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Investments
 9 Months Ended
Sep. 30, 2022
Investments, Debt and Equity Securities [Abstract]  
Investments

3) Investments

 

The Company’s investments as of September 30, 2022 are summarized as follows:

  

   Amortized Cost   Gross Unrealized Gains   Gross Unrealized Losses   Estimated
Fair Value		 
September 30, 2022:                    
Fixed maturity securities, available for sale, at estimated fair value:                    
U.S. Treasury securities and obligations of U.S. Government agencies  $92,703,449   $40,553   $(2,712,674)  $90,031,328 
                     
Obligations of states and political subdivisions   6,967,633    68,118    (357,711)   6,678,040 
                     
Corporate securities including public utilities   207,475,636    1,360,888    (14,314,429)   194,522,095 
                     
Mortgage-backed securities   32,865,784    170,765    (3,721,627)   29,314,922 
                     
Redeemable preferred stock   250,000    10,000    -    260,000 
                     
Total fixed maturity securities available for sale  $340,262,502   $1,650,324   $(21,106,441)  $320,806,385 
                     
Equity securities at estimated fair value:                    
                     
Common stock:                    
                     
Industrial, miscellaneous and all other  $9,792,380   $1,871,973   $(1,293,321)  $10,371,032 
                     
Total equity securities at estimated fair value  $9,792,380   $1,871,973   $(1,293,321)  $10,371,032 
                     
Mortgage loans held for investment at amortized cost:                    
Residential  $89,281,273                
Residential construction   201,685,076                
Commercial   33,350,108                
Less: Unamortized deferred loan fees, net   (1,730,306)               
Less: Allowance for loan losses   (1,675,015)               
Less: Net discounts   (347,536)               
                     
Total mortgage loans held for investment  $320,563,600                
                     
Real estate held for investment - net of accumulated depreciation:                    
Residential  $38,506,725                
Commercial   157,570,812                
                     
Total real estate held for investment  $196,077,537                
                     
Real estate held for sale:                    
Commercial  $151,553                
                     
Total real estate held for sale  $151,553                
                     
Other investments and policy loans at amortized cost:                    
Policy loans  $13,066,150                
Insurance assignments   42,614,272                
Federal Home Loan Bank stock (1)   2,588,400                
Other investments   9,081,500                
Less: Allowance for doubtful accounts   (1,736,761)               
                     
Total policy loans and other investments  $65,613,561                
                     
Accrued investment income  $10,844,025                
                     
Total investments  $924,427,693                

 

(1)Includes $933,300 of Membership stock and $1,655,100 of Activity stock due to short-term borrowings and letters of credit.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

 

3) Investments (Continued)

 

The Company’s investments as of December 31, 2021 are summarized as follows:

 

   Amortized Cost   Gross Unrealized Gains   Gross Unrealized Losses   Estimated
Fair Value		 
December 31, 2021:                    
Fixed maturity securities, available for sale, at estimated fair value:                    
U.S. Treasury securities and obligations of U.S. Government agencies  $22,307,736   $578,567   $-   $22,886,303 
                     
Obligations of states and political subdivisions   4,649,917    212,803    (1,989)   4,860,731 
                     
Corporate securities including public utilities   174,711,061    21,791,370    (353,668)   196,148,763 
                     
Mortgage-backed securities   34,365,382    905,159    (161,332)   35,109,209 
                     
Redeemable preferred stock   269,214    13,383    -    282,597 
                     
Total fixed maturity securities available for sale  $236,303,310   $23,501,282   $(516,989)  $259,287,603 
                     
Equity securities at estimated fair value:                    
                     
Common stock:                    
                     
Industrial, miscellaneous and all other  $8,275,772   $3,626,444   $(305,802)  $11,596,414 
                     
Total equity securities at estimated fair value  $8,275,772   $3,626,444   $(305,802)  $11,596,414 
                     
Mortgage loans held for investment at amortized cost:                    
Residential  $53,533,712                
Residential construction   175,117,783                
Commercial   51,683,022                
Less: Unamortized deferred loan fees, net   (918,586)               
Less: Allowance for loan losses   (1,699,902)               
Less: Net discounts   (409,983)               
                     
Total mortgage loans held for investment  $277,306,046                
                     
Real estate held for investment - net of accumulated depreciation:                    
Residential  $41,972,462                
Commercial   155,393,335                
                     
Total real estate held for investment  $197,365,797                
                     
Real estate held for sale:                    
Residential  $1,190,602                
Commercial   2,540,698                
                     
Total real estate held for sale  $3,731,300                
                     
Other investments and policy loans at amortized cost:                    
Policy loans  $13,478,214                
Insurance assignments   48,632,808                
Federal Home Loan Bank stock (1)   2,547,100                
Other investments   4,983,251                
Less: Allowance for doubtful accounts   (1,686,218)               
                     
Total policy loans and other investments  $67,955,155                
                     
Accrued investment income  $6,313,012                
                     
Total investments  $823,555,327                

 

(1)Includes $905,700 of Membership stock and $1,641,400 of Activity stock due to short-term advances and letters of credit.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

 

3) Investments (Continued)

 

Fixed Maturity Securities

 

The following table summarizes unrealized losses on fixed maturity securities available for sale that were carried at estimated fair value at September 30, 2022 and at December 31, 2021. The unrealized losses were primarily related to interest rate fluctuations and uncertainties relating to COVID-19. The table below sets 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   Combined Unrealized Loss   Combined Fair Value 
At September 30, 2022                              
U.S. Treasury Securities And Obligations of U.S. Government Agencies  $2,712,674   $88,813,356   $-   $-   $2,712,674   $88,813,356 
Obligations of States and Political Subdivisions   278,757    4,671,643    78,954    430,230    357,711    5,101,873 
Corporate Securities   13,675,310    159,071,249    639,119    3,930,859    14,314,429    163,002,108 
Mortgage and other asset-backed securities   2,715,858    20,511,908    1,005,769    7,330,869    3,721,627    27,842,777 
Totals  $19,382,599   $273,068,156   $1,723,842   $11,691,958   $21,106,441   $284,760,114 
                               
At December 31, 2021                              
Obligations of States and Political Subdivisions  $1,989   $548,715   $-   $-   $1,989   $548,715 
Corporate Securities   73,507    4,638,750    280,161    3,771,813    353,668    8,410,563 
Mortgage and other asset-backed securities   72,952    7,934,760    88,380    1,582,804    161,332    9,517,564 
Totals  $148,448   $13,122,225   $368,541   $5,354,617   $516,989   $18,476,842 

 

There were 703 securities with fair value of 93.1% of aggregate amortized cost at September 30, 2022. There were 55 securities with fair value of 97.3% of aggregate amortized cost at December 31, 2021. No credit losses have been recognized for the three and nine months ended September 30, 2022 and 2021, since the increase in unrealized losses is primarily a result of the recent rise in interest rates.

 

On a quarterly basis, the Company evaluates its fixed maturity securities classified as 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 and are not reviewed for impairment, unless current market or recent company news could lead to a credit downgrade. 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.

 

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, 2022 (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.

 

   2022   2021 
Balance of credit-related OTTI at January 1  $264,977   $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)   (39,502)   - 
Securities due to an increase in expected cash flows   -    - 
           
Balance of credit-related OTTI at September 30  $225,475   $370,975 

 

The following table presents the amortized cost and estimated fair value of fixed maturity securities available for sale at September 30, 2022, by contractual maturity. 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  $11,546,042   $11,537,459 
Due in 2-5 years   137,667,392    132,904,405 
Due in 5-10 years   67,911,889    63,435,713 
Due in more than 10 years   90,021,395    83,353,886 
Mortgage-backed securities   32,865,784    29,314,922 
Redeemable preferred stock   250,000    260,000 
Total  $340,262,502   $320,806,385 

 

The Company is a member of the Federal Home Loan Bank of Des Moines and Dallas (“FHLB”). The Company had pledged a total of $86,320,358, at estimated fair value, of fixed maturity securities with the FHLB at September 30, 2022. These securities are used as collateral on any cash borrowings from the FHLB. As of September 30, 2022, the Company owed nil to the FHLB and its estimated maximum borrowing capacity was $83,051,896.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

 

3) Investments (Continued)

 

Investment Related Earnings

 

The following table presents the realized gains and losses from sales, calls, and maturities, unrealized gains and losses on equity securities, and other than temporary impairments from investments and other assets.

 

   2022   2021   2022   2021 
   Three Months Ended
September 30		   Nine Months Ended
September 30		 
   2022   2021   2022   2021 
Fixed maturity securities:                    
Gross realized gains  $30,121   $244,275   $205,755   $517,934 
Gross realized losses   (26,203)   (16,812)   (36,961)   (31,698)
                     
Equity securities:                    
Gains (losses) on securities sold   (131,472)   119,614    (60,154)   372,194 
Unrealized gains and (losses) on securities held at the end of the period   (1,383,627)   (122,505)   (4,097,049)   1,319,919 
                     
Other assets:                    
Gross realized gains   59,599    855,282    1,892,630    2,702,084 
Gross realized losses   (727,370)   (102,954)   (825,593)   (466,216)
Total  $(2,178,952)  $976,900   $(2,921,372)  $4,414,217 

 

The 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 presented as follows.

 

   2022   2021   2022   2021 
   Three Months Ended
September 30		   Nine Months Ended
September 30		 
   2022   2021   2022   2021 
Proceeds from sales  $1,198,240   $843,151   $1,886,891   $2,826,082 
Gross realized gains   21,926    13,878    24,281    223,010 
Gross realized losses   (24,811)   (3,249)   (32,656)   (3,249)

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

 

3) Investments (Continued)

 

Major categories of net investment income were as follows:

 

   2022   2021   2022   2021 
   Three Months Ended
September 30		   Nine Months Ended
September 30		 
   2022   2021   2022   2021 
Fixed maturity securities available for sale  $3,188,521   $2,667,848   $8,636,387   $8,189,971 
Equity securities   139,412    111,213    382,246    345,482 
Mortgage loans held for investment   10,477,672    7,040,773    27,682,315    20,027,656 
Real estate held for investment and sale   3,918,310    3,307,980    10,970,535    9,353,459 
Policy loans   213,520    229,857    727,103    694,345 
Insurance assignments   4,218,184    4,781,079    13,708,894    14,298,126 
Other investments   181,597    35,118    350,603    88,124 
Cash and cash equivalents   514,869    81,186    698,601    154,810 
Gross investment income   22,852,085    18,255,054    63,156,684    53,151,973 
Investment expenses   (4,249,015)   (3,162,092)   (13,388,020)   (9,587,806)
Net investment income  $18,603,070   $15,092,962   $49,768,664   $43,564,167 

 

Net investment income includes income earned by the restricted assets of the cemeteries and mortuaries of $675,259 and $778,892 for the three months ended September 30, 2022 and 2021, respectively, and of $1,882,502 and $1,130,771 for the nine months ended September 30, 2022 and 2021, 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 and cash on deposit with regulatory authorities as required by law amounted to $11,048,787 at September 30, 2022 and $10,168,853 at December 31, 2021 (the December 31, 2021 amount has been corrected from that previously reported due to a typographical error). 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, 2022, 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.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

 

3) Investments (Continued)

 

The Company currently owns and operates nine commercial properties in three states. These properties include office buildings, flex office space, and includes the redevelopment and expansion of its corporate campus (“Center53”) in Salt Lake City, Utah. 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 $133,785,749 and $134,251,205 as of September 30, 2022 and December 31, 2021, respectively. The associated bank loan carrying values totaled $97,562,264 and $85,663,148 as of September 30, 2022 and December 31, 2021, respectively.

 

During the three months ended September 30, 2022 and 2021, the Company did not record any impairment losses on commercial real estate held for investment or held for sale. During the nine months ended September 30, 2022 and 2021, the Company recorded impairment losses on commercial real estate held for sale of nil and $28,378, respectively. Impairment losses are included in gains (losses) on investment and other assets on the condensed consolidated statements of earnings.

 

The Company’s commercial real estate held for investment is summarized as follows:

 

   Net Ending Balance   Total Square Footage 
   September 30
2022		   December 31
2021		   September 30
2022		   December 31
2021		 
Utah (1)  $152,280,425   $150,105,948    625,920    625,920 
Louisiana   2,392,288    2,426,612    31,778    31,778 
Mississippi   2,898,099    2,860,775    19,694    19,694 
                     
   $157,570,812   $155,393,335    677,392    677,392 

 

 

(1)Includes Center53 phase 1 and phase 2

 

The Company’s commercial real estate held for sale is summarized as follows:

 

   Net Ending Balance   Total Square Footage 
   September 30
2022		   December 31
2021		   September 30
2022		   December 31 2021 
Kansas  $-   $2,000,000             -    222,679 
California   -    389,145    -    2,872 
Mississippi (1)   151,553    151,553    -    - 
                     
   $151,553   $2,540,698    -    225,551 

 

 

(1)Approximately 93 acres of undeveloped land

 

This property is being marketed with the assistance of commercial real estate brokers in the markets where the property is located.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

 

3) Investments (Continued)

 

Residential Real Estate Held for Investment and Held for Sale

 

The Company occasionally 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 residential portfolio across the country.

 

The net ending balance of foreclosed residential real estate included in residential real estate held for sale was nil and $1,190,602 as of September 30, 2022 and December 31, 2021, respectively.

 

During the three months ended September 30, 2022 and 2021 the Company did not record any impairment losses on residential real estate held for sale or held for investment. During the nine months ended September 30, 2022 and 2021 the Company recorded impairment losses on residential real estate held for sale of $94,400 and nil, respectively. Impairment losses are included in gains (losses) on investment and other assets on the condensed consolidated statements of earnings.

 

The Company’s residential real estate held for investment is summarized as follows:

 

   Net Ending Balance 
   September 30
2022		   December 31
2021		 
Utah (1)  $38,506,725   $41,686,281 
Washington (2)   -    286,181 
   $38,506,725   $41,972,462 

 

 

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

 

The following table presents additional information regarding the Company’s subdivision land developments in Utah.

 

   September 30
2022		   December 31
2021		 
Lots developed   52    67 
Lots to be developed   2,206    548 
Ending Balance  $38,307,821   $41,479,434 

 

The Company’s residential real estate held for sale is summarized as follows:

 

           
   Net Ending Balance 
   September 30
2022		   December 31
2021		 
Texas  $        -   $200,962 
Nevada   -    979,640 
Ohio   -    10,000 
Real estate held for sale  $-   $1,190,602 

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

 

3) Investments (Continued)

 

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, 2022, real estate owned and occupied by the Company is summarized as follows:

  

Location  Business Segment  Approximate Square Footage   Square Footage Occupied by the Company 
433 West Ascension Way, Salt Lake City, UT - Center53 Building 2  Corporate Offices, Life Insurance, Cemetery/Mortuary Operations, and Mortgage Operations and Sales   221,000    50%
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 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 September 30, 2022, the Company had 69%, 8%, 4%, 4%, 4% and 3% of its mortgage loans from borrowers located in the states of Utah, Florida, Texas, California, Arizona, and Nevada, respectively. At December 31, 2021, the Company had 70%, 7%, 5%, 4%, 4% and 2% of its mortgage loans from borrowers located in the states of Utah, Florida, California, Texas, 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 fair market value of the loan’s collateral. 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. As a practical expedient, 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.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

 

3) Investments (Continued)

 

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 secondarily on the borrower’s (or guarantors) ability to repay.

 

Residential — Secured by family dwelling units. These loans are secured by first and second mortgages on the unit. The borrower’s ability to repay is sensitive to the life events and general economic condition of the region. Where loan to value exceeds 80%, the loan is generally guaranteed by private mortgage insurance, FHA or VA.

 

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, 2022 (Unaudited)

 

3) Investments (Continued)

 

The Company establishes a valuation allowance for credit losses in its mortgage loans held for investment portfolio. The following table presents the valuation allowance for loan losses as a contra-asset account.

 

   Commercial   Residential   Residential Construction   Total 
September 30, 2022                    
Allowance for credit losses:                    
Beginning balance - January 1, 2022  $187,129   $1,469,571   $43,202   $1,699,902 
Charge-offs   -    -    -    - 
Provision   -    (24,887)   -    (24,887)
Ending balance - September 30, 2022  $187,129   $1,444,684   $43,202   $1,675,015 
                     
Ending balance: individually evaluated for impairment  $-   $41,139   $-   $41,139 
                     
Ending balance: collectively evaluated for impairment  $187,129   $1,403,545   $43,202   $1,633,876 
                     
Mortgage loans:                    
Ending balance - September 30, 2022  $33,350,108   $89,281,273   $201,685,076   $324,316,457 
                     
Ending balance: individually evaluated for impairment  $405,000   $1,410,099   $-   $1,815,099 
                     
Ending balance: collectively evaluated for impairment  $32,945,108   $87,871,174   $201,685,076   $322,501,358 
                     
December 31, 2021                    
Allowance for credit losses:                    
Beginning balance - January 1, 2021  $187,129   $1,774,796   $43,202   $2,005,127 
Charge-offs   -    -    -    - 
Provision   -    (305,225)   -    (305,225)
Ending balance - December 31, 2021  $187,129   $1,469,571   $43,202   $1,699,902 
                     
Ending balance: individually evaluated for impairment  $-   $105,384   $-   $105,384 
                     
Ending balance: collectively evaluated for impairment  $187,129   $1,364,187   $43,202   $1,594,518 
                     
Mortgage loans:                    
Ending balance - December 31, 2021  $51,683,022   $53,533,712   $175,117,783   $280,334,517 
                     
Ending balance: individually evaluated for impairment  $1,723,372   $2,548,656   $-   $4,272,028 
                     
Ending balance: collectively evaluated for impairment  $49,959,650   $50,985,056   $175,117,783   $276,062,489(1)

 

 

(1) Amount corrected from that previously reported due to a typographical error.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

 

3) Investments (Continued)

 

The following table presents the aging of mortgage loans held for investment.

 

   Commercial   Residential   Residential
Construction		   Total 
September 30, 2022                    
30-59 Days Past Due  $205,763   $2,639,165   $1,644,520   $4,489,448 
60-89 Days Past Due   -    721,148    626,023    1,347,171 
Greater Than 90 Days (1)   -    1,088,810    -    1,088,810 
In Process of Foreclosure (1)   405,000    321,289    -    726,289 
Total Past Due   610,763    4,770,412    2,270,543    7,651,718 
Current   32,739,345    84,510,861    199,414,533    316,664,739 
Total Mortgage Loans   33,350,108    89,281,273    201,685,076    324,316,457 
Allowance for Loan Losses   (187,129)   (1,444,684)   (43,202)   (1,675,015)
Unamortized deferred loan fees, net   (84,392)   (1,132,024)   (513,890)   (1,730,306)
Unamortized discounts, net   (234,558)   (112,978)   -    (347,536)
Net Mortgage Loans  $32,844,029   $86,591,587   $201,127,984   $320,563,600 
                     
December 31, 2021                    
30-59 Days Past Due  $-   $3,117,826   $1,363,127   $4,480,953 
60-89 Days Past Due   100,204    580,815    -    681,019 
Greater Than 90 Days (1)   1,723,372    2,052,062    -    3,775,434 
In Process of Foreclosure (1)   -    496,594    -    496,594 
Total Past Due   1,823,576    6,247,297    1,363,127    9,434,000 
Current   49,859,446    47,286,415    173,754,656    270,900,517 
Total Mortgage Loans   51,683,022    53,533,712    175,117,783    280,334,517 
Allowance for Loan Losses   (187,129)   (1,469,571)   (43,202)   (1,699,902)
Unamortized deferred loan fees, net   (36,813)   (498,600)   (383,173)   (918,586)
Unamortized discounts, net   (240,614)   (169,369)   -    (409,983)
Net Mortgage Loans  $51,218,466   $51,396,172   $174,691,408   $277,306,046 

 

 

(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, 2022 (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 are summarized as follows:

 

   Recorded Investment   Unpaid Principal Balance   Related Allowance   Average Recorded Investment   Interest Income Recognized 
September 30, 2022                                
With no related allowance recorded:                         
Commercial  $405,000   $405,000   $-   $881,234   $- 
Residential   897,174    897,174    -    952,765    - 
Residential construction   -    -    -    138,635    - 
                          
With an allowance recorded:                         
Commercial  $-   $-   $-   $-   $- 
Residential   512,925    512,925    41,139    570,066    - 
Residential construction   -    -    -    -    - 
                          
Total:                         
Commercial  $405,000   $405,000   $-   $881,234   $- 
Residential   1,410,099    1,410,099    41,139    1,522,831    - 
Residential construction   -    -    -    138,635    - 
                          
December 31, 2021                         
With no related allowance recorded:                         
Commercial  $1,723,372   $1,723,372   $-   $1,053,865   $- 
Residential   1,591,368    1,591,368    -    2,731,421    - 
Residential construction   -    -    -    100,481    - 
                          
With an allowance recorded:                         
Commercial  $-   $-   $-   $-   $- 
Residential   957,288    957,288    105,384    726,449    - 
Residential construction   -    -    -    -    - 
                          
Total:                         
Commercial  $1,723,372   $1,723,372   $-   $1,053,865   $- 
Residential   2,548,656    2,548,656    105,384    3,457,870    - 
Residential construction   -    -    -    100,481    - 

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (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 are summarized as follows:

 

   Commercial   Residential   Residential Construction   Total 
   September
30, 2022		   December
31, 2021		   September
30, 2022		   December
31, 2021		   September
30, 2022		   December
31, 2021		   September
30, 2022		   December
31, 2021		 
                                 
Performing  $32,945,108   $49,959,650   $87,871,174   $50,985,056   $201,685,076   $175,117,783   $322,501,358   $276,062,489 
Non-performing   405,000    1,723,372    1,410,099    2,548,656    -    -    1,815,099    4,272,028 
                                         
Total  $33,350,108   $51,683,022   $89,281,273   $53,533,712   $201,685,076   $175,117,783   $324,316,457   $280,334,517 

 

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 totaled approximately $110,000 and $236,000 as of September 30, 2022 and December 31, 2021, respectively.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)