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8) Fair Value of Financial Instruments | 9 Months Ended
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Sep. 30, 2020
Disclosure Text Block [Abstract] |
8) Fair Value of Financial Instruments | 8) Fair Value of Financial Instruments GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. GAAP also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. Fair value measurements are classified under the following hierarchy: Level 1: Financial assets and financial liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company can access. Level 2: Financial assets and financial liabilities whose values are based on the following: a) Quoted prices for similar assets or liabilities in active markets; b)Quoted prices for identical or similar assets or liabilities in non-active markets; or
| c) | Valuation models whose inputs are observable, directly or indirectly, for substantially the fulltermof the asset or liability.
Level 3: Financial assets and financial liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs may reflect the Company’s estimates of the assumptions that market participants would use in valuing the financial assets and financial liabilities. The Company utilizes a combination of third-party valuation service providers, brokers, and internal valuation models to determine fair value. The following methods and assumptions were used by the Company in estimating the fair value disclosures related to significant financial instruments. The items shown under Level 1 and Level 2 are valued as follows: Fixed Maturity Securities Available for Sale: 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 (considered Level 3 investments), are estimated by discounting expected future cash flows using a current market value applicable to the coupon rate, credit and maturity of the investments. Equity Securities: The fair values for equity securities are based on quoted market prices. Loans Held for Sale: The Company elected the fair value option for loans held for sale. The fair value is based on quoted market prices, when available. When a quoted market price is not readily available, the Company uses the market price from its last sale of similar assets. Restricted Assets:A portion of these assets include mutual funds and equity securities and fixed maturity securities that have quoted market prices that are used to determine fair value. Also included are cash and cash equivalents and participations in mortgage loans. The carrying amounts reported in the accompanying condensed consolidated balance sheets for these financial instruments approximate their fair values due to their short-term nature. Cemetery Endowment Care Trust Investments:A portion of these assets include equity securities and fixed maturity securities that have quoted market prices that are used to determine fair value. Also included are cash and cash equivalents. The carrying amounts reported in the accompanying condensed consolidated balance sheets for these financial instruments approximate their fair values due to their short-term nature. Call and Put Option Derivatives:The fair values for call and put options are based on quoted market prices. The items shown under Level 3 are valued as follows: Loan Commitments and Forward Sale Commitments: The Company’s mortgage segment enters into loan commitments with potential borrowers and forward sale commitments to sell loans to third-party investors. The Company also uses a hedging strategy for these transactions.A loan commitment binds the Company to lend funds to a qualified borrower at a specified interest rate and within a specified period of time, generally up to 30 days after issuance of the loan commitment. Loan commitments are defined to be derivatives under GAAP and are recognized at fair value on the consolidated balance sheets with changes in their fair values recorded in current earnings. The Company estimates the fair value of a loan commitment based on the change in estimated fair value of the underlying mortgage loan, quoted MBS prices, estimates of the fair value of mortgage servicing rights, and an estimate of the probability that the mortgage loan will fund within the terms of the commitment. The change in fair value of the underlying mortgage loan is measured from the date the loan commitment is issued. Following issuance, the value of a mortgage loan commitment can be either positive or negative depending upon the change in value of the underlying mortgage loans. Fallout rates and other factors from the Company’s recent historical data are used to estimate the quantity and value of mortgage loans that will fund within the terms of the commitments. Impaired Mortgage Loans Held for Investment: The Company believes that the fair value of these nonperforming loans will approximate the unpaid principal balance expected to be recovered based on the fair value of the underlying collateral. For residential and commercial properties, the collateral value is estimated by obtaining an independent appraisal. The appraisal typically considers area comparables and property condition as well as potential rental income that could be generated (particularly for commercial properties). For residential construction loans, the collateral is typically incomplete, so fair value is estimated as the replacement cost using data from a provider of building cost information to the real estate construction. Real Estate Held for Investment:The Company believes that in an orderly market, fair value will approximate the replacement cost of a home and the rental income provides a cash flow stream for investment analysis. The Company believes the highest and best use of the properties are as income producing assets since it is the Company’s intent to hold the properties as rental properties, matching the income from the investment in rental properties with the funds required for future estimated policy claims. It should be noted that for replacement cost, when determining the fair value of real estate held for investment, the Company uses a provider of building cost information to the real estate construction industry. For the investment analysis, the Company uses market data based upon its real estate operation experience and projected the present value of the net rental income over seven years. The Company also considers area comparables and property condition when determining fair value. In addition to this analysis performed by the Company, the Company depreciates Real Estate Held for Investment. This depreciation reduces the book value of these properties and lessens the exposure to the Company from further deterioration in real estate values. Mortgage Servicing Rights: The Company initially recognizes Mortgage Servicing Rights (“MSRs”) at their estimated fair values derived from the net cash flows associated with the servicing contracts,where the Company assumes the obligation to service the loan in the sale transaction. The following tables summarize Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a recurring basis by their classification in the condensed consolidated balance sheet at September 30, 2020.
