Washington, D.C. 20549
Form 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the quarterquarterly period ended SeptemberJune 30, 2017, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934For the Transition Periodtransition period from _____ to ________
Commission file number: File Number: 000-09341
Security National Financial Corporation
(Exact name of registrant as specified in its charter)
| 87-0345941 | ||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 84123 | ||
| (Address of principal executive offices) | (Zip Code) |
(801)264-1060
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | ||
| Class A Common Stock | ||||
| The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] ☒ No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] ☒ No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, ora smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated filer"” “accelerated filer,” “smaller reporting company,” and "smaller reporting company"“emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | Accelerated filer | |
| Non-accelerated filer | Smaller reporting company | |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No[X]
As of August 9, 2023, the numberregistrant had shares of Class A Common Stock, $2.00 par value, outstanding and shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.Class C Common Stock, $2.00 par value, outstanding.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBERJUNE 30, 2017
Table of Contents
| 2 |
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Part I
- Financial InformationItem 1.Financial Statements.
| Assets | September 30 2017 (Unaudited) | December 31 2016 (As Restated) | ||||||
| Investments: | ||||||||
| Fixed maturity securities, held to maturity, at amortized cost | $ | 230,811,272 | $ | 184,979,644 | ||||
| Equity securities, available for sale, at estimated fair value | 5,957,488 | 9,911,256 | ||||||
| Mortgage loans held for investment (net of allowances for loan losses of $2,051,818 and $1,748,783 for 2017 and 2016) | 147,300,691 | 148,990,732 | ||||||
| Real estate held for investment (net of accumulated depreciation of $17,919,427 and $16,138,439 for 2017 and 2016) | 150,568,998 | 145,165,921 | ||||||
| Policy loans and other investments (net of allowances for doubtful accounts of $1,142,257 and $1,119,630 for 2017 and 2016) | 42,489,149 | 41,599,246 | ||||||
| Short-term investments | 17,830,990 | 27,560,040 | ||||||
| Accrued investment income | 3,391,688 | 2,972,596 | ||||||
| Total investments | 598,350,276 | 561,179,435 | ||||||
| Cash and cash equivalents | 38,593,462 | 38,987,430 | ||||||
| Loans held for sale (including $166,990,187 for 2017 and $-0- for 2016 at estimated fair value) | 201,895,906 | 189,139,832 | ||||||
| Receivables (net of allowances for doubtful accounts of $2,758,394 and $2,355,482 for 2017 and 2016) | 8,613,364 | 8,410,546 | ||||||
| Restricted assets | 10,815,726 | 10,391,394 | ||||||
| Cemetery perpetual care trust investments | 4,438,788 | 4,131,885 | ||||||
| Receivable from reinsurers | 13,394,586 | 13,079,668 | ||||||
| Cemetery land and improvements | 10,581,368 | 10,672,836 | ||||||
| Deferred policy and pre-need contract acquisition costs | 78,049,594 | 69,118,745 | ||||||
| Mortgage servicing rights, net | 20,396,568 | 18,872,362 | ||||||
| Property and equipment, net | 7,560,662 | 8,791,522 | ||||||
| Value of business acquired | 6,831,777 | 7,570,300 | ||||||
| Goodwill | 2,765,570 | 2,765,570 | ||||||
| Other | 5,616,664 | 9,310,040 | ||||||
| Total Assets | $ | 1,007,904,311 | $ | 952,421,565 | ||||
September 30 2017 (Unaudited) | December 31 2016 (As Restated) | |||||||
| Liabilities and Stockholders' Equity | ||||||||
| Liabilities | ||||||||
| Future policy benefits and unpaid claims | $ | 600,643,308 | $ | 584,067,692 | ||||
| Unearned premium reserve | 4,290,164 | 4,469,771 | ||||||
| Bank and other loans payable | 182,769,669 | 152,140,679 | ||||||
| Deferred pre-need cemetery and mortuary contract revenues | 12,716,761 | 12,360,249 | ||||||
| Cemetery perpetual care obligation | 3,679,925 | 3,598,580 | ||||||
| Accounts payable | 3,279,790 | 4,213,109 | ||||||
| Other liabilities and accrued expenses | 33,448,055 | 34,693,485 | ||||||
| Income taxes | 27,732,758 | 24,318,869 | ||||||
| Total liabilities | 868,560,430 | 819,862,434 | ||||||
| Stockholders' Equity | ||||||||
| Preferred Stock - non-voting - $1.00 par value; 5,000,000 shares authorized; none issued or outstanding | - | - | ||||||
| Class A: common stock - $2.00 par value; 20,000,000 shares authorized; issued 13,820,079 shares in 2017 and 13,819,006 shares in 2016 | 27,640,158 | 27,638,012 | ||||||
| Class B: non-voting common stock - $1.00 par value; 5,000,000 shares authorized; none issued or outstanding | - | - | ||||||
| Class C: convertible common stock - $2.00 par value; 3,000,000 shares authorized; issued 2,005,026 shares in 2017 and 1,902,229 shares in 2016 | 4,010,052 | 3,804,458 | ||||||
| Additional paid-in capital | 35,490,027 | 34,813,246 | ||||||
| Accumulated other comprehensive income, net of taxes | 336,631 | 264,822 | ||||||
| Retained earnings | 72,848,622 | 67,409,204 | ||||||
| Treasury stock at cost - 559,605 Class A shares in 2017 and 704,122 Class A shares in 2016 | (981,609 | ) | (1,370,611 | ) | ||||
| Total stockholders' equity | 139,343,881 | 132,559,131 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 1,007,904,311 | $ | 952,421,565 | ||||
| June 30, 2023 (Unaudited) | December 31, 2022 | |||||||
| Assets | ||||||||
| Investments: | ||||||||
| Fixed maturity securities, available for sale, at estimated fair value (amortized cost of $371,731,265 and $362,750,511 for 2023 and 2022, respectively; allowance for credit losses of $224,005 and nil for 2023 and 2022, respectively) | $ | 354,789,812 | $ | 345,858,492 | ||||
| Equity securities at estimated fair value (cost of $10,416,580 and $9,942,265 for 2023 and 2022, respectively) | 12,801,925 | 11,682,526 | ||||||
| Mortgage loans held for investment (net of allowance for credit losses of $2,663,560 and $1,970,311 for 2023 and 2022, respectively) | 271,049,585 | 308,123,927 | ||||||
| Real estate held for investment (net of accumulated depreciation of $26,941,328 and $23,793,204 for 2023 and 2022, respectively) | 180,962,902 | 191,328,616 | ||||||
| Real estate held for sale | 1,827,474 | 11,161,582 | ||||||
| Other investments and policy loans (net of allowance for credit losses of $1,690,693 and $1,609,951 for 2023 and 2022, respectively) | 64,554,148 | 70,508,156 | ||||||
| Accrued investment income | 10,188,551 | 10,299,826 | ||||||
| Total investments | 896,174,397 | 948,963,125 | ||||||
| Cash and cash equivalents | 110,285,941 | 120,919,805 | ||||||
| Loans held for sale at estimated fair value | 161,310,060 | 141,179,620 | ||||||
| Receivables (net of allowance for credit losses of $1,492,934 and $2,229,791 for 2023 and 2022, respectively) | 11,675,595 | 28,573,092 | ||||||
| Restricted assets (including $7,780,162 and $6,565,552 for 2023 and 2022 respectively, at estimated fair value; allowance for credit losses of $2,760 and nil for 2023 and 2022, respectively) | 19,434,263 | 18,935,055 | ||||||
| Cemetery perpetual care trust investments (including $4,315,932 and $3,859,893 for 2023 and 2022 respectively, at estimated fair value; allowance for credit losses of $1,453 and nil for 2023 and 2022, respectively) | 7,666,221 | 7,276,210 | ||||||
| Receivable from reinsurers | 14,839,279 | 15,033,938 | ||||||
| Cemetery land and improvements | 9,033,600 | 9,101,474 | ||||||
| Deferred policy and pre-need contract acquisition costs | 111,733,330 | 108,655,128 | ||||||
| Mortgage servicing rights, net | 3,442,352 | 3,039,765 | ||||||
| Property and equipment, net | 19,932,664 | 20,579,649 | ||||||
| Value of business acquired | 9,393,595 | 9,803,736 | ||||||
| Goodwill | 5,253,783 | 5,253,783 | ||||||
| Other | 23,431,668 | 23,798,512 | ||||||
| Total Assets | $ | 1,403,606,748 | $ | 1,461,112,892 | ||||
See accompanying notes to condensed consolidated financial statements (unaudited).
| 3 |
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues: | ||||||||||||||||
| Insurance premiums and other considerations | $ | 17,489,560 | $ | 17,157,319 | $ | 52,345,184 | $ | 47,508,420 | ||||||||
| Net investment income | 8,361,466 | 8,089,857 | 25,559,113 | 23,484,280 | ||||||||||||
| Net mortuary and cemetery sales | 2,717,311 | 2,776,023 | 9,356,659 | 9,541,950 | ||||||||||||
| Realized gains (losses) on investments and other assets | (319,666 | ) | (39,169 | ) | 713,066 | 179,296 | ||||||||||
| Other than temporary impairments on investments | (163,375 | ) | (30,000 | ) | (481,741 | ) | (133,630 | ) | ||||||||
| Mortgage fee income | 41,597,573 | 53,195,763 | 122,086,734 | 146,967,246 | ||||||||||||
| Other | 2,288,982 | 1,798,864 | 6,393,691 | 4,944,670 | ||||||||||||
| Total revenues | 71,971,851 | 82,948,657 | 215,972,706 | 232,492,232 | ||||||||||||
| Benefits and expenses: | ||||||||||||||||
| Death benefits | 8,772,153 | 7,250,100 | 26,113,770 | 22,410,230 | ||||||||||||
| Surrenders and other policy benefits | 547,648 | 630,735 | 2,085,296 | 1,709,915 | ||||||||||||
| Increase in future policy benefits | 6,735,141 | 6,382,949 | 17,669,279 | 15,777,008 | ||||||||||||
| Amortization of deferred policy and pre-need acquisition costs and value of business acquired | 2,238,955 | 2,301,107 | 6,271,763 | 6,221,495 | ||||||||||||
| Selling, general and administrative expenses: | ||||||||||||||||
| Commissions | 18,999,583 | 24,395,173 | 53,877,389 | 68,214,894 | ||||||||||||
| Personnel | 17,200,315 | 17,755,070 | 53,754,920 | 52,535,277 | ||||||||||||
| Advertising | 1,611,599 | 2,006,013 | 4,407,877 | 5,053,968 | ||||||||||||
| Rent and rent related | 2,257,259 | 2,122,708 | 6,693,292 | 6,235,430 | ||||||||||||
| Depreciation on property and equipment | 517,041 | 528,051 | 1,723,879 | 1,585,995 | ||||||||||||
| Provision for loan loss reserve | - | 600,000 | - | 600,000 | ||||||||||||
| Costs related to funding mortgage loans | 2,809,471 | 2,365,395 | 7,315,227 | 6,956,774 | ||||||||||||
| Other | 7,035,570 | 8,075,906 | 22,227,370 | 21,388,693 | ||||||||||||
| Interest expense | 1,655,870 | 1,476,137 | 4,295,263 | 3,775,483 | ||||||||||||
| Cost of goods and services sold-mortuaries and cemeteries | 453,229 | 485,783 | 1,507,295 | 1,396,574 | ||||||||||||
| Total benefits and expenses | 70,833,834 | 76,375,127 | 207,942,620 | 213,861,736 | ||||||||||||
| Earnings before income taxes | 1,138,017 | 6,573,530 | 8,030,086 | 18,630,496 | ||||||||||||
| Income tax expense | (41,179 | ) | (2,390,525 | ) | (2,587,384 | ) | (6,892,544 | ) | ||||||||
| Net earnings | $ | 1,096,838 | $ | 4,183,005 | $ | 5,442,702 | $ | 11,737,952 | ||||||||
| Net earnings per Class A Equivalent common share (1) | $ | 0.07 | $ | 0.28 | $ | 0.36 | $ | 0.80 | ||||||||
| Net earnings per Class A Equivalent common share-assuming dilution (1) | $ | 0.07 | $ | 0.27 | $ | 0.35 | $ | 0.77 | ||||||||
| Weighted-average Class A equivalent common share outstanding (1) | 15,256,857 | 14,830,078 | 15,159,569 | 14,744,779 | ||||||||||||
| Weighted-average Class A equivalent common shares outstanding-assuming dilution (1) | 15,542,660 | 15,269,613 | 15,474,826 | 15,166,045 | ||||||||||||
| June 30, 2023 (Unaudited) | December 31, 2022
| |||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Liabilities | ||||||||
| Future policy benefits and unpaid claims | $ | 901,792,172 | $ | 889,327,303 | ||||
| Unearned premium reserve | 2,658,492 | 2,773,616 | ||||||
| Bank and other loans payable | 103,301,721 | 161,712,804 | ||||||
| Deferred pre-need cemetery and mortuary contract revenues | 17,155,722 | 16,226,836 | ||||||
| Cemetery perpetual care obligation | 5,207,198 | 5,099,542 | ||||||
| Accounts payable | 3,215,659 | 5,361,449 | ||||||
| Other liabilities and accrued expenses | 56,073,488 | 57,113,888 | ||||||
| Income taxes | 15,439,539 | 30,710,527 | ||||||
| Total liabilities | 1,104,843,991 | 1,168,325,965 | ||||||
| Stockholders’ Equity | ||||||||
| Preferred Stock - non-voting - $ par value; shares authorized; issued or outstanding | - | - | ||||||
| Class A: common stock - $ par value; shares authorized; shares issued and outstanding as of June 30, 2023 and shares issued and outstanding as of December 31, 2022 | 39,787,400 | 37,516,062 | ||||||
| Class B: non-voting common stock - $ par value; shares authorized; issued or outstanding | - | - | ||||||
| Class C: convertible common stock - $ par value; shares authorized; shares issued and outstanding as of June 30, 2023 and shares issued and outstanding as of December 31, 2022 | 5,947,104 | 5,779,718 | ||||||
| Common Stock , Value | 5,947,104 | 5,779,718 | ||||||
| Additional paid-in capital | 71,685,665 | 64,767,769 | ||||||
| Accumulated other comprehensive loss, net of taxes | (12,894,771 | ) | (13,070,277 | ) | ||||
| Retained earnings | 200,078,709 | 202,160,306 | ||||||
| Treasury stock at cost - Class A shares and Class C shares as of June 30, 2023; and Class A shares and Class C shares as of December 31, 2022 | (5,841,350 | ) | (4,366,651 | ) | ||||
| Total stockholders’ equity | 298,762,757 | 292,786,927 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 1,403,606,748 | $ | 1,461,112,892 | ||||
See accompanying notes to condensed consolidated financial statements (unaudited).
| 4 |
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net earnings | $ | 1,096,838 | $ | 4,183,005 | $ | 5,442,702 | $ | 11,737,952 | ||||||||
| Other comprehensive income: | ||||||||||||||||
| Unrealized gains on available for sale securities | 144,381 | 212,413 | 106,543 | 684,002 | ||||||||||||
| Unrealized gains on derivative instruments | 554 | - | 3,170 | 5,541 | ||||||||||||
| Other comprehensive income, before income tax | 144,935 | 212,413 | 109,713 | 689,543 | ||||||||||||
| Income tax expense | (50,517 | ) | (74,383 | ) | (37,904 | ) | (239,339 | ) | ||||||||
| Other comprehensive income, net of income tax | 94,418 | 138,030 | 71,809 | 450,204 | ||||||||||||
| Comprehensive income | $ | 1,191,256 | $ | 4,321,035 | $ | 5,514,511 | $ | 12,188,156 | ||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues: | ||||||||||||||||
| Mortgage fee income | $ | 26,078,753 | $ | 42,030,898 | $ | 52,067,759 | $ | 90,375,343 | ||||||||
| Insurance premiums and other considerations | 28,813,299 | 25,911,995 | 56,780,591 | 52,253,947 | ||||||||||||
| Net investment income | 20,171,974 | 15,971,288 | 37,946,857 | 31,165,594 | ||||||||||||
| Net mortuary and cemetery sales | 7,168,714 | 7,250,503 | 13,640,143 | 14,456,224 | ||||||||||||
| Gains (losses) on investments and other assets | 816,584 | (914,395 | ) | 927,738 | (742,420 | ) | ||||||||||
| Other | 796,835 | 5,316,365 | 1,983,805 | 10,483,873 | ||||||||||||
| Total revenues | 83,846,159 | 95,566,654 | 163,346,893 | 197,992,561 | ||||||||||||
| Benefits and expenses: | ||||||||||||||||
| Death benefits | 15,455,305 | 14,839,044 | 32,133,671 | 31,723,750 | ||||||||||||
| Surrenders and other policy benefits | 950,657 | 1,153,767 | 2,083,350 | 2,476,935 | ||||||||||||
| Increase in future policy benefits | 8,499,804 | 6,600,443 | 16,554,743 | 13,371,544 | ||||||||||||
| Amortization of deferred policy and pre-need acquisition costs and value of business acquired | 4,251,321 | 4,053,109 | 9,134,902 | 8,449,522 | ||||||||||||
| Selling, general and administrative expenses: | ||||||||||||||||
| Commissions | 10,736,126 | 18,397,337 | 20,409,436 | 38,299,539 | ||||||||||||
| Personnel | 20,508,415 | 25,504,950 | 42,470,927 | 52,379,714 | ||||||||||||
| Advertising | 965,753 | 1,595,738 | 1,869,164 | 3,307,533 | ||||||||||||
| Rent and rent related | 1,831,011 | 1,702,262 | 3,607,791 | 3,361,532 | ||||||||||||
| Depreciation on property and equipment | 587,213 | 628,305 | 1,175,629 | 1,243,849 | ||||||||||||
| Costs related to funding mortgage loans | 1,841,367 | 2,044,637 | 3,683,709 | 4,884,100 | ||||||||||||
| Other | 7,403,409 | 11,174,128 | 15,183,944 | 23,265,764 | ||||||||||||
| Interest expense | 1,414,802 | 1,900,249 | 2,868,135 | 3,627,564 | ||||||||||||
| Cost of goods and services sold-mortuaries and cemeteries | 1,251,643 | 1,242,839 | 2,437,271 | 2,427,853 | ||||||||||||
| Total benefits and expenses | 75,696,826 | 90,836,808 | 153,612,672 | 188,819,199 | ||||||||||||
| Earnings before income taxes | 8,149,333 | 4,729,846 | 9,734,221 | 9,173,362 | ||||||||||||
| Income tax expense | (1,796,627 | ) | (1,155,397 | ) | (2,141,343 | ) | (2,370,195 | ) | ||||||||
| Net earnings | $ | 6,352,706 | $ | 3,574,449 | $ | 7,592,878 | $ | 6,803,167 | ||||||||
| Net earnings per Class A Equivalent common share (1) | $ | 0.29 | $ | 0.16 | $ | 0.34 | $ | 0.30 | ||||||||
| Net earnings per Class A Equivalent common share-assuming dilution (1) | $ | 0.28 | $ | 0.15 | $ | 0.34 | $ | 0.29 | ||||||||
| Weighted-average Class A equivalent common shares outstanding (1) | 22,005,332 | 22,233,852 | 22,066,991 | 22,331,911 | ||||||||||||
| Weighted-average Class A equivalent common shares outstanding-assuming dilution (1) | 22,568,633 | 23,108,651 | 22,617,888 | 23,225,600 | ||||||||||||
| (1) | Net earnings per share amounts have been adjusted retroactively for the effect of annual stock dividends. The weighted-average shares outstanding includes the weighted-average Class A common shares and the weighted-average Class C common shares determined on an equivalent Class A common stock basis. Net earnings per common share represent net earnings per equivalent Class A common share. |
See accompanying notes to condensed consolidated financial statements (unaudited).
| 5 |
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITYCOMPREHENSIVE INCOME (LOSS)
(Unaudited)
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net earnings | $ | 6,352,706 | $ | 3,574,449 | $ | 7,592,878 | $ | 6,803,167 | ||||||||
| Other comprehensive income: | ||||||||||||||||
| Unrealized gains (losses) on fixed maturity securities available for sale | $ | (4,993,177 | ) | (12,995,132 | ) | 224,852 | (28,322,034 | ) | ||||||||
| Unrealized losses on restricted assets (1) | (6,189 | ) | (43,169 | ) | (2,056 | ) | (115,118 | ) | ||||||||
| Unrealized losses on cemetery perpetual care trust investments (1) | (3,738 | ) | (15,868 | ) | (812 | ) | (53,225 | ) | ||||||||
| Other comprehensive income (loss), before income tax | (5,003,104 | ) | (13,054,169 | ) | 221,984 | (28,490,377 | ) | |||||||||
| Income tax (expense) benefit | 1,051,052 | 2,743,684 | (46,478 | ) | 5,989,562 | |||||||||||
| Other comprehensive income (loss), net of income tax | (3,952,052 | ) | (10,310,485 | ) | 175,506 | (22,500,815 | ) | |||||||||
| Comprehensive income (loss) | $ | 2,400,654 | $ | (6,736,036 | ) | $ | 7,768,384 | $ | (15,697,648 | ) | ||||||
Class A Common Stock | Class C Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income | Retained Earnings | Treasury Stock | Total | ||||||||||||||||||||||
| Balance at December 31, 2015 | $ | 26,218,200 | $ | 3,419,280 | $ | 30,232,582 | $ | (499,358 | ) | $ | 60,525,404 | $ | (2,179,429 | ) | $ | 117,716,679 | ||||||||||||
| Net earnings | - | - | - | - | 11,737,952 | - | 11,737,952 | |||||||||||||||||||||
| Other comprehensive income | - | - | - | 450,204 | - | - | 450,204 | |||||||||||||||||||||
| Grant of stock options | - | - | 253,427 | - | - | - | 253,427 | |||||||||||||||||||||
| Exercise of stock options | 64,834 | - | 12,374 | - | - | - | 77,208 | |||||||||||||||||||||
| Sale of treasury stock | - | - | 440,420 | - | - | 634,268 | 1,074,688 | |||||||||||||||||||||
| Stock dividends | 274 | 12,768 | 30,779 | - | (43,821 | ) | - | - | ||||||||||||||||||||
| Conversion Class C to Class A | 17,016 | (17,016 | ) | |||||||||||||||||||||||||
| Balance at September 30, 2016 | $ | 26,300,324 | $ | 3,415,032 | $ | 30,969,582 | $ | (49,154 | ) | $ | 72,219,535 | $ | (1,545,161 | ) | $ | 131,310,158 | ||||||||||||
| Balance at December 31, 2016 | $ | 27,638,012 | $ | 3,804,458 | $ | 34,813,246 | $ | 264,822 | $ | 67,409,204 | $ | (1,370,611 | ) | $ | 132,559,131 | |||||||||||||
| Net earnings | - | - | - | - | 5,442,702 | - | 5,442,702 | |||||||||||||||||||||
| Other comprehensive income | - | - | - | 71,809 | - | - | 71,809 | |||||||||||||||||||||
| Grant of stock options | - | - | 305,741 | - | - | - | 305,741 | |||||||||||||||||||||
| Exercise of stock options | 2 | 206,804 | (206,806 | ) | - | - | - | - | ||||||||||||||||||||
| Sale of treasury stock | - | - | 575,496 | - | - | 574,472 | 1,149,968 | |||||||||||||||||||||
| Purchase of treasury stock | - | - | - | - | - | (185,470 | ) | (185,470 | ) | |||||||||||||||||||
| Stock dividends | 930 | 4 | 2,350 | - | (3,284 | ) | - | - | ||||||||||||||||||||
| Conversion Class C to Class A | 1,214 | (1,214 | ) | - | - | - | - | - | ||||||||||||||||||||
| Balance at September 30, 2017 | $ | 27,640,158 | $ | 4,010,052 | $ | 35,490,027 | $ | 336,631 | $ | 72,848,622 | $ | (981,609 | ) | $ | 139,343,881 | |||||||||||||
| (1) | Fixed maturity securities available for sale |
See accompanying notes to condensed consolidated financial statements (unaudited).
| 6 |
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30 | ||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net cash provided by operating activities | $ | 6,030,453 | $ | 17,639,672 | ||||
| Cash flows from investing activities: | ||||||||
| Securities held to maturity: | ||||||||
| Purchase-fixed maturity securities | (59,325,291 | ) | (6,519,416 | ) | ||||
| Calls and maturities - fixed maturity securities | 11,933,573 | 10,032,336 | ||||||
| Securities available for sale: | ||||||||
| Purchase - equity securities | (5,126,062 | ) | (3,726,194 | ) | ||||
| Sales - equity securities | 9,153,786 | 3,349,728 | ||||||
| Purchases of short-term investments | (27,483,124 | ) | (13,379,112 | ) | ||||
| Sales of short-term investments | 37,212,174 | 7,185,582 | ||||||
| Net changes in restricted assets | (409,625 | ) | (438,204 | ) | ||||
| Net changes in perpetual care trusts | (231,415 | ) | (966,367 | ) | ||||
| Mortgage loans, policy loans, and other investments made | (340,424,956 | ) | (338,457,602 | ) | ||||
| Payments received for mortgage loans, policy loans and other investments | 344,278,996 | 330,303,396 | ||||||
| Purchase of property and equipment | (508,846 | ) | (1,303,979 | ) | ||||
| Sale of property and equipment | 9,977 | 34,000 | ||||||
| Purchase of real estate | (12,474,490 | ) | (19,448,152 | ) | ||||
| Sale of real estate | 8,612,307 | 5,672,484 | ||||||
| Cash paid for purchase of subsidiaries, net of cash acquired | - | (4,328,520 | ) | |||||
| Net cash used in investing activities | (34,782,996 | ) | (31,990,020 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Investment contract receipts | 9,457,285 | 8,401,542 | ||||||
| Investment contract withdrawals | (11,522,652 | ) | (9,957,964 | ) | ||||
| Proceeds from stock options exercised | - | 77,208 | ||||||
| Purchase of treasury stock | (185,470 | ) | - | |||||
| Repayment of bank loans | (2,142,382 | ) | (1,169,233 | ) | ||||
| Proceeds from borrowing on bank loans | 16,729,056 | 2,523,670 | ||||||
| Net change in warehouse line borrowings | 16,022,738 | 23,893,122 | ||||||
| Net change in line of credit borrowings | - | 1,439,650 | ||||||
| Net cash provided by financing activities | 28,358,575 | 25,207,995 | ||||||
| Net change in cash and cash equivalents | (393,968 | ) | 10,857,647 | |||||
| Cash and cash equivalents at beginning of period | 38,987,430 | 40,053,242 | ||||||
| Cash and cash equivalents at end of period | $ | 38,593,462 | $ | 50,910,889 | ||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid (received) during the year for: | ||||||||
| Interest (net of amount capitalized) | $ | 4,188,579 | $ | 3,781,423 | ||||
| Income taxes (net of refunds) | (788,601 | ) | 2,538,097 | |||||
| Non Cash Operating, Investing and Financing Activities: | ||||||||
| Transfer of loans held for sale to mortgage loans held for investment | $ | 5,032,147 | $ | 7,386,432 | ||||
| Accrued real estate construction costs and retainage | 1,932,790 | - | ||||||
| Mortgage loans foreclosed into real estate | 1,576,196 | 1,703,476 | ||||||
| Benefit plans funded with treasury stock | 1,149,968 | 1,074,688 | ||||||
| Class A Common Stock | Class C Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock | Total | ||||||||||||||||||||||
| Six Months Ended June 30, 2023 | ||||||||||||||||||||||||||||
| Class A Common Stock | Class C Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock | Total | ||||||||||||||||||||||
| January 1, 2023 | $ | 37,516,062 | $ | 5,779,718 | $ | 64,767,769 | $ | (13,070,277 | ) | $ | 202,160,306 | $ | (4,366,651 | ) | $ | 292,786,927 | ||||||||||||
| Cumulative effect adjustment upon adoption of new accounting standard (ASU 2016-13) | - | - | - | - | (671,506 | ) | - | (671,506 | ) | |||||||||||||||||||
| Net earnings | - | - | - | - | 1,240,172 | - | 1,240,172 | |||||||||||||||||||||
| Other comprehensive gain | - | - | - | 4,127,558 | - | - | 4,127,558 | |||||||||||||||||||||
| Stock-based compensation expense | - | - | 143,671 | - | - | - | 143,671 | |||||||||||||||||||||
| Exercise of stock options | 96,092 | - | (62,073 | ) | - | - | - | 34,019 | ||||||||||||||||||||
| Sale of treasury stock | - | - | (43,493 | ) | - | - | 620,651 | 577,158 | ||||||||||||||||||||
| Purchase of treasury stock | - | - | - | - | - | (1,204,357 | ) | (1,204,357 | ) | |||||||||||||||||||
| Conversion Class C to Class A | 1,872 | (1,872 | ) | - | - | - | - | - | ||||||||||||||||||||
| March 31, 2023 | $ | 37,614,026 | $ | 5,777,846 | $ | 64,805,874 | $ | (8,942,719 | ) | $ | 202,728,972 | $ | (4,950,357 | ) | $ | 297,033,642 | ||||||||||||
| Net earnings | - | - | - | - | 6,352,706 | - | 6,352,706 | |||||||||||||||||||||
| Other comprehensive loss | - | - | - | (3,952,052 | ) | - | - | (3,952,052 | ) | |||||||||||||||||||
| Stock-based compensation expense | - | - | 141,954 | - | - | - | 141,954 | |||||||||||||||||||||
| Exercise of stock options | 159,284 | - | (154,424 | ) | - | - | - | 4,860 | ||||||||||||||||||||
| Vesting of restricted stock units | 810 | - | (810 | ) | - | - | - | - | ||||||||||||||||||||
| Sale of treasury stock | - | - | (54,350 | ) | - | - | 623,056 | 568,706 | ||||||||||||||||||||
| Purchase of treasury stock | - | - | 126,990 | - | - | (1,514,049 | ) | (1,387,059 | ) | |||||||||||||||||||
| Conversion Class C to Class A | 113,930 | (113,930 | ) | - | - | - | - | - | ||||||||||||||||||||
| Stock dividends | 1,899,350 | 283,188 | 6,820,431 | - | (9,002,969 | ) | - | - | ||||||||||||||||||||
| June 30, 2023 | $ | 39,787,400 | $ | 5,947,104 | $ | 71,685,665 | $ | (12,894,771 | ) | $ | 200,078,709 | $ | (5,841,350 | ) | $ | 298,762,757 | ||||||||||||
| Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||
| Class A Common Stock | Class C Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock | Total | ||||||||||||||||||||||
| January 1, 2022 | $ | 35,285,444 | $ | 5,733,130 | $ | 57,985,947 | $ | 18,070,448 | $ | 184,537,489 | $ | (1,845,624 | ) | $ | 299,766,834 | |||||||||||||
| Net earnings | - | - | - | - | 3,228,718 | - | 3,228,718 | |||||||||||||||||||||
| Other comprehensive loss | - | - | - | (12,190,330 | ) | - | - | (12,190,330 | ) | |||||||||||||||||||
| Stock-based compensation expense | - | - | 271,747 | - | - | - | 271,747 | |||||||||||||||||||||
| Exercise of stock options | 100,446 | - | (8,487 | ) | - | - | - | 91,959 | ||||||||||||||||||||
| Sale of treasury stock | - | - | 24,055 | - | - | 1,880,125 | 1,904,180 | |||||||||||||||||||||
| Purchase of treasury stock | - | - | 106,176 | - | - | (878,417 | ) | (772,241 | ) | |||||||||||||||||||
| Conversion Class C to Class A | 414 | (414 | ) | - | - | - | - | - | ||||||||||||||||||||
| March 31, 2022 | $ | 35,386,304 | $ | 5,732,716 | $ | 58,379,438 | $ | 5,880,118 | $ | 187,766,207 | $ | (843,916 | ) | $ | 292,300,867 | |||||||||||||
| Net earnings | - | - | - | - | 3,574,449 | - | 3,574,449 | |||||||||||||||||||||
| Other comprehensive loss | - | - | - | (10,310,485 | ) | - | - | (10,310,485 | ) | |||||||||||||||||||
| Other comprehensive gain (loss) | - | - | - | (10,310,485 | ) | - | - | (10,310,485 | ) | |||||||||||||||||||
| Stock-based compensation expense | - | - | 220,175 | - | - | - | 220,175 | |||||||||||||||||||||
| Exercise of stock options | 37,746 | - | (2,440 | ) | - | - | - | 35,306 | ||||||||||||||||||||
| Sale of treasury stock | - | - | 50,401 | - | - | 1,119,392 | 1,169,793 | |||||||||||||||||||||
| Purchase of treasury stock | - | - | - | - | - | (6,505,050 | ) | (6,505,050 | ) | |||||||||||||||||||
| Conversion Class C to Class A | 154,218 | (154,218 | ) | - | - | - | - | - | ||||||||||||||||||||
| Stock dividends | 1,779,108 | 278,924 | 6,009,453 | - | (8,067,485 | ) | - | - | ||||||||||||||||||||
| June 30, 2022 | $ | 37,357,376 | $ | 5,857,422 | $ | 64,657,027 | $ | (4,430,367 | ) | $ | 183,273,171 | $ | (6,229,574 | ) | $ | 280,485,055 | ||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
| 7 |
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| 2023 | 2022 | |||||||
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net cash provided by operating activities | $ | 2,181,039 | $ | 97,638,887 | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of fixed maturity securities | (28,549,767 | ) | (49,382,284 | ) | ||||
| Sales, calls and maturities of fixed maturity securities | 19,851,603 | 9,286,436 | ||||||
| Purchases of equity securities | (5,949,902 | ) | (3,166,256 | ) | ||||
| Sales of equity securities | 5,430,156 | 1,918,057 | ||||||
| Net changes in restricted assets | - | (635,844 | ) | |||||
| Purchases of restricted assets | (1,148,199 | ) | - | |||||
| Sales, calls and maturities of restricted assets | 64,746 | - | ||||||
| Net changes in cemetery perpetual care trust investments | - | 330,999 | ||||||
| Purchases of cemetery perpetual care trust investments | (355,152 | ) | - | |||||
| Sales, calls and maturities of perpetual care trust investments | 91,504 | - | ||||||
| Mortgage loans held for investment, other investments and policy loans made | (326,286,179 | ) | (382,449,025 | ) | ||||
| Payments received for mortgage loans held for investment, other investments and policy loans | 369,206,657 | 386,898,902 | ||||||
| Purchases of property and equipment | (527,285 | ) | (706,058 | ) | ||||
| Sales of property and equipment | 10,973 | 64,579 | ||||||
| Purchases of real estate | (3,971,593 | ) | (11,853,775 | ) | ||||
| Sales of real estate | 20,684,319 | 13,549,696 | ||||||
| Net cash provided by (used in) investing activities | 48,551,881 | (36,144,573 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Investment contract receipts | 6,103,142 | 5,770,353 | ||||||
| Investment contract withdrawals | (7,663,735 | ) | (8,160,796 | ) | ||||
| Proceeds from stock options exercised | 38,879 | 127,265 | ||||||
| Purchases of treasury stock | (2,591,416 | ) | (7,277,291 | ) | ||||
| Repayment of bank loans | (68,658,021 | ) | (45,217,295 | ) | ||||
| Proceeds from bank loans | 66,000,000 | 59,618,052 | ||||||
| Net change in warehouse line borrowings for loans held for sale | (55,805,126 | ) | (65,362,776 | ) | ||||
| Net cash used in financing activities | (62,576,277 | ) | (60,502,488 | ) | ||||
| Net change in cash, cash equivalents, restricted cash and restricted cash equivalents | (11,843,357 | ) | 991,826 | |||||
| Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period | 133,483,817 | 141,414,282 | ||||||
| Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period | $ | 121,640,460 | $ | 142,406,108 | ||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | 3,056,099 | $ | 3,568,862 | ||||
| Income taxes (net of refunds) | 17,458,807 | 407,958 | ||||||
| Non Cash Operating, Investing and Financing Activities: | ||||||||
| Transfer from mortgage loans held for investment to restricted assets | $ | 1,625,961 | $ | - | ||||
| Transfer from mortgage loans held for investment to cemetery perpetual care trust investments | 1,611,550 | - | ||||||
| Transfer from loans held for sale to mortgage loans held for investment | 1,150,074 | - | ||||||
| Benefit plans funded with treasury stock | 1,145,864 | 3,073,973 | ||||||
| Right-of-use assets obtained in exchange for operating lease liabilities | 139,095 | 732,005 | ||||||
| Right-of-use assets obtained in exchange for finance lease liabilities | 12,332 | - | ||||||
| Accrued real estate construction costs and retainage | - | 1,782,556 | ||||||
| 8 |
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents as shown in the condensed consolidated statements of cash flows is presented in the table below:
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash and cash equivalents | $ | 110,285,941 | $ | 131,296,538 | ||||
| Restricted assets | 10,276,918 | 9,654,673 | ||||||
| Cemetery perpetual care trust investments | 1,077,601 | 1,454,897 | ||||||
| Total cash, cash equivalents, restricted cash and restricted cash equivalents | $ | 121,640,460 | $ | 142,406,108 | ||||
| Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period | $ | 121,640,460 | $ | 142,406,108 | ||||
See accompanying notes to condensed consolidated financial statements (unaudited).
| 9 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
1)
Basis of PresentationThe accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10‑Q10-Q and Articles 8 and 10 of Regulation S‑X.S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements of the Company and notes thereto for the year ended December 31, 2016,2022, included in the Company'sCompany’s Annual Report on Form 10-K/A (file number10-K (File Number 000-09341). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine monthsthree and six month periods ended SeptemberJune 30, 20172023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The presentation of certain amounts in the prior year have been reclassified to conform to the 2017 presentation. The Company reclassified certain amounts from other assets to receivables, from receivables to other liabilities, from other assets to other liabilities, from equity securities to other investments, from other liabilities to mortgage loans held for investment, from net investment income to mortgage fee income, and from mortgage fee income to net investment income. These reclassifications had no impact on net earnings or stockholders' equity. Additionally, see the discussion regarding correction of errors in Notes 21 and 22 included in the Company's Form 10-K/A for the year ended December 31, 2016.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to adopt policies and make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. In applying these policies and estimates, the Company makes judgments that frequently require assumptions about matters that are inherently uncertain. Accordingly, significant estimates used in the preparation of the Company’s financial statements may be subject to significant adjustments in future periods. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant changes in the near term are those used in determining the value of derivative assets and liabilities; those used in determining deferred acquisition costs and the value of business acquired; those used in determining the value of mortgage loans foreclosed to real estate held for investment;investment or sale; those used in determining the liability for future policy benefits and unearned revenue; those used in determining the estimated future costs for pre-need sales; those used in determining the value of mortgage servicing rights; those used in determining allowances for loan losses for mortgage loans held for investment;credit losses; those used in determining loan loss reserve; and those used in determining deferred tax assets and liabilities. Although some variability is inherent in these estimates, management believes the amounts provided are fairly stated in all material respects.
Banking Environment.
On March 10, 2023 and March 12, 2023, Silicon Valley Bank and Signature Bank were placed in receivership with the Federal Deposit Insurance Corporation (“FDIC”). Normal banking activities resumed shortly thereafter. On May 1, 2023, First Republic bank was placed in receivership with the FDIC and was immediately purchased by a national bank.
The Company does not maintain any deposit or other accounts or credit facilities with Silicon Valley Bank, Signature Bank or First Republic Bank. The Company may periodically transfer funds to these banks to pay for services rendered by third party vendors that continue to maintain banking relationships with these banks. The Company continues to monitor the banking industry and its relationships with regional and community banks.
| 10 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
2)
Recent Accounting PronouncementsAccounting Standards Adopted in January 2017, ASU 2017-01 intends to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business: inputs, processes, and outputs. While an integrated set of assets and activities, collectively referred to as a "set," that is a business usually has outputs, outputs are not required to be present. ASU 2017-01 provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. ASU 2017-01 will be effective for the Company on January 1, 2018. While the Company's acquisitions have historically been classified as either business combinations or asset acquisitions, certain acquisitions that were classified as business combinations by the Company likely would have been considered asset acquisitions under the new standard. As a result, transaction costs are more likely to be capitalized since the Company expects some of its future acquisitions to be classified as asset acquisitions under this new standard. In addition, goodwill that was previously allocated to businesses that were sold or held for sale will no longer be allocated and written off upon sale if future sales were deemed to be sales of assets and not businesses.
ASU No. 2016-13: "Financial“Financial Instruments – Credit Losses (Topic 326)"
Schedule of Increased (Decrease) in Allowances for Credit Losses Upon ASU
| Amount | ||||
| Mortgage loans held for investment: | ||||
| Residential | $ | (192,607 | ) | |
| Residential construction | 301,830 | |||
| Commercial | 555,807 | |||
| Total | 665,030 | |||
| Restriced assets - mortgage loans held for investment: | ||||
| Residential construction | 3,463 | |||
| Cemetery perpetual care trust investments - mortgage loans held for investment: | ||||
| Residential construction | 3,013 | |||
| Grand Total | 671,506 | |||
Accounting Standards Issued But Not Yet Adopted
ASU No. 2018-12: “Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts” — Issued in August 2018, ASU 2018-12 is effective for interim and annual periods beginning after December 15, 2019. The Company isintended to improve the timeliness of recognizing changes in the process of evaluatingliability for future policy benefits on traditional long-duration contracts by requiring that assumptions be updated after contract inception and by modifying the potential impact of this standard.
The Company has reviewed other recent accounting pronouncements and has determined that they will not significantly impact the Company'sCompany’s results of operations or financial position.
| 11 |
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
3)
InvestmentsThe Company'sCompany’s investments as of SeptemberJune 30, 20172023 are summarized as follows:
Schedule of Investments
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses (1) | Allowance for Credit Losses | Estimated Fair Value | ||||||||||||||||
| June 30, 2023: | ||||||||||||||||||||
| Fixed maturity securities, available for sale, at estimated fair value: | ||||||||||||||||||||
| U.S. Treasury securities and obligations of U.S. Government agencies | $ | 99,323,377 | $ | 50,602 | $ | (2,554,426 | ) | $ | - | $ | 96,819,553 | |||||||||
| Obligations of states and political subdivisions | 6,757,087 | 403 | (378,987 | ) | - | 6,378,503 | ||||||||||||||
| Corporate securities including public utilities | 232,127,146 | 2,177,346 | (11,487,153 | ) | (224,005 | ) | 222,593,334 | |||||||||||||
| Mortgage-backed securities | 33,273,655 | 169,558 | (4,704,791 | ) | - | 28,738,422 | ||||||||||||||
| Redeemable preferred stock | 250,000 | 10,000 | - | - | 260,000 | |||||||||||||||
| Total fixed maturity securities available for sale | $ | 371,731,265 | $ | 2,407,909 | $ | (19,125,357 | ) | $ | (224,005 | ) | $ | 354,789,812 | ||||||||
| Equity securities at estimated fair value: | ||||||||||||||||||||
| Common stock: | ||||||||||||||||||||
| Industrial, miscellaneous and all other | $ | 10,416,580 | $ | 2,976,949 | $ | (591,604 | ) | $ | 12,801,925 | |||||||||||
| Total equity securities at estimated fair value | $ | 10,416,580 | $ | 2,976,949 | $ | (591,604 | ) | $ | 12,801,925 | |||||||||||
| Mortgage loans held for investment at amortized cost: | ||||||||||||||||||||
| Residential | $ | 95,208,040 | ||||||||||||||||||
| Residential construction | 121,322,532 | |||||||||||||||||||
| Commercial | 59,205,487 | |||||||||||||||||||
| Less: Unamortized deferred loan fees, net | (1,689,405 | ) | ||||||||||||||||||
| Less: Allowance for credit losses | (2,663,560 | ) | ||||||||||||||||||
| Less: Net discounts | (333,509 | ) | ||||||||||||||||||
| Total mortgage loans held for investment | $ | 271,049,585 | ||||||||||||||||||
| Real estate held for investment - net of accumulated depreciation: | ||||||||||||||||||||
| Residential | $ | 30,680,836 | ||||||||||||||||||
| Commercial | 150,282,066 | |||||||||||||||||||
| Total real estate held for investment | $ | 180,962,902 | ||||||||||||||||||
| Real estate held for sale: | ||||||||||||||||||||
| Residential | $ | 1,675,921 | ||||||||||||||||||
| Commercial | 151,553 | |||||||||||||||||||
| Total real estate held for sale | $ | 1,827,474 | ||||||||||||||||||
| Other investments and policy loans at amortized cost: | ||||||||||||||||||||
| Policy loans | $ | 13,020,654 | ||||||||||||||||||
| Insurance assignments | 41,157,301 | |||||||||||||||||||
| Federal Home Loan Bank stock (2) | 2,677,100 | |||||||||||||||||||
| Other investments | 9,389,786 | |||||||||||||||||||
| Less: Allowance for credit losses for insurance assignments | (1,690,693 | ) | ||||||||||||||||||
| Total other investments and policy loans | $ | 64,554,148 | ||||||||||||||||||
| Accrued investment income | $ | 10,188,551 | ||||||||||||||||||
| Total investments | $ | 896,174,397 | ||||||||||||||||||
Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
September 30, 2017 | ||||||||||||||||
| Fixed maturity securities held to maturity carried at amortized cost: | ||||||||||||||||
| Bonds: | ||||||||||||||||
| U.S. Treasury securities and obligations of U.S. Government agencies | $ | 54,279,156 | $ | 237,071 | $ | (226,543 | ) | $ | 54,289,684 | |||||||
| Obligations of states and political subdivisions | 5,865,790 | 124,685 | (77,272 | ) | 5,913,203 | |||||||||||
| Corporate securities including public utilities | 160,278,125 | 14,088,157 | (1,285,361 | ) | 173,080,921 | |||||||||||
| Mortgage-backed securities | 9,764,566 | 253,573 | (171,423 | ) | 9,846,716 | |||||||||||
| Redeemable preferred stock | 623,635 | 53,403 | - | 677,038 | ||||||||||||
| Total fixed maturity securities held to maturity | $ | 230,811,272 | $ | 14,756,889 | $ | (1,760,599 | ) | $ | 243,807,562 | |||||||
| Equity securities available for sale at estimated fair value: | ||||||||||||||||
| Common stock: | ||||||||||||||||
| Industrial, miscellaneous and all other | $ | 6,310,307 | $ | 467,132 | $ | (819,951 | ) | $ | 5,957,488 | |||||||
| Total equity securities available for sale at estimated fair value | $ | 6,310,307 | $ | 467,132 | $ | (819,951 | ) | $ | 5,957,488 | |||||||
| Mortgage loans held for investment at amortized cost: | ||||||||||||||||
| Residential | $ | 65,759,761 | ||||||||||||||
| Residential construction | 41,306,722 | |||||||||||||||
| Commercial | 42,923,761 | |||||||||||||||
| Less: Unamortized deferred loan fees, net | (637,735 | ) | ||||||||||||||
| Less: Allowance for loan losses | (2,051,818 | ) | ||||||||||||||
| Total mortgage loans held for investment | $ | 147,300,691 | ||||||||||||||
| Real estate held for investment net of accumulated depreciation: | ||||||||||||||||
| Residential | $ | 69,469,220 | ||||||||||||||
| Commercial | 81,099,778 | |||||||||||||||
| Total real estate held for investment | $ | 150,568,998 | ||||||||||||||
| Policy loans and other investments at amortized cost: | ||||||||||||||||
| Policy loans | $ | 6,677,924 | ||||||||||||||
| Insurance assignments | 33,340,431 | |||||||||||||||
| Federal Home Loan Bank stock | 689,400 | |||||||||||||||
| Other investments | 2,923,681 | |||||||||||||||
| Less: Allowance for doubtful accounts | (1,142,287 | ) | ||||||||||||||
| Total policy loans and other investments | $ | 42,489,149 | ||||||||||||||
| Short-term investments at amortized cost | $ | 17,830,990 | ||||||||||||||
| Accrued investment income | $ | 3,391,688 | ||||||||||||||
| (1) | Gross unrealized losses are net of allowance for credit losses |
| (2) | Includes $84,800 of Membership stock and $2,592,300 of Activity stock attributable to short-term borrowings and letters of credit. |
| 12 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
3)
Investments(Continued)The Company'sCompany’s investments as of December 31, 20162022 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 credit 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 credit losses for insurance assignments | (1,609,951 | ) | ||||||||||||||
| Total other investments and policy loans | $ | 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 attributable to short-term borrowings and letters of credit. |
| 13 |
| Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
December 31, 2016: | ||||||||||||||||
| Fixed maturity securities held to maturity carried at amortized cost: | ||||||||||||||||
| Bonds: | ||||||||||||||||
| U.S. Treasury securities and obligations of U.S. Government agencies | $ | 4,475,065 | $ | 249,028 | $ | (66,111 | ) | $ | 4,657,982 | |||||||
| Obligations of states and political subdivisions | 6,017,225 | 153,514 | (133,249 | ) | 6,037,490 | |||||||||||
| Corporate securities including public utilities | 164,375,636 | 10,440,989 | (3,727,013 | ) | 171,089,612 | |||||||||||
| Mortgage-backed securities | 9,488,083 | 221,400 | (280,871 | ) | 9,428,612 | |||||||||||
| Redeemable preferred stock | 623,635 | 13,418 | - | 637,053 | ||||||||||||
| Total fixed maturity securities held to maturity | $ | 184,979,644 | $ | 11,078,349 | $ | (4,207,244 | ) | $ | 191,850,749 | |||||||
| Equity securities available for sale at estimated fair value: | ||||||||||||||||
| Common stock: | ||||||||||||||||
| Industrial, miscellaneous and all other | $ | 10,323,238 | $ | 447,110 | $ | (859,092 | ) | $ | 9,911,256 | |||||||
| Total securities available for sale carried at estimated fair value | $ | 10,323,238 | $ | 447,110 | $ | (859,092 | ) | $ | 9,911,256 | |||||||
| Mortgage loans held for investment at amortized cost: | ||||||||||||||||
| Residential | $ | 58,593,622 | ||||||||||||||
| Residential construction | 40,800,117 | |||||||||||||||
| Commercial | 51,536,622 | |||||||||||||||
| Less: Unamortized deferred loan fees, net | (190,846 | ) | ||||||||||||||
| Less: Allowance for loan losses | (1,748,783 | ) | ||||||||||||||
| Total mortgage loans held for investment | $ | 148,990,732 | ||||||||||||||
| Real estate held for investment net of accumlated depreciation: | ||||||||||||||||
| Residential | $ | 76,191,985 | ||||||||||||||
| Commercial | 68,973,936 | |||||||||||||||
| Total real estate held for investment | $ | 145,165,921 | ||||||||||||||
| Policy loans and other investments at amortized cost: | ||||||||||||||||
| Policy loans | $ | 6,694,148 | ||||||||||||||
| Insurance assignments | 33,548,079 | |||||||||||||||
| Promissory notes | 48,797 | |||||||||||||||
| Federal Home Loan Bank stock | 662,100 | |||||||||||||||
| Other investments | 1,765,752 | |||||||||||||||
| Less: Allowance for doubtful accounts | (1,119,630 | ) | ||||||||||||||
| Total policy loans and other investments | $ | 41,599,246 | ||||||||||||||
| Short-term investments at amortized cost | $ | 27,560,040 | ||||||||||||||
| Accrued investment income | $ | 2,972,596 | ||||||||||||||
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
3)
Investments(Continued)Fixed Maturity Securities
The following tables summarizetable below summarizes unrealized losses on fixed maturity securities held to maturity, which areavailable for sale that were carried at amortized cost,estimated fair value at SeptemberJune 30, 20172023 and at December 31, 2016.2022. The unrealized losses were primarily related to interest rate fluctuations. The tables set forth unrealized losses by duration with the fair value of the related fixed maturity securities:
Unrealized Losses for Less than Twelve Months | Fair Value | Unrealized Losses for More than Twelve Months | Fair Value | Total Unrealized Loss | Fair Value | |||||||||||||||||||
At September 30, 2017 | ||||||||||||||||||||||||
| U.S. Treasury Securities and Obligations of U.S. Government Agencies | $ | 182,493 | $ | 51,456,444 | $ | 44,050 | $ | 851,779 | $ | 226,543 | $ | 52,308,223 | ||||||||||||
| Obligations of states and political subdivisions | 18,357 | 2,486,400 | 58,915 | 1,651,253 | 77,272 | 4,137,653 | ||||||||||||||||||
| Corporate securities | 286,166 | 16,526,010 | 999,195 | 10,820,005 | 1,285,361 | 27,346,015 | ||||||||||||||||||
| Mortgage-backed securities | 68,972 | 2,026,033 | 102,451 | 1,156,803 | 171,423 | 3,182,836 | ||||||||||||||||||
| Total unrealized losses | $ | 555,988 | $ | 72,494,887 | $ | 1,204,611 | $ | 14,479,840 | $ | 1,760,599 | $ | 86,974,727 | ||||||||||||
At December 31, 2016 | ||||||||||||||||||||||||
| U.S. Treasury Securities and Obligations of U.S. Government Agencies | $ | 66,111 | $ | 1,342,088 | $ | - | $ | - | $ | 66,111 | $ | 1,342,088 | ||||||||||||
| Obligations of states and political subdivisions | 133,249 | 3,686,856 | - | - | 133,249 | 3,686,856 | ||||||||||||||||||
| Corporate securities | 1,728,312 | 41,796,016 | 1,998,701 | 12,969,135 | 3,727,013 | 54,765,151 | ||||||||||||||||||
| Mortgage-backed securities | 176,715 | 4,176,089 | 104,156 | 940,278 | 280,871 | 5,116,367 | ||||||||||||||||||
| Total unrealized losses | $ | 2,104,387 | $ | 51,001,049 | $ | 2,102,857 | $ | 13,909,413 | $ | 4,207,244 | $ | 64,910,462 | ||||||||||||
Schedule of Fair Value of Fixed Maturity Securities
| Unrealized Losses for Less than Twelve Months | Fair Value | Unrealized Losses for More than Twelve Months | Fair Value | Total Unrealized Loss | Combined Fair Value | |||||||||||||||||||
| At June 30, 2023 | ||||||||||||||||||||||||
| U.S. Treasury Securities And Obligations of U.S. Government Agencies | $ | 872,936 | $ | 56,265,029 | $ | 1,681,490 | $ | 28,818,980 | $ | 2,554,426 | $ | 85,084,009 | ||||||||||||
| Obligations of States and Political Subdivisions | 159,415 | 3,758,985 | 219,572 | 2,149,115 | 378,987 | 5,908,100 | ||||||||||||||||||
| Corporate Securities | 3,664,905 | 96,981,686 | 7,822,248 | 71,988,258 | 11,487,153 | 168,969,944 | ||||||||||||||||||
| Mortgage and other asset-backed securities | 497,345 | 5,241,798 | 4,207,446 | 20,951,604 | 4,704,791 | 26,193,402 | ||||||||||||||||||
| Totals | $ | 5,194,601 | $ | 162,247,498 | $ | 13,930,756 | $ | 123,907,957 | $ | 19,125,357 | $ | 286,155,455 | ||||||||||||
| 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 | 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 | ||||||||||||||||||
| Totals | $ | 16,883,189 | $ | 267,774,539 | $ | 2,291,672 | $ | 13,189,587 | $ | 19,174,861 | $ | 280,964,126 | ||||||||||||
Relevant holdings were comprised of 748 securities with fair value of 93.7% of amortized cost at June 30, 2023. Relevant holdings were comprised of 713 securities with fair value of 93.6% of amortized cost at December 31, 2022. Credit losses of $44,505 and nil have been recognized for the three month periods ended June 30, 2023 and 2022, respectively. Credit losses of $224,005 and nil have been recognized for the six month periods ended June 30, 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 the recent increases in interest and inflation rates.
Evaluation of Allowance for Credit Losses
See Note 2 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”). Securities with a rating of 1 or 2 are considered investment grade and are not reviewed for credit loss, unless current market or recent company news could lead to a credit downgrade. Securities with ratings of 3 to 5 are evaluated for credit loss. Securities with a rating of 6 are automatically determined to be impaired and a credit loss is recognized in earnings. 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.
| 14 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
3)
Investments(Continued)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 and it is not more likely than not that the Company will be required to sell the debt security but also do 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.
The following table presents a roll forward of the Company’s allowance for credit losses on fixed maturity securities available for sale:
Schedule of Allowance for Credit Losses on Fixed Maturity Securities Available for Sale
| Six Months Ended June 30, 2023 | ||||||||||||||||||||
| U.S. Treasury Securities And Obligations of U.S. Government Agencies | Obligations of states and political subdivisions | Corporate securities | Mortgage-backed securities | Total | ||||||||||||||||
| Beginning balance | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
| Additions for credit losses not previously recorded | - | - | 179,500 | - | 179,500 | |||||||||||||||
| Change in allowance on securities with previous allowance | - | - | 44,505 | - | 44,505 | |||||||||||||||
| Reductions for securities sold during the period | - | - | - | - | - | |||||||||||||||
| 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 | $ | - | $ | - | $ | 224,005 | $ | - | $ | 224,005 | ||||||||||
| 15 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
3) 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:
Schedule of Earnings on Fixed Maturity Securities
| 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 June 30 | $ | 225,475 | ||
The table below presents the amortized cost and the estimated fair value of fixed maturity securities held to maturity,available for sale at SeptemberJune 30, 2017,2023, by contractual maturity, are shown below. Expectedmaturity. Actual or expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Cost | Estimated Fair Value | |||||||
| Held to Maturity: | ||||||||
| Due in 2017 | $ | 1,205,533 | $ | 1,208,929 | ||||
| Due in 2018 through 2021 | 77,063,707 | 78,846,158 | ||||||
| Due in 2022 through 2026 | 54,265,268 | 56,731,089 | ||||||
| Due after 2026 | 87,888,563 | 96,497,632 | ||||||
| Mortgage-backed securities | 9,764,566 | 9,846,716 | ||||||
| Redeemable preferred stock | 623,635 | 677,038 | ||||||
| Total held to maturity | $ | 230,811,272 | $ | 243,807,562 | ||||
Schedule of Investments Classified by Contractual Maturity Date
| Amortized Cost | Estimated Fair Value | |||||||
| Due in 1 year | $ | 19,976,902 | $ | 19,882,628 | ||||
| Due in 2-5 years | 149,667,318 | 144,707,290 | ||||||
| Due in 5-10 years | 82,678,874 | 79,333,563 | ||||||
| Due in more than 10 years | 85,884,516 | 81,867,909 | ||||||
| Mortgage-backed securities | 33,273,655 | 28,738,422 | ||||||
| Redeemable preferred stock | 250,000 | 260,000 | ||||||
| Total | $ | 371,731,265 | $ | 354,789,812 | ||||
The Company is a member of the Federal Home Loan Bank of Des Moines ("FHLB"and Dallas (“FHLB”). In June through August of 2017, theThe Company purchasedhad pledged a total of $50,000,000, par$84,531,263, at estimated fair value, of United States Treasury fixed maturity securities that it deposited with the FHLB.FHLB at June 30, 2023. These pledged securities will generate interest incomeare used as collateral for any FHLB cash advances. As of June 30, 2023, the Company owed nil to the FHLB and will be availableits estimated maximum borrowing capacity was $76,274,326.
Credit Quality Indicators
The NAIC assigns designations to use as collateralfixed 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 any cash borrowings from the FHLB. As of September 30, 2017,NAIC designations, the Company did not have any outstanding amounts owed to FHLB.
The following tables summarize unrealized losses on equitytable summarizes the credit quality, by NAIC designation, of the Company’s fixed maturity securities available for sale, that were carried at estimated fair value based on quoted trading prices at September 30, 2017 and December 31, 2016. The unrealized losses were primarily the result of decreases in fair value in the retail, industrial and energy sectors. The tables set forth unrealized losses by duration and number of investment positions, together with the fair value of the related equity securities available for sale in a loss position:excluding redeemable preferred stock.
| 16 |
Unrealized Losses for Less than Twelve Months | No. of Investment Positions | Unrealized Losses for More than Twelve Months | No. of Investment Positions | Total Unrealized Losses | ||||||||||||||||
At September 30, 2017 | ||||||||||||||||||||
| Industrial, miscellaneous and all other | $ | 150,581 | 108 | $ | 669,370 | 92 | $ | 819,951 | ||||||||||||
| Total unrealized losses | $ | 150,581 | 108 | $ | 669,370 | 92 | $ | 819,951 | ||||||||||||
| Fair Value | $ | 988,159 | $ | 1,444,994 | $ | 2,433,153 | ||||||||||||||
At December 31, 2016 | ||||||||||||||||||||
| Industrial, miscellaneous and all other | $ | 215,563 | 124 | $ | 643,529 | 104 | $ | 859,092 | ||||||||||||
| Total unrealized losses | $ | 215,563 | 124 | $ | 643,529 | 104 | $ | 859,092 | ||||||||||||
| Fair Value | $ | 2,063,144 | $ | 1,685,874 | $ | 3,749,018 | ||||||||||||||
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
3)
Investments(Continued)Schedule of Credit Quality of Fixed Maturity Security Portfolio by lots which are currently carried on the books at a value greater than the 52-week high. These securities are further evaluated by reviewing current market value in relation to historical value, price earnings ratios, projected earnings, revenue growth rates, negative company related events, market sector comparisons and analyst reports to determine if a security has a reasonable expectation to return to the current cost basis. Based on the analysis, a determination is made whether a security will likely recover from the loss position within a reasonable periodNAIC Designation
| June 30, 2023 | December 31, 2022 | |||||||||||||||
| NAIC Designation | Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | ||||||||||||
| 1 | $ | 203,707,382 | $ | 195,622,815 | $ | 197,753,818 | $ | 189,691,540 | ||||||||
| 2 | 160,122,716 | 151,974,611 | 156,261,804 | 148,073,873 | ||||||||||||
| 3 | 5,667,117 | 5,264,194 | 7,080,305 | 6,635,786 | ||||||||||||
| 4 | 1,720,314 | 1,563,190 | 1,377,541 | 1,157,454 | ||||||||||||
| 5 | 262,465 | 104,832 | 25,736 | 39,155 | ||||||||||||
| 6 | 1,271 | 170 | 1,307 | 684 | ||||||||||||
| Total | $ | 371,481,265 | $ | 354,529,812 | $ | 362,500,511 | $ | 345,598,492 | ||||||||
Information regarding sales of time. If it is unlikely that the security will recover from the loss position, the loss is considered to be other than temporary, the security is written down to a restated value and an impairment loss is recognized.
Schedule of Major Categories of Net Investment Income
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Proceeds from sales | $ | - | $ | 233,000 | $ | 955,610 | $ | 688,651 | ||||||||
| Gross realized gains | - | - | 11,257 | 2,354 | ||||||||||||
| Gross realized losses | - | (7,825 | ) | (54,104 | ) | (7,845 | ) | |||||||||
Securities and losses from sales, calls, and maturities, and other than temporary impairments from investments and other assets are summarized as follows:
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Fixed maturity securities held to maturity: | ||||||||||||||||
| Gross realized gains | $ | 110,529 | $ | 65,179 | $ | 163,950 | $ | 259,635 | ||||||||
| Gross realized losses | (651,754 | ) | (4,527 | ) | (686,819 | ) | (7,405 | ) | ||||||||
| Other than temporary impairments | (100,000 | ) | (30,000 | ) | (418,366 | ) | (90,000 | ) | ||||||||
| Equity securities available for sale: | ||||||||||||||||
| Gross realized gains | 25,898 | 36,751 | 132,350 | 176,331 | ||||||||||||
| Gross realized losses | (26 | ) | (4,544 | ) | (58,464 | ) | (37,146 | ) | ||||||||
| Other than temporary impairments | (63,375 | ) | - | (63,375 | ) | (43,630 | ) | |||||||||
| Other assets: | ||||||||||||||||
| Gross realized gains | 225,022 | 191,992 | 2,006,721 | 468,675 | ||||||||||||
| Gross realized losses | (29,335 | ) | (324,020 | ) | (844,672 | ) | (680,794 | ) | ||||||||
| Total | $ | (483,041 | ) | $ | (69,169 | ) | $ | 231,325 | $ | 45,666 | ||||||
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Fixed maturity securities | $ | 2,692,586 | $ | 2,410,641 | $ | 7,475,156 | $ | 6,472,847 | ||||||||
| Equity securities | 66,320 | 78,402 | 209,517 | 208,696 | ||||||||||||
| Mortgage loans held for investment | 2,973,349 | 2,830,853 | 8,803,257 | 8,238,249 | ||||||||||||
| Real estate held for investment | 2,818,672 | 2,736,301 | 8,540,756 | 8,162,574 | ||||||||||||
| Policy loans | 195,098 | 205,537 | 621,854 | 558,778 | ||||||||||||
| Insurance assignments | 3,234,520 | 2,952,170 | 9,943,561 | 8,915,654 | ||||||||||||
| Other investments | 16,051 | - | 36,041 | 13,962 | ||||||||||||
| Short-term investments | 109,939 | 20,978 | 311,989 | 66,480 | ||||||||||||
| Gross investment income | 12,106,535 | 11,234,882 | 35,942,131 | 32,637,240 | ||||||||||||
| Investment expenses | (3,745,069 | ) | (3,145,025 | ) | (10,383,018 | ) | (9,152,960 | ) | ||||||||
| Net investment income | $ | 8,361,466 | $ | 8,089,857 | $ | 25,559,113 | $ | 23,484,280 | ||||||||
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 June 30, 2023, other than investments issued or guaranteed by the United States Government.
Real Estate Held for Investment
The Company continues to strategically deploydeploys 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 units in the form of acquisition, development, and foreclosures on mortgage loans.
Commercial Real Estate Held for Investment
The Company owns and manages commercial real estate assets as a means of generating investment income. These assets are acquired in accordance with the Company'sCompany’s goals and objectives for risk-adjusted returns. Due diligence is conducted on each asset using internal and third-party reports. Geographicresources. The geographic locations and asset classes of the investment activity isinvestments are 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 whenwhere the geographic boundarylocation does not warrant full-time staff or through strategic lease-up periods. The Company generally looks to acquire assets that are located in regions that areexpected to have high growth regions forin employment and population and in assets that provide operational efficiencies.
The Company currently owns and operates 12nine commercial properties in 7three states. These properties include industrial warehouses, office buildings, retail centers, undeveloped landflex office space, and includes the redevelopment and expansion of its corporate campus (“Center53”) in Salt Lake City, Utah. The Company does useuses bank debt in strategic cases, primarily where it is anticipated to leverage establishedimprove yields, or to acquire afacilitate the acquisition of higher quality assets or differentasset class of asset.diversification.
| 17 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
3) Investments (Continued)
The aggregated net ending balancebook value of commercial real estate that servesserving as collateral for bank borrowingsloans was approximately $65,907,000$126,954,484 and $51,507,000$129,330,119 as of SeptemberJune 30, 20172023, and December 31, 2016,2022, respectively. The associated bank loan carrying values totaled approximately $38,161,000$96,199,103 and $21,831,000$97,112,131 as of SeptemberJune 30, 20172023, and December 31, 2016,2022, respectively.
During the three and six month periods ended June 30, 2017 (Unaudited)
During the three month periods presented:ended June 30, 2023, and 2022, the Company recorded depreciation expense on commercial real estate held for investment of $1,576,901 and $1,665,343, respectively, and of $3,142,828 and $2,989,274 during the six month periods ended June 30, 2023, and 2022, 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 as of the respective dates indicated:
Schedule of Commercial Real Estate Investment
| Net Book Value | Total Square Footage | |||||||||||||||
| June 30, 2023 | December 31, 2022 | June 30, 2023 | December 31, 2022 | |||||||||||||
| Utah (1) | $ | 144,998,640 | $ | 147,627,946 | 625,920 | 625,920 | ||||||||||
| Louisiana | 2,357,964 | 2,380,847 | 31,778 | 31,778 | ||||||||||||
| Mississippi | 2,925,462 | 2,881,863 | 19,694 | 19,694 | ||||||||||||
| $ | 150,282,066 | $ | 152,890,656 | 677,392 | 677,392 | |||||||||||
| (1) | Includes Center53 |
The Company’s commercial real estate held for sale is summarized as follows as of the respective dates indicated:
| Net Book Value | ||||||||
| June 30, 2023 | December 31, 2022 | |||||||
| Mississippi (1) | $ | 151,553 | $ | 151,553 | ||||
| $ | 151,553 | $ | 151,553 | |||||
| Net Ending Balance | Total Square Footage | |||||||||||||||||
| September 30 | December 31 | September 30 | December 31 | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||||
| Arizona | $ | 4,000 | (1 | ) | $ | 450,538 | (1 | ) | - | 16,270 | ||||||||
| Arkansas | 97,219 | 100,369 | 3,200 | 3,200 | ||||||||||||||
| Kansas | 11,993,029 | 12,450,297 | 222,679 | 222,679 | ||||||||||||||
| Louisiana | 499,573 | 518,700 | 7,063 | 7,063 | ||||||||||||||
| Mississippi | 3,748,324 | 3,818,985 | 33,821 | 33,821 | ||||||||||||||
| New Mexico | 7,000 | (1 | ) | 7,000 | (1 | ) | - | - | ||||||||||
| Texas | 3,728,960 | 3,734,974 | 23,470 | 23,470 | ||||||||||||||
| Utah | 61,021,673 | (2 | ) | 47,893,073 | (2 | ) | 433,244 | 433,244 | ||||||||||
| $ | 81,099,778 | $ | 68,973,936 | 723,477 | 739,747 | |||||||||||||
| (1) Includes undeveloped land | ||||||||||||||||||
| (2) Includes 53rd Center completed in July 2017 | ||||||||||||||||||
| (1) | Consists of approximately 93 acres of undeveloped land |
This property is being marketed with the assistance of commercial real estate brokers in Mississippi.
Residential Real Estate Held for Investment
The Company ownsoccasionally acquires a small portfolio of residential homes primarily as a result of loan foreclosures. The strategy has been to lease these homes to produce cash flow, and allow time for the economic fundamentals to return to the various markets. As an orderly and active market for these homes returns, the Company has the option to disposesell these properties or to continue andto hold them for expected cash flow and acceptable returns.
The Company established Security National Real Estate Services ("SNRE"(“SNRE”) to manage theits residential property portfolio. SNRE cultivates and maintains the preferred vendor relationships necessary to manage costs and quality of work performed on the portfolio of homes acrossCompany’s entire residential property portfolio.
| 18 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
3) Investments (Continued)
During the country.
During the three month periods ended June 30, 2023, and 2022, the Company recorded depreciation expense on residential real estate held for investment of $2,648 and $2,648, respectively, and of $5,296 and $5,296 during the six month periods ended June 30, 2023, and 2022, 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.
The Company’s residential real estate held for investment is summarized as collateral for a bank borrowing was approximately $34,772,000 and $35,798,000,follows as of September 30, 2017 and December 31, 2016, respectively. the respective dates indicated:
Schedule of Residential Real Estate Investment
| Net Book Value | ||||||||
| June 30, 2023 | December 31, 2022 | |||||||
| Utah (1) | $ | 30,680,836 | $ | 38,437,960 | ||||
| $ | 30,680,836 | $ | 38,437,960 | |||||
| (1) | Includes residential subdivision development |
The associated bank loan carrying value was approximately $26,893,000 and $27,377,000following table presents additional information regarding the Company’s residential subdivision development in Utah:
| June 30, 2023 | December 31, 2022 | |||||||
| Lots developed | 42 | 80 | ||||||
| Lots to be developed | 931 | 1,131 | ||||||
| Book Value | $ | 30,489,876 | $ | 38,241,705 | ||||
The Company’s residential real estate held for sale is summarized as follows as of September 30, 2017 and December 31, 2016, respectively.
| Net Book Value | ||||||||
| June 30, 2023 | December 31, 2022 | |||||||
| Utah | $ | 1,675,921 | (1) | $ | 11,010,029 | |||
| $ | 1,675,921 | $ | 11,010,029 | |||||
| (1) | Unimproved land |
The net ending balancebook value of foreclosed residential real estate included in residential real estate held for investment is $34,167,065sale was nil and $39,856,434$11,010,029 as of SeptemberJune 30, 20172023, and December 31, 2016,2022, respectively.
| 19 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
3)
Investments(Continued)| Net Ending Balance | ||||||||
| September 30 | December 31 | |||||||
| 2017 | 2016 | |||||||
| Arizona | $ | 217,516 | $ | 742,259 | ||||
| California | 5,663,871 | 5,848,389 | ||||||
| Colorado | - | 364,489 | ||||||
| Florida | 7,311,913 | 8,327,355 | ||||||
| Hawaii | 712,286 | - | ||||||
| Ohio | 46,658 | 46,658 | ||||||
| Oklahoma | 17,500 | - | ||||||
| Texas | 511,486 | 1,091,188 | ||||||
| Utah | 54,701,809 | 59,485,466 | ||||||
| Washington | 286,181 | 286,181 | ||||||
| $ | 69,469,220 | $ | 76,191,985 | |||||
Real Estate Owned and Occupied by the Company
The primary business units of the Company occupy a portion of the real estate owned by the Company. Currently, the Company occupies nearly 80,000 square feet, or approximately 10% of the overall commercial real estate holdings.
| Location | Business Segment | Approximate Square Footage | Square Footage Occupied by the Company | ||||||
| 5300 South 360 West, Salt Lake City, UT (1) | Corporate Offices, Life Insurance and Cemetery/Mortuary Operations | 36,000 | 100 | % | |||||
| 5201 Green Street, Salt Lake City, UT | Mortgage Operations | 36,899 | 34 | % | |||||
| 1044 River Oaks Dr., Flowood, MS | Life Insurance Operations | 5,522 | 27 | % | |||||
| (1) This asset is included in property and equipment on the condensed consolidated balance sheet | |||||||||
Schedule of Real Estate Owned and Occupied by the Company
| 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) | Life Insurance Operations | 19,694 | 28 | % | ||||||
| 1818 Marshall Street, Shreveport, LA (2) | Life Insurance Operations | 12,274 | 100 | % | ||||||
| 909 Foisy Street, Alexandria, LA (2) | Life Insurance Sales | 8,059 | 100 | % | ||||||
| 812 Sheppard Street, Minden, LA (2) | Life Insurance Sales | 1,560 | 100 | % | ||||||
| 1550 N 3rd Street, Jena, LA (2) | Life Insurance Sales | 1,737 | 100 | % | ||||||
| (1) | Included in real estate held for investment on the condensed consolidated balance sheets |
| (2) | Included in property and equipment on the condensed consolidated balance sheets |
Mortgage Loans Held for Investment
Mortgage loans held for investment consist of first and second mortgages. The mortgage loans bear interest at rates ranging from 2.0%2.0% to 10.5%10.5%, maturity dates range from threenine months to 30 years and the loans 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'the relevant debtors’ ability to honor obligations is reliant ondependent upon the economic stability of the geographic region in which the debtors do business. At Septemberbusiness or are employed. As of June 30, 2017,2023, the Company had 45%54%, 11%10%, 11%8%, 7%, 5%, 5%6% and 4%5%, of its mortgage loans from borrowers located in the states of Utah, Florida, California, Arizona, and Texas, 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, Arizona, Nevada,California, and Tennessee,Texas, 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 loancredit 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 termterms 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 loanrequires that loans not to exceed 80% of the loan's collateral fair market value. Amounts overvalue of the respective loan collateral. For loans in excess of 80% will requireof the fair market value of the respective loan collateral, additional collateral or mortgage insurance by an approved third-party insurer.insurer is required.
| 20 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
3) Investments (Continued)
Evaluation of Allowance for Credit Losses
See Note 2 regarding the adoption of ASU 2016-13.
The Company providesallowance for credit losses on itsis a valuation account that is deducted from the amortized cost basis of the Company’s mortgage loans held for investment through anto 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.
Once a mortgage loan losses (a contra-asset account). The allowance is comprisedpast due 90 days, it is the policy 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 impairmentto 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 $145,000 and $226,000 as of June 30, 2023, and December 31, 2022, respectively.
The Company measures expected credit losses based upon an assessment ofon the fair value of the underlying collateral.collateral when the Company determines that foreclosure is probable. When a mortgage 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 amountproperty is classified as real estate held for investment. The Company will rent the properties until it is deemed desirable to sell them.
For purposes of determining the allowance for credit losses, the Company has segmented its mortgage loans held for investment by loan type. The Company'sCompany’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 theCommercial loans are evaluated for credit loss by family dwelling units.analyzing loan attributes that are predictors for future credit losses. The Company uses a combination of the debt service coverage ratio (“DSCR”) and loan to value (“LTV”) to group similar loans. The Company applies a future loss factor to the outstanding balance of each group to arrive at the allowance for credit loss.
Residential — These loans are secured by first and second mortgages on single family dwellings. The borrower’s ability to repay is sensitive to the unit, which are generallylife events and the primary residencegeneral economic condition of the borrower,region. Where loan to value exceeds 80%, the loan is generally atguaranteed by private mortgage insurance, the FHA, or VA.
The Company uses a loan-to-value ratio ("LTV")third-party to provide a monthly analysis of 80% or less.
Residential construction (including land acquisition and development)
–| 21 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
3) Investments (Continued)
Additionally, land isacquisition and development loans are underwritten according toin accordance with the Company'sCompany’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 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.
To determine the allowance for credit losses on residential construction mortgage loans, the Company considers historical activity and housing market trends. Given the continued volatility in the housing market, the Company has adjusted its credit loss analysis.
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 | |||||||||||||
| June 30, 2023 | ||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||
| Beginning balance - January 1, 2023 | $ | 187,129 | $ | 1,739,980 | $ | 43,202 | $ | 1,970,311 | ||||||||
| Cumulative effect adjustment upon adoption of new accounting standard (ASU 2016-13) | 555,807 | (192,607 | ) | 301,830 | 665,030 | (1) | ||||||||||
| Change in provision for credit losses | 88,119 | 42,487 | (102,387 | ) | 28,219 | (2) | ||||||||||
| Charge-offs | - | - | - | - | ||||||||||||
| Ending balance - June 30, 2023 | $ | 831,055 | $ | 1,589,860 | $ | 242,645 | $ | 2,663,560 | ||||||||
| 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 | - | 270,409 | - | 270,409 | (2) | |||||||||||
| Charge-offs | - | - | - | - | ||||||||||||
| Ending balance - December 31, 2022 | $ | 187,129 | $ | 1,739,980 | $ | 43,202 | $ | 1,970,311 | ||||||||
| (1) | See Note 2 of the notes to the condensed consolidated financial statements |
| (2) | Included in other expenses on the condensed consolidated statements of earnings |
| 22 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
3)
Investments(Continued)The following is a summary of the allowance for loan losses as a contra-asset account for the periods presented:
| Allowance for Credit Losses and Recorded Investment in Mortgage Loans | ||||||||||||||||
| Commercial | Residential | Residential Construction | Total | |||||||||||||
| September 30, 2017 | ||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||
| Beginning balance - January 1, 2017 | $ | 187,129 | $ | 1,461,540 | $ | 100,114 | $ | 1,748,783 | ||||||||
| Charge-offs | - | (49,775 | ) | (64,894 | ) | (114,669 | ) | |||||||||
| Provision | - | 417,704 | - | 417,704 | ||||||||||||
| Ending balance - September 30, 2017 | $ | 187,129 | $ | 1,829,469 | $ | 35,220 | $ | 2,051,818 | ||||||||
| Ending balance: individually evaluated for impairment | $ | - | $ | 411,172 | $ | - | $ | 411,172 | ||||||||
| Ending balance: collectively evaluated for impairment | $ | 187,129 | $ | 1,418,297 | $ | 35,220 | $ | 1,640,646 | ||||||||
| Mortgage loans: | ||||||||||||||||
| Ending balance | $ | 42,923,761 | $ | 65,759,761 | $ | 41,306,722 | $ | 149,990,244 | ||||||||
| Ending balance: individually evaluated for impairment | $ | 203,806 | $ | 5,425,757 | $ | - | $ | 5,629,563 | ||||||||
| Ending balance: collectively evaluated for impairment | $ | 42,719,955 | $ | 60,334,004 | $ | 41,306,722 | $ | 144,360,681 | ||||||||
| December 31, 2016 | ||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||
| Beginning balance - January 1, 2016 | $ | 187,129 | $ | 1,560,877 | $ | 100,114 | $ | 1,848,120 | ||||||||
| Charge-offs | - | (420,135 | ) | - | (420,135 | ) | ||||||||||
| Provision | - | 320,798 | - | 320,798 | ||||||||||||
| Ending balance - December 31, 2016 | $ | 187,129 | $ | 1,461,540 | $ | 100,114 | $ | 1,748,783 | ||||||||
| Ending balance: individually evaluated for impairment | $ | - | $ | 374,501 | $ | - | $ | 374,501 | ||||||||
| Ending balance: collectively evaluated for impairment | $ | 187,129 | $ | 1,087,039 | $ | 100,114 | $ | 1,374,282 | ||||||||
| Mortgage loans: | ||||||||||||||||
| Ending balance | $ | 51,536,622 | $ | 58,593,622 | $ | 40,800,117 | $ | 150,930,361 | ||||||||
| Ending balance: individually evaluated for impairment | $ | 202,992 | $ | 2,916,538 | $ | 64,895 | $ | 3,184,425 | ||||||||
| Ending balance: collectively evaluated for impairment | $ | 51,333,630 | $ | 55,677,084 | $ | 40,735,222 | $ | 147,745,936 | ||||||||
Schedule of Aging of Mortgage Loans
| Commercial | Residential | Residential Construction | Total | |||||||||||||
| June 30, 2023 | ||||||||||||||||
| 30-59 days past due | $ | 5,960,468 | $ | 7,202,883 | $ | 2,383,665 | $ | 15,547,016 | ||||||||
| 60-89 days past due | - | 276,674 | - | 276,674 | ||||||||||||
| Over 90 days past due (1) | 596,508 | 1,721,703 | - | 2,318,211 | ||||||||||||
| In process of foreclosure (1) | - | 289,922 | - | 289,922 | ||||||||||||
| Total past due | 6,556,976 | 9,491,182 | 2,383,665 | 18,431,823 | ||||||||||||
| Current | 52,648,511 | 85,716,858 | 118,938,867 | 257,304,236 | ||||||||||||
| Total mortgage loans | 59,205,487 | 95,208,040 | 121,322,532 | 275,736,059 | ||||||||||||
| Allowance for credit losses | (831,055 | ) | (1,589,860 | ) | (242,645 | ) | (2,663,560 | ) | ||||||||
| Unamortized deferred loan fees, net | (258,265 | ) | (1,134,554 | ) | (296,586 | ) | (1,689,405 | ) | ||||||||
| Unamortized discounts, net | (223,847 | ) | (109,662 | ) | - | (333,509 | ) | |||||||||
| Net mortgage loans | $ | 57,892,320 | $ | 92,373,964 | $ | 120,783,301 | $ | 271,049,585 | ||||||||
| 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 | $ | 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. |
| 23 |
| Age Analysis of Mortgage Loans Held for Investment | ||||||||||||||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | Greater Than 90 Days (1) | In Process of Foreclosure (1) | Total Past Due | Current | Total Mortgage Loans | Allowance for Loan Losses | Unamortized deferred loan fees, net | Net Mortgage Loans | |||||||||||||||||||||||||||||||
| September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||
| Commercial | $ | 513,218 | $ | - | $ | - | $ | 203,806 | $ | 717,024 | $ | 42,206,737 | $ | 42,923,761 | $ | (187,129 | ) | $ | (229,603 | ) | $ | 42,507,029 | ||||||||||||||||||
| Residential | 22,277 | 1,236,721 | 2,200,206 | 3,225,551 | 6,684,755 | 59,075,006 | 65,759,761 | (1,829,469 | ) | (21,578 | ) | 63,908,714 | ||||||||||||||||||||||||||||
| Residential Construction | - | - | - | - | - | 41,306,722 | 41,306,722 | (35,220 | ) | (386,554 | ) | 40,884,948 | ||||||||||||||||||||||||||||
| Total | $ | 535,495 | $ | 1,236,721 | $ | 2,200,206 | $ | 3,429,357 | $ | 7,401,779 | $ | 142,588,465 | $ | 149,990,244 | $ | (2,051,818 | ) | $ | (637,735 | ) | $ | 147,300,691 | ||||||||||||||||||
| December 31, 2016 | ||||||||||||||||||||||||||||||||||||||||
| Commercial | $ | - | $ | - | $ | - | $ | 202,992 | $ | 202,992 | $ | 51,333,630 | $ | 51,536,622 | $ | (187,129 | ) | $ | (155,725 | ) | $ | 51,193,768 | ||||||||||||||||||
| Residential | 964,960 | 996,779 | 1,290,355 | 1,626,183 | 4,878,277 | 53,715,345 | 58,593,622 | (1,461,540 | ) | (35,121 | ) | 57,096,961 | ||||||||||||||||||||||||||||
| Residential Construction | - | - | 64,895 | - | 64,895 | 40,735,222 | 40,800,117 | (100,114 | ) | - | 40,700,003 | |||||||||||||||||||||||||||||
| Total | $ | 964,960 | $ | 996,779 | $ | 1,355,250 | $ | 1,829,175 | $ | 5,146,164 | $ | 145,784,197 | $ | 150,930,361 | $ | (1,748,783 | ) | $ | (190,846 | ) | $ | 148,990,732 | ||||||||||||||||||
| (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
June 30, 20172023 (Unaudited)
3)
Investments (Continued)Credit Quality Indicators
The Company evaluates and monitors the credit quality of its commercial loans held for investment include loans with a related specific valuation allowance or loans whose carrying amount has been reducedby analyzing loan to the expected collectible amount because the impairment has been considered other than temporary. The recorded investment invalue (“LTV”) and unpaid principal balance of impaired loans along with the related loan specific allowance for losses, if any, for each reporting period and the average recorded investment and interest income recognized during the time the loans were impaired were as follows:
| Impaired Loans | ||||||||||||||||||||
Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | ||||||||||||||||
| September 30, 2017 | ||||||||||||||||||||
| With no related allowance recorded: | ||||||||||||||||||||
| Commercial | $ | 203,806 | $ | 203,806 | $ | - | $ | 456,524 | $ | - | ||||||||||
| Residential | 3,872,587 | 3,872,587 | - | 3,281,980 | - | |||||||||||||||
| Residential construction | - | - | - | - | - | |||||||||||||||
| With an allowance recorded: | ||||||||||||||||||||
| Commercial | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
| Residential | 1,553,170 | 1,553,170 | 411,172 | 1,287,394 | - | |||||||||||||||
| Residential construction | - | - | - | - | - | |||||||||||||||
| Total: | ||||||||||||||||||||
| Commercial | $ | 203,806 | $ | 203,806 | $ | - | $ | 456,524 | $ | - | ||||||||||
| Residential | 5,425,757 | 5,425,757 | 411,172 | 4,569,374 | - | |||||||||||||||
| Residential construction | - | - | - | - | - | |||||||||||||||
| December 31, 2016 | ||||||||||||||||||||
| With no related allowance recorded: | ||||||||||||||||||||
| Commercial | $ | 202,992 | $ | 202,992 | $ | - | $ | 202,992 | $ | - | ||||||||||
| Residential | - | - | - | - | - | |||||||||||||||
| Residential construction | 64,895 | 64,895 | - | 79,082 | - | |||||||||||||||
| With an allowance recorded: | ||||||||||||||||||||
| Commercial | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
| Residential | 2,916,538 | 2,916,538 | 374,501 | 3,001,850 | - | |||||||||||||||
| Residential construction | - | - | - | - | - | |||||||||||||||
| Total: | ||||||||||||||||||||
| Commercial | $ | 202,992 | $ | 202,992 | $ | - | $ | 202,992 | $ | - | ||||||||||
| Residential | 2,916,538 | 2,916,538 | 374,501 | 3,001,850 | - | |||||||||||||||
| Residential construction | 64,895 | 64,895 | - | 79,082 | - | |||||||||||||||
The aggregate unpaid principal balance of commercial mortgage loans by credit quality indicator and origination year was as follows as of June 30, 2023:
Schedule of Commercial Mortgage Loans By Credit Quality Indicator
| Credit Quality Indicator | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Total | % of Total | ||||||||||||||||||||||||
| Credit Quality Indicator | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Total | % of Total | ||||||||||||||||||||||||
| LTV: | ||||||||||||||||||||||||||||||||
| Less than 65% | $ | 17,525,000 | $ | 14,375,274 | $ | 3,821,772 | $ | - | $ | 3,006,722 | $ | 6,898,150 | $ | 45,626,918 | 77.07 | % | ||||||||||||||||
| 65% to 80% | - | 5,630,731 | 2,100,000 | 4,913,313 | - | - | 12,644,044 | 21.36 | % | |||||||||||||||||||||||
| Greater than 80% | - | 529,525 | 405,000 | - | - | - | 934,525 | 1.58 | % | |||||||||||||||||||||||
| Total | $ | 17,525,000 | $ | 20,535,530 | $ | 6,326,772 | $ | 4,913,313 | $ | 3,006,722 | $ | 6,898,150 | $ | 59,205,487 | 100.00 | % | ||||||||||||||||
| DSCR | ||||||||||||||||||||||||||||||||
| >1.20x | $ | 5,725,000 | $ | 1,000,000 | $ | 2,800,000 | $ | 4,913,313 | $ | 3,006,722 | $ | 2,777,481 | $ | 20,222,516 | 34.16 | % | ||||||||||||||||
| 1.00x - 1.20x | 5,300,000 | 10,750,376 | 3,526,772 | - | - | 4,120,669 | 23,697,817 | 40.03 | % | |||||||||||||||||||||||
| <1.00x | 6,500,000 | 8,785,154(1) | (1) | - | - | - | - | 15,285,154 | 25.82 | % | ||||||||||||||||||||||
| Total | $ | 17,525,000 | $ | 20,535,530 | $ | 6,326,772 | $ | 4,913,313 | $ | 3,006,722 | $ | 6,898,150 | $ | 59,205,487 | 100.00 | % | ||||||||||||||||
| (1) | Commercial construction loan |
The Company evaluates and monitors the credit quality of its residential mortgage loans by analyzing loan performance. The Company defines non-performing mortgage loans as loans more than 90 days or greaterpast due and on a non-accrual status. Monitoring a residential mortgage loan increases when the loan is delinquent or on non-accrual status.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 June 30, 2023:
| Credit Quality Indicator | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Total | % of Total | ||||||||||||||||||||||||
| Performance Indicators: | ||||||||||||||||||||||||||||||||
| Performing | $ | 4,842,385 | $ | 57,085,363 | $ | 7,750,923 | $ | 7,737,211 | $ | 3,103,802 | $ | 12,676,732 | $ | 93,196,416 | 97.89 | % | ||||||||||||||||
| Non-performing (1) | - | 298,572 | 365,460 | - | 317,501 | 1,030,091 | 2,011,624 | 2.11 | % | |||||||||||||||||||||||
| Total | $ | 4,842,385 | $ | 57,383,935 | $ | 8,116,383 | $ | 7,737,211 | $ | 3,421,303 | $ | 13,706,823 | $ | 95,208,040 | 100.00 | % | ||||||||||||||||
| (1) | Includes residential mortgage loans in the process of foreclosure of $289,922 at June 30, 2023 |
| 24 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
3)
Investments (Continued)The Company's performingcompany evaluates and non-performingmonitors 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 heldby credit quality indicator and origination year was as follows as of June 30, 2023:
Schedule of Residential Construction Mortgage Loans
| Credit Quality Indicator | 2023 | 2022 | 2021 | Total | % of Total | |||||||||||||||
| Performance Indicators: | ||||||||||||||||||||
| Performing | $ | 32,159,616 | $ | 49,757,061 | $ | 39,405,855 | $ | 121,322,532 | 100.00 | % | ||||||||||
| Non-performing | - | - | - | - | 0.00 | % | ||||||||||||||
| Total | $ | 32,159,616 | $ | 49,757,061 | $ | 39,405,855 | $ | 121,322,532 | 100.00 | % | ||||||||||
| LTV: | ||||||||||||||||||||
| Less than 65% | $ | 22,977,981 | $ | 26,504,890 | $ | 4,005,001 | $ | 53,487,872 | 44.09 | % | ||||||||||
| 65% to 80% | 9,181,635 | 23,252,171 | 35,400,854 | 67,834,660 | 55.91 | % | ||||||||||||||
| Greater than 80% | - | - | - | - | 0.00 | % | ||||||||||||||
| Total | $ | 32,159,616 | $ | 49,757,061 | $ | 39,405,855 | $ | 121,322,532 | 100.00 | % | ||||||||||
Insurance Assignments
The following table presents the aging of insurance assignments, included in other investments and policy loans on the condensed consolidated balance sheets:
Schedule of Aging of Insurance Assignments
| As of June 30, 2023 | As of December 31, 2022 | |||||||
| 30-59 days past due | $ | 7,756,991 | $ | 10,621,443 | ||||
| 60-89 days past due | 3,093,411 | 3,997,484 | ||||||
| Over 90 days past due | 4,844,022 | 5,813,013 | ||||||
| Total past due | 15,694,424 | 20,431,941 | ||||||
| Current | 25,462,877 | 26,510,594 | ||||||
| Total insurance assignments | 41,157,301 | 46,942,536 | ||||||
| Allowance for credit losses | (1,690,693 | ) | (1,609,951 | ) | ||||
| Net insurance assignments | $ | 39,466,608 | $ | 45,332,585 | ||||
The Company records an allowance for investment were as follows:
| Mortgage Loans Held for Investment Credit Exposure | ||||||||||||||||||||||||||||||||
| Credit Risk Profile Based on Payment Activity | ||||||||||||||||||||||||||||||||
| Commercial | Residential | Residential Construction | Total | |||||||||||||||||||||||||||||
September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||||
| Performing | $ | 42,719,955 | $ | 51,333,630 | $ | 60,334,004 | $ | 55,677,084 | $ | 41,306,722 | $ | 40,735,222 | $ | 144,360,681 | $ | 147,745,936 | ||||||||||||||||
| Non-performing | 203,806 | 202,992 | 5,425,757 | 2,916,538 | - | 64,895 | 5,629,563 | 3,184,425 | ||||||||||||||||||||||||
| Total | $ | 42,923,761 | $ | 51,536,622 | $ | 65,759,761 | $ | 58,593,622 | $ | 41,306,722 | $ | 40,800,117 | $ | 149,990,244 | $ | 150,930,361 | ||||||||||||||||
| 25 |
| Mortgage Loans on Non-Accrual Status | ||||||||
As of September 30 2017 | As of December 31 2016 | |||||||
| Commercial | $ | 203,806 | $ | 202,992 | ||||
| Residential | 5,425,757 | 2,916,538 | ||||||
| Residential construction | - | 64,895 | ||||||
| Total | $ | 5,629,563 | $ | 3,184,425 | ||||
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
3) Investments (Continued)
The following table presents a roll forward of the allowance for credit losses as a contra-asset account for insurance assignments:
Schedule of Allowance for Credit Losses
| Allowance | ||||
| Beginning balance - January 1, 2023 | $ | 1,609,951 | ||
| Change in provision for credit losses | 452,326 | (1) | ||
| Charge-offs | (371,584 | ) | ||
| Ending balance - June 30, 2023 | $ | 1,690,693 | ||
| Beginning balance - January 1, 2022 | $ | 1,686,218 | ||
| Change in provision for credit losses | 889,480 | (1) | ||
| Charge-offs | (965,747 | ) | ||
| Ending balance - December 31, 2022 | $ | 1,609,951 | ||
| (1) | Included in other expenses on the condensed consolidated statements of earnings |
Investment Related Earnings
The following table presents the realized gains and losses from sales, calls, and maturities, and unrealized gains and losses on equity securities from investments and other assets:
Schedule of Gain (Loss) on Investments
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Fixed maturity securities: | ||||||||||||||||
| Gross realized gains | $ | 1,563 | $ | 129,512 | $ | 17,054 | $ | 175,635 | ||||||||
| Gross realized losses | (36,908 | ) | (9,828 | ) | (91,799 | ) | (10,758 | ) | ||||||||
| Net credit loss (provision) release | (44,505 | ) | - | (224,005 | ) | - | ||||||||||
| Equity securities: | ||||||||||||||||
| Gains (losses) on securities sold | 5,363 | 81,596 | (46,952 | ) | 71,317 | |||||||||||
| Unrealized gains and (losses) on securities held at the end of the period | 566,633 | (2,106,375 | ) | 898,064 | (2,713,422 | ) | ||||||||||
| Real estate held for investment and sale: | ||||||||||||||||
| Gross realized gains | 161,028 | 364,150 | 161,028 | 1,239,331 | ||||||||||||
| Gross realized losses | - | (94,400 | ) | - | (98,222 | ) | ||||||||||
| Other assets, including call and put option derivatives: | ||||||||||||||||
| Gross realized gains | 163,410 | 720,950 | 214,348 | 593,699 | ||||||||||||
| Gross realized losses | - | - | - | - | ||||||||||||
| Total | $ | 816,584 | $ | (914,395 | ) | $ | 927,738 | $ | (742,420 | ) | ||||||
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.
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 $197,580 in net gains and $720,135 in net losses for the three month periods ended June 30, 2023, and 2022, respectively, and of $251,510 in net gains and $995,876 in net losses for the six month periods ended June 30, 2023, and 2022, respectively.
| 26 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
3) Investments (Continued)
Major categories of net investment income were as follows:
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Fixed maturity securities available for sale | $ | 4,143,768 | $ | 2,811,650 | $ | 8,156,500 | $ | 5,447,866 | ||||||||
| Equity securities | 140,709 | 119,798 | 281,216 | 242,834 | ||||||||||||
| Mortgage loans held for investment | 9,467,407 | 9,244,464 | 17,955,063 | 17,204,642 | ||||||||||||
| Real estate held for investment and sale | 4,897,672 | 4,012,192 | 8,262,596 | 7,052,226 | ||||||||||||
| Policy loans | 207,441 | 207,301 | 407,655 | 513,583 | ||||||||||||
| Insurance assignments | 4,461,813 | 4,093,723 | 9,230,016 | 9,490,710 | ||||||||||||
| Other investments | 213,103 | 98,361 | 342,160 | 169,006 | ||||||||||||
| Cash and cash equivalents | 780,146 | 108,431 | 1,567,907 | 183,732 | ||||||||||||
| Gross investment income | 24,312,059 | 20,695,920 | 46,203,113 | 40,304,599 | ||||||||||||
| Investment expenses | (4,140,085 | ) | (4,724,632 | ) | (8,256,256 | ) | (9,139,005 | ) | ||||||||
| Net investment income | $ | 20,171,974 | $ | 15,971,288 | $ | 37,946,857 | $ | 31,165,594 | ||||||||
Net investment income includes income earned by the restricted assets of the cemeteries and mortuaries of $1,250,861 and $730,534 for the three month periods ended June 30, 2023 and 2022, respectively, and of $1,852,352 and $1,207,243 for the six month periods ended June 30, 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
| As of June 30, 2023 | As of December 31, 2022 | |||||||
| Fixed maturity securities available for sale | $ | 3,566,511 | $ | 3,563,767 | ||||
| Equity securities | 12,858 | 14,496 | ||||||
| Mortgage loans held for investment | 3,042,343 | 3,220,709 | ||||||
| Real estate held for investment | 3,517,092 | 3,455,305 | ||||||
| Policy Loans | 42,151 | 37,951 | ||||||
| Cash and cash equivalents | 7,596 | 7,598 | ||||||
| Total accrued investment income | $ | 10,188,551 | $ | 10,299,826 | ||||
| 27 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
4)
Loans Held for SaleThe Company elected the fair value option for loans held for sale originated after July 1, 2017. The Company believes the fair value option most closely aligns the timing of the recognition of gains and costs. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Electing fair value also reduces certain timing differences and better matches changes in the fair value of these assets with changessale. Changes in the fair value of the related derivatives used for these assets.
The following is a summary oftable presents the aggregate fair value and the aggregate unpaid principal balance ("UPB") of loans held for salesale:
Schedule of Aggregate Fair Value Loans Held for the periods presented:
As of September 30 2017 | ||||
| Aggregate fair value | $ | 166,990,187 | ||
| UPB | 161,165,793 | |||
| Unrealized gain | 5,824,394 | |||
| As of June 30, 2023 | As of December 31, 2022 | |||||||
| As of June 30, 2023 | As of December 31, 2022 | |||||||
| Aggregate fair value | $ | 161,310,060 | $ | 141,179,620 | ||||
| Unpaid principal balance | 162,075,374 | 141,337,811 | ||||||
| Unrealized loss | (765,314 | ) | (158,191 | ) | ||||
Mortgage Fee Income
Mortgage fee income consists of origination fees, processing fees, interest income and certain other income related to the origination and sale of mortgage loans held for sale.
Major categories of mortgage fee income for loans held for sale are summarized as follows:
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Loan fees | $ | 15,203,107 | $ | 11,988,959 | $ | 33,291,947 | $ | 33,071,486 | ||||||||
| Interest income | 2,097,249 | 2,204,286 | 5,679,868 | 6,022,796 | ||||||||||||
| Secondary gains | 28,550,295 | 41,346,576 | 87,165,736 | 108,667,085 | ||||||||||||
| Change in fair value of loan commitments | (4,833,268 | ) | (1,505,820 | ) | (3,677,554 | ) | 1,459,568 | |||||||||
| Change in fair value of loans held for sale | 1,061,917 | - | 1,061,917 | - | ||||||||||||
| Provision for loan loss reserve | (481,727 | ) | (838,238 | ) | (1,435,180 | ) | (2,253,689 | ) | ||||||||
| Mortgage fee income | $ | 41,597,573 | $ | 53,195,763 | $ | 122,086,734 | $ | 146,967,246 | ||||||||
Schedule of Mortgage Fee Income for Loans Held for Sale
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Loan fees | $ | 5,986,802 | $ | 7,950,227 | $ | 10,375,215 | $ | 15,037,410 | ||||||||
| Interest income | 2,620,489 | 2,923,446 | 4,627,546 | 4,955,315 | ||||||||||||
| Secondary gains | 19,298,213 | 37,161,287 | 37,259,571 | 76,763,900 | ||||||||||||
| Change in fair value of loan commitments | (151,382 | ) | (2,247,244 | ) | 526,570 | 428,127 | ||||||||||
| Change in fair value of loans held for sale | (1,401,738 | ) | (3,463,922 | ) | (607,123 | ) | (6,210,487 | ) | ||||||||
| Provision for loan loss reserve | (273,631 | ) | (292,896 | ) | (114,020 | ) | (598,922 | ) | ||||||||
| Mortgage fee income | $ | 26,078,753 | $ | 42,030,898 | $ | 52,067,759 | $ | 90,375,343 | ||||||||
Loan Loss Reserve
Repurchase demands from third party investors that correspond to a mortgage loanloans previously held for sale and sold to a third-party investor is received from a third-party investor, theare reviewed and relevant data is reviewed and captured so that an estimated future loss can be calculated. The key factors that are used in the estimated future loss calculation are as follows: (i) lien position, (ii) payment status, (iii) claim type, (iv) unpaid principal balance, (v) interest rate, and (vi) validity of the demand. Other data is captured and is useful for management purposes; the actual estimated loss is generally based on these key factors. The Company conducts its own review upon the receipt of a repurchase demand. In many instances, the Company is able to resolve the issues relating to the repurchase demand by the third-party investor without having to make any payments to the investor.
| 28 |
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
4)
Loans Held for Sale (Continued)The following is a summary of the loan loss reserve, thatwhich is included in other liabilities and accrued expenses:expenses, is summarized as follows:
Summary of Loan Loss Reserve Included in Other Liabilities and Accrued Expenses
| As of June 30, 2023 | As of December 31, 2022 | |||||||
| Balance, beginning of period | $ | 1,725,667 | $ | 2,447,139 | ||||
| Provision on current loan originations (1) | 513,431 | 1,078,812 | ||||||
| Charge-offs, net of recaptured amounts | (983,185 | ) | (1,800,284 | ) | ||||
| Balance, end of period | $ | 1,255,913 | $ | 1,725,667 | ||||
As of September 30 2017 | As of December 31 2016 | |||||||
| Balance, beginning of period | $ | 627,733 | $ | 2,805,900 | ||||
| Provision on current loan originations (1) | 1,435,180 | 2,988,754 | ||||||
| Additional provision for loan loss reserve | - | 1,700,000 | ||||||
| Charge-offs, net of recaptured amounts | 108,175 | (6,866,921 | ) | |||||
| Balance, end of period | $ | 2,171,088 | $ | 627,733 | ||||
| (1) Included in Mortgage fee income | ||||||||
| (1) | Included in mortgage fee income |
The Company maintains reserves for estimated losses on current production volumes. For the six month period ended June 30, 2023, $513,431 in reserves were added at a rate of 4.5 basis points per loan, the equivalent of $450 per $1,000,000 in loans originated. This is an increase over the six month period ended June 30, 2022, when reserves of $598,922 were added at a rate of 2.9 basis points per loan originated, the equivalent of $290 per $1,000,000 in loans originated. The Company will continue to monitor data and economic conditions in order to maintain adequate loss reserves on current production. Thus, the Company believes that the final loan loss reserve represents probable loan losses incurred as of the balance sheet date.
Stock Compensation Plans
The Company has fourthree fixed option plans (the "2003 Plan"“2013 Plan”, the "2006“2014 Director Plan", the "2013 Plan"Plan” and the "2014 Director Plan"“2022 Equity Incentive Plan”). Compensation
Stock Options
Stock based compensation expense for stock options issued of $102,429$ and $84,949$ has been recognized for these plans for the three monthsmonth periods ended SeptemberJune 30, 20172023, and 2016,2022, respectively, and $305,741$ and $253,427$ has been recognized for these plans for the nine monthssix month periods ended SeptemberJune 30, 20172023 and 2016, respectively.2022, respectively, and is included in personnel expenses on the condensed consolidated statements of earnings. As of SeptemberJune 30, 2017,2023, the total unrecognized compensation expense related to the options issued was $69,719,$, which is expected to be recognized over the vesting periodperiod.
The fair value of one year.
Schedule of Activity of Stock Option Plans
| Number of Class A Shares | Weighted Average Exercise Price (2) | Number of Class C Shares | Weighted Average Exercise Price (2) | |||||||||||||
| Outstanding at January 1, 2023 | 976,605 | $ | 4.56 | 1,157,203 | $ | 5.31 | ||||||||||
| Adjustment for the effect of stock dividends | 38,266 | 57,859 | ||||||||||||||
| Granted | 16,000 | - | ||||||||||||||
| Exercised | (214,989 | ) | - | |||||||||||||
| Cancelled | - | - | ||||||||||||||
| Outstanding at June 30, 2023 | 815,882 | $ | 4.75 | 1,215,062 | $ | 5.31 | ||||||||||
| As of June 30, 2023: | ||||||||||||||||
| Options exercisable | 764,632 | $ | 4.64 | 1,067,562 | $ | 5.18 | ||||||||||
| As of June 30, 2023: | ||||||||||||||||
| Available options for future grant | 171,386 | 834,750 | ||||||||||||||
| Weighted average contractual term of options outstanding at June 30, 2023 | years | years | ||||||||||||||
| Weighted average contractual term of options exercisable at June 30, 2023 | years | years | ||||||||||||||
| Aggregated intrinsic value of options outstanding at June 30, 2023 (1) | $ | 3,018,675 | $ | 3,815,225 | ||||||||||||
| Aggregated intrinsic value of options exercisable at June 30, 2023 (1) | $ | 2,910,455 | $ | 3,487,200 | ||||||||||||
| (1) | The Company used a stock price of $ as of June 30, 2023 to derive intrinsic value. |
| (2) | Adjusted for the effect of annual stock dividends. |
| 29 |
Number of Class A Shares | Weighted Average Exercise Price | Number of Class C Shares | Weighted Average Exercise Price | |||||||||||||
| Outstanding at December 31, 2016 | 741,973 | $ | 4.33 | 556,298 | $ | 4.61 | ||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | - | (103,402 | ) | 1.31 | ||||||||||||
| Cancelled | - | (24,227 | ) | 1.31 | ||||||||||||
| Outstanding at September 30, 2017 | 741,973 | $ | 4.33 | 428,669 | $ | 5.59 | ||||||||||
| As of September 30, 2017: | ||||||||||||||||
| Options exercisable | 706,854 | $ | 4.21 | 407,669 | $ | 5.50 | ||||||||||
| As of September 30, 2017: | ||||||||||||||||
| Available options for future grant | 525,682 | 227,750 | ||||||||||||||
Weighted average contractual term of options outstanding at September 30, 2017 | 6.62 years | 2.63 years | ||||||||||||||
Weighted average contractual term of options exercisable at September 30, 2017 | 6.50 years | 2.55 years | ||||||||||||||
Aggregated intrinsic value of options outstanding at September 30, 2017 (1) | $ | 941,567 | $ | 151,012 | ||||||||||||
Aggregated intrinsic value of options exercisable at September 30, 2017 (1) | $ | 941,311 | $ | 151,012 | ||||||||||||
| (1) The Company used a stock price of $5.10 as of September 30, 2017 to derive intrinsic value. | ||||||||||||||||
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
5)
Stock Compensation Plans (Continued)Activity of the status of the Company's stock compensationoption plans as of September 30, 2016, and the changes during the nine monthssix month period ended SeptemberJune 30, 2016, are presented below:
| Number of Class A Shares | Weighted Average Exercise Price (2) | Number of Class C Shares | Weighted Average Exercise Price (2) | |||||||||||||
| Outstanding at January 1, 2022 | 1,024,351 | $ | 4.38 | 821,146 | $ | 5.26 | ||||||||||
| Adjustment for the effect of stock dividends | 47,780 | 41,057 | ||||||||||||||
| Granted | 4,000 | - | ||||||||||||||
| Exercised | (71,330 | ) | - | |||||||||||||
| Cancelled | (1,591 | ) | - | |||||||||||||
| Outstanding at June 30, 2022 | 1,003,210 | $ | 4.58 | 862,203 | $ | 5.26 | ||||||||||
| As of June 30, 2022: | ||||||||||||||||
| Options exercisable | 955,460 | $ | 4.40 | 747,203 | $ | 4.78 | ||||||||||
| As of June 30, 2022: | ||||||||||||||||
| Available options for future grant | 239,795 | 17,523 | ||||||||||||||
| Weighted average contractual term of options outstanding at June 30, 2022 | years | years | ||||||||||||||
| Weighted average contractual term of options exercisable at June 30, 2022 | years | years | ||||||||||||||
| Aggregated intrinsic value of options outstanding at June 30, 2022 (1) | $ | 3,891,873 | $ | 2,758,643 | ||||||||||||
| Aggregated intrinsic value of options exercisable at June 30, 2022 (1) | $ | 3,878,980 | $ | 2,748,093 | ||||||||||||
Number of Class A Shares | Weighted Average Exercise Price | Number of Class C Shares | Weighted Average Exercise Price | |||||||||||||
| Outstanding at December 31, 2015 | 618,261 | $ | 3.89 | 577,436 | $ | 3.54 | ||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | (32,417 | ) | 2.38 | - | ||||||||||||
| Cancelled | - | - | ||||||||||||||
| Outstanding at September 30, 2016 | 585,844 | $ | 3.97 | 577,436 | $ | 3.54 | ||||||||||
| As of September 30, 2016: | ||||||||||||||||
| Options exercisable | 550,792 | $ | 3.82 | 551,186 | $ | 3.38 | ||||||||||
| As of September 30, 2016: | ||||||||||||||||
| Available options for future grant | 397,342 | 57,750 | ||||||||||||||
| Weighted average contractual term of options outstanding at September 30, 2016 | 6.99 years | 2.00 years | ||||||||||||||
| Weighted average contractual term of options exercisable at September 30, 2016 | 6.86 years | 1.90 years | ||||||||||||||
| Aggregated intrinsic value of options outstanding at September 30, 2016 (1) | $ | 1,179,541 | $ | 1,460,167 | ||||||||||||
| Aggregated intrinsic value of options exercisable at September 30, 2016 (1) | $ | 1,179,541 | $ | 1,460,167 | ||||||||||||
| (1) The Company used a stock price of $5.86 as of September 30, 2016 to derive intrinsic value. | ||||||||||||||||
| (1) | The Company used a stock price of $ as of June 30, 2022, which was the closing price of the Company’s Class A shares on Nasdaq for that day, to derive intrinsic value. |
| (2) | Adjusted for the effect of annual stock dividends. |
The total intrinsic value (which is the amount by which the fair value of the underlying stock exceeds the exercise price of an option on the exercise date) of stock options exercised during the nine monthssix month periods ended SeptemberJune 30, 20172023 and 20162022 was $578,017$ and $98,663,$, respectively.
| 30 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
5) Stock Compensation Plans (Continued)
Restricted Stock Units (“RSUs”)
Stock based compensation expense for RSUs issued of has been recognized under these plans for the three month periods ended June 30, 2023 and 2022, respectively, and of $ and has been recognized under these plans for the six month periods ended June 30, 2023 and 2022, respectively, and is isncluded in personnel expenses on the condensed consolidated statements of earnings. As of June 30, 2023, the total unrecognized compensation expense related to the RSUs issued was . The fair value of each RSU granted is determined based on the Company’s stock price on the date of grant. Prior to December 2022, the Company did not grant any RSUs.
Schedule of Activity Restricted Stock Units
| Number of Class A Shares | Weighted Average Grant Date Fair Value | |||||||
| Non-vested at January 1, 2023 | 1,620 | $ | 6.48 | |||||
| Granted | - | |||||||
| Vested | (405 | ) | ||||||
| Non-vested at June 30, 2023 | 1,215 | $ | 6.48 | |||||
| Available RSUs for future grant | $ | 18,380 | ||||||
| Aggregated intrinsic value of RSUs outstanding at June 30, 2023 (1) | $ | 2,394 | ||||||
| (1) | The Company used a stock price of $ as of June 30, 2023 to derive intrinsic value. |
| 31 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
Earnings Per Share
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net earnings | $ | 1,096,838 | $ | 4,183,005 | $ | 5,442,702 | $ | 11,737,952 | ||||||||
| Denominator: | ||||||||||||||||
| Basic weighted-average shares outstanding | 15,256,857 | 14,830,078 | 15,159,569 | 14,744,779 | ||||||||||||
| Effect of dilutive securities: | ||||||||||||||||
| Employee stock options | 285,803 | 439,535 | 315,257 | 421,266 | ||||||||||||
| Diluted weighted-average shares outstanding | 15,542,660 | 15,269,613 | 15,474,826 | 15,166,045 | ||||||||||||
| Basic net earnings per share | $ | 0.07 | $ | 0.28 | $ | 0.36 | $ | 0.80 | ||||||||
| Diluted net earnings per share | $ | 0.07 | $ | 0.27 | $ | 0.35 | $ | 0.77 | ||||||||
Schedule of Earnings Per Share, Basic and Diluted
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net earnings | $ | 6,352,706 | $ | 3,574,449 | $ | 7,592,878 | $ | 6,803,167 | ||||||||
| Denominator: | ||||||||||||||||
| Basic weighted-average shares outstanding | 22,005,332 | 22,233,852 | 22,066,991 | 22,331,911 | ||||||||||||
| Effect of dilutive securities: | ||||||||||||||||
| Employee stock options | 563,301 | 874,799 | 550,897 | 893,689 | ||||||||||||
| Diluted weighted-average shares outstanding | 22,568,633 | 23,108,651 | 22,617,888 | 23,225,600 | ||||||||||||
| Basic net earnings per share | $ | 0.29 | $ | 0.16 | $ | 0.34 | $ | 0.30 | ||||||||
| Diluted net earnings per share | $ | 0.28 | $ | 0.15 | $ | 0.34 | $ | 0.29 | ||||||||
For the nine monthssix month periods ended SeptemberJune 30, 20172023, and 2016,2022, there were 486,725 and 250,039 of anti-dilutive employee stock option shares, respectively, that were not included in the computation of diluted net earnings per common share as their effect would be anti-dilutive. Basic and diluted earnings per share amounts are the same for each class of common stock.
The following table summarizes the activity in shares of capital stock.
Summary of Activities in Shares of Capital Stock
| Class A | Class C | |||||||
| Outstanding shares at December 31, 2021 | 17,642,722 | 2,866,565 | ||||||
| Exercise of stock options | 69,096 | - | ||||||
| Vesting of restricted stock units | - | - | ||||||
| Stock dividends | 889,554 | 139,462 | ||||||
| Conversion of Class C to Class A | 77,316 | (77,316 | ) | |||||
| Outstanding shares at June 30, 2022 | 18,678,688 | 2,928,711 | ||||||
| Outstanding shares at December 31, 2022 | 18,758,031 | 2,889,859 | ||||||
| Common stock, shares, outstanding, beginning | 18,758,031 | 2,889,859 | ||||||
| Exercise of stock options | 127,688 | - | ||||||
| Vesting of restricted stock units | 405 | - | ||||||
| Stock dividends | 949,675 | 141,594 | ||||||
| Conversion of Class C to Class A | 57,901 | (57,901 | ) | |||||
| Outstanding shares at June 30, 2023 | 19,893,700 | 2,973,552 | ||||||
| Common stock, shares, outstanding, ending | 19,893,700 | 2,973,552 | ||||||
| 32 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
7)
Business Segment InformationDescription of Products and Services by Segment
The Company has three reportable business segments: life insurance, cemetery and mortuary, and mortgage. The Company'sCompany’s life insurance segment consists of life insurance premiums and operating expenses from the sale of insurance products sold by the Company'sCompany’s independent agency force and net investment income derived from investing policyholder and segment surplus funds. The Company'sCompany’s cemetery and mortuary segment consists of revenues and operating expenses from the sale of at-need cemetery and mortuary merchandise and services at its mortuaries and cemeteries, pre-need sales of cemetery spaces after collection of 10% or more of the purchase price and the net investment income from investing segment surplus funds. The Company'sCompany’s mortgage segment consists of fee income and expenses from the originations of residential mortgage loans and interest earned and interest expenses from warehousing loans held for sale.
Measurement of Segment Profit or Loss and Segment Assets
The accounting policies of the reportable segments are the same as those described in the Significant Accounting Principles of the Form 10-K/A10-K for the year ended December 31, 2016.2022. Intersegment revenues are recorded at cost plus an agreed upon intercompany profit, and are eliminated upon consolidation.
Factors Management Used to Identify the Enterprise'sEnterprise’s Reportable Segments
The Company'sCompany’s reportable segments are business units that are managed separately due to the different products provided and the need to report separately to the various regulatory jurisdictions. The Company regularly reviews the quantitative thresholds and other criteria to determine when other business segments may need to be reported.
Schedule of Revenues and Expenses by Reportable Segment
| Life Insurance | Cemetery/ Mortuary | Mortgage | Intercompany Eliminations | Consolidated | ||||||||||||||||
| For the Three Months Ended June 30, 2023 | ||||||||||||||||||||
| Revenues from external customers | $ | 48,071,089 | $ | 8,812,508 | $ | 26,962,562 | $ | - | $ | 83,846,159 | ||||||||||
| Intersegment revenues | 2,517,490 | 84,767 | 135,807 | (2,738,064 | ) | - | ||||||||||||||
| Segment profit (loss) before income taxes | 9,158,186 | 2,828,159 | (3,837,012 | ) | - | 8,149,333 | ||||||||||||||
| For the Six Months Ended June 30, 2023 | ||||||||||||||||||||
| Revenues from external customers | $ | 93,486,386 | $ | 16,010,904 | $ | 53,849,603 | $ | - | $ | 163,346,893 | ||||||||||
| Intersegment revenues | 4,027,518 | 168,603 | 259,506 | (4,455,627 | ) | - | ||||||||||||||
| Segment profit (loss) before income taxes | 12,841,921 | 4,612,751 | (7,720,451 | ) | - | 9,734,221 | ||||||||||||||
| Identifiable Assets | $ | 1,284,084,674 | $ | 89,589,716 | $ | 114,402,197 | $ | (89,723,622 | ) | $ | 1,398,352,965 | |||||||||
| Goodwill | 2,765,570 | 2,488,213 | - | - | 5,253,783 | |||||||||||||||
| Total Assets | $ | 1,286,850,244 | $ | 92,077,929 | $ | 114,402,197 | $ | (89,723,622 | ) | $ | 1,403,606,748 | |||||||||
| For the Three Months Ended June 30, 2022 | ||||||||||||||||||||
| Revenues from external customers | $ | 41,166,269 | $ | 7,291,018 | $ | 47,109,367 | $ | - | $ | 95,566,654 | ||||||||||
| Intersegment revenues | 2,075,987 | 85,151 | 77,826 | (2,238,964 | ) | - | ||||||||||||||
| Segment profit (loss) before income taxes | 3,931,784 | 1,485,938 | (687,876 | ) | - | 4,729,846 | ||||||||||||||
| For the Six Months Ended June 30, 2022 | ||||||||||||||||||||
| Revenues from external customers | $ | 82,668,078 | $ | 14,754,212 | $ | 100,570,271 | $ | - | $ | 197,992,561 | ||||||||||
| Intersegment revenues | 3,771,766 | 267,740 | 152,535 | (4,192,041 | ) | - | ||||||||||||||
| Segment profit before income taxes | 4,748,269 | 3,506,255 | 918,838 | - | 9,173,362 | |||||||||||||||
| Identifiable Assets | $ | 1,229,780,002 | $ | 78,739,030 | $ | 250,312,796 | $ | (91,917,796 | ) | $ | 1,466,914,032 | |||||||||
| Goodwill | 2,765,570 | 2,488,213 | - | - | 5,253,783 | |||||||||||||||
| Total Assets | $ | 1,232,545,572 | $ | 81,227,243 | $ | 250,312,796 | $ | (91,917,796 | ) | $ | 1,472,167,815 | |||||||||
| 33 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
Life Insurance | Cemetery/ Mortuary | Mortgage | Intercompany Eliminations | Consolidated | ||||||||||||||||
| For the Three Months Ended | ||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||
| Revenues from external customers | $ | 25,229,759 | $ | 2,988,137 | $ | 43,753,955 | $ | - | $ | 71,971,851 | ||||||||||
| Intersegment revenues | 3,333,593 | 116,290 | 86,580 | (3,536,463 | ) | - | ||||||||||||||
| Segment profit before income taxes | 522,574 | 237,108 | 378,335 | - | 1,138,017 | |||||||||||||||
| For the Three Months Ended | ||||||||||||||||||||
September 30, 2016 | ||||||||||||||||||||
| Revenues from external customers | $ | 24,972,397 | $ | 2,900,917 | $ | 55,075,343 | $ | - | $ | 82,948,657 | ||||||||||
| Intersegment revenues | 3,318,369 | 107,745 | 79,164 | (3,505,278 | ) | - | ||||||||||||||
| Segment profit before income taxes | 2,139,702 | 54,891 | 4,378,937 | - | 6,573,530 | |||||||||||||||
| For the Nine Months Ended | ||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||
| Revenues from external customers | $ | 77,112,117 | $ | 9,907,037 | $ | 128,953,552 | $ | - | $ | 215,972,706 | ||||||||||
| Intersegment revenues | 9,299,671 | 338,745 | 268,764 | (9,907,180 | ) | - | ||||||||||||||
| Segment profit before income taxes | 4,824,654 | 1,331,896 | 1,873,536 | - | 8,030,086 | |||||||||||||||
| Identifiable Assets | 853,298,860 | 94,716,098 | 190,202,990 | (133,079,207 | ) | 1,005,138,741 | ||||||||||||||
| Goodwill | 2,765,570 | - | - | - | 2,765,570 | |||||||||||||||
| Total Assets | 856,064,430 | 94,716,098 | 190,202,990 | (133,079,207 | ) | 1,007,904,311 | ||||||||||||||
| For the Nine Months Ended | ||||||||||||||||||||
September 30, 2016 | ||||||||||||||||||||
| Revenues from external customers | $ | 70,616,968 | $ | 10,045,384 | $ | 151,829,880 | $ | - | $ | 232,492,232 | ||||||||||
| Intersegment revenues | 9,780,803 | 616,532 | 239,503 | (10,636,838 | ) | - | ||||||||||||||
| Segment profit before income taxes | 5,785,464 | 1,283,553 | 11,561,479 | - | 18,630,496 | |||||||||||||||
| Identifiable Assets | 797,486,493 | 95,414,964 | 194,469,525 | (138,809,339 | ) | 948,561,643 | ||||||||||||||
| Goodwill | 2,765,570 | - | - | - | 2,765,570 | |||||||||||||||
| Total Assets | 800,252,063 | 95,414,964 | 194,469,525 | (138,809,339 | ) | 951,327,213 | ||||||||||||||
8)
Fair Value of Financial InstrumentsGAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. GAAP also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. Fair value measurements are classified under the following hierarchy:
Level 1:
Financial assets and financial liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company can access.Level 2: 2: Financial assets and financial liabilities whose values are based on the following:
| a) | Quoted prices for similar assets or liabilities in active markets; | |
| b) | Quoted prices for identical or similar assets or liabilities in non-active markets; or | |
| c) | Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability. |
Level 3:
Financial assets and financial liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs may reflect theThe Company utilizes a combination of third partythird-party valuation service providers, brokers, and internal valuation models to determine fair value.
The following methods and assumptions were used by the Company in estimating the fair value disclosures related to significant financial instruments:
The items shown under Level 1 and Level 2 are valued as follows:
Fixed Maturity Securities Available for Sale
: The fair values ofEquity Securities: The fair values for equity securities along with methods used to estimate such values are disclosed in Note 3 of the Notes to the condensed consolidated financial statements.
Restricted Assets
: A portion of these assets include mutual funds and equity securities and fixed maturity securities that have quoted market prices that are used to determine fair value. Also included are cash and cash equivalents and participations in mortgage loans. The carrying amounts reported in the accompanying condensed consolidated balance sheets for these financial instruments approximate their fair values due to their short-term nature.Cemetery EndowmentPerpetual Care Trust Investments
Call and Put Options
Additionally, there were no transfers between Level 1 and Level 2 in the fair value hierarchy.
| 34 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
8) Fair Value of Financial Instruments (Continued)
The items shown under Level 3 are valued as follows:
Loans Held for Sale at Fair Value
Loan Commitments and Forward Sale Commitments
: TheThe Company estimates the fair value of a loan commitment based on the change in estimated fair value of the underlying mortgage loan, quoted MBS prices, estimates of the fair value of mortgage servicing rights, and an estimate of the probability that the mortgage loan will fund within the terms of the commitment. The change in fair value of the underlying mortgage loan is measured from the date the loan commitment is issued. Following issuance, the value of a mortgage loan commitment can be either positive or negative depending upon the change in value of the underlying mortgage loans. Fallout rates and other factors from the Company'sCompany’s recent historical data are used to estimate the quantity and value of mortgage loans that will fund within the terms of the commitments.
Impaired Mortgage Loans Held for Investment
: The Company believes that the fair value of these nonperforming loans will approximate the unpaid principal balance expected to be recovered based on the fair value of the underlying collateral. For residential and commercial properties, the collateral value is estimated by obtaining an independent appraisal. The appraisal typically considers comparable sales in the area,Impaired Real Estate Held for Investment
: The Company believes that in an orderly market, fair value will approximate the replacement cost of a home and the rental income provides a cash flow stream for investment analysis. The Company believes the highest and best use of the properties are as income producing assets since it is theIt should be noted that for replacement cost, when determining the fair value of mortgage properties,real estate held for investment, the Company uses Marshall and Swift, a provider of building cost information to the real estate construction industry. For the investment analysis, the Company useduses market data based upon its real estate operation experience and projected the present value of the net rental income over seven years. The Company also considers area comparablescomparable properties and property condition when determining fair value.
In addition to this analysis performed by the Company, the Company depreciates Real Estate Held for Investment. This depreciation reduces the book value of these properties and lessens the exposure to the Company from further deterioration in real estate values.
Mortgage Servicing Rights
: The Company initially recognizes Mortgage Servicing Rights| 35 |
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
8)
Fair Value of Financial Instruments (Continued)The following tables summarize Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a recurring basis by their classification in the condensed consolidated balance sheet at SeptemberJune 30, 2017.
Schedule of Fair Value Assets and Liabilities Measured on a Recurring Basis
| Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| Assets accounted for at fair value on a recurring basis | ||||||||||||||||
| Fixed maturity securities available for sale | $ | 354,789,812 | $ | - | $ | 353,357,938 | $ | 1,431,874 | ||||||||
| Equity securities | 12,801,925 | 12,801,925 | - | - | ||||||||||||
| Loans held for sale | 161,310,060 | - | - | 161,310,060 | ||||||||||||
| Restricted assets (1) | 1,550,968 | - | 1,550,968 | - | ||||||||||||
| Restricted assets (2) | 6,229,193 | 6,229,193 | - | - | ||||||||||||
| Cemetery perpetual care trust investments (1) | 420,625 | - | 420,625 | - | ||||||||||||
| Cemetery perpetual care trust investments (2) | 3,895,307 | 3,895,307 | - | - | ||||||||||||
| Derivatives - loan commitments (3) | 5,949,181 | - | - | 5,949,181 | ||||||||||||
| Total assets accounted for at fair value on a recurring basis | $ | 546,947,071 | $ | 22,926,425 | $ | 355,329,531 | $ | 168,691,115 | ||||||||
| Liabilities accounted for at fair value on a recurring basis | ||||||||||||||||
| Derivatives - loan commitments (4) | (2,715,734 | ) | - | - | (2,715,734 | ) | ||||||||||
| Total liabilities accounted for at fair value on a recurring basis | $ | (2,715,734 | ) | $ | - | $ | - | $ | (2,715,734 | ) | ||||||
| Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| Assets accounted for at fair value on a recurring basis | ||||||||||||||||
| Common stock | $ | 5,957,488 | $ | 5,957,488 | $ | - | $ | - | ||||||||
| Total equity securities available for sale | $ | 5,957,488 | $ | 5,957,488 | $ | - | $ | - | ||||||||
| Loans held for sale | $ | 166,990,187 | $ | - | $ | - | $ | 166,990,187 | ||||||||
| Restricted assets (1) | 78,421 | 78,421 | - | - | ||||||||||||
| Cemetery perpetual care trust investments (1) | 676,881 | 676,881 | - | - | ||||||||||||
| Derivatives - loan commitments (2) | 3,140,704 | - | - | 3,140,704 | ||||||||||||
| Total assets accounted for at fair value on a recurring basis | $ | 176,843,681 | $ | 6,712,790 | $ | - | $ | 170,130,891 | ||||||||
| Liabilities accounted for at fair value on a recurring basis | ||||||||||||||||
| Derivatives - bank loan interest rate swaps (3) | $ | (138 | ) | $ | - | $ | - | $ | (138 | ) | ||||||
| - call options (4) | (50,452 | ) | (50,452 | ) | - | - | ||||||||||
| - put options (4) | (63,637 | ) | (63,637 | ) | - | - | ||||||||||
| - loan commitments (4) | (8,926 | ) | - | - | (8,926 | ) | ||||||||||
| Total liabilities accounted for at fair value on a recurring basis | $ | (123,153 | ) | $ | (114,089 | ) | $ | - | $ | (9,064 | ) | |||||
| (1) Excluding cash | ||||||||||||||||
| (2) Included in other assets on the condensed consolidated balance sheet | ||||||||||||||||
| (3) Included in bank and other loans payable on the condensed consolidated balance sheet | ||||||||||||||||
| (4) Included in other liabilities and accrued expenses on the condensed consolidated balance sheet | ||||||||||||||||
| (1) | Fixed maturity securities available for sale |
| (2) | Equity securities |
| (3) | Included in other assets on the consolidated balance sheets |
| (4) | Included in other liabilities and accrued expenses on the consolidated balance sheets |
| 36 |
Net Loan Commitments | Bank Loan Interest Rate Swaps | Loans Held for Sale | ||||||||||
| Balance - December 31, 2016 | $ | 6,809,332 | $ | (3,308 | ) | $ | - | |||||
| Purchases | 636,022,818 | |||||||||||
| Sales | (473,930,540 | ) | ||||||||||
| Total gains (losses): | ||||||||||||
| Included in earnings (1) | (3,677,554 | ) | - | 4,897,909 | ||||||||
| Included in other comprehensive income (2) | - | 3,170 | - | |||||||||
| Balance - September 30, 2017 | $ | 3,131,778 | $ | (138 | ) | $ | 166,990,187 | |||||
| (1) As a component of Mortgage fee income on the condensed consolidated statement of earnings | ||||||||||||
| (2) As a component of Unrealized gains on derivative instruments on the condensed consolidated statement of comprehensive income | ||||||||||||
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
8)
Fair Value of Financial Instruments (Continued)| Quoted Prices | ||||||||||||||||
| in Active | Significant | Significant | ||||||||||||||
| Markets for | Observable | Unobservable | ||||||||||||||
| Identical Assets | Inputs | Inputs | ||||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets accounted for at fair value on a nonrecurring basis | ||||||||||||||||
| Impaired mortgage loans held for investment | $ | 5,218,392 | $ | - | $ | - | $ | 5,218,392 | ||||||||
| Mortgage servicing rights additions | 4,057,974 | - | - | 4,057,974 | ||||||||||||
| Total assets accounted for at fair value on a nonrecurring basis | $ | 9,276,366 | $ | - | $ | - | $ | 9,276,366 | ||||||||
The following tables summarize Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a recurring basis by their classification in the condensed consolidated balance sheet at December 31, 2016.
| Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| Assets accounted for at fair value on a recurring basis | ||||||||||||||||
| Fixed maturity securities available for sale | $ | 345,858,492 | $ | - | $ | 344,422,973 | $ | 1,435,519 | ||||||||
| Equity securities | 11,682,526 | 11,682,526 | - | - | ||||||||||||
| Loans held for sale | 141,179,620 | - | - | 141,179,620 | ||||||||||||
| Restricted assets (1) | 1,217,308 | - | 1,217,308 | - | ||||||||||||
| Restricted assets (2) | 5,348,244 | 5,348,244 | - | - | ||||||||||||
| Cemetery perpetual care trust investments (1) | 254,731 | - | 254,731 | - | ||||||||||||
| Cemetery perpetual care trust investments (2) | 3,605,162 | 3,605,162 | - | - | ||||||||||||
| Derivatives - loan commitments (3) | 4,089,856 | - | - | 4,089,856 | ||||||||||||
| Total assets accounted for at fair value on a recurring basis | $ | 513,235,939 | $ | 20,635,932 | $ | 345,895,012 | $ | 146,704,995 | ||||||||
| Liabilities accounted for at fair value on a recurring basis | ||||||||||||||||
| Derivatives - call options (4) | $ | (29,715 | ) | $ | (29,715 | ) | $ | - | $ | - | ||||||
| Derivatives - put options (4) | (13,888 | ) | (13,888 | ) | - | - | ||||||||||
| Derivatives - loan commitments (4) | (1,382,979 | ) | - | - | (1,382,979 | ) | ||||||||||
| Total liabilities accounted for at fair value on a recurring basis | $ | (1,426,582 | ) | $ | (43,603 | ) | $ | - | $ | (1,382,979 | ) | |||||
| Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| Assets accounted for at fair value on a recurring basis | ||||||||||||||||
| Common stock | $ | 9,911,256 | $ | 9,911,256 | $ | - | $ | - | ||||||||
| Total equity securities available for sale | $ | 9,911,256 | $ | 9,911,256 | $ | - | $ | - | ||||||||
| Restricted assets (1) | $ | 736,603 | $ | 736,603 | $ | - | $ | - | ||||||||
| Cemetery perpetual care trust investments (1) | 698,202 | 698,202 | - | - | ||||||||||||
| Derivatives - loan commitments (2) | 6,911,544 | - | - | 6,911,544 | ||||||||||||
| Total assets accounted for at fair value on a recurring basis | $ | 18,257,605 | $ | 11,346,061 | $ | - | $ | 6,911,544 | ||||||||
| Liabilities accounted for at fair value on a recurring basis | ||||||||||||||||
| Derivatives - bank loan interest rate swaps (3) | $ | (3,308 | ) | - | - | $ | (3,308 | ) | ||||||||
| - call options (4) | (109,474 | ) | (109,474 | ) | - | - | ||||||||||
| - put options (4) | (26,494 | ) | (26,494 | ) | - | - | ||||||||||
| - loan commitments (4) | (102,212 | ) | - | - | (102,212 | ) | ||||||||||
| Total liabilities accounted for at fair value on a recurring basis | $ | (241,488 | ) | $ | (135,968 | ) | $ | - | $ | (105,520 | ) | |||||
| (1) Excluding cash | ||||||||||||||||
| (2) Included in other assets on the condensed consolidated balance sheet | ||||||||||||||||
| (3) Included in bank and other loans payable on the condensed consolidated balance sheet | ||||||||||||||||
| (4) Included in other liabilities and accrued expenses on the condensed consolidated balance sheet | ||||||||||||||||
| (1) | Fixed maturity securities available for sale |
| (2) | Equity securities |
| (3) | Included in other assets on the consolidated balance sheets |
| (4) | Included in other liabilities and accrued expenses on the consolidated balance sheets |
| 37 |
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
8)
Fair Value of Financial Instruments (Continued)For Level 3 assets and liabilities measured at fair value on a recurring basis as of June 30, 2023, the significant unobservable inputs used in the fair value measurements were as follows:
Schedule of Assets and Liabilities Measured at Fair Value on A Recurring Basis
| Significant | Range of Inputs | |||||||||||||||||||
| Fair Value at | Valuation | Unobservable | Minimum | Maximum | Weighted | |||||||||||||||
| June 30, 2023 | Technique | Input(s) | Value | Value | Average | |||||||||||||||
| Loans held for sale | $ | 161,310,060 | Market approach | Investor contract pricing as a percentage of unpaid principal balance | 70.0 | % | 106.0 | % | 100.0 | % | ||||||||||
| Derivatives - loan commitments (net) | 3,233,447 | Market approach | Pull-through rate | 65.0 | % | 95.0 | % | 87.0 | % | |||||||||||
| Initial-Value | N/A | N/A | N/A | |||||||||||||||||
| Servicing | 0 bps | 154 bps | 74 bps | |||||||||||||||||
| Fixed maturity securities available for sale | 1,431,874 | Broker quotes | Pricing quotes | $ | 100.00 | $ | 111.11 | $ | 104.72 | |||||||||||
For Level 3 assets and liabilities measured at fair value on a recurring basis as of December 31, 2022, the significant unobservable inputs used in the fair value measurements were as follows:
| Fair Value at | Significant | Range of Inputs | ||||||||||||||||||
| December 31, | Valuation | Unobservable | Minimum | Maximum | Weighted | |||||||||||||||
| 2022 | Technique | Input(s) | Value | Value | Average | |||||||||||||||
| Loans held for sale | $ | 141,179,620 | Market approach | Investor contract pricing as a percentage of unpaid principal balance | 69.9 | % | 106.1 | % | 99.8 | % | ||||||||||
| Derivatives - loan commitments (net) | 2,706,877 | Market approach | Pull-through rate | 65.0 | % | 95.0 | % | 82.2 | % | |||||||||||
| Initial-Value | N/A | N/A | N/A | |||||||||||||||||
| Servicing | 0 bps | 153 bps | 73 bps | |||||||||||||||||
| Fixed maturity securities available for sale | 1,435,519 | Broker quotes | Pricing quotes | $ | 100.00 | $ | 111.11 | $ | 104.97 | |||||||||||
| 38 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
8) Fair Value of Financial Instruments (Continued)
The following table is a summary of changes in the condensed consolidated balance sheet line items measured using level 3 inputs:
Schedule of Changes in the Condensed Consolidated Balance Sheet Line Items Measured Using Level 3 Inputs
| Net Loan Commitments | Loans Held for Sale | Fixed Maturity Securities Available for Sale | ||||||||||
| Balance - December 31, 2022 | $ | 2,706,877 | $ | 141,179,620 | $ | 1,435,519 | ||||||
| Originations and purchases | - | 1,139,735,241 | - | |||||||||
| Sales, maturities and paydowns | - | (1,140,477,623 | ) | - | ||||||||
| Transfer to mortgage loans held for investment | - | (1,150,074 | ) | - | ||||||||
| Total gains (losses): | ||||||||||||
| Included in earnings | 526,570 | (1) | 22,022,896 | (1) | - | (2) | ||||||
| Included in other comprehensive income | - | - | (3,645 | ) | ||||||||
| Balance - June 30, 2023 | $ | 3,233,447 | $ | 161,310,060 | $ | 1,431,874 | ||||||
| Net Loan Commitments | Bank Loan Interest Rate Swaps | |||||||
| Balance - December 31, 2015 | $ | 7,671,495 | $ | (13,947 | ) | |||
| Total gains (losses): | ||||||||
| Included in earnings (1) | (862,163 | ) | - | |||||
| Included in other comprehensive income (2) | - | 10,639 | ||||||
| Balance - December 31, 2016 | $ | 6,809,332 | $ | (3,308 | ) | |||
| (1) As a component of Mortgage fee income on the condensed consolidated statement of earnings | ||||||||
| (2) As a component of Unrealized gains on derivative instruments on the condensed consolidated statement of comprehensive income | ||||||||
| (1) | As a component of Mortgage fee income on the condensed consolidated statements of earnings |
| (2) | As a component of Net investment income on the condensed consolidated statements of earnings |
The following tables summarizetable is a summary of changes in the condensed consolidated balance sheet line items measured using level 3 inputs for the six month periods ended June 30, 2022:
| Net Loan Commitments | Loans Held for Sale | Fixed Maturity Securities Available for Sale | ||||||||||
| Balance - December 31, 2021 | $ | 7,015,515 | $ | 302,776,827 | $ | 2,023,348 | ||||||
| Originations and purchases | - | 2,049,959,460 | - | |||||||||
| Sales, maturities and paydowns | - | (2,187,475,867 | ) | (24,350 | ) | |||||||
| Total gains (losses): | ||||||||||||
| Included in earnings | 428,127 | (1) | 44,599,989 | (1) | 1,957 | (2) | ||||||
| Included in other comprehensive income | - | - | (38,166 | ) | ||||||||
| Balance - June 30, 2022 | $ | 7,443,642 | $ | 209,860,409 | $ | 1,962,789 | ||||||
| (1) | As a component of Mortgage fee income on the condensed consolidated statements of earnings |
| (2) | As a component of Net investment income on the condensed consolidated statements of earnings |
| 39 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
8) Fair Value of Financial Instruments (Continued)
The following table is a summary of changes in the condensed consolidated balance sheet line items measured using level 3 inputs for the three month periods ended June 30, 2023:
| Net Loan Commitments | Loans Held for Sale | Fixed Maturity Securities Available for Sale | ||||||||||
| Balance - March 31, 2023 | $ | 3,384,829 | $ | 173,015,404 | $ | 1,435,519 | ||||||
| Originations and purchases | - | 607,867,445 | - | |||||||||
| Sales, maturities and paydowns | - | (628,567,681 | ) | - | ||||||||
| Transfer to mortgage loans held for investment | - | (1,150,074 | ) | - | ||||||||
| Total gains (losses): | ||||||||||||
| Included in earnings | (151,382 | )(1) | 10,144,966 | (1) | - | (2) | ||||||
| Included in other comprehensive income | - | - | (3,645 | ) | ||||||||
| Balance - June 30, 2023 | $ | 3,233,447 | $ | 161,310,060 | $ | 1,431,874 | ||||||
| (1) | As a component of Mortgage fee income on the condensed consolidated statements of earnings |
| (2) | As a component of Net investment income on the condensed consolidated statements of earnings |
The following table is a summary of changes in the condensed consolidated balance sheet line items measured using level 3 inputs for the three month periods ended June 30, 2022:
| Net Loan Commitments | Loans Held for Sale | Fixed Maturity Securities Available for Sale | ||||||||||
| Balance - March 31, 2022 | $ | 9,690,886 | $ | 234,012,872 | $ | 2,011,772 | ||||||
| Originations and purchases | - | 1,010,742,878 | - | |||||||||
| Sales, maturities and paydowns | - | (1,055,390,037 | ) | (12,400 | ) | |||||||
| Total gains (losses): | ||||||||||||
| Included in earnings | (2,247,244 | )(1) | 20,494,696 | (1) | 996 | (2) | ||||||
| Included in other comprehensive income | - | - | (37,579 | ) | ||||||||
| Balance - June 30, 2022 | $ | 7,443,642 | $ | 209,860,409 | $ | 1,962,789 | ||||||
| (1) | As a component of Mortgage fee income on the condensed consolidated statements of earnings |
| (2) | As a component of Net investment income on the condensed consolidated statements of earnings |
| 40 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
8) Fair Value of Financial Instruments (Continued)
The Company did not have any financial assets and financial liabilities measured at fair value on a nonrecurring basis at June 30, 2023.
The following table summarizes Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a nonrecurring basis by their classification in the condensed consolidated balance sheet at December 31, 2016.
Quoted Prices in Active | ||||||||||||||||
| Markets for | Significant | Significant | ||||||||||||||
| Identical | Observable | Unobservable | ||||||||||||||
| Assets | Inputs | Inputs | ||||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets accounted for at fair value on a nonrecurring basis | ||||||||||||||||
| Impaired mortgage loans held for investment | $ | 2,809,925 | $ | - | $ | - | $ | 2,809,925 | ||||||||
| Mortgage servicing rights additions | 8,603,154 | - | - | 8,603,154 | ||||||||||||
| Real estate held for investment | 2,347,820 | - | - | 2,347,820 | ||||||||||||
| Total assets accounted for at fair value on a nonrecurring basis | $ | 13,760,899 | $ | - | $ | - | $ | 13,760,899 | ||||||||
Schedule of Fair Value of Financial Instruments
| Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| Assets accounted for at fair value on a nonrecurring basis | ||||||||||||||||
| Impaired mortgage loans held for investment | $ | 794,224 | $ | - | $ | - | $ | 794,224 | ||||||||
| Total assets accounted for at fair value on a nonrecurring basis | $ | 794,224 | $ | - | $ | - | $ | 794,224 | ||||||||
Fair Value of Financial Instruments Carried at Other Than Fair Value
ASC 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value.
Management uses its best judgment in estimating the fair value of the Company'sCompany’s financial instruments; however, there are inherent limitations in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at SeptemberJune 30, 20172023 and December 31, 2016.
The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows as of SeptemberJune 30, 2017:2023:
Schedule of Financial Instruments Carried at Other Than Fair Value
| Carrying Value | Level 1 | Level 2 | Level 3 | Total Estimated Fair Value | ||||||||||||||||
| Assets | ||||||||||||||||||||
| Mortgage loans held for investment | ||||||||||||||||||||
| Residential | $ | 92,373,964 | $ | - | $ | - | $ | 90,236,721 | $ | 90,236,721 | ||||||||||
| Residential construction | 120,783,301 | - | - | 120,783,301 | 120,783,301 | |||||||||||||||
| Commercial | 57,892,320 | - | - | 56,552,307 | 56,552,307 | |||||||||||||||
| Mortgage loans held for investment, net | $ | 271,049,585 | $ | - | $ | - | $ | 267,572,329 | $ | 267,572,329 | ||||||||||
| Policy loans | 13,020,654 | - | - | 13,020,654 | 13,020,654 | |||||||||||||||
| Insurance assignments, net (1) | 39,466,608 | - | - | 39,466,608 | 39,466,608 | |||||||||||||||
| Restricted assets (2) | 1,377,183 | - | - | 1,377,183 | 1,377,183 | |||||||||||||||
| Cemetery perpetual care trust investments (2) | 2,271,516 | - | - | 2,271,516 | 2,271,516 | |||||||||||||||
| Mortgage servicing rights, net | 3,442,352 | - | - | 4,790,912 | 4,790,912 | |||||||||||||||
| Liabilities | ||||||||||||||||||||
| Bank and other loans payable | $ | (103,301,721 | ) | $ | - | $ | - | $ | (103,301,721 | ) | $ | (103,301,721 | ) | |||||||
| Policyholder account balances (3) | (40,389,204 | ) | - | - | (40,878,607 | ) | (40,878,607 | ) | ||||||||||||
| Future policy benefits - annuities (3) | (106,259,062 | ) | - | - | (124,475,238 | ) | (124,475,238 | ) | ||||||||||||
| (1) | Included in other investments and policy loans on the condensed consolidated balance sheets |
| (2) | Mortgage loans held for investment |
| (3) | Included in future policy benefits and unpaid claims on the condensed consolidated balance sheets |
| 41 |
| Carrying Value | Level 1 | Level 2 | Level 3 | Total Estimated Fair Value | ||||||||||||||||
Assets | ||||||||||||||||||||
| Fixed maturity securities held to maturity | $ | 230,811,272 | $ | - | $ | 243,807,562 | $ | - | $ | 243,807,562 | ||||||||||
| Mortgage loans held for investment: | ||||||||||||||||||||
| Residential | 63,908,714 | - | - | 68,139,551 | 68,139,551 | |||||||||||||||
| Residential construction | 40,884,948 | - | - | 40,884,948 | 40,884,948 | |||||||||||||||
| Commercial | 42,507,029 | - | - | 44,223,823 | 44,223,823 | |||||||||||||||
| Mortgage loans held for investment, net | $ | 147,300,691 | $ | - | $ | - | $ | 153,248,322 | $ | 153,248,322 | ||||||||||
| Loans held for sale (at amortized costs) | 34,905,719 | - | - | 35,131,853 | 35,131,853 | |||||||||||||||
| Policy loans | 6,677,924 | - | - | 6,677,924 | 6,677,924 | |||||||||||||||
| Insurance assignments, net (1) | 32,198,144 | - | - | 32,198,144 | 32,198,144 | |||||||||||||||
| Short-term investments | 17,830,990 | - | 17,830,990 | - | 17,830,990 | |||||||||||||||
| Mortgage servicing rights, net | 20,396,568 | - | - | 26,785,380 | 26,785,380 | |||||||||||||||
Liabilities | ||||||||||||||||||||
| Bank and other loans payable | $ | (182,769,531 | ) | $ | - | $ | - | $ | (182,769,531 | ) | $ | (182,769,531 | ) | |||||||
| Policyholder account balances (2) | (48,200,442 | ) | - | - | (37,564,692 | ) | (37,564,692 | ) | ||||||||||||
| Future policy benefits - annuities (2) | (99,519,758 | ) | - | - | (100,851,101 | ) | (100,851,101 | ) | ||||||||||||
| (1) Included in policy loans and other investments on the condensed consolidated balance sheet. | ||||||||||||||||||||
| (2) Included in future policy benefits and unpaid claims on the condensed consolidated balance sheet. | ||||||||||||||||||||
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
8)
Fair Value of Financial Instruments (Continued)The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows as of December 31, 2016:2022:
| Carrying Value | Level 1 | Level 2 | Level 3 | Total Estimated Fair Value | ||||||||||||||||
| Assets | ||||||||||||||||||||
| Mortgage loans held for investment | ||||||||||||||||||||
| Residential | $ | 90,290,776 | $ | - | $ | - | $ | 88,575,293 | $ | 88,575,293 | ||||||||||
| Residential construction | 172,139,077 | - | - | 172,139,077 | 172,139,077 | |||||||||||||||
| Commercial | 45,694,074 | - | - | 44,079,537 | 44,079,537 | |||||||||||||||
| Mortgage loans held for investment, net | $ | 308,123,927 | $ | - | $ | - | $ | 304,793,907 | $ | 304,793,907 | ||||||||||
| Policy loans | 13,095,473 | - | - | 13,095,473 | 13,095,473 | |||||||||||||||
| Insurance assignments, net (1) | 45,332,585 | - | - | 45,332,585 | 45,332,585 | |||||||||||||||
| Restricted assets (2) | 1,731,469 | - | - | 1,731,469 | 1,731,469 | |||||||||||||||
| Cemetery perpetual care trust investments (2) | 1,506,517 | - | - | 1,506,517 | 1,506,517 | |||||||||||||||
| Mortgage servicing rights, net | 3,039,765 | - | - | 3,927,877 | 3,927,877 | |||||||||||||||
| Liabilities | ||||||||||||||||||||
| Bank and other loans payable | $ | (161,712,804 | ) | $ | - | $ | - | $ | (161,712,804 | ) | $ | (161,712,804 | ) | |||||||
| Policyholder account balances (3) | (41,146,171 | ) | - | - | (42,181,089 | ) | (42,181,089 | ) | ||||||||||||
| Future policy benefits - annuities (3) | (106,637,094 | ) | - | - | (126,078,031 | ) | (126,078,031 | ) | ||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | Total Estimated Fair Value | ||||||||||||||||
Assets | ||||||||||||||||||||
| Fixed maturity securities held to maturity | $ | 184,979,644 | $ | - | $ | 191,850,749 | $ | - | $ | 191,850,749 | ||||||||||
| Mortgage loans held for investment: | ||||||||||||||||||||
| Residential | 57,096,961 | - | - | 61,357,393 | 61,357,393 | |||||||||||||||
| Residential construction | 40,700,003 | - | - | 40,700,003 | 40,700,003 | |||||||||||||||
| Commercial | 51,193,768 | - | - | 53,299,800 | 53,299,800 | |||||||||||||||
| Mortgage loans held for investment, net | $ | 148,990,732 | $ | - | $ | - | $ | 155,357,196 | $ | 155,357,196 | ||||||||||
| Loans held for sale | 189,578,243 | - | - | 192,289,854 | 192,289,854 | |||||||||||||||
| Policy loans | 6,694,148 | - | - | 6,694,148 | 6,694,148 | |||||||||||||||
| Insurance assignments, net (1) | 32,477,246 | - | - | 32,477,246 | 32,477,246 | |||||||||||||||
| Short-term investments | 27,560,040 | - | 27,560,040 | - | 27,560,040 | |||||||||||||||
| Mortgage servicing rights, net | 18,872,362 | - | - | 25,496,832 | 25,496,832 | |||||||||||||||
Liabilities | ||||||||||||||||||||
| Bank and other loans payable | $ | (152,137,371 | ) | $ | - | $ | - | $ | (152,137,371 | ) | $ | (152,137,371 | ) | |||||||
| Policyholder account balances (2) | (49,421,125 | ) | - | - | (38,530,031 | ) | (38,530,031 | ) | ||||||||||||
| Future policy benefits - annuities (2) | (99,388,662 | ) | - | - | (100,253,261 | ) | (100,253,261 | ) | ||||||||||||
| (1) Included in policy loans and other investments on the condensed consolidated balance sheet. | ||||||||||||||||||||
| (2) Included in future policy benefits and unpaid claims on the condensed consolidated balance sheet. | ||||||||||||||||||||
| (1) | Included in other investments and policy loans on the consolidated balance sheets |
| (2) | Mortgage loans held for investment |
| (3) | Included in future policy benefits and unpaid claims on the consolidated balance sheets |
The methods, assumptions and significant valuation techniques and inputs used to estimate the fair value of these financial instruments are summarized as follows:
Mortgage Loans Held for Investment
: The estimated fair value of theResidential – The estimated fair value of mortgage loans is determined through a combination of discounted cash flows (estimating expected future cash flows of interest payments and discounting them using current interest rates from single family mortgages) and considering pricing of similar loans that were sold recently.
Residential Construction – These loans are primarily short in maturity accordingly,maturity. Accordingly, the estimated fair value is determined to be the carrying value.
Commercial – The estimated fair value is determined by estimating expected future cash flows of interest payments and discounting them using current interest rates for commercial mortgages.
Policy Loans
: The carrying amounts reported in the accompanying condensed consolidated balance sheet for these financial instruments approximate their fair values because they are fully collateralized by the cash surrender value of the underlying insurance policies.Insurance Assignments, Net
: These investments are primarily short in maturity, accordingly, the carrying amounts reported in the accompanying condensed consolidated balance sheet for these financial instruments approximate their fair values.| 42 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to their short-term nature.
June 30, 2023 (Unaudited)
8) Fair Value of mortgage servicing rights were previously disclosed in this Note 8.
Bank and Other Loans Payable
: The carrying amounts reported in the accompanying condensed consolidated balance sheet for these financial instruments approximate their fair values due to their relatively short-term maturities and variable interest rates.Policyholder Account Balances and Future Policy Benefits-Annuities
: Future policy benefit reserves for interest-sensitive insurance products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances. Interest crediting rates for interest-sensitive insurance products ranged from9) Allowance for Doubtful Accounts
Mortgage Banking Derivatives
Loan Commitments
The Company is exposed to price risk due to the potential impact of changes in interest rates on the values of loan commitments from the time a loan commitment is made to an applicant to the time the loan that would result from the exercise of that loan commitment is funded. Managing price risk is complicated by the fact that the ultimate percentage of loan commitments that will be exercised (i.e., the number of loans that will be funded) fluctuates. The probability that a loan will not be funded or the loan application is denied or withdrawn within the terms of the commitment is driven by a number of factors, particularly the change, if any, in mortgage rates following the issuance of the loan commitment.
In general, the probability of funding increases if mortgage rates rise and decreases if mortgage rates fall. This is due primarily to the relative attractiveness of current mortgage rates compared to the applicant'sapplicant’s committed rate. The probability that a loan will not be funded within the terms of the mortgage loan commitment also is influenced by the source of the applications (retail, broker or correspondent channels), proximity to rate lock expiration, purpose for the loan (purchase or refinance), product type and the application approval status. The Company has developed fallout estimates using historical data that take into account all of the variables, as well as renegotiations of rate and point commitments that tend to occur when mortgage rates fall. These fallout estimates are used to estimate the number of loans that the Company expects to be funded within the terms of the loan commitments and are updated periodically to reflect the most current data.
The Company estimates the fair value of a loan commitment based on the change in estimated fair value of the underlying mortgage loan, quoted MBSmortgage-backed securities (“MBS”) prices, estimates of the fair value of mortgage servicing rights, and an estimate of the probability that the mortgage loan will fund within the terms of the commitment.commitment net of estimated commission expense. The change in fair value of the underlying mortgage loan is measured from the date the loan commitment is issued and is shown net of related expenses. Following issuance, the value of a loan commitment can be either positive or negative depending upon the change in value of the underlying mortgage loans. Fallout rates and other factors from the Company’s recent historical data are used to estimate the quantity and value of mortgage loans that will fund within the terms of the commitments.
| 43 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
9) Derivative Instruments (Continued)
Forward Sale Commitments
The Company utilizes forward commitments to economically hedge the price risk associated with its outstanding mortgage loan commitments. A forward commitment protects the Company from losses on sales of the loans arising from exercise of the loan commitments. Management expects these types of commitments will experience changes in fair value opposite to changes in fair value of the loan commitments, thereby reducing earnings volatility related to the recognition in earnings of changes in the values of the commitments.
The net changes in fair value of all loan commitments and forward sale commitments are shown in current earnings as a component of mortgage fee income.
Call and Put Options
The Company uses a strategydiscontinued its use of selling "out“out of the money"money” call options on its available for sale equity securities as a source of revenue. The options giveand the purchaser the right to buy from the Company specified equity securities at a set price up to a pre-determined date in the future. The Company uses the strategyuse of selling put options as a meanssource of generating cash or purchasing equity securities at lower than current market prices.revenue in the first quarter of 2023. The Company receives an immediate payment of cash for the value of the option and establishes a liability fornet changes in the fair value of the option. The liability forcall and put options is adjusted to fair value at each reporting date. In the eventare shown in current earnings as a call option is exercised, the Company recognizes a gaincomponent of realized gains (losses) on investments and other assets. Call and put options are shown in other liabilities and accrued expenses on the sale of the equity security enhanced by the value of the option that was sold. If the option expires unexercised, the Company recognizes a gain from the sale of the option. In the event a put option is exercised, the Company acquires an equity security at the strike price of the option reduced by the value received from the sale of the put option. The equity security is then traded as a normal equity security in the Company's portfolio.
The following table shows the notional amount and fair value and notional amounts of derivatives asderivative instruments:
Schedule of September 30, 2017 and December 31, 2016.
| Fair Values and Notional Values of Derivative Instruments | ||||||||||||||||||||||||||
| September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||||
| Balance Sheet Location | Notional Amount | Asset Fair Value | Liability Fair Value | Notional Amount | Asset Fair Value | Liability Fair Value | ||||||||||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||||
| Loan commitments | Other assets and Other liabilities | $ | 147,086,043 | $ | 3,140,704 | $ | 8,926 | $ | 191,757,193 | $ | 6,911,544 | $ | 102,212 | |||||||||||||
| Call options | Other liabilities | 1,473,050 | -- | 50,452 | 2,169,850 | -- | 109,474 | |||||||||||||||||||
| Put options | Other liabilities | 2,593,300 | -- | 63,637 | 1,336,750 | -- | 26,494 | |||||||||||||||||||
| Derivatives designated as fair value hedging instruments: | ||||||||||||||||||||||||||
| Interest rate swaps | Bank and other loans payable | 43,940 | -- | 138 | 175,762 | -- | 3,308 | |||||||||||||||||||
| Total | $ | 151,196,333 | $ | 3,140,704 | $ | 123,153 | $ | 195,439,555 | $ | 6,911,544 | $ | 241,488 | ||||||||||||||
| June 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||
| Balance Sheet Location | Notional Amount | Asset Fair Value | Liability Fair Value | Notional Amount | Asset Fair Value | Liability Fair Value | ||||||||||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||||
| Loan commitments | Other assets and Other liabilities | $ | 344,410,019 | $ | 5,949,181 | $ | 2,715,734 | $ | 453,371,808 | $ | 4,089,859 | $ | 1,382,979 | |||||||||||||
| Call options | Other liabilities | - | - | - | 868,600 | - | 29,715 | |||||||||||||||||||
| Put options | Other liabilities | - | - | - | 654,500 | - | 13,888 | |||||||||||||||||||
| Total | $ | 344,410,019 | $ | 5,949,181 | $ | 2,715,734 | $ | 454,894,908 | $ | 4,089,859 | $ | 1,426,582 | ||||||||||||||
The following table showsbelow presents the gains and losses(losses) on derivatives for the periods presented.derivatives. There were no gains or losses reclassified from accumulated other comprehensive income (OCI) into income or gains or losses recognized in income on derivatives ineffective portion, or any amounts excluded from effective testing.
Schedule of Gains and Losses on Derivatives
| Net Amount Gain (Loss) | Net Amount Gain (Loss) | |||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
| Derivative | Classification | 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Loan commitments | Mortgage fee income | $ | (151,382 | ) | $ | (2,247,244 | ) | $ | 526,570 | $ | 428,127 | |||||||
| Call and put options | Gains on investments and other assets | $ | - | $ | 65,033 | $ | 49,963 | $ | 126,229 | |||||||||
| 44 |
| Net Amount Gain (Loss) | Net Amount Gain (Loss) | |||||||||||||||||
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||
| Derivative | Classification | 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Interest Rate Swaps | Other comprehensive income | $ | 554 | $ | - | $ | 3,170 | $ | 5,541 | |||||||||
| Loan commitments | Mortgage fee income | $ | (4,833,268 | ) | $ | (1,505,820 | ) | $ | (3,677,554 | ) | $ | 1,459,568 | ||||||
| Call and put options | Realized gains on investments and other assets | $ | 27,734 | $ | 73,250 | $ | 216,561 | $ | 210,522 | |||||||||
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
10) Reinsurance, Commitments and Contingencies
Reinsurance
The Company follows the procedure of reinsuring risks in excess of a specified limit, which ranges from $25,000$25,000 to $100,000.$100,000. The Company is liable for these amounts in the event such reinsurers are unable to pay their portion of the claims. The Company evaluates the financial condition of reinsurers and monitors the concentration of credit risk. The Company has also assumed insurance from other companies.
Mortgage Loan Loss Settlements
Future loan losses can be extremely difficult to estimate. However, managementthe Company believes that the Company'sCompany’s reserve methodology and its current practice of property preservation allow it to estimate its potential losses on loans sold. See Note 4 to the condensed consolidated financial statements for additional information about the Company’s loan loss reserve.
Debt Covenants for Mortgage Warehouse Lines of Credit
The estimated liability for indemnification losses is included in other liabilitiesCompany, through its subsidiary SecurityNational Mortgage, has a $100,000,000 line of credit with Wells Fargo Bank N.A. The agreement charges interest at the 1-Month SOFR rate plus 2.1% and accrued expenses and, as of September 30, 2017 and expires on December 31, 2016,2023 and will not be renewed as a result of the balances were $2,171,000lender exiting the market place. SecurityNational Mortgage is required to comply with covenants for adjusted tangible net worth, unrestricted cash balance, the ratio of indebtedness to adjusted tangible net worth, and $628,000, respectively.
The Company, through its subsidiary SecurityNational Mortgage, Loan Loss Litigation
The Company through its subsidiary SecurityNational Mortgage, has a line of credit with Comerica Bank. This agreement with the bank allows SecurityNational Mortgage to borrow up to $75,000,000 for the sole purpose of funding mortgage loans. The agreement charges interest at the 1-Month SOFR rate plus 2.50% and expires on December 31, 2023 and will not be renewed as a result of the lender exiting the market place. The Company is required to comply with covenants for adjusted tangible net worth, unrestricted cash balance, and minimum combined pre-tax income (excluding any changes in the fair value of mortgage servicing rights) of at least $1.00 on a rolling twelve months.
The Company through its subsidiary SecurityNational Mortgage, has a line of credit with U.S Bank. This agreement with the bank allows SecurityNational Mortgage to borrow up to $25,000,000 for the sole purpose of funding mortgage loans. The agreement charges interest at 2.10% plus the greater of (i) 0%, and (ii) the one-month forward-looking term rate based on alleged breaches of certain representationsSOFR and warranties by Lehman Holdingsmatures on December 1, 2023. The Company is required to comply with covenants for adjusted tangible net worth, unrestricted cash balance, and minimum combined pre-tax income (excluding any changes in the fair value of mortgage loans it had sold to Fannie Mae. Lehman Holdings acquired these loans from Aurora Bank, FSB, formerly known as Lehman Brothers Bank, FSB, which in turn purchased the loans from certain residential mortgage loan originators, including SecurityNational Mortgage. A settlement basedservicing rights) of at least $1.00 on similar circumstances was entered into between Lehman Holdings and the Federal Home Loan Mortgage Corporation (Freddie Mac) in February 2014.a rolling twelve months.
| 45 |
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
10) Reinsurance, Commitments and Contingencies
(Continued)The agreements for warehouse lines include cross default provisions in that a motioncovenant violation under one agreement constitutes a covenant violation under the other agreement. As of June 30, 2023, the Company was not in May 2014compliance with the U.S. Bankruptcy Court of the Southern District of New York to require the mortgage loan originators, including SecurityNational Mortgage, to engage in non-binding mediations of their alleged indemnification claims against the mortgage loan originators relative to the Fannie Maenet income covenant and Freddie Mac settlements with Lehman Holdings. The mediation was not successful in resolving any issues between SecurityNational Mortgage and Lehman Holdings.
Other Contingencies and Commitments
The Company has entered into commitments to fund construction and land development loans and has also provided financing for land acquisition and development. As of SeptemberJune 30, 2017,2023, the Company'sCompany’s commitments were approximately $69,601,000$170,804,000 for these loans, of which $41,307,000$124,975,445 had been funded. The Company will advance funds once the work has been completed and an independent inspection is made. The maximum loan commitment ranges between 50%50% and 80%80% of appraised value. The Company receives fees and interest for these loans and the interest rate is generally fixed 5.50%5.25% to 8.00%8.50% per annum. Maturities range between six and eighteen months.
The Company belongs to a captive insurance group for certain casualty insurance, worker compensation and liability programs. Insurance reserves are maintained relative to these programs. The level of exposure from catastrophic events is limited by the purchase of stop-loss and aggregate liability reinsurance coverage. When estimating the insurance liabilities and related reserves, the captive insurance management considers a number of factors, which include historical claims experience, demographic factors, severity factors and valuations provided by independent third-party actuaries. If actual claims or adverse development of loss reserves occurs and exceed these estimates, additional reserves may be required. The estimation process contains uncertainty since captive insurance management must use judgment to estimate the ultimate cost that will be incurred to settle reported claims and unreported claims for incidents incurred but not reported as of the balance sheet date.
The Company is a defendant in various other legal actions arising from the normal conduct of business. Management believes that none of the actions, if adversely determined, will have a material effect on the Company'sCompany’s financial position or results of operations. Based on management'smanagement’s assessment and legal counsel'scounsel’s representations concerning the likelihood of unfavorable outcomes, no amounts have been accrued for the above claims in the consolidated financial statements.
The Company is not a party to any other material legal proceedings outside the ordinary course of business or to any other legal proceedings, which, if adversely determined, would have a material adverse effect on its financial condition or results of operations.
| 46 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
11) Mortgage Servicing Rights
The Company initially records these Mortgage Servicing Rights ("MSRs")MSRs at fair value as discussed in
After being initially recorded at fair value, MSRs backed by mortgage loans are accounted for using the amortization method. Amortization expense is included in other expenses on the consolidated statements of earnings. MSR amortization is determined by amortizing the MSR balance straight-line over an estimated seven and nine-year life which estimates thein proportion to, and over the period of the estimated future net servicing income of the underlying financial assets.
The Company periodically assesses MSRs for impairment. Impairment occurs when the current fair value of the MSR falls below the asset'sasset’s carrying value (carrying value is the amortized cost reduced by any related valuation allowance). If MSRs are impaired, the impairment is recognized in current-period earnings and the carrying value of the MSRs is adjusted through a valuation allowance.
Management periodically reviews the various loan strata to determine whether the value of the MSRs in a given stratum is impaired and likely to recover. When management deems recovery of the value to be unlikely in the foreseeable future, a write-down of the cost of the MSRs for that stratum to its estimated recoverable value is charged to the valuation allowance.
The following table presents the MSR activity:
Schedule of Mortgage Servicing Rights
| As of June 30, 2023 | As of December 31, 2022 | |||||||
| Amortized cost: | ||||||||
| Balance before valuation allowance at beginning of year | $ | 3,039,765 | $ | 53,060,455 | ||||
| MSR additions resulting from loan sales (1) | 694,897 | 10,243,922 | ||||||
| Amortization (2) | (292,310 | ) | (9,078,706 | ) | ||||
| Sale of MSRs | - | (51,185,906 | ) | |||||
| Application of valuation allowance to write down MSRs with other than temporary impairment | - | - | ||||||
| Balance before valuation allowance at end of period | $ | 3,442,352 | $ | 3,039,765 | ||||
| Valuation allowance for impairment of MSRs: | ||||||||
| Balance at beginning of year | $ | - | $ | - | ||||
| Additions | - | - | ||||||
| Application of valuation allowance to write down MSRs with other than temporary impairment | - | - | ||||||
| Balance at end of period | $ | - | $ | - | ||||
| Mortgage servicing rights, net | $ | 3,442,352 | $ | 3,039,765 | ||||
| Estimated fair value of MSRs at end of period | $ | 4,790,912 | $ | 3,927,877 | ||||
| (1) | Included in mortgage fee income on the condensed consolidated statements of earnings |
| (2) | Included in other expenses on the condensed consolidated statements of earnings |
| 47 |
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
11) Mortgage Servicing Rights
(Continued)The following is a summary of the MSR activity for the periods presented.
As of September 30 2017 | As of December 31 2016 | |||||||
| Amortized cost: | ||||||||
| Balance before valuation allowance at beginning of year | $ | 18,872,362 | $ | 12,679,755 | ||||
| MSR additions resulting from loan sales | 4,057,974 | 8,603,154 | ||||||
| Amortization (1) | (2,533,768 | ) | (2,410,547 | ) | ||||
| Application of valuation allowance to write down MSRs with other than temporary impairment | - | - | ||||||
| Balance before valuation allowance at end of period | $ | 20,396,568 | $ | 18,872,362 | ||||
| Valuation allowance for impairment of MSRs: | ||||||||
| Balance at beginning of year | $ | - | $ | - | ||||
| Additions | - | - | ||||||
| Application of valuation allowance to write down MSRs with other than temporary impairment | - | - | ||||||
| Balance at end of period | $ | - | $ | - | ||||
| Mortgage servicing rights, net | $ | 20,396,568 | $ | 18,872,362 | ||||
| Estimated fair value of MSRs at end of period | $ | 26,785,380 | $ | 25,496,832 | ||||
| (1) Included in other expenses on the condensed consolidated statements of earnings | ||||||||
| Estimated MSR Amortization | ||||
| 2017 | $ | 162,284 | ||
| 2018 | 3,372,381 | |||
| 2019 | 3,372,381 | |||
| 2020 | 3,372,381 | |||
| 2021 | 3,372,381 | |||
| Thereafter | 6,744,760 | |||
| Total | $ | 20,396,568 | ||
Schedule of Finite-Lived Intangible Assets, Future Amortization Expense, Mortgage Servicing Rights
| Estimated MSR Amortization | ||||
| 2023 | 363,261 | |||
| 2024 | 328,177 | |||
| 2025 | 299,068 | |||
| 2026 | 266,962 | |||
| 2027 | 238,917 | |||
| Thereafter | 1,945,967 | |||
| Total | $ | 3,442,352 | ||
The Company collected the following contractual servicing fee income and late fee income as reported in other revenues on the condensed consolidated statement of earnings:
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Contractual servicing fees | $ | 1,848,831 | $ | 1,496,365 | $ | 5,359,425 | $ | 4,024,720 | ||||||||
| Late fees | 99,077 | 67,032 | 266,218 | 189,237 | ||||||||||||
| Total | $ | 1,947,908 | $ | 1,563,397 | $ | 5,625,643 | $ | 4,213,957 | ||||||||
Schedule of Other Revenues
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Contractual servicing fees | $ | 233,218 | $ | 4,694,969 | $ | 643,618 | $ | 9,201,229 | ||||||||
| Late fees | 14,008 | 81,597 | 63,321 | 181,635 | ||||||||||||
| Total | $ | 247,226 | $ | 4,776,566 | $ | 706,939 | $ | 9,382,864 | ||||||||
The following is a summary of the unpaid principal balances ("UPB"(“UPB”) of the servicing portfolio forportfolio.
Summary of Unpaid Principal Balances of the periods presented:
As of September 30 2017 | As of December 31 2016 | |||||||
| Servicing UPB | $ | 3,003,608,494 | $ | 2,720,441,340 | ||||
| As of June 30, 2023 | As of December 31, 2022 | |||||||
| Servicing UPB | $ | 403,651,388 | $ | 360,023,384 | ||||
The following key assumptions were used in determining MSR value:
Schedule of Assumptions Used in Determining MSR Value
| Prepayment Speeds | Average Life (Years) | Discount Rate | ||||||||||
| June 30, 2023 | 8.70 | 8.24 | 11.57 | |||||||||
| December 31, 2022 | 8.12 | 8.49 | 11.95 | |||||||||
On October 31, 2022, the Company sold certain of its MSRs. The MSRs related to mortgage loans previously originated by the Company in aggregate unpaid principal amount of approximately $7.02 billion. As a result of the sale, the book value of the Company’s MSRs decreased $51,185,906 and generated a gain of $34,051,938 included in mortgage fee income on the consolidated statements of earnings. Substantially all of the consideration was received by the Company with the remainder subject to certain holdbacks during transfer of the MSRs. The Company completed the physical transfer of files prior to its deadline. The holdbacks have been received in 2023.
| 48 |
Prepayment Speeds | Average Life (Years) | Discount Rate | ||||||||||
| September 30, 2017 | 3.59 | 6.2 | 10.01 | |||||||||
| December 31, 2016 | 3.77 | 6.52 | 10.01 | |||||||||
Notes to Condensed Consolidated Financial Statements
June 30, 20172023 (Unaudited)
| Fixed maturity securities, held to maturity | $ | 43,878,084 | ||
| Equity securities, available for sale | 646,335 | |||
| Mortgage loans held for investment | 4,528,582 | |||
| Real estate held for investment | 528,947 | |||
| Policy loans | 145,953 | |||
| Short-term investments | 5,358,403 | |||
| Accrued investment income | 585,985 | |||
| Cash and cash equivalents | 2,424,480 | |||
| Receivables | 73,347 | |||
| Property and equipment | 21,083 | |||
| Deferred tax asset | 1,190,862 | |||
| Receivable from reinsurers | 34,948 | |||
| Other | 57,768 | |||
| Total assets acquired | 59,474,777 | |||
| Future policy benefits and unpaid claims | (52,648,838 | ) | ||
| Accounts payable | (6,953 | ) | ||
| Other liabilities and accrued expenses | (65,986 | ) | ||
| Total liabilities assumed | (52,721,777 | ) | ||
| Fair value of net assets acquired/consideration paid | $ | 6,753,000 |
For the Nine Months Ended September 30 (unaudited) | ||||
| 2016 | ||||
| Total revenues | $ | 234,629,101 | ||
| Net earnings | $ | 11,472,978 | ||
| Net earnings per Class A equivalent common share | $ | 0.78 | ||
| Net earnings per Class A equivalent common share | ||||
| assuming dilution | $ | 0.76 | ||
12) Income Taxes
The Company'sCompany’s overall effective tax rate for the three monthsmonth periods ended SeptemberJune 30, 20172023 and 20162022 was 3.6%22.0% and 36.4%24.4%, respectively, which resulted in a provision for income taxes of $41,000$1,796,627 and $2,390,000, respectively. The Company's overall effective tax rate$1,155,397, respectively, and for the nine monthssix month periods ended SeptemberJune 30, 20172023 and 20162022 was 32.2%22.0% and 37.0%25.8%, respectively, which resulted in a provision for income taxes of $2,587,000$2,141,343 and $6,892,000, respectively.$2,370,195, respectively The Company'sCompany’s effective tax rates differrate differs from the U.S. federal statutory rate of 34% largely21% due to its provisionbenefit for state income taxes, along with certain permanent tax adjustments such as meals and a reductionentertainment and stock-based compensation. The decrease in the valuation allowance related to the prior acquisition of First Guaranty Insurance Company that decreased the effective income tax rates for both periods,rate when compared to the prior year periods.is primarily due to the Company’s state income tax provision.
Interim income taxes are based on an estimated annualized effective tax rate applied to the respective quarterly periods, adjusted for discrete tax items in the period in which they occur. Although the Company believes its tax estimates are reasonable, the Company can make no assurance that the final tax outcome of these matters will not be different from that which it has reflected in its historical income tax provisions and accruals.
13) Revenues from Contracts with Customers
The Company reports revenues from contracts with customers pursuant to ASC No. 606, Revenue from Contracts with Customers.
Information about Performance Obligations and Contract Balances
The Company’s cemetery and mortuary segment sells a variety of goods and services to customers in both at-need and pre-need situations. Due to the timing of the fulfillment of the obligation, revenue is deferred until that obligation is fulfilled.
The Company’s three types of future obligations are as follows:
Pre-need Merchandise and Service Revenue: All pre-need merchandise and service revenue is deferred, and the funds are placed in trust until the need arises, the merchandise is received or the service is performed. The trust is then relieved, and the revenue and commissions are recognized.
At-need Specialty Merchandise Revenue: At-need specialty merchandise revenue consists of customizable merchandise ordered from a manufacturer such as markers and bases. When specialty merchandise is ordered, it can take time to manufacture and deliver the product. Revenue is deferred until the at-need merchandise is received.
Deferred Pre-need Land Revenue: Deferred pre-need revenue and corresponding commissions are deferred until 10% of the funds are received from the customer through regular monthly payments. Deferred pre-need land revenue is not placed in trust.
Complete payment of the contract does not constitute fulfillment of the performance obligation. Goods or services are deferred until such time the service is performed or merchandise is received. Pre-need contracts are required to be paid in full prior to a customer using a good or service from a pre-need contract. Goods and services from pre-need contracts can be transferred when paid in full from one owner to another. In such cases, the Company will act as an agent in transferring the requested goods and services. A transfer of goods and services does not fulfill an obligation and revenue remains deferred.
| 49 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
13) Revenues from Contracts with Customers (Continued)
The opening and closing balances of the Company’s receivables, contract assets and contract liabilities are as follows:
Schedule of Opening and Closing Balances of Receivables, Contract Assets and Contract Liabilities
| Contract Balances | ||||||||||||
| Receivables (1) | Contract Asset | Contract Liability | ||||||||||
| Opening (January 1, 2023) | $ | 5,392,779 | $ | - | $ | 16,226,836 | ||||||
| Closing (June 30, 2023) | 5,814,731 | - | 17,155,722 | |||||||||
| Increase/(decrease) | 421,952 | - | 928,886 | |||||||||
| Contract Balances | ||||||||||||
| Receivables (1) | Contract Asset | Contract Liability | ||||||||||
| Opening (January 1, 2022) | $ | 5,298,636 | $ | - | $ | 14,508,022 | ||||||
| Closing (December 31, 2022) | 5,392,779 | - | 16,226,836 | |||||||||
| Increase/(decrease) | 94,143 | - | 1,718,814 | |||||||||
| (1) | Included in Receivables, net on the condensed consolidated balance sheets |
The amount of revenue recognized and included in the opening contract liability balance for the three month periods ended June 30, 2023 and 2022 was $1,116,566 and $1,526,324, respectively, and for the six month periods ended June 30, 2023 and 2022 was $2,236,898 and $2,590,428, respectively.
The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment.
Disaggregation of Revenue
The following table disaggregates revenue for the Company’s cemetery and mortuary contracts:
Schedule of Revenues of the Cemetery and Mortuary Contracts
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Major goods/service lines | ||||||||||||||||
| At-need | $ | 4,999,450 | $ | 5,598,109 | $ | 10,153,486 | $ | 11,464,987 | ||||||||
| Pre-need | 2,169,264 | 1,652,394 | 3,486,657 | 2,991,237 | ||||||||||||
| Net mortuary and cemetery sales | $ | 7,168,714 | $ | 7,250,503 | $ | 13,640,143 | $ | 14,456,224 | ||||||||
| Timing of Revenue Recognition | ||||||||||||||||
| Goods transferred at a point in time | $ | 4,528,969 | $ | 4,594,656 | $ | 8,558,635 | $ | 8,775,201 | ||||||||
| Services transferred at a point in time | 2,639,745 | 2,655,847 | 5,081,508 | 5,681,023 | ||||||||||||
| Net mortuary and cemetery sales | $ | 7,168,714 | $ | 7,250,503 | $ | 13,640,143 | $ | 14,456,224 | ||||||||
| 50 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
13) Revenues from Contracts with Customers (Continued)
The following table reconciles revenues from cemetery and mortuary contracts to Note 7 – Business Segment Information for the Cemetery/Mortuary Segment for the periods presented:
Schedule of Reconciliation of Revenues from Cemetery and Mortuary Contracts to Business Segment Information
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net mortuary and cemetery sales | $ | 7,168,714 | $ | 7,250,503 | $ | 13,640,143 | $ | 14,456,224 | ||||||||
| Gains (losses) on investments and other assets | 197,579 | (720,135 | ) | 251,510 | (974,660 | ) | ||||||||||
| Net investment income | 1,343,274 | 739,272 | 1,944,765 | 1,235,731 | ||||||||||||
| Other revenues | 102,941 | 21,378 | 174,486 | 36,917 | ||||||||||||
| Revenues from external customers | 8,812,508 | 7,291,018 | 16,010,904 | 14,754,212 | ||||||||||||
14) Receivables
Receivables consist of the following:
Schedule of Receivables
| As of June 30, 2023 | As of December 31, 2022 | |||||||
| Contracts with customers | $ | 5,814,731 | $ | 5,392,779 | ||||
| Receivables from sales agents | 2,139,563 | 2,209,185 | ||||||
| Other | 5,214,235 | 23,200,919 | ||||||
| Total receivables | 13,168,529 | 30,802,883 | ||||||
| Allowance for doubtful accounts | (1,492,934 | ) | (2,229,791 | ) | ||||
| Net receivables | $ | 11,675,595 | $ | 28,573,092 | ||||
The Company records an allowance for credit losses for its receivables in accordance with GAAP. See Note 2 regarding the adoption of ASU 2016-13.
The following table presents a roll forward of the allowance for credit losses:
Schedule of Allowance Credit Losses
| Allowance | ||||
| Beginning balance - January 1, 2023 | $ | 2,229,791 | ||
| Change in provision for credit losses | (651,308 | )(1) | ||
| Charge-offs | (85,549 | ) | ||
| Ending balance - June 30, 2023 | $ | 1,492,934 | ||
| Beginning balance - January 1, 2022 | $ | 1,800,725 | ||
| Change in provision for credit losses | 799,888 | (1) | ||
| Charge-offs | (370,822 | ) | ||
| Ending balance - December 31, 2022 | $ | 2,229,791 | ||
| (1) | Included in other expenses on the condensed consolidated statements of earnings |
| 51 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
15) Cemetery Perpetual Care Trust Investments and AnalysisObligation and Restricted Assets
Cemetery Perpetual Care Trust Investments and Obligation
State law requires the Company to pay into endowment care trusts a portion of the proceeds from the sale of certain cemetery property interment rights for cemeteries that have established an endowment care trust. These endowment care trusts are defined as variable interest entities pursuant to GAAP. Also, management has determined that the Company is the primary beneficiary of these trusts, as it absorbs both a majority of the losses and returns associated with the trusts. The Company has consolidated cemetery endowment care trust investments with a corresponding amount recorded as Cemetery Perpetual Care Obligation in the accompanying consolidated balance sheets.
The components of the cemetery perpetual care investments and obligation as of June 30, 2023, are as follows:
Schedule of Investments
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Losses | Estimated Fair Value | ||||||||||||||||
| June 30, 2023: | ||||||||||||||||||||
| Fixed maturity securities, available for sale, at estimated fair value: | ||||||||||||||||||||
| U.S. Treasury securities and obligations of U.S. Government agencies | $ | 258,053 | $ | 658 | $ | (2,402 | ) | $ | - | $ | 256,309 | |||||||||
| Obligations of states and political subdivisions | 95,348 | - | (1,182 | ) | - | 94,166 | ||||||||||||||
| Corporate securities including public utilities | 76,509 | - | (6,359 | ) | - | 70,150 | ||||||||||||||
| Total fixed maturity securities available for sale | $ | 429,910 | $ | 658 | $ | (9,943 | ) | $ | - | $ | 420,625 | |||||||||
| Equity securities at estimated fair value: | ||||||||||||||||||||
| Common stock: | ||||||||||||||||||||
| Industrial, miscellaneous and all other | $ | 3,379,217 | $ | 705,343 | $ | (189,253 | ) | $ | 3,895,307 | |||||||||||
| Total equity securities at estimated fair value | $ | 3,379,217 | $ | 705,343 | $ | (189,253 | ) | $ | 3,895,307 | |||||||||||
| Mortgage loans held for investment at amortized cost: | ||||||||||||||||||||
| Residential construction | $ | 2,272,969 | ||||||||||||||||||
| Less: Allowance for credit losses | $ | (1,453 | ) | |||||||||||||||||
| Total mortgage loans held for investment | $ | 2,271,516 | ||||||||||||||||||
| Real estate held for investment: Residential | $ | 1,172 | ||||||||||||||||||
| Cash and cash equivalents | $ | 1,077,601 | ||||||||||||||||||
| Total cemetery perpetual care trust investments | $ | 7,666,221 | ||||||||||||||||||
| Cemetery perpetual care obligation | $ | (5,207,198 | ) | |||||||||||||||||
| Trust investments in excess of trust obligations | $ | 2,459,023 | ||||||||||||||||||
| 52 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial ConditionStatements
June 30, 2023 (Unaudited)
15) Cemetery Perpetual Care Trust Investments and ResultsObligations and Restricted Assets (Continued)
The components of Operations.the cemetery perpetual care investments and obligation as of December 31, 2022, are 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 | $ | 89,004 | $ | 42 | $ | (38 | ) | $ | 89,008 | |||||||
| Obligations of states and political subdivisions | 174,201 | - | (8,478 | ) | 165,723 | |||||||||||
| Total fixed maturity securities available for sale | $ | 263,205 | $ | 42 | $ | (8,516 | ) | $ | 254,731 | |||||||
| Equity securities at estimated fair value: | ||||||||||||||||
| Common stock: | ||||||||||||||||
| Industrial, miscellaneous and all other | $ | 3,195,942 | $ | 584,383 | $ | (175,163 | ) | $ | 3,605,162 | |||||||
| Total equity securities at estimated fair value | $ | 3,195,942 | $ | 584,383 | $ | (175,163 | ) | $ | 3,605,162 | |||||||
| Mortgage loans held for investment at amortized cost: | ||||||||||||||||
Residential construction | $ | 1,506,517 | ||||||||||||||
| Real estate held for investment: Residential | $ | (16,178 | ) | |||||||||||||
| Cash and cash equivalents | $ | 1,925,978 | ||||||||||||||
| Total cemetery perpetual care trust investments | $ | 7,276,210 | ||||||||||||||
| Cemetery perpetual care obligation | $ | (5,099,542 | ) | |||||||||||||
| Trust investments in excess of trust obligations | $ | 2,176,668 | ||||||||||||||
Fixed Maturity Securities
The table below summarizes unrealized losses on fixed maturities securities that were carried at estimated fair value at June 30, 2023 and at December 31, 2022. The unrealized losses were primarily related to interest rate fluctuations and inflation. The tables set forth unrealized losses by duration with the fair value of the related fixed maturity securities:
Schedule of Fair Value of Fixed Maturity Securities
| Unrealized Losses for Less than Twelve Months | Fair Value | Unrealized Losses for More than Twelve Months | Fair Value | Total Unrealized Loss | Fair Value | |||||||||||||||||||
| At June 30, 2023 | ||||||||||||||||||||||||
| U.S. Treasury securities and obligations of U.S. Government agencies | $ | 2,402 | $ | 176,593 | $ | - | $ | - | $ | 2,402 | $ | 176,593 | ||||||||||||
| Obligations of states and political subdivisions | - | - | 1,182 | 94,166 | 1,182 | 94,166 | ||||||||||||||||||
| Corporate securities including public utilities | - | - | 6,359 | 70,150 | 6,359 | 70,150 | ||||||||||||||||||
| Total unrealized losses | $ | 2,402 | $ | 176,593 | $ | 7,541 | $ | 164,316 | $ | 9,943 | $ | 340,909 | ||||||||||||
| At December 31, 2022 | ||||||||||||||||||||||||
| U.S. Treasury securities and obligations of U.S. Government agencies | $ | 38 | $ | 59,392 | $ | - | $ | - | $ | 38 | $ | 59,392 | ||||||||||||
| Obligations of states and political subdivisions | 1,845 | 94,612 | 6,633 | 71,112 | 8,478 | 165,724 | ||||||||||||||||||
| Total unrealized losses | $ | 1,883 | $ | 154,004 | $ | 6,633 | $ | 71,112 | $ | 8,516 | $ | 225,116 | ||||||||||||
| 53 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
15) Cemetery Perpetual Care Trust Investments and Obligations and Restricted Assets (Continued)
Relevant holdings were comprised of 5 securities with fair value of 97.2% of amortized cost at June 30, 2023. Relevant holdings were comprised of 5 securities with fair value of 96.4% of amortized cost at December 31, 2022. No credit losses have been recognized for the three and six month periods ended June 30, 2023 and 2022, since the increase in unrealized losses is primarily a result of the recent increases in interest and inflation rates.
The table below presents the amortized cost and estimated fair value of fixed maturity securities available for sale at June 30, 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.
Schedule of Investments Classified by Contractual Maturity Date
| Amortized | Estimated Fair | |||||||
| Cost | Value | |||||||
| Due in 1 year | $ | 79,058 | $ | 79,716 | ||||
| Due in 2-5 years | 255,504 | 246,743 | ||||||
| Due in 5-10 years | 41,086 | 40,513 | ||||||
| Due in more than 10 years | 54,262 | 53,653 | ||||||
| Total | $ | 429,910 | $ | 420,625 | ||||
Restricted Assets
The Company has also established certain restricted assets to provide for future merchandise and service obligations incurred in connection with its pre-need sales for its cemetery and mortuary segment.
Restricted cash also represents escrows held for borrowers and investors under servicing and appraisal agreements relating to mortgage loans, funds held by warehouse banks in accordance with loan purchase agreements and funds held in escrow for certain real estate construction development projects. Additionally, the Company elected to maintain its medical benefit fund without change from the prior year and has included this amount as a component of restricted cash. These restricted cash items are for the Company’s life insurance and mortgage segments.
| 54 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
15) Cemetery Perpetual Care Trust Investments and Obligations and Restricted Assets (Continued)
Restricted assets as of June 30, 2023, are summarized as follows:
Schedule of Restricted Assets in Cemetery and Mortuary Endowment Care and Pre need Merchandise Funds
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Losses | Estimated Fair Value | ||||||||||||||||
| June 30, 2023: | ||||||||||||||||||||
| Fixed maturity securities, available for sale, at estimated fair value: | ||||||||||||||||||||
| U.S. Treasury securities and obligations of U.S. Government agencies | $ | 389,640 | $ | - | $ | (4,212 | ) | $ | - | $ | 385,428 | |||||||||
| Obligations of states and political subdivisions | 654,307 | 291 | (9,570 | ) | - | 645,028 | ||||||||||||||
| Corporate securities including public utilities | 526,586 | 38 | (6,112 | ) | - | 520,512 | ||||||||||||||
| Total fixed maturity securities available for sale | $ | 1,570,533 | $ | 329 | $ | (19,894 | ) | $ | - | $ | 1,550,968 | |||||||||
| Equity securities at estimated fair value: | ||||||||||||||||||||
| Common stock: | ||||||||||||||||||||
| Industrial, miscellaneous and all other | $ | 5,688,802 | $ | 858,975 | $ | (318,583 | ) | $ | 6,229,194 | |||||||||||
| Total equity securities at estimated fair value | $ | 5,688,802 | $ | 858,975 | $ | (318,583 | ) | $ | 6,229,194 | |||||||||||
| Mortgage loans held for investment at amortized cost: | ||||||||||||||||||||
| Residential construction | $ | 1,379,943 | ||||||||||||||||||
| Less: Allowance for credit losses | $ | (2,760 | ) | |||||||||||||||||
| Total mortgage loans held for investment | $ | 1,377,183 | ||||||||||||||||||
| Cash and cash equivalents (1) | $ | 10,276,918 | ||||||||||||||||||
| Total restricted assets | $ | 19,434,263 | ||||||||||||||||||
| (1) | Including cash and cash equivalents of $8,006,323 or the life insurance and mortgage segments. |
Restricted assets 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: | ||||||||||||||||
| Obligations of states and political subdivisions | $ | 1,033,047 | $ | 866 | $ | (15,360 | ) | $ | 1,018,553 | |||||||
| Corporate securities including public utilities | 201,771 | - | (3,016 | ) | 198,755 | |||||||||||
| Total fixed maturity securities available for sale | $ | 1,234,818 | $ | 866 | $ | (18,376 | ) | $ | 1,217,308 | |||||||
| Equity securities at estimated fair value: | ||||||||||||||||
| Common stock: | ||||||||||||||||
| Industrial, miscellaneous and all other | $ | 4,955,360 | $ | 703,049 | $ | (310,165 | ) | $ | 5,348,244 | |||||||
| Total equity securities at estimated fair value | $ | 4,955,360 | $ | 703,049 | $ | (310,165 | ) | $ | 5,348,244 | |||||||
| Mortgage loans held for investment at amortized cost: | ||||||||||||||||
| Residential construction | $ | 1,731,469 | ||||||||||||||
| Cash and cash equivalents (1) | $ | 10,638,034 | ||||||||||||||
| Total restricted assets | $ | 18,935,055 | ||||||||||||||
| (1) | Including cash and cash equivalents of $8,527,620 for the life insurance and mortgage segments. |
| 55 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
15) Cemetery Perpetual Care Trust Investments and Obligations and Restricted Assets (Continued)
Fixed Maturity Securities
The table below summarizes unrealized losses on fixed maturities securities that were carried at estimated fair value at June 30, 2023 and at December 31, 2022. The unrealized losses were primarily related to interest rate fluctuations and inflation. The tables set forth unrealized losses by duration with the fair value of the related fixed maturity securities.
Schedule of Fair Value of Fixed Maturity Securities
| Unrealized Losses for Less than Twelve Months | Fair Value | Unrealized Losses for More than Twelve Months | Fair Value | Total Unrealized Loss | Fair Value | |||||||||||||||||||
| At June 30, 2023 | ||||||||||||||||||||||||
| U.S. Treasury securities and obligations of U.S. Government agencies | $ | 4,212 | $ | 385,429 | $ | - | $ | - | $ | 4,212 | $ | 385,429 | ||||||||||||
| Obligations of states and political subdivisions | 1,266 | 150,501 | 8,304 | 392,384 | 9,570 | 542,885 | ||||||||||||||||||
| Corporate securities including public utilities | 1,787 | 216,540 | 4,325 | 228,121 | 6,112 | 444,661 | ||||||||||||||||||
| Total unrealized losses | