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Investments

12 Months Ended

Dec. 31, 2023

Investments, Debt and Equity Securities [Abstract]

2) Investments

The Company’s investments as of December 31, 2023 are summarized as follows:

Schedule of Investments

	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses (1)			Allowance for Credit Losses			Estimated Fair Value
December 31, 2023:
Fixed maturity securities, available for sale, at estimated fair value:
U.S. Treasury securities and obligations of U.S. Government agencies	$	111,450,753		$	344,425	$	(1,416,448	)	$	-		$	110,378,730

Obligations of states and political subdivisions		6,524,083			500		(319,260	)		-			6,205,323

Corporate securities including public utilities		232,299,727			3,688,642		(7,145,507	)		(308,500	)		228,534,362

Mortgage-backed securities		40,359,878			506,647		(4,702,905	)		(6,049	)		36,157,571

Redeemable preferred stock		250,000			10,000		-			-			260,000

Total fixed maturity securities available for sale	$	390,884,441		$	4,550,214	$	(13,584,120	)	$	(314,549	)	$	381,535,986

Equity securities at estimated fair value:

Common stock:

Industrial, miscellaneous and all other	$	10,571,505		$	3,504,141	$	(439,575	)				$	13,636,071

Total equity securities at estimated fair value	$	10,571,505		$	3,504,141	$	(439,575	)				$	13,636,071

Mortgage loans held for investment at amortized cost:
Residential	$	103,153,587
Residential construction		104,052,748
Commercial		74,176,538
Less: Unamortized deferred loan fees, net		(1,623,226	)
Less: Allowance for credit losses		(3,818,653	)
Less: Net discounts		(324,157	)

Total mortgage loans held for investment	$	275,616,837

Real estate held for investment - net of accumulated depreciation:
Residential	$	40,924,865
Commercial		142,494,427

Total real estate held for investment	$	183,419,292

Real estate held for sale:
Residential	$	-
Commercial		3,028,973

Total real estate held for sale	$	3,028,973

Other investments and policy loans at amortized cost:
Policy loans	$	13,264,183
Insurance assignments		45,605,322
Federal Home Loan Bank stock (2)		2,279,800
Other investments		9,809,148
Less: Allowance for credit losses		(1,553,836	)

Total policy loans and other investments	$	69,404,617

Accrued investment income	$	10,170,790

Total investments	$	936,812,566

(1)

Gross unrealized losses are net of allowance for credit losses

(2)

Includes $530,900 of Membership stock and $1,748,900 of Activity stock due to short-term advances and letters of credit.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

The Company’s investments as of December 31, 2022 are summarized as follows:

	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
December 31, 2022:
Fixed maturity securities, available for sale, at estimated fair value:
U.S. Treasury securities and obligations of U.S. Government agencies	$	93,182,210		$	180,643	$	(2,685,277	)	$	90,677,576

Obligations of states and political subdivisions		6,675,071			13,869		(458,137	)		6,230,803

Corporate securities including public utilities		229,141,544			1,909,630		(11,930,773	)		219,120,401

Mortgage-backed securities		33,501,686			168,700		(4,100,674	)		29,569,712

Redeemable preferred stock		250,000			10,000		-			260,000

Total fixed maturity securities available for sale	$	362,750,511		$	2,282,842	$	(19,174,861	)	$	345,858,492

Equity securities at estimated fair value:

Common stock:

Industrial, miscellaneous and all other	$	9,942,265		$	2,688,375	$	(948,114	)	$	11,682,526

Total equity securities at estimated fair value	$	9,942,265		$	2,688,375	$	(948,114	)	$	11,682,526

Mortgage loans held for investment at amortized cost:
Residential	$	93,355,623
Residential construction		172,516,125
Commercial		46,311,955
Less: Unamortized deferred loan fees, net		(1,746,605	)
Less: Allowance for loan losses		(1,970,311	)
Less: Net discounts		(342,860	)

Total mortgage loans held for investment	$	308,123,927

Real estate held for investment - net of accumulated depreciation:
Residential	$	38,437,960
Commercial		152,890,656

Total real estate held for investment	$	191,328,616

Real estate held for sale:
Residential	$	11,010,029
Commercial		151,553

Total real estate held for sale	$	11,161,582

Other investments and policy loans at amortized cost:
Policy loans	$	13,095,473
Insurance assignments		46,942,536
Federal Home Loan Bank stock (1)		2,600,300
Other investments		9,479,798
Less: Allowance for doubtful accounts		(1,609,951	)

Total policy loans and other investments	$	70,508,156

Accrued investment income	$	10,299,826

Total investments	$	948,963,125

(1)

Includes $938,500 of Membership stock and $1,661,800 of Activity stock due to short-term advances and letters of credit.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

There were no investments, aggregated by issuer, of more than 10% of shareholders’ equity (before net unrealized gains and losses on equity securities and fixed maturity securities) as of December 31, 2023, other than investments issued or guaranteed by the United States Government.

Fixed Maturity Securities

The table below summarizes unrealized losses on fixed maturities securities available for sale that were carried at estimated fair value as of December 31, 2023 and 2022. The fair values of fixed maturity securities are based on quoted market prices, when available. For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services, or in the case of private placements, are estimated by discounting expected future cash flows using a current market value applicable to the coupon rate, credit, and maturity of the investments. The 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 December 31, 2023
U.S. Treasury securities and obligations of U.S. Government agencies	$	29,394	$	9,436,090	$	1,387,054	$	70,885,403	$	1,416,448	$	80,321,493
Obligations of states and political subdivisions		11,105		470,325		308,155		5,284,498		319,260		5,754,823
Corporate securities including public utilities		529,660		32,507,773		6,615,847		107,556,216		7,145,507		140,063,989
Mortgage and other asset-backed securities		29,799		2,260,445		4,673,106		22,184,174		4,702,905		24,444,619
Total unrealized losses	$	599,958	$	44,674,633	$	12,984,162	$	205,910,291	$	13,584,120	$	250,584,924

At December 31, 2022
U.S. Treasury securities and obligations of U.S. Government agencies	$	2,685,277	$	79,400,753	$	-	$	-	$	2,685,277	$	79,400,753
Obligations of states and political subdivisions		378,067		5,467,910		80,070		429,020		458,137		5,896,930
Corporate securities including public utilities		10,935,114		162,995,969		995,659		5,781,822		11,930,773		168,777,791
Mortgage and other asset-backed securities		2,884,731		19,909,907		1,215,943		6,978,745		4,100,674		26,888,652
Total unrealized losses	$	16,883,189	$	267,774,539	$	2,291,672	$	13,189,587	$	19,174,861	$	280,964,126

Relevant holdings were comprised of 606 securities with fair values aggregating 94.9% of the aggregated amortized cost as of December 31, 2023. Relevant holdings were comprised of 713 securities with fair values aggregating 93.6% of the aggregated amortized cost as of December 31, 2022. Credit loss provision (release) of $325,314 and nil have been recognized for 2023 and 2022, respectively. Credit losses are included in gains (losses) on investments and other assets on the condensed consolidated statements of earnings. Other unrealized losses for which no credit loss was recognized are primarily the result of increases in interest rates.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

Evaluation of Allowance for Credit Losses

See Note 1 regarding the adoption of ASU 2016-13.

On a quarterly basis, the Company evaluates its fixed maturity securities classified as available for sale to identify any potential credit losses. This evaluation includes a review of current ratings by the National Association of Insurance Commissions (“NAIC”) and other industry rating agencies. Securities with a rating of 1 or 2 are considered investment grade and are not reviewed for credit loss unless current market data or recent company news could lead to a credit downgrade. Securities with ratings of 3 to 5 are evaluated for credit loss. The evaluation involves assessing all facts and circumstances surrounding each security including, but not limited 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. Securities with a rating of 6 are automatically determined to be impaired and a credit loss is recognized in earnings.

Where the decline in fair value of fixed maturity securities is attributable to changes in market interest rates or to factors such as market volatility, liquidity and spread widening, and the Company anticipates recovery of all contractual or expected cash flows, the Company does not consider these securities to have credit loss because the Company does not intend to sell these securities and it is not more likely than not the Company will be required to sell these securities before a recovery of amortized cost, which may be at maturity.

If the Company intends to sell a fixed maturity security or if it is more likely than not that the Company will be required to sell a security before recovery of its amortized cost basis, a credit loss has occurred and the difference between the amortized cost and the fair value that relates to the expected credit loss is recognized as a loss in earnings, included in gains (losses) on investments and other assets on the condensed consolidated statements of earnings.

If the Company does not intend to sell a debt security and it is less likely than not that the Company will be required to sell the debt security but the Company also does not expect to recover the entire amortized cost basis of the security, a credit loss is recognized in earnings for the amount of the expected credit loss with a corresponding allowance for credit losses as a contra-asset account. The credit loss is included in gains (losses) on investments and other assets on the condensed consolidated statements of earnings. The recognized credit loss is limited to the total unrealized loss on the security due to a change in credit.

Amounts on available for sale fixed maturities that are deemed to be uncollectible are written off and removed from the allowance for credit loss. A write-off may also occur if the Company intends to sell a security or when it is more likely than not that the Company will be required to sell the security before the recovery of its amortized cost.

The Company does not measure a credit loss allowance on accrued interest receivable, included in accrued investment income on the condensed consolidated balance sheets, as the Company writes off any accrued interest receivable balance to net investment income in a timely manner (after 90 days) when the Company has concerns regarding collectability.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

Credit Quality Indicators

The NAIC assigns designations to fixed maturity securities. These designations range from Class 1 (highest quality) to Class 6 (lowest quality). The NAIC designations are utilized by insurers in preparing their annual statutory statements. NAIC Class 1 and 2 are considered investment grade while the NAIC Class 3 through 6 designations are considered non-investment grade. Based on the NAIC designations, the Company had 98.2% and 97.7% of its fixed maturity securities rated investment grade as of December 31, 2023 and 2022, respectively. The following table summarizes the credit quality, by NAIC designation, of the Company’s fixed maturity securities available for sale, excluding redeemable preferred stock.

	December 31, 2023				December 31, 2022
NAIC Designation	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
1	$	221,933,425	$	216,975,288	$	197,753,818	$	189,691,540
2		161,062,016		157,346,803		156,261,804		148,073,873
3		6,418,829		5,953,542		7,080,305		6,635,786
4		982,290		948,478		1,377,541		1,157,454
5		236,648		51,875		25,736		39,155
6		1,233		-		1,307		684
Total	$	390,634,441	$	381,275,986	$	362,500,511	$	345,598,492

The following tables presents a roll forward of the Company’s allowance for credit losses on fixed maturity securities available for sale:


	Year Ended December 31, 2023
	U.S. Treasury Securities And Obligations of U.S. Government Agencies		Obligations of states and political subdivisions		Corporate securities including public utilities			Mortgage-backed securities		Total

Beginning balance - December 31, 2022	$	-	$	-	$	-		$	-	$	-

Additions for credit losses not previously recorded		-		-		261,500			6,049		267,549
Change in allowance on securities with previous allowance		-		-		57,764			-		57,764
Reductions for securities sold during the period		-		-		(10,764	)		-		(10,764	)
Reductions for securities with credit losses due to intent to sell		-		-		-			-		-
Write-offs charged against the allowance		-		-		-			-		-
Recoveries of amounts previously written off		-		-		-			-		-

Ending Balance - December 31, 2023	$	-	$	-	$	308,500		$	6,049	$	314,549

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

The following table presents a roll forward of the Company’s cumulative other than temporary credit impairments (“OTTI”) recognized in earnings on fixed maturity securities available for sale which was required to be presented prior to the adoption of ASU 2016-13:

	2022
Balance of credit-related OTTI at January 1	$	264,977

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 December 31	$	225,475

The following table presents the amortized cost and estimated fair value of fixed maturity securities available for sale at December 31, 2023, 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		Estimated Fair
	Cost		Value
Due in 1 year	$	-	$	-
Due in 2-5 years		168,831,608		166,186,132
Due in 5-10 years		95,804,878		95,031,727
Due in more than 10 years		85,638,077		83,900,556
Mortgage-backed securities		40,359,878		36,157,571
Redeemable preferred stock		250,000		260,000
Total	$	390,884,441	$	381,535,986

Information regarding sales of fixed maturity securities available for sale is presented as follows.

	2023			2022
	Years Ended December 31,
	2023			2022
Proceeds from sales	$	2,557,074		$	3,091,105
Gross realized gains		11,508			24,281
Gross realized losses		(57,861	)		(32,976	)

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

Assets on Deposit, Held in Trust, and Pledged as Collateral

Assets on deposit with life insurance regulatory authorities as required by law were as follows:

	2023		2022
	Years Ended December 31,
	2023		2022
Fixed maturity securities available for sale at estimated fair value	$	6,206,650	$	8,817,959
Other investments		400,000		-
Cash and cash equivalents		1,909,215		2,214,206
Total assets on deposit	$	8,515,865	$	11,032,165

Assets held in trust related to third-party reinsurance agreements were as follows:

	Years Ended December 31,
	2023		2022
Fixed maturity securities available for sale at estimated fair value	$	27,903,952	$	27,955,297
Cash and cash equivalents		2,101,052		1,866,453
Total assets on deposit	$	30,005,004	$	29,821,750

The Company is a member of the Federal Home Loan Bank of Des Moines and Dallas (“FHLB”). Assets pledged as collateral with the FHLB are presented below. These pledged securities are used as collateral for any FHLB cash advances. See Note 7 of the Notes to the Consolidated Financial Statements for more information about the FHLB.

	Years Ended December 31,
	2023		2022
Fixed maturity securities available for sale at estimated fair value	$	93,903,089	$	93,034,880
Total assets pledged as collateral	$	93,903,089	$	93,034,880

Real Estate Held for Investment and Held for Sale

The Company strategically deploys resources into real estate assets to match the income and yield durations of its primary obligations. The sources for these real estate assets come through its various business segments in the form of acquisition, development, and mortgage foreclosures. The Company reports real estate held for investment and held for sale pursuant to the accounting policy discussed in Note 1 of the Notes to Consolidated Financial Statements.

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 resources. The geographic locations and asset classes of investments are determined by senior management under the direction of the Board of Directors.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

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 where the geographic location does not warrant full-time staff or through strategic lease-up periods. The Company generally looks to acquire assets that are in regions expected to have high growth in employment and population and that provide operational efficiencies.

The Company currently owns and operates nine commercial properties in three states. These properties include office buildings, flex office space, and the redevelopment and expansion of its corporate campus (“Center53”) in Salt Lake City, Utah. The Company uses bank debt in strategic cases, primarily where it is anticipated to improve yields, or facilitate the acquisition of higher quality assets or asset class diversification.

The aggregated net book value of commercial real estate serving as collateral for bank loans was $124,381,467 and $129,330,119 as of December 31, 2023 and 2022, respectively. The associated bank loan carrying values totaled $97,807,614 and $97,112,131 as of December 31, 2023 and 2022, respectively.

During 2023 and 2022, the Company did not record any impairment losses on commercial real estate held for investment or held for sale. Impairment losses, if any, are included in gains (losses) on investments and other assets on the consolidated statements of earnings.

During 2023 and 2022, the Company recorded depreciation expense on commercial real estate held for investment of $6,278,828 and $6,090,575, respectively. Commercial real estate held for investment is stated at cost and is depreciated over the estimated useful life, primarily using the straight-line method. Depreciation is included in net investment income on the consolidated statements of earnings.

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

	Net Book Value				Total Square Footage
	December 31,				December 31,
	2023		2022		2023		2022
Utah (1)	$	142,475,177	$	147,627,946		625,920		625,920
Louisiana		19,250		2,380,847		1,622		31,778
Mississippi (2)		-		2,881,863		-		19,694

	$	142,494,427	$	152,890,656		627,542		677,392

(1)

Includes Center53

(2)

This property was moved to held for sale

Operating leases arise from the leasing of the Company’s commercial real estate held for investment. Initial lease terms generally range from three to ten years.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

The following is a maturity analysis of the annual undiscounted cash flows of the operating lease payments expected to be received.


2024	$	11,816,339
2025		11,843,124
2026		10,695,017
2027		9,198,450
2028		9,009,534
Thereafter		46,371,762
Total	$	98,934,226

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

	Net Book Value				Total Square Footage
	December 31,				December 31,
	2023		2022		2023		2022
Mississippi (1)	$	3,028,973	$	151,553		19,694		-

	$	3,028,973	$	151,553		19,694		-

(1)

Consists of approximately 93 acres of undeveloped land for $151,553 for 2023 and 2022. The remaining property for $2,877,420 was sold in February 2024 for a gain of approximately $250,000.

These properties are being marketed with the assistance of commercial real estate brokers in Mississippi.

Residential Real Estate Held for Investment and Held for Sale

The Company occasionally acquires a small portfolio of residential homes primarily because of loan foreclosures. The Company has the option to sell these properties or to continue to hold them for expected cash flow and price appreciation.

The Company also invests in residential subdivision development.

The Company established Security National Real Estate Services (“SNRE”) to manage its residential property portfolio. SNRE cultivates and maintains the preferred vendor relationships necessary to manage costs and quality of work performed on the Company’s entire residential property portfolio.

During 2023 and 2022, the Company recorded impairment losses on residential real estate held for sale of nil and $94,000, respectively. Impairment losses, if any, are included in gains (losses) on investments and other assets on the consolidated statements of earnings.

During 2023 and 2022, the Company recorded depreciation expense on residential real estate held for investment of $10,592 and $10,592, respectively. Residential real estate held for investment is stated at cost and is depreciated over the estimated useful life, primarily using the straight-line method. Depreciation is included in net investment income on the consolidated statements of earnings.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

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

	Net Book Value
	December 31,
	2023		2022
Utah (1)	$	40,924,865	$	38,437,960
	$	40,924,865	$	38,437,960

(1)

Includes multiple residential subdivision development projects

The following table presents additional information regarding the Company’s residential subdivision development in Utah.

	December 31,
	2023		2022
Lots available for sale		42		80
Lots to be developed		1,145		1,131
Ending Balance	$	40,739,201	$	38,241,705

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

	Net Book Value
	December 31,
	2023		2022
Utah	$	-	$	11,010,029	(1)
	$	-	$	11,010,029

(1)

All sold in 2023

The net book value of foreclosed residential real estate included in residential real estate held for investment or sale was nil and $11,010,029 as of December 31, 2023 and 2022, respectively.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

Real Estate Owned and Occupied by the Company

The primary business units of the Company occupy a portion of the commercial real estate owned by the Company. As of December 31, 2023, 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 Ascension Way, Floors 4, 5 and 6, Salt Lake City, UT - Center53 Building 2 (1)	Corporate Offices, Life Insurance, Cemetery/Mortuary Operations, and Mortgage Operations and Sales		221,000		50	%
1044 River Oaks Dr., Flowood, MS (1) (3)	Life Insurance Operations		19,694		28	%
1818 Marshall Street, Shreveport, LA (2)	Life Insurance Operations		12,274		100	%
909 Foisy Street, Alexandria, LA (2) (4)	Life Insurance Sales		8,059		100	%
812 Sheppard Street, Minden, LA (2) (5)	Life Insurance Sales		1,560		100	%
1550 N 3rd Street, Jena, LA (2) (3)	Life Insurance Sales		1,737		100	%

(1)

Included in real estate held for investment on the consolidated balance sheets

(2)

Included in property and equipment on the consolidated balance sheets

(3)

Listed for sale and sold during the first quarter of 2024

(4)

Listed for sale and currently under contract

(5)

Listed for sale

Mortgage Loans Held for Investment

The Company reports mortgage loans held for investment pursuant to the accounting policy discussed in Note 1 of the Notes to Consolidated Financial Statements.

Concentrations of credit risk arise when several 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 the relevant debtors’ ability to honor obligations is dependent upon the economic stability of the geographic region in which the debtors do business or are employed. As of December 31, 2023, the Company had 44%, 11%, 10%, 7% and 6%, of its mortgage loans from borrowers located in the states of Utah, Florida, California, Texas, and Arizona, respectively. As of December 31, 2022, the Company had 64%, 10%, 5% and 5% of its mortgage loans from borrowers located in the states of Utah, Florida, California, and Texas, respectively.

Evaluation of Allowance for Credit Losses

See Note 1 regarding the adoption of ASU 2016-13.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the Company’s mortgage loans held for investment to present the net amount expected to be collected. The Company reports in net earnings, as a credit loss expense, the amount necessary to adjust the allowance for credit losses for the Company’s current estimate of expected credit losses on mortgage loans held for investment. This credit loss expense is included in other expenses on the condensed consolidated statements of earnings.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

Once a mortgage loan is past due 90 days, it is the policy of the Company to end the accrual of interest income on the loan and reverse any interest income that had been accrued. Given this policy, the Company does not measure a credit loss allowance on accrued interest receivable. Accrued interest receivable is included in accrued investment income on the condensed consolidated balance sheets. Payments received for mortgage loans on a non-accrual status are recognized when received. The interest income recognized from payments received for mortgage loans on a non-accrual status was immaterial. Accrual of interest resumes if a mortgage loan is brought current. Interest not accrued on these loans totaled approximately $237,000 and $226,000 as of December 31, 2023 and 2022, respectively.

The Company measures expected credit losses based on the fair value of the collateral when the Company determines that foreclosure is probable. When a mortgage loan becomes delinquent, the Company proceeds to foreclose and all expenses for foreclosure are expensed as incurred. Once foreclosed, the property is classified as real estate held for investment or held for sale.

To determine the allowance for credit 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 guarantor’s) ability to repay.

Commercial loans are evaluated for credit loss by analyzing common metrics that are predictors for future credit losses such as debt service coverage ratio (“DSCR”), loan to value (“LTV”), local market conditions, borrower quality, and underlying collateral. The fair value of the underlying collateral is based on a third-party appraisal of the property at origination of the loan. The fair value is assessed if the loan becomes 90 days delinquent. The Company uses these metrics to pool similar loans. The allowance for credit losses is based on estimates, historical experience, probability of loss, value of the underlying collateral, and other factors that affect the collectability of the loan. The Company applies a future loss factor to the outstanding balance of each group to arrive at the allowance for credit losses.

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

Residential loans are evaluated for credit loss by using relevant available information from both internal and external sources. Among other things, the Company uses its historical delinquency information and considers current and forecasted economic conditions. External sources include a monthly analysis of its residential portfolio by a third party. The third party uses the Company’s current loan data and runs it through various models to project cash flows and provide a projected life of loan loss. The models consider loan features such as loan type, loan to value, payment status, age, and current property values. Analyzing the information from the various sources allows the Company to arrive at the allowance for credit losses.

Residential construction (including land acquisition and development) – These loans are 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, and factor in estimates of the value of construction projects upon completion. 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 acquisition and development loans are underwritten in accordance with the Company’s underwriting policies, which include independent appraisal valuations as well as the estimated value associated with the land upon completion of development into finished lots. These loans are 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 Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

Residential construction mortgage loans are evaluated for credit loss by considering historical activity and current housing market trends to arrive at a per loan basis point allowance that is recognized at loan origination and for subsequent draws. The per loan basis point is reviewed at least annually or as loan losses or market trends require.

The following table presents a roll forward of the allowance for credit losses as of the dates indicated:

Schedule of Allowance for Loan Losses

	Commercial		Residential			Residential Construction			Total
December 31, 2023
Allowance for credit losses:
Beginning balance - January 1, 2023	$	187,129	$	1,739,980		$	43,202		$	1,970,311
Adoption of ASU 2016-13 (1)		555,807		(192,607	)		301,830			665,030
Change in provision for credit losses (2)		476,717		843,521			(136,926	)		1,183,312
Charge-offs		-		-			-			-
Ending balance - December 31, 2023	$	1,219,653	$	2,390,894		$	208,106		$	3,818,653

December 31, 2022
Allowance for credit losses:
Beginning balance - January 1, 2022	$	187,129	$	1,469,571		$	43,202		$	1,699,902
Change in provision for credit losses (2)		-		270,409			-			270,409
Charge-offs		-		-			-			-
Ending balance - December 31, 2022	$	187,129	$	1,739,980		$	43,202		$	1,970,311

(1)

See Note 1 of the notes to the consolidated financial statements

(2)

Included in other expenses on the consolidated statements of earnings

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

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

Schedule of Aging of Mortgage Loans

	Commercial			Residential			Residential Construction			Total
December 31, 2023
30-59 days past due	$	-		$	3,387,673		$	-		$	3,387,673
60-89 days past due		-			3,472,760			-			3,472,760
Over 90 days past due (1)		405,000			3,480,931			-			3,885,931
In process of foreclosure (1)		1,241,508			1,021,790			-			2,263,298
Total past due		1,646,508			11,363,154			-			13,009,662
Current		72,530,030			91,790,433			104,052,748			268,373,211
Total mortgage loans		74,176,538			103,153,587			104,052,748			281,382,873
Allowance for credit losses		(1,219,653	)		(2,390,894	)		(208,106	)		(3,818,653	)
Unamortized deferred loan fees, net		(172,989	)		(1,135,491	)		(314,746	)		(1,623,226	)
Unamortized discounts, net		(216,705	)		(107,452	)		-			(324,157	)
Net mortgage loans held for investment	$	72,567,191		$	99,519,750		$	103,529,896		$	275,616,837

December 31, 2022
30-59 days past due	$	1,000,000		$	3,553,390		$	-		$	4,553,390
60-89 days past due		-			814,184			-			814,184
Over 90 days past due (1)		-			1,286,211			-			1,286,211
In process of foreclosure (1)		405,000			876,174			-			1,281,174
Total past due		1,405,000			6,529,959			-			7,934,959
Current		44,906,955			86,825,664			172,516,125			304,248,744
Total mortgage loans		46,311,955			93,355,623			172,516,125			312,183,703
Allowance for credit losses		(187,129	)		(1,739,980	)		(43,202	)		(1,970,311	)
Unamortized deferred loan fees, net		(199,765	)		(1,212,994	)		(333,846	)		(1,746,605	)
Unamortized discounts, net		(230,987	)		(111,873	)		-			(342,860	)
Net mortgage loans held for investment	$	45,694,074		$	90,290,776		$	172,139,077		$	308,123,927

(1)

Interest income is not recognized on loans which are more than 90 days past due or in foreclosure.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

Credit Quality Indicators

The Company evaluates and monitors the credit quality of its commercial loans by analyzing LTV and DSCR. Monitoring a commercial mortgage loan increases when the loan is delinquent or earlier if there is an indication of impairment.

The aggregate unpaid principal balance of commercial mortgage loans by credit quality indicator and origination year was as follows as of December 31, 2023:

Credit Quality Indicator	2023		2022			2021		2020		2019		Prior		Total		% of Total
LTV:
Less than 65%	$	34,304,954	$	13,555,737		$	3,778,248	$	-	$	2,964,740	$	6,565,389	$	61,169,068		82.46	%
65% to 80%		1,523,926		5,115,231			1,050,000		4,913,313		-		-		12,602,470		16.99	%
Greater than 80%		-		-			405,000		-		-		-		405,000		0.55	%

Total	$	35,828,880	$	18,670,968		$	5,233,248	$	4,913,313	$	2,964,740	$	6,565,389	$	74,176,538		100.00	%

DSCR
>1.20x	$	20,990,000	$	1,000,000		$	700,000	$	4,913,313	$	2,964,740	$	2,612,625	$	33,180,678		44.73	%
1.00x - 1.20x		8,338,880		8,496,127			3,483,248		-		-		3,952,764		24,271,019		32.72	%
<1.00x		6,500,000		9,174,841⁽¹⁾	(1)		1,050,000		-		-		-		16,724,841		22.55	%

Total	$	35,828,880	$	18,670,968		$	5,233,248	$	4,913,313	$	2,964,740	$	6,565,389	$	74,176,538		100.00	%

(1)

Commercial construction loan

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

The Company evaluates and monitors the credit quality of its residential mortgage loans by analyzing LTV and loan performance. The Company defines non-performing mortgage loans as loans more than 90 days past due and on a non-accrual status. Monitoring a residential mortgage loan increases when the loan is delinquent or earlier if there is an indication of impairment.

The aggregate unpaid principal balance of residential mortgage loans by credit quality indicator and origination year was as follows as of December 31, 2023:

Credit Quality Indicator	2023		2022		2021		2020		2019		Prior		Total		% of Total
Performance Indicators:
Performing	$	15,337,828	$	53,875,389	$	7,156,934	$	7,453,796	$	2,786,562	$	12,040,357	$	98,650,866		95.63	%
Non-performing (1)		-		2,202,114		365,061		613,101		-		1,322,445		4,502,721		4.37	%

Total	$	15,337,828	$	56,077,503	$	7,521,995	$	8,066,897	$	2,786,562	$	13,362,802	$	103,153,587		100.00	%

(1)

Includes residential mortgage loans in the process of foreclosure of $1,021,790

	2023		2022		2021		2020		2019		Prior		Total		% of Total
LTV:
Less than 65%	$	3,280,144	$	7,049,522	$	1,843,286	$	1,746,970	$	446,675	$	5,206,095	$	19,572,692		18.97	%
65% to 80%		10,962,770		44,371,320		4,269,894		4,222,170		2,339,887		5,711,440		71,877,481		69.68	%
Greater than 80%		1,094,914		4,656,661		1,408,815		2,097,757		-		2,445,267		11,703,414		11.35	%

Total	$	15,337,828	$	56,077,503	$	7,521,995	$	8,066,897	$	2,786,562	$	13,362,802	$	103,153,587		100.00	%

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

The company evaluates and monitors the credit quality of its residential construction loans (including land acquisition and development loans) by analyzing LTV and loan performance. Monitoring a residential construction mortgage loan increases when the loan is delinquent or earlier if there is an indication of impairment.

The aggregate unpaid principal balance of residential construction mortgage loans by credit quality indicator and origination year was as follows as of December 31, 2023:

Credit Quality Indicator	2023		2022		2021		Total		% of Total
Performance Indicators:
Performing	$	60,311,679	$	16,624,182	$	27,116,887	$	104,052,748		100.00	%
Non-performing		-		-		-		-		0.00	%

Total	$	60,311,679	$	16,624,182	$	27,116,887	$	104,052,748		100.00	%

LTV:
Less than 65%	$	40,215,360	$	8,732,500	$	20,442,302	$	69,390,162		66.69	%
65% to 80%		20,096,319		7,891,682		6,674,585		34,662,586		33.31	%
Greater than 80%		-		-		-		-		0.00	%

Total	$	60,311,679	$	16,624,182	$	27,116,887	$	104,052,748		100.00	%

Principal Amounts Due

The following table presents the amortized cost and contractual payments on mortgage loans held for investment by category as of December 31, 2023. Expected principal payments may differ from contractual obligations because certain borrowers may elect to pay off mortgage obligations with or without early payment penalties.

			Principal		Principal		Principal
			Amounts		Amounts		Amounts
			Due in		Due in		Due
	Total		1 Year		2-5 Years		Thereafter
Residential	$	103,153,587	$	2,554,380	$	9,231,545	$	91,367,662
Residential Construction		104,052,748		88,880,893		15,171,855		-
Commercial		74,176,538		39,562,489		19,457,975		15,156,074
Total	$	281,382,873	$	130,997,762	$	43,861,375	$	106,523,736

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

Insurance Assignments

The following table presents the aging of insurance assignments, included in other investments and policy loans on the condensed consolidated balance sheets:

	Years Ended December 31,
	2023			2022
30-59 days past due	$	10,829,629		$	10,621,443
60-89 days past due		3,709,754			3,997,484
Over 90 days past due		4,329,468			5,813,013
Total past due		18,868,851			20,431,941
Current		26,736,471			26,510,594
Total insurance assignments		45,605,322			46,942,536
Allowance for credit losses		(1,553,836	)		(1,609,951	)
Net insurance assignments	$	44,051,486		$	45,332,585

The Company records an allowance for credit losses when the insurance assignment is funded. Once an insurance assignment moves to 90 days or legal proceedings, it is monitored for write-off and collectability, and any adjustments to the allowance are recorded at that time. See Note 1 regarding the adoption of ASU 2016-13.

The following table presents a roll forward of the allowance for credit losses for insurance assignments:

Schedule of Allowance for Credit Losses

	Allowance
Beginning balance - January 1, 2023	$	1,609,951
Change in provision for credit losses (1)		891,959
Charge-offs		(948,074	)
Ending balance - December 31, 2023	$	1,553,836

Beginning balance - January 1, 2022	$	1,686,218
Change in provision for credit losses (1)		889,480
Charge-offs		(965,747	)
Ending balance - December 31, 2022	$	1,609,951

(1)

Included in other expenses on the consolidated statements of earnings

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

Investment Related Earnings

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

Schedule of Gain (Loss) on Investments

	2023			2022
	Years Ended December 31
	2023			2022
Fixed maturity securities available for sale:
Gross realized gains	$	67,686		$	205,949
Gross realized losses		(106,760	)		(43,776	)
Net credit loss (provision) release		(325,314	)		-

Equity securities:
Gains (losses) on securities sold		254,917			(10,519	)
Unrealized gains (losses) on securities held at the end of the period		1,782,219			(2,109,556	)

Real estate held for investment and sale:
Gross realized gains		197,194			1,239,332
Gross realized losses		(71,792	)		(825,593	)

Other assets, including call and put option derivatives:
Gross realized gains		214,349			686,703
Gross realized losses		(175,157	)		-
Total	$	1,837,342		$	(857,460	)

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.

Net realized gains and losses includes gains and losses by the restricted assets and cemetery perpetual care trust investments of the cemeteries and mortuaries of $730,000 in net gains and $817,000 in net losses for 2023 and 2022, respectively.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

2) Investments (Continued)

Major categories of net investment income were as follows:

	2023			2022
	Years Ended December 31
	2023			2022
Fixed maturity securities available for sale	$	16,871,558		$	12,395,764
Equity securities		616,989			511,118
Mortgage loans held for investment		33,242,094			34,949,763
Real estate held for investment and sale		14,786,017			14,563,269
Policy loans		816,711			932,362
Insurance assignments		18,118,391			18,112,840
Other investments		617,420			518,865
Cash and cash equivalents		4,250,029			1,666,945
Gross investment income		89,319,209			83,650,926
Investment expenses		(16,976,162	)		(17,453,334	)
Net investment income	$	72,343,047		$	66,197,592

Net investment income includes income earned by the restricted assets and cemetery perpetual care trust investments of the cemeteries and mortuaries of $2,365,378 and $2,404,277 for 2023 and 2022, 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.

Accrued Investment Income

Accrued investment income consists of the following:

Schedule of Accrued Investment Income

	2023		2022
	Years Ended December 31,
	2023		2022
Fixed maturity securities available for sale	$	3,984,695	$	3,563,767
Equity securities		20,451		14,496
Mortgage loans held for investment		2,661,092		3,220,709
Real estate held for investment		3,486,115		3,455,305
Policy Loans		-		37,951
Cash and cash equivalents		18,437		7,598
Total accrued investment income	$	10,170,790	$	10,299,826