| Total |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Assets accounted for at fair value on a recurring basis |  |  |  |  |  |  |
Fixed maturity securities available for sale | $ 344,917,387 |  | $ - |  | $ 342,627,234 |  | $ 2,290,153
Equity securities | 11,215,606 |  | 11,215,606 |  | - |  | -
Loans held for sale | 445,878,979 |  | - |  | - |  | 445,878,979
Restricted assets (1) | 1,470,114 |  | - |  | 1,470,114 |  | -
Restricted assets (2) | 2,193,831 |  | 2,193,831 |  | - |  | -
Cemetery perpetual care trust investments (1) | 576,292 |  | - |  | 576,292 |  | -
Cemetery perpetual care trust investments (2) | 1,832,703 |  | 1,832,703 |  | - |  | -
Derivatives - loan commitments (3) | 17,945,259 |  | - |  | - |  | 17,945,259
Total assets accounted for at fair value on a recurring basis | $ 826,030,171 |  | $ 15,242,140 |  | $ 344,673,640 |  | $ 466,114,391
Liabilities accounted for at fair value on a recurring basis |  |  |  |  |  |  |
Derivatives - call options (4) | $ (126,193) |  | $ (126,193) |  | $ - |  | $ -
Derivatives - loan commitments (4) | (2,999,809) |  | - |  | - |  | (2,999,809)
Total liabilities accounted for at fair value on a recurring basis | $ (3,126,002) |  | $ (126,193) |  | $ - |  | $ (2,999,809)
(1) Fixed maturity securities available for sale |  |  |  |  |  |  |
(2) Equity securities |  |  |  |  |  |  |
(3) Included in other assets on the consolidated balance sheets |  |  |  |  |  |
(4) Included in other liabilities and accrued expenses on the consolidated balance sheets |  |
The following tables summarize Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a recurring basis by their classification in the condensed consolidated balance sheet at December 31, 2019.
| Total |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Assets accounted for at fair value on a recurring basis |  |  |  |  |  |  |
Fixed maturity securities available for sale | $ 355,977,820 |  | $ - |  | $ 352,761,438 |  | $ 3,216,382
Equity securities | 7,271,165 |  | 7,271,165 |  | - |  | -
Loans held for sale | 213,457,632 |  | - |  | - |  | 213,457,632
Restricted assets (1) | 1,008,867 |  | - |  | 1,008,867 |  | -
Restricted assets (2) | 1,976,480 |  | 1,976,480 |  | - |  | -
Cemetery perpetual care trust investments (1) | 975,673 |  | - |  | 975,673 |  | -
Cemetery perpetual care trust investments (2) | 1,605,451 |  | 1,605,451 |  | - |  | -
Derivatives - loan commitments (3) | 2,722,580 |  | - |  | - |  | 2,722,580
Total assets accounted for at fair value on a recurring basis | $ 584,995,668 |  | $ 10,853,096 |  | $ 354,745,978 |  | $ 219,396,594
Liabilities accounted for at fair value on a recurring basis |  |  |  |  |  |  |
Derivatives - call options (4) | $ (62,265) |  | $ (62,265) |  | $ - |  | $ -
Derivatives - put options (4) | (22,282) |  | (22,282) |  | - |  | -
Derivatives - loan commitments (4) | (231,347) |  | - |  | - |  | (231,347)
Total liabilities accounted for at fair value on a recurring basis | $ (315,894) |  | $ (84,547) |  | $ - |  | $ (231,347)
(1) Fixed maturity securities available for sale |  |  |  |  |  |  |
(2) Mutual funds and equity securities |  |  |  |  |  |  |
(3) Included in other assets on the condensed consolidated balance sheets |  |  |  |
(4) Included in other liabilities and accrued expenses on the condensed consolidated balance sheets |  |
For Level 3 assets and liabilities measured at fair value on a recurring basis as of September 30, 2020, the significant unobservable inputs used in the fair value measurements were as follows:
|  |  |  |  |  | Significant |  | Range of Inputs |  |
|  | Fair Value at |  | Valuation |  | Unobservable |  | Minimum | Maximum |  | Weighted
|  | 9/30/2020 |  | Technique |  | Input(s) |  | Value | Value |  | Average
Loans held for sale |  | $ 445,878,979 |  | Market approach |  | Investor contract pricing as a percentage of unpaid principal balance |  | 99.0% | 110.0% |  | 104.0%
Derivatives - loan commitments (net) |  | 14,945,451 |  | Market approach |  | Fall-out factor |  | 1.0% | 92.0% |  | 80.0%
|  |  |  |  |  | Initial-Value |  | N/A | N/A |  | N/A
|  |  |  |  |  | Servicing |  | 0 bps | 133 bps |  | 67 bps
Fixed maturity securities available for sale |  | 2,290,153 |  | Broker quotes |  | Pricing quotes |  | $ 91.49 | $ 123.46 |  | $ 117.45
For Level 3 assets and liabilities measured at fair value on a recurring basis as of December 31, 2019, the significant unobservable inputs used in the fair value measurements were as follows:
|  |  |  |  |  | Significant |  | Range of Inputs |  |
|  | Fair Value at |  | Valuation |  | Unobservable |  | Minimum | Maximum |  | Weighted
|  | 12/31/2019 |  | Technique |  | Input(s) |  | Value | Value |  | Average
Loans held for sale |  | $ 213,457,632 |  | Market approach |  | Investor contract pricing as a percentage of unpaid principal balance |  | 98.0% | 109.0% |  | 103.0%
Derivatives - loan commitments (net) |  | 2,491,233 |  | Market approach |  | Fall-out factor |  | 1.0% | 92.0% |  | 81.0%
|  |  |  |  |  | Initial-Value |  | N/A | N/A |  | N/A
|  |  |  |  |  | Servicing |  | 0 bps | 318 bps |  | 79 bps
Fixed maturity securities available for sale |  | 3,216,382 |  | Broker quotes |  | Pricing quotes |  | $ 95.02 | $ 115.80 |  | $ 107.98
Following is a summary of changes in the condensed consolidated balance sheet line items measured using level 3 inputs:
|  | Net Loan Commitments |  | Loans Held for Sale |  | Fixed Maturity Securities Available for Sale |
Balance - December 31, 2019 |  | $ 2,491,233 |  | $ 213,457,632 |  | $ 3,216,382 |
Originations and purchases |  | - |  | 3,824,329,264 |  | - |
Sales, maturities and paydowns |  | - |  | (3,709,992,155) |  | (1,031,500) |
Transfer to mortgage loans held for investment |  | - |  | (9,170,610) |  | - |
Total gains (losses): |  |  |  |  |  |  |
Included in earnings |  | 12,454,218 | (1) | 127,254,848 | (1) | 2,532 | (2)
Included in other comprehensive income |  | - |  | - |  | 102,739 |
Balance - September 30, 2020 |  | $ 14,945,451 |  | $ 445,878,979 |  | $ 2,290,153 |
(1) As a component of Mortgage fee income on the condensed consolidated statements of earnings |
(2) As a component of Net investment income on the condensed consolidated statements of earnings |
Following is a summary of changes in the condensed consolidated balance sheet line items measured using level 3 inputs:
|  | Net Derivatives Loan Commitments |  | Loans Held for Sale |  | Fixed Maturity Securities Available for Sale
Balance - December 31, 2018 |  | $ 1,591,816 |  | $ 136,210,853 |  | $ -
Originations/purchases |  | - |  | 2,606,839,175 |  | -
Sales |  | - |  | (2,580,875,055) |  | -
Transfer to mortgage loans held for investment |  | - |  | (31,881,851) |  | -
Transfer from fixed maturity securities held to maturity |  | - |  | - |  | 3,216,382
Total gains (losses): |  |  |  |  |  |
Included in earnings (1) |  | 899,417 |  | 83,164,510 |  | -
Balance - December 31, 2019 |  | $ 2,491,233 |  | $ 213,457,632 |  | $ 3,216,382
(1) As a component of mortgage fee income on the condensed consolidated statements of earnings
The following tables summarize Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a nonrecurring basis by their classification in the condensed consolidated balance sheet at September 30, 2020.
| Total |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Assets accounted for at fair value on a nonrecurring basis |  |  |  |  |  |  |
Impaired mortgage loans held for investment | $ 1,519,159 |  | $ - |  | $ - |  | $ 1,519,159
Impaired real estate held for sale | 4,000,000 |  | - |  | - |  | 4,000,000
Total assets accounted for at fair value on a nonrecurring basis | $ 5,519,159 |  | $ - |  | $ - |  | $ 5,519,159
The following tables summarize Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a nonrecurring basis by their classification in the condensed consolidated balance sheet at December 31, 2019.
| Total |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Assets accounted for at fair value on a nonrecurring basis |  |  |  |  |  |  |
Impaired mortgage loans held for investment | $ 1,302,025 |  | $ - |  | $ - |  | $ 1,302,025
Impaired real estate held for investment | 8,375,884 |  | - |  | - |  | 8,375,884
Total assets accounted for at fair value on a nonrecurring basis | $ 9,677,909 |  | $ - |  | $ - |  | $ 9,677,909
Fair Value of Financial Instruments Carried at Other Than Fair Value ASC 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent limitations in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at September 30, 2020 and December 31, 2019. The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows as of September 30, 2020:
| Carrying Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total Estimated Fair Value
Assets |  |  |  |  |  |  |  |  |
Mortgage loans held for investment |  |  |  |  |  |  |  |  |
Residential | $ 77,373,490 |  | $ - |  | $ - |  | $ 82,076,345 |  | $ 82,076,345
Residential construction | 119,915,615 |  | - |  | - |  | 119,915,615 |  | 119,915,615
Commercial | 48,320,422 |  | - |  | - |  | 47,954,726 |  | 47,954,726
Mortgage loans held for investment, net | $ 245,609,527 |  | $ - |  | $ - |  | $ 249,946,686 |  | $ 249,946,686
Policy loans | 14,234,935 |  | - |  | - |  | 14,234,935 |  | 14,234,935
Insurance assignments, net (1) | 44,256,177 |  | - |  | - |  | 44,256,177 |  | 44,256,177
Restricted assets (2) | 4,110,252 |  | - |  | - |  | 4,110,252 |  | 4,110,252
Mortgage servicing rights, net | 28,387,476 |  | - |  | - |  | 30,288,406 |  | 30,288,406
Liabilities |  |  |  |  |  |  |  |  |
Bank and other loans payable | $ (424,932,007) |  | $ - |  | $ - |  | $ (424,932,007) |  | $ (424,932,007)
Policyholder account balances (3) | (44,246,123) |  | - |  | - |  | (41,229,265) |  | (41,229,265)
Future policy benefits - annuities (3) | (110,638,182) |  | - |  | - |  | (115,049,853) |  | (115,049,853)
(1) Included in other investments and policy loans on the condensed consolidated balance sheets |  |  |
(2) Mortgage loans held for investment |  |  |  |  |  |  |  |  |
(3) Included in future policy benefits and unpaid claims on the condensed consolidated balance sheets |  |
The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows as of December 31, 2019:
| Carrying Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total Estimated Fair Value
Assets |  |  |  |  |  |  |  |  |
Mortgage loans held for investment |  |  |  |  |  |  |  |  |
Residential | $ 110,253,678 |  | $ - |  | $ - |  | $ 115,320,638 |  | $ 115,320,638
Residential construction | 88,651,967 |  | - |  | - |  | 88,651,967 |  | 88,651,967
Commercial | 37,788,901 |  | - |  | - |  | 39,289,462 |  | 39,289,462
Mortgage loans held for investment, net | $ 236,694,546 |  | $ - |  | $ - |  | $ 243,262,067 |  | $ 243,262,067
Policy loans | 14,762,805 |  | - |  | - |  | 14,762,805 |  | 14,762,805
Insurance assignments, net (1) | 39,614,939 |  | - |  | - |  | 39,614,939 |  | 39,614,939
Restricted assets (2) | 2,275,756 |  | - |  | - |  | 2,289,679 |  | 2,289,679
Cemetery perpetual care trust investments (2) | 524,000 |  | - |  | - |  | 536,553 |  | 536,553
Mortgage servicing rights, net | 17,155,529 |  | - |  | - |  | 22,784,571 |  | 22,784,571
Liabilities |  |  |  |  |  |  |  |  |
Bank and other loans payable | $ (217,572,612) |  | $ - |  | $ - |  | $ (217,572,612) |  | $ (217,572,612)
Policyholder account balances (3) | (45,154,180) |  | - |  | - |  | (41,828,469) |  | (41,828,469)
Future policy benefits - annuities (3) | (113,579,830) |  | - |  | - |  | (117,304,614) |  | (117,304,614)
(1) Included in other investments and policy loans on the condensed consolidated balance sheets |  |  |
(2) Mortgage loans held for investment |  |  |  |  |  |  |  |  |
(3) Included in future policy benefits and unpaid claims on the condensed consolidated balance sheets |  |
The methods, assumptions and significant valuation techniques and inputs used to estimate the fair value of these financial instruments are summarized as follows: Mortgage Loans Held for Investment: The estimated fair value of the Company’s mortgage loans held for investment is determined using various methods. The Company’s mortgage loans are grouped into three categories: Residential, Residential Construction and Commercial. When estimating the expected future cash flows, it is assumed that all loans will be held to maturity, and any loans that are non-performing are evaluated individually for impairment. Residential – The estimated fair value is determined through a combination of discounted cash flows(estimating expected future cash flows of payments and discounting them using current interest rates from single family mortgages) and considering pricing of similar loans that were sold recently. Residential Construction – These loans are primarily short in maturity.Accordingly, the estimated fair value is determined to be the carrying value. Commercial – The estimated fair value is determined by estimating expected future cash flows of payments and discounting them using current interest rates for commercial mortgages. Policy Loans: The carrying amounts reported in the accompanying condensed consolidated balance sheet for these financial instruments approximate their fair values because they are fully collateralized by the cash surrender value of the underlying insurance policies. Insurance Assignments, Net: These investments are primarily short in maturity, accordingly, the carrying amounts reported in the accompanying condensed consolidated balance sheet for these financial instruments approximate their fair values. Bank and Other Loans Payable: The carrying amounts reported in the accompanying condensed consolidated balance sheet for these financial instruments approximate their fair values due to their relatively short-term maturities and variable interest rates. Policyholder Account Balances and Future Policy Benefits-Annuities: Future policy benefit reserves for interest-sensitive insurance products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances. Interest crediting rates for interest-sensitive insurance products ranged from 1.5% to 6.5%. The fair values for these investment-type insurance contracts are estimated based on the present value of liability cash flows. The fair values for the Company’s insurance contractsother than investment-type contracts are not required to be disclosed. However, the fair values of liabilities under all insurance contracts are taken into consideration in the Company’s overall management of interest rate risk, such that the Company’s exposure to changing interest rates is minimized through the matching of investment maturities with amounts due under insurance contracts.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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