 4,872,441 |  | 8,629,184 |  | 9,776,361
Real estate held for investment | 2,096,927 |  | 1,623,044 |  | 4,007,221 |  | 4,299,858
Policy loans | 106,905 |  | 108,630 |  | 195,042 |  | 211,496
Insurance assignments | 3,906,832 |  | 3,511,749 |  | 8,118,952 |  | 7,372,687
Other investments | 52,130 |  | 75,871 |  | 106,678 |  | 129,544
Cash and cash equivalents | 465,959 |  | 239,661 |  | 964,876 |  | 377,029
Gross investment income | 13,757,989 |  | 12,995,858 |  | 27,207,158 |  | 27,319,569
Investment expenses | (3,217,154) |  | (3,253,893) |  | (6,624,655) |  | (7,503,173)
Net investment income | $ 10,540,835 |  | $ 9,741,965 |  | $ 20,582,503 |  | $ 19,816,396
Net investment income includes income earned by the restricted assets cemeteries and mortuaries of $134,229 and $95,256 for the three months ended June 30, 2019 and 2018, respectively, and $220,516 and $206,059 for the six months ended June 30, 2019 and 2018, 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 with regulatory authorities as required by law amounted to $9,071,615 at June 30, 2019 and $9,220,520 at December 31, 2018. These restricted securities are included in various assets under investments on the accompanying condensed consolidated balance sheets. There were no investments, aggregated by issuer, in excess of 10% of shareholders’ equity (before net unrealized gains and losses on equity securities) at June 30, 2019, other than investments issued or guaranteed by the United States Government. Real Estate Held for Investment The Company continues to strategically deploy resources into real estate to match the income and yield durations of its primary obligations. The sources for these real estate assets come through its various business units in the form of acquisition, development and mortgage foreclosures. Commercial Real Estate Held for Investment The Company owns and manages commercial real estate assets as a means of generating investment income. These assets are acquired in accordance with the Company’s goals and objectives for risk-adjusted returns. Due diligence is conducted on each asset using internal and third-party reports. Geographic locations and asset classes of the investment activity is determined by senior management under the direction of the Board of Directors. The Company employs full-time employees to attend to the day-to-day operations of those assets within the greater Salt Lake area and close surrounding markets. The Company utilizes third party property managers when the geographic boundary does not warrant full-time staff or through strategic lease-up periods. The Company generally looks to acquire assets in regions that are high growth regions for employment and population and in assets that provide operational efficiencies. The Company currently owns and operates 11 commercial properties in 4 states. These properties include industrial warehouses, office buildings, retail centers, a restaurant, and includes the redevelopment and expansion of its corporate campus (“Center53”) in Salt Lake City, Utah. The Company also holds undeveloped land that may be used for future commercial developments. The Company uses bank debt in strategic cases to leverage established yields or to acquire a higher quality or different class of asset. The aggregated net ending balance of commercial real estate that serves as collateral for bank borrowings was approximately $87,049,000 and $84,880,000 as of June 30, 2019 and December 31, 2018, respectively. The associated bank loan carrying values totaled approximately $52,940,000 and $52,237,000 as of June 30, 2019 and December 31, 2018, respectively. During the three and six months ended June 30, 2019 and 2018, the Company recorded impairment losses on commercial real estate held for investment of $1,867,197 and $-0-, respectively. The impairment loss recognized in the second quarter of 2019 relates to an office building held by the life insurance segment for which the Company received an unsolicited bid in May 2019 from a potential buyer that was significantly below the building’s carrying value. Although management did not consider the offer as representative of fair value, the Company evaluated the unsolicited bid as a potential impairment indicator and performed an additional impairment analysis internally, concluding based on management’s best estimates that the fair value of the building was less than its carrying value. The Company is additionally seeking an independent appraisal by an outside commercial real estate valuation firm that will be completed in the near future, which may suggest additional impairments are necessary. This impairment loss is included in gains (losses) on investment and other assets on the condensed consolidated statements of earnings. The following is a summary of the Company’s commercial real estate held for investment for the periods presented:
|  | Net Ending Balance |  | Total Square Footage
|  | June 30 |  | December 31 |  | June 30 |  | December 31
|  | 2019 |  | 2018 |  | 2019 |  | 2018
Arizona |  | $ 4,000 | (1) | $ 4,000 | (1) | - |  | -
Kansas |  | 5,400,000 |  | 6,861,898 |  | 222,679 |  | 222,679
Louisiana |  | 454,944 |  | 467,694 |  | 7,063 |  | 7,063
Mississippi |  | 3,289,436 |  | 3,329,948 |  | 33,821 |  | 33,821
New Mexico |  | 7,000 | (1) | 7,000 | (1) | - |  | -
Texas |  | 300,000 | (2) | 300,000 | (2) | - |  | -
Utah |  | 83,627,359 |  | 81,080,251 |  | 502,129 |  | 502,129
|  | $ 93,082,739 |  | $ 92,050,791 |  | 765,692 |  | 765,692
(1) Undeveloped land |  |  |  |  |  |
(2) Improved commercial pad |  |  |  |  |  |
Residential Real Estate Held for Investment The Company owns a portfolio of residential homes primarily as a result of loan foreclosures. The strategy has been to lease these homes to produce cash flow and allow time for the economic fundamentals to return to the various markets. As an orderly and active market for these homes returns, the Company has the option to dispose or to continue and hold them for cash flow and acceptable returns. The Company established Security National Real Estate Services (“SNRE”) to manage the residential portfolio. SNRE cultivates and maintains the preferred vendor relationships necessary to manage costs and quality of work performed on the portfolio of homes across the country. As of June 30, 2019, SNRE manages 60 residential properties in 7 states across the United States. The net ending balance of foreclosed residential real estate included in residential real estate held for investment is $19,597,000 and $23,532,000 as of June 30, 2019 and December 31, 2018, respectively. During the three months ended June 30, 2019 and 2018, the Company did not record any impairment losses on residential real estate held for investment, respectively, and during the six months ended June 30, 2019 and 2018, the Company recorded impairment losses on residential real estate held for investment of $-0- and $147,925, respectively. These impairment losses are included in gains (losses) on investment and other assets on the condensed consolidated statements of earnings. The following is a summary of the Company’s residential real estate held for investment for the periods presented:
|  | Net Ending Balance
|  | June 30 |  | December 31
|  | 2019 |  | 2018
California |  | $ 1,911,458 |  | $ 2,644,321
Florida |  | 5,645,131 |  | 6,534,277
Ohio |  | 10,000 |  | 10,000
South Carolina |  | 205,000 |  | -
Tennessee |  | 105,260 |  | 105,260
Texas |  | - |  | 139,174
Utah |  | 18,033,578 |  | 19,598,218
Washington |  | 476,181 |  | 476,181
|  | $ 26,386,608 |  | $ 29,507,431
Real Estate Owned and Occupied by the Company The primary business units of the Company occupy a portion of the real estate owned by the Company. Currently, the Company occupies nearly 70,000 square feet, or approximately 10% of the overall commercial real estate holdings. As of June 30, 2019, real estate owned and occupied by the Company is summarized as follows:
Location |  | Business Segment |  | Approximate Square Footage |  | Square Footage Occupied by the Company
5300 South 360 West, Salt Lake City, UT (1) |  | Corporate Offices, Life Insurance and Cemetery/Mortuary Operations |  | 36,000 |  | 100%
5201 Green Street, Salt Lake City, UT |  | Mortgage Operations |  | 36,899 |  | 34%
1044 River Oaks Dr., Flowood, MS |  | Life Insurance Operations |  | 21,521 |  | 27%
121 West Election Road, Draper, UT |  | Mortgage Sales |  | 78,978 |  | 19%
(1) This asset is included in property and equipment on the condensed consolidated balance sheets |  |
Mortgage Loans Held for Investment Mortgage loans held for investment consist of first and second mortgages. The mortgage loans bear interest at rates ranging from 2.0% to 10.5%, maturity dates range from nine 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, 2019, the Company had 49%, 14%, 12%, 7%, 6%, 4% and 3% of its mortgage loans from borrowers located in the states of Utah, Florida, Texas, California, Nevada, Arizona, and Tennessee, respectively. Mortgage loans held for investment are carried at their unpaid principal balances adjusted for net deferred fees, charge-offs and the related allowance for loan losses. Interest income is included in net investment income on the condensed consolidated statements of earnings and is recognized when earned. The Company defers related material loan origination fees, net of related direct loan origination costs, and amortizes the net fees over the term of the loans. Origination fees are included in net investment income on the condensed consolidated statements of earnings. Mortgage loans are secured by the underlying property and require an appraisal at the time of underwriting and funding. Generally, the Company will fund a loan not to exceed 80% of the loan’s collateral fair market value. Amounts over 80% will require additional collateral or mortgage insurance by an approved third-party insurer. The Company provides for losses on its mortgage loans held for investment through an allowance for loan losses (a contra-asset account). The allowance is comprised of two components. The first component is an allowance for collectively evaluated impairment that is based upon the Company’s historical experience in collecting similar receivables. The second component is based upon individual evaluation of loans that are determined to be impaired. Upon determining impairment, the Company establishes an individual impairment allowance based upon an assessment of the fair value of the underlying collateral. In addition, when a mortgage loan is past due more than 90 days, the Company does not accrue any interest income. When a loan becomes delinquent, the Company proceeds to foreclose on the real estate and all expenses for foreclosure are expensed as incurred. Once foreclosed, an adjustment for the lower of cost or fair value is made, if necessary, and the amount is classified as real estate held for investment. The Company will rent the properties until it is deemed desirable to sell them. The allowance for losses on mortgage loans held for investment could change based on changes in the value of the underlying collateral, the performance status of the loans, or the Company’s actual collection experience. The actual losses could change, in the near term, from the established allowance, based upon the occurrence or non-occurrence of these events. For purposes of determining the allowance for losses, the Company has segmented its mortgage loans held for investment by loan type. The Company’s loan types are commercial, residential, and residential construction. The inherent risks within the portfolio vary depending upon the loan type as follows: Commercial - Underwritten in accordance with the Company’s policies to determine the borrower’s ability to repay the obligation as agreed. Commercial loans are made primarily based on the underlying collateral supporting the loan. Accordingly, the repayment of a commercial loan depends primarily on the collateral and its ability to generate income and secondary on the borrower’s (or guarantors) ability to repay. Residential – Secured by family dwelling units. These loans are secured by first mortgages on the unit, which are generally the primary residence of the borrower, generally at a loan-to-value ratio (“LTV”) of 80% or less. Residential construction (including land acquisition and development) – Underwritten in accordance with the Company’s underwriting policies which include a financial analysis of the builders, borrowers (guarantors), construction cost estimates, and independent appraisal valuations. These loans will rely on the value associated with the project upon completion. These cost and valuation estimates may be inaccurate. Construction loans generally involve the disbursement of substantial funds over a short period of time with repayment substantially dependent upon the success of the completed project and the ability of the borrower to secure long-term financing. Additionally, land is underwritten according to the Company’s policies, which include independent appraisal valuations as well as the estimated value associated with the land upon completion of development into finished lots. These cost and valuation estimates may be inaccurate. These loans are considered to be of a higher risk than other mortgage loans due to their ultimate repayment being sensitive to general economic conditions, availability of long-term or construction financing, and interest rate sensitivity.
Allowance for Credit Losses and Recorded Investment in Mortgage Loans
| Commercial |  | Residential |  | Residential Construction |  | Total
June 30, 2019 |  |  |  |  |  |  |
Allowance for credit losses: |  |  |  |  |  |  |
Beginning balance - January 1, 2019 | $ 187,129 |  | $ 1,125,623 |  | $ 35,220 |  | $ 1,347,972
Charge-offs | - |  | (32,692) |  | - |  | (32,692)
Provision | - |  | (30,348) |  | 7,982 |  | (22,366)
Ending balance - June 30, 2019 | $ 187,129 |  | $ 1,062,583 |  | $ 43,202 |  | $ 1,292,914
Ending balance: individually evaluated for impairment | $ - |  | $ 8,367 |  | $ - |  | $ 8,367
Ending balance: collectively evaluated for impairment | $ 187,129 |  | $ 1,054,216 |  | $ 43,202 |  | $ 1,284,547
Mortgage loans: |  |  |  |  |  |  |
Ending balance | $ 32,009,118 |  | $ 84,093,609 |  | $ 74,712,638 |  | $ 190,815,365
Ending balance: individually evaluated for impairment | $ 655,499 |  | $ 4,589,601 |  | $ 4,321,123 |  | $ 9,566,223
Ending balance: collectively evaluated for impairment | $ 31,353,619 |  | $ 79,504,008 |  | $ 70,391,515 |  | $ 181,249,142
December 31, 2018 |  |  |  |  |  |  |
Allowance for credit losses: |  |  |  |  |  |  |
Beginning balance - January 1, 2018 | $ 187,129 |  | $ 1,546,447 |  | $ 35,220 |  | $ 1,768,796
Charge-offs | - |  | (5,725) |  | - |  | (5,725)
Provision | - |  | (415,099) |  | - |  | (415,099)
Ending balance - December 31, 2018 | $ 187,129 |  | $ 1,125,623 |  | $ 35,220 |  | $ 1,347,972
Ending balance: individually evaluated for impairment | $ - |  | $ 74,185 |  | $ - |  | $ 74,185
Ending balance: collectively evaluated for impairment | $ 187,129 |  | $ 1,051,438 |  | $ 35,220 |  | $ 1,273,787
Mortgage loans: |  |  |  |  |  |  |
Ending balance | $ 27,785,927 |  | $ 89,935,600 |  | $ 71,366,544 |  | $ 189,088,071
Ending balance: individually evaluated for impairment | $ 196,182 |  | $ 2,939,651 |  | $ 502,991 |  | $ 3,638,824
Ending balance: collectively evaluated for impairment | $ 27,589,745 |  | $ 86,995,949 |  | $ 70,863,553 |  | $ 185,449,247
The following is a summary of the aging of mortgage loans held for investment for the periods presented:
Age Analysis of Mortgage Loans Held for Investment
| 30-59 Days Past Due | 60-89 Days Past Due | Greater Than 90 Days (1) | In Process of Foreclosure (1) | Total Past Due | Current | Total Mortgage Loans | Allowance for Loan Losses | Unamortized deferred loan fees, net | Net Mortgage Loans
June 30, 2019 |  |  |  |  |  |  |  |  |
Commercial | $ 233,200 | $ 1,500,000 | $ - | $ 655,499 | $ 2,388,699 | $ 29,620,419 | $ 32,009,118 | $ (187,129) | $ (4,140) | $ 31,817,849
Residential | 8,042,198 | 1,915,051 | 2,662,534 | 1,927,067 | 14,546,850 | 69,546,759 | 84,093,609 | (1,062,583) | (736,845) | 82,294,181
Residential Construction | 5,295,675 | 315,908 | 246,854 | 4,074,269 | 9,932,706 | 64,779,932 | 74,712,638 | (43,202) | (459,461) | 74,209,975
Total | $ 13,571,073 | $ 3,730,959 | $ 2,909,388 | $ 6,656,835 | $ 26,868,255 | $ 163,947,110 | $ 190,815,365 | $ (1,292,914) | $ (1,200,446) | $ 188,322,005
December 31, 2018 |  |  |  |  |  |  |  |  |
Commercial | $ 4,588,424 | $ - | $ 196,182 | $ - | $ 4,784,606 | $ 23,001,321 | $ 27,785,927 | $ (187,129) | $ 32,003 | $ 27,630,801
Residential | 9,899,380 | 2,312,252 | 1,715,362 | 1,224,289 | 15,151,283 | 74,784,317 | 89,935,600 | (1,125,623) | (862,411) | 87,947,566
Residential Construction | - | - | - | 502,991 | 502,991 | 70,863,553 | 71,366,544 | (35,220) | (444,622) | 70,886,702
Total | $ 14,487,804 | $ 2,312,252 | $ 1,911,544 | $ 1,727,280 | $ 20,438,880 | $ 168,649,191 | $ 189,088,071 | $ (1,347,972) | $ (1,275,030) | $ 186,465,069
(1) Interest income is not recognized on loans past due greater than 90 days or in foreclosure.
Impaired Mortgage Loans Held for Investment Impaired mortgage loans held for investment 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, 2019 |  |  |  |  |  |  |  |  |
With no related allowance recorded: |  |  |  |  |  |  |  |  |
Commercial | $ 655,499 |  | $ 655,499 |  | $ - |  | $ 753,726 |  | $ -
Residential | 4,443,598 |  | 4,443,598 |  | - |  | 3,575,845 |  | -
Residential construction | 4,321,123 |  | 4,321,123 |  | - |  | 2,412,057 |  | -
With an allowance recorded: |  |  |  |  |  |  |  |  |
Commercial | $ - |  | $ - |  | $ - |  | $ - |  | $ -
Residential | 146,003 |  | 146,003 |  | 8,367 |  | 377,491 |  | -
Residential construction | - |  | - |  | - |  | - |  | -
Total: |  |  |  |  |  |  |  |  |
Commercial | $ 655,499 |  | $ 655,499 |  | $ - |  | $ 753,726 |  | $ -
Residential | 4,589,601 |  | 4,589,601 |  | 8,367 |  | 3,953,336 |  | -
Residential construction | 4,321,123 |  | 4,321,123 |  | - |  | 2,412,057 |  | -
December 31, 2018 |  |  |  |  |  |  |  |  |
With no related allowance recorded: |  |  |  |  |  |  |  |  |
Commercial | $ 196,182 |  | $ 196,182 |  | $ - |  | $ 98,023 |  | $ -
Residential | 1,612,164 |  | 1,612,164 |  | - |  | 2,423,135 |  | -
Residential construction | 502,991 |  | 502,991 |  | - |  | 675,950 |  | -
With an allowance recorded: |  |  |  |  |  |  |  |  |
Commercial | $ - |  | $ - |  | $ - |  | $ - |  | $ -
Residential | 1,327,487 |  | 1,327,487 |  | 74,185 |  | 1,543,416 |  | -
Residential construction | - |  | - |  | - |  | - |  | -
Total: |  |  |  |  |  |  |  |  |
Commercial | $ 196,182 |  | $ 196,182 |  | $ - |  | $ 98,023 |  | $ -
Residential | 2,939,651 |  | 2,939,651 |  | 74,185 |  | 3,966,551 |  | -
Residential construction | 502,991 |  | 502,991 |  | - |  | 675,950 |  | -
Credit Risk Profile Based on Performance Status The Company’s mortgage loan held for investment 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 held for investment were as follows:
Mortgage Loans Held for Investment Credit Exposure
Credit Risk Profile Based on Payment Activity
| Commercial |  | Residential |  | Residential Construction |  | Total
| June 30, 2019 |  | December 31, 2018 |  | June 30, 2019 |  | December 31, 2018 |  | June 30, 2019 |  | December 31, 2018 |  | June 30, 2019 |  | December 31, 2018
Performing | $ 31,353,619 |  | $ 27,589,745 |  | $ 79,504,008 |  | $ 86,995,949 |  | $ 70,391,515 |  | $ 70,863,553 |  | $ 181,249,142 |  | $ 185,449,247
Non-performing | 655,499 |  | 196,182 |  | 4,589,601 |  | 2,939,651 |  | 4,321,123 |  | 502,991 |  | 9,566,223 |  | 3,638,824
Total | $ 32,009,118 |  | $ 27,785,927 |  | $ 84,093,609 |  | $ 89,935,600 |  | $ 74,712,638 |  | $ 71,366,544 |  | $ 190,815,365 |  | $ 189,088,071
Non-Accrual Mortgage Loans Held for Investment 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 interest income that had been accrued. Payments received for loans on a non-accrual status are recognized on a cash basis. Interest income recognized from any payments received for loans on a non-accrual status was immaterial. Accrual of interest resumes if a loan is brought current. Interest not accrued on these loans totals approximately $159,000 and $151,000 as of June 30, 2019 and December 31, 2018, respectively. The following is a summary of mortgage loans held for investment on a non-accrual status for the periods presented.
| Mortgage Loans on Non-Accrual Status
| As of June 30 2019 |  | As of December 31 2018
Commercial | $ 655,499 |  | $ 196,182
Residential | 4,589,601 |  | 2,939,651
Residential construction | 4,321,123 |  | 502,991
Total | $ 9,566,223 |  | $ 3,638,824

X
- References No definition available. + Details
Name: | us-gaap_DisclosureTextBlockAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for investments in certain debt and equity securities. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2209399 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 946 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2324412 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -URI http://asc.fasb.org/topic&trid=2196928 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 940 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2176304 + Details
Name: | us-gaap_InvestmentsInDebtAndMarketableEquitySecuritiesAndCertainTradingAssetsDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration