XML 22 R10.htm IDEA: XBRL DOCUMENT v3.21.2
Investments
 9 Months Ended
Sep. 30, 2021
Investments, Debt and Equity Securities [Abstract]  
Investments

3) Investments

 

The Company’s investments as of September 30, 2021 are summarized as follows:

 

   Amortized Cost   Gross Unrealized Gains   Gross Unrealized Losses   Estimated Fair Value 
September 30, 2021:                    
Fixed maturity securities, available for sale, at estimated fair value:                    
U.S. Treasury securities and obligations of U.S. Government agencies  $22,284,283   $794,130   $—   $23,078,413 
                     
Obligations of states and political subdivisions   5,077,822    229,814    (5,226)   5,302,410 
                     
Corporate securities including public utilities   174,862,169    24,331,635    (291,388)   198,902,416 
                     
Mortgage-backed securities   36,316,313    1,148,676    (185,752)   37,279,237 
                     
Redeemable preferred stock   268,941    13,525    —    282,466 
                     
Total fixed maturity securities available for sale  $238,809,528   $26,517,780   $(482,366)  $264,844,942 
                     
Equity securities at estimated fair value:                    
                     
Common stock:                    
                     
Industrial, miscellaneous and all other  $8,198,282   $2,885,061   $(353,599)  $10,729,744 
                     
Total equity securities at estimated fair value  $8,198,282   $2,885,061   $(353,599)  $10,729,744 
                     
Mortgage loans held for investment at amortized cost:                    
Residential  $89,544,581                
Residential construction   169,030,287                
Commercial   52,087,010                
Less: Unamortized deferred loan fees, net   (1,013,925)               
Less: Allowance for loan losses   (1,753,853)               
Less: Net discounts   (503,619)               
                     
Total mortgage loans held for investment  $307,390,481                
                     
Real estate held for investment - net of accumulated depreciation:                    
Residential  $46,606,702                
Commercial   143,003,658                
                     
Total real estate held for investment  $189,610,360                
                     
Real estate held for sale:                    
Residential  $1,190,602                
Commercial   4,890,553                
                     
Total real estate held for sale  $6,081,155                
                     
Other investments and policy loans at amortized cost:                    
Policy loans  $13,699,414                
Insurance assignments   53,417,350                
Federal Home Loan Bank stock (1)   3,105,100                
Other investments   5,188,801                
Less: Allowance for doubtful accounts   (1,795,037)               
                     
Total policy loans and other investments  $73,615,628                
                     
Accrued investment income  $5,386,756                
                     
Total investments  $857,659,066                

 

(1) Includes $905,700 of Membership stock and $2,199,440 of Activity stock due to short-term borrowings.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (Unaudited)

 

3) Investments (Continued)

 

The Company’s investments as of December 31, 2020 are summarized as follows:

 

   Amortized Cost   Gross Unrealized Gains   Gross Unrealized Losses   Estimated Fair Value 
December 31, 2020:                    
Fixed maturity securities, available for sale, at estimated fair value:                    
U.S. Treasury securities and obligations of U.S. Government agencies  $42,381,805   $1,358,562   $—   $43,740,367 
                     
Obligations of states and political subdivisions   5,383,762    312,214    (1,261)   5,694,715 
                     
Corporate securities including public utilities   186,067,912    27,216,496    (681,478)   212,602,930 
                     
Mortgage-backed securities   31,047,791    1,565,377    (267,106)   32,346,062 
                     
Redeemable preferred stock   269,214    3,391    —    272,605 
                     
Total fixed maturity securities available for sale  $265,150,484   $30,456,040   $(949,845)  $294,656,679 
                     
Equity securities at estimated fair value:                    
                     
Common stock:                    
                     
Industrial, miscellaneous and all other  $9,698,490   $2,376,156   $(750,407)  $11,324,239 
                     
Total equity securities at estimated fair value  $9,698,490   $2,376,156   $(750,407)  $11,324,239 
                     
Mortgage loans held for investment at amortized cost:                    
Residential  $95,822,448                
Residential construction   111,111,777                
Commercial   46,836,866                
Less: Unamortized deferred loan fees, net   (1,161,132)               
Less: Allowance for loan losses   (2,005,127)               
Less: Net discounts   (1,260,896)               
                     
Total mortgage loans held for investment  $249,343,936                
                     
Real estate held for investment - net of accumulated depreciation:                    
Residential  $24,843,743                
Commercial   106,840,710                
                     
Total real estate held for investment  $131,684,453                
                     
Real estate held for sale:                    
Residential  $3,478,254                
Commercial   4,400,553                
                     
Total real estate held for sale  $7,878,807                
                     
Other investments and policy loans at amortized cost:                    
Policy loans  $14,171,589                
Insurance assignments   53,231,131                
Federal Home Loan Bank stock (1)   2,506,600                
Other investments   5,432,816                
Less: Allowance for doubtful accounts   (1,645,475)               
                     
Total policy loans and other investments  $73,696,661                
                     
Accrued investment income  $5,360,523                
                     
Total investments  $773,945,298                

 

(1) Includes $866,900 of Membership stock and $1,639,700 of Activity stock due to short-term borrowings.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (Unaudited)

 

3) Investments (Continued)

 

Fixed Maturity Securities

 

The following tables summarize unrealized losses on fixed maturity securities available for sale, which were carried at estimated fair value, at September 30, 2021 and December 31, 2020. The unrealized losses were primarily related to interest rate fluctuations and uncertainties relating to COVID-19. 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 September 30, 2021                              
Obligations of States and Political Subdivisions  $5,226   $756,793   $—   $—   $5,226   $756,793 
Corporate Securities   62,966    3,633,271    228,422    4,226,222    291,388    7,859,493 
Mortgage and other asset-backed securities   67,554    7,858,646    118,198    1,759,305    185,752    9,617,951 
Total unrealized losses  $135,746   $12,248,710   $346,620   $5,985,527   $482,366   $18,234,237 
                               
At December 31, 2020                              
Obligations of States and Political Subdivisions  $1,261   $206,812   $—   $—   $1,261   $206,812 
Corporate Securities   242,596    9,919,298    438,882    2,593,026    681,478    12,512,324 
Mortgage and other asset-backed securities   266,522    3,455,574    584    51,961    267,106    3,507,535 
Total unrealized losses  $510,379   $13,581,684   $439,466   $2,644,987   $949,845   $16,226,671 

 

There were 51 securities with fair value of 97.4% of amortized cost at September 30, 2021. There were 63 securities with fair value of 94.7% of amortized cost at December 31, 2020. No additional credit losses have been recognized for the three and nine months ended September 30, 2021 and 2020.

 

On a quarterly basis, the Company evaluates its fixed maturity securities available for sale. 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. Securities with ratings of 3 to 5 are considered non-investment grade and 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.

 

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.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (Unaudited)

 

3) Investments (Continued)

 

The following table presents a rollforward of the Company’s cumulative other than temporary credit impairments (“OTTI”) recognized in earnings on fixed maturity securities available for sale for the nine months ended September 30:

 

   2021   2020 
Balance of credit-related OTTI at January 1  $370,975   $— 
           
Additions for credit impairments recognized on:          
Securities not previously impaired   —    — 
Securities previously impaired   —    — 
           
Reductions for credit impairments previously recognized on:          
Securities that matured or were sold during the period (realized)   —    — 
Securities due to an increase in expected cash flows   —    — 
           
Balance of credit-related OTTI at September 30  $370,975   $— 

 

The amortized cost and estimated fair value of fixed maturity securities available for sale at September 30, 2021, 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		 
Due in 1 year  $469,744   $474,140 
Due in 2-5 years   62,693,405    66,205,403 
Due in 5-10 years   71,364,711    79,246,211 
Due in more than 10 years   67,696,414    81,357,485 
Mortgage-backed securities   36,316,313    37,279,237 
Redeemable preferred stock   268,941    282,466 
Total  $238,809,528   $264,844,942 

 

The Company is a member of the Federal Home Loan Bank of Des Moines and Dallas (“FHLB”). The Company has pledged a total of $29,552,638, par value, of United States Treasury and various Ginnie Mae fixed maturity securities with the FHLB at September 30, 2021. These securities are used as collateral on any cash borrowings from the FHLB. As of September 30, 2021, the Company owed $14,443,758 to the FHLB and its estimated remaining maximum borrowing capacity was $13,787,339.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (Unaudited)

 

3) Investments (Continued)

 

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
September 30		   Nine Months Ended
September 30		 
   2021   2020   2021   2020 
Fixed maturity securities:                    
Gross realized gains  $244,275   $50,171   $517,934   $201,130 
Gross realized losses   (16,812)   (39,130)   (31,698)   (51,219)
                     
Equity securities:                    
Gains (losses) on securities sold   119,614    95,331    372,194    (12,141)
Unrealized gains and (losses) on securities held at the end of the period   (122,505)   511,168    1,319,919    (512,629)
                     
Other assets:                    
Gross realized gains   855,282    1,480,053    2,702,084    1,985,817 
Gross realized losses   (102,954)   (1,297,086)   (466,216)   (1,784,419)
Total  $976,900   $800,507   $4,414,217   $(173,461)

 

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.

 

Information regarding sales of fixed maturity securities available for sale is summarized as follows:

 

   Three Months Ended
September 30		   Nine Months Ended
Nine 30		 
   2021   2020   2021   2020 
Proceeds from sales  $843,151   $214,200   $2,826,082   $2,967,531 
Gross realized gains   13,878    16,302    223,010    149,641 
Gross realized losses   (3,249)   (906)   (3,249)   (1,043)

 

Major categories of net investment income are as follows:

 

                 
   Three Months Ended
September 30		   Nine Months Ended
September 30		 
   2021   2020   2021   2020 
Fixed maturity securities  $2,667,848   $3,191,064   $8,189,971   $9,258,850 
Equity securities   111,213    126,369    345,482    329,534 
Mortgage loans held for investment   7,040,773    6,918,081    20,027,656    18,154,123 
Real estate   3,307,980    2,998,806    9,353,459    8,940,072 
Policy loans   229,857    264,422    694,345    755,914 
Insurance assignments   4,781,079    4,561,574    14,298,126    13,244,176 
Other investments   35,118    —    88,124    25,421 
Cash and cash equivalents   81,186    65,460    154,810    385,848 
Gross investment income   18,255,054    18,125,776    53,151,973    51,093,938 
Investment expenses   (3,162,092)   (3,416,634)   (9,587,806)   (10,021,552)
Net investment income  $15,092,962   $14,709,142   $43,564,167   $41,072,386 

 

Net investment income includes income earned by the restricted assets cemeteries and mortuaries of $778,892 and $129,347 for the three months ended September 30, 2021 and 2020, respectively, and $1,130,771 and $380,079 for the nine months ended September 30, 2021 and 2020, 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.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (Unaudited)

 

3) Investments (Continued)

 

Securities on deposit with regulatory authorities as required by law amounted to $10,168,666 at September 30, 2021 and $9,684,409 at December 31, 2020. 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 and fixed maturity securities) at September 30, 2021, other than investments issued or guaranteed by the United States Government.

 

Real Estate Held for Investment and Held for Sale

 

The Company strategically deploys 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 and Held for Sale

 

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 12 commercial properties in 5 states. These properties include office buildings, a funeral home, flex office space, and includes the redevelopment and expansion of its corporate campus (“Center 53”) 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 loans was $124,940,289 and $71,517,902 as of September 30, 2021 and December 31, 2020, respectively. The associated bank loan carrying values totaled $75,989,280 and $46,153,283 as of September 30, 2021 and December 31, 2020, respectively.

 

During the three months ended September 30, 2021 and 2020, the Company recorded impairment losses on commercial real estate held for sale of $-0- and $800,000, respectively. During the nine months ended September 30, 2021 and 2020, the Company recorded impairment losses on commercial real estate held for sale of $28,378 and $846,980, respectively. These impairment losses relate to an office building and a funeral home held by the life insurance segment. Impairment losses are included in gains (losses) on investment and other assets on the condensed consolidated statements of earnings.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (Unaudited)

 

3) Investments (Continued)

 

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 
   September 30 2021   December 31 2020   September 30 2021   December 31 2020 
Utah (1)  $137,296,733   $100,927,528    369,899    379,066 
Louisiana   2,438,053    2,998,684    31,778    84,841 
Mississippi   2,879,727    2,914,498    19,694    21,521 
California   389,145    —    2,872    — 
                     
   $143,003,658   $106,840,710    424,243    485,428 

 

(1) Includes Center53 phase 1 completed and phase 2, which is currently under construction.

 

The following is a summary of the Company’s commercial real estate held for sale for the periods presented:

 

   Net Ending Balance   Total Square Footage 
   September 30
2021		   December 31
2020		   September 30
2021		   December 31
2020		 
Kansas  $4,000,000   $4,000,000    222,679    222,679 
Louisiana   490,000    —    53,063    — 
Texas (1)   249,000    249,000    —    — 
Mississippi   151,553    151,553    —    12,300 
                     
   $4,890,553   $4,400,553    275,742    234,979 

 

(1) Improved commercial pad

 

These properties are all actively being marketed with the assistance of commercial real estate brokers in the markets where the properties are located. The Company expects these properties to sell within the coming 12 months.

 

Residential Real Estate Held for Investment and Held for Sale

 

The Company owns a small portfolio of residential homes primarily as a result of loan foreclosures. The Company has the option to sell them or to continue to hold them for cash flow and acceptable returns. The Company also invests in residential subdivision land developments.

 

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.

 

The net ending balance of foreclosed residential real estate included in residential real estate held for investment and sale is $1,190,602 and $4,327,079 as of September 30, 2021 and December 31, 2020, respectively.

 

During the three months ended September 30, 2021 and 2020 the Company did not record any impairment losses on residential real estate held for investment or held for sale. During the nine months ended September 30, 2021 and 2020 the Company recorded impairment losses on residential real estate held for investment of $-0- and $43,394, respectively. Impairment losses, if any, are included in gains (losses) on investment and other assets on the condensed consolidated statements of earnings.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (Unaudited)

 

3) Investments (Continued)

 

The following is a summary of the Company’s residential real estate held for investment for the periods presented:

 

   Net Ending Balance 
   September 30
2021		   December 31
2020		 
Utah (1)  $46,520,521   $24,557,562 
Washington (2)   286,181    286,181 
   $46,606,702   $24,843,743 

 

(1) Includes subdivision land developments
(2) Improved residential lots

 

Additional information regarding the Company’s subdivision land developments in Utah is summarized as follows:

 

   September 30
2021		   December 31
2020		 
Lots available for sale   106    36 
Lots to be developed   1,254    350 
Ending Balance  $46,111,025   $23,777,478 

 

The following is a summary of the Company’s residential real estate held for sale for the periods presented:

 

   Net Ending Balance 
   September 30
2021		   December 31
2020		 
Nevada  $979,640   $979,640 
Florida   —    744,322 
Texas   200,962    — 
Ohio   10,000    10,000 
Utah   —    1,744,292 
   $1,190,602   $3,478,254 

 

These properties are all actively being marketed with the assistance of residential real estate brokers in the markets where the properties are located. The Company expects these properties to sell within the coming 12 months.

 

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. As of September 30, 2021, real estate owned and occupied by the Company is summarized as follows:

 

Location  Business Segment  Approximate Square
Footage		   Square Footage Occupied by the Company 
121 W. Election Rd., Draper, UT  Corporate Offices, Life Insurance and
Cemetery/Mortuary Operations		   78,979    18%
5201 Green Street, Salt Lake City, UT (1)  Life Insurance and Mortgage Operations   39,157    73%
1044 River Oaks Dr., Flowood, MS  Life Insurance Operations   19,694    28%
1818 Marshall Street, Shreveport, LA (1)  Life Insurance Operations   12,274    100%
909 Foisy Street, Alexandria, LA (1)  Life Insurance Sales   8,059    100%
812 Sheppard Street, Minden, LA (1)  Life Insurance Sales   1,560    100%
1550 N 3rd Street, Jena, LA (1)  Life Insurance Sales   1,737    100%

 

(1) Included in property and equipment on the condensed consolidated balance sheets

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (Unaudited)

 

3) Investments (Continued)

 

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 September 30,2021, the Company had 62%, 13%, 5%, 4%, 2%, 2% and 2% of its mortgage loans from borrowers located in the states of Utah, Florida, Texas, Nevada, Arizona, Hawaii, and Louisiana, respectively. At December 31, 2020, the Company had 57%, 13%, 9%, 4%, 3% and 3% of its mortgage loans from borrowers located in the states of Utah, Florida, Texas, California, Nevada and Arizona, respectively.

 

Mortgage loans held for investment are carried at their unpaid principal balances adjusted for net deferred fees, charge-offs, premiums, discounts 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 or held for sale.

 

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.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (Unaudited)

 

3) Investments (Continued)

 

The Company establishes a valuation allowance for credit losses in its mortgage loans held for investment portfolio. The following is a summary of the allowance for loan losses as a contra-asset account for the periods presented:

 

   Commercial   Residential   Residential Construction   Total 
September 30, 2021                    
Allowance for credit losses:                    
Beginning balance - January 1, 2021  $187,129   $1,774,796   $43,202   $2,005,127 
Charge-offs   —    —    —    — 
Provision   —    (251,274)   —    (251,273)
Ending balance - September 30, 2021  $187,129   $1,523,522   $43,202   $1,753,853 
                     
Ending balance: individually evaluated for impairment  $—   $131,576   $—   $131,576 
                     
Ending balance: collectively evaluated for impairment  $187,129   $1,391,946   $43,202   $1,622,277 
                     
Mortgage loans:                    
Ending balance – September 30, 2021  $52,087,010   $89,544,581   $169,030,287   $310,661,878 
                     
Ending balance: individually evaluated for impairment  $575,260   $3,170,462   $—   $3,745,722 
                     
Ending balance: collectively evaluated for impairment  $51,511,750   $86,374,119   $169,030,287   $306,916,156 
                     
December 31, 2020                    
Allowance for credit losses:                    
Beginning balance - January 1, 2020  $187,129   $1,222,706   $43,202   $1,453,037 
Charge-offs   —    —    —    — 
Provision   —    552,090    —    552,090 
Ending balance – December 31, 2020  $187,129   $1,774,796   $43,202   $2,005,127 
                     
Ending balance: individually evaluated for impairment  $—   $219,905   $—   $219,905 
                     
Ending balance: collectively evaluated for impairment  $187,129   $1,554,891   $43,202   $1,785,222 
                     
Mortgage loans:                    
Ending balance - December 31, 2020  $46,836,866   $111,111,777   $95,822,448   $253,771,091 
                     
Ending balance: individually evaluated for impairment  $2,148,827   $7,932,680   $200,963   $10,282,470 
                     
Ending balance: collectively evaluated for impairment  $44,688,039   $103,179,097   $95,621,485   $243,488,621 

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (Unaudited)

 

3) Investments (Continued)

 

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

 

   Commercial   Residential   Residential
Construction		   Total 
September 30, 2021                    
30-59 Days Past Due  $5,920,000   $2,675,378   $—   $8,595,378 
60-89 Days Past Due   451,337    861,848    1,799,000    3,112,185 
Greater Than 90 Days (1)   473,372    2,021,311    —    2,494,683 
In Process of Foreclosure (1)   101,888    1,149,151    —    1,251,039 
Total Past Due   6,946,597    6,707,686    1,799,000    15,453,285 
Current   45,140,413    82,836,895    167,231,287    295,208,595 
Total Mortgage Loans   52,087,010    89,544,581    169,030,287    310,661,878 
Allowance for Loan Losses   (187,129)   (1,523,522)   (43,202)   (1,753,853)
Unamortized deferred loan fees, net   (27,735)   (695,987)   (290,203)   (1,013,925)
Unamortized discounts, net   (269,363)   (234,256)   —    (503,619)
Net Mortgage Loans  $51,602,783   $87,090,816   $168,696,882   $307,390,481 
                     
December 31, 2020                    
30-59 Days Past Due  $233,200   $5,866,505   $127,191   $6,226,896 
60-89 Days Past Due   812,780    2,048,148    —    2,860,928 
Greater Than 90 Days (1)   2,148,827    5,669,583    —    7,818,410 
In Process of Foreclosure (1)   —    2,263,097    200,963    2,464,060 
Total Past Due   3,194,807    15,847,333    328,154    19,370,294 
Current   43,642,059    79,975,115    110,783,623    234,400,797 
Total Mortgage Loans   46,836,866    95,822,448    111,111,777    253,771,091 
Allowance for Loan Losses   (187,129)   (1,774,796)   (43,202)   (2,005,127)
Unamortized deferred loan fees, net   (32,557)   (909,864)   (218,711)   (1,161,132)
Unamortized discounts, net   (880,721)   (380,175)   —    (1,260,896)
Net Mortgage Loans  $45,736,459   $92,757,613   $110,849,864   $249,343,936 

 

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

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (Unaudited)

 

3) Investments (Continued)

 

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:

 

   Recorded Investment   Unpaid Principal Balance   Related Allowance   Average Recorded Investment   Interest Income Recognized 
September 30, 2021                         
With no related allowance recorded:                         
Commercial  $575,260   $575,260   $—   $830,696   $— 
Residential   2,268,746    2,268,746    —    2,868,607    — 
Residential construction   —    —    —    133,975    — 
                          
With an allowance recorded:                         
Commercial  $—   $—   $—   $—   $— 
Residential   901,716    901,716    131,576    892,335    — 
Residential construction   —    —    —    —    — 
                          
Total:                         
Commercial  $575,260   $575,260   $—   $830,696   $— 
Residential   3,170,462    3,170,462    131,576    3,760,942    — 
Residential construction   —    —    —    133,975    — 
                          
December 31, 2020                         
With no related allowance recorded:                         
Commercial  $2,148,827   $2,148,827   $—   $1,866,819   $— 
Residential   6,415,419    6,415,419    —    5,010,078    — 
Residential construction   200,963    200,963    —    555,278    — 
                          
With an allowance recorded:                         
Commercial  $—   $—   $—   $—   $— 
Residential   1,517,261    1,517,261    219,905    1,182,368    — 
Residential construction   —    —    —    —    — 
                          
Total:                         
Commercial  $2,148,827   $2,148,827   $—   $1,866,819   $— 
Residential   7,932,680    7,932,680    219,905    6,192,446    — 
Residential construction   200,963    200,963    —    555,278    — 

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (Unaudited)

 

3) Investments (Continued)

 

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:

 

   Commercial   Residential   Residential Construction   Total 
   September
30, 2021		   December
31, 2020		   September
30, 2021		   December
31, 2020		   September
30, 2021		   December
31, 2020		   September
30, 2021		   December
31, 2020		 
                                 
Performing  $51,511,750   $44,688,039   $86,374,119   $87,889,768   $169,030,287   $110,910,814   $306,916,156   $243,488,621 
Non-performing   575,260    2,148,827    3,170,462    7,932,680    —    200,963    3,745,722    10,282,470 
                                         
Total  $52,087,011   $46,836,866   $89,544,581   $95,822,448   $169,030,287   $111,111,777   $310,661,878   $253,771,091 

 

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 $265,000 and $491,000 as of September 30, 2021 and December 31, 2020, respectively.

 

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

 

   As of
September 30 2021		   As of
December 31 2020		 
Commercial  $575,260   $2,148,827 
Residential   3,170,462    7,932,680 
Residential construction   —    200,963 
Total  $3,745,222   $10,282,470 

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (Unaudited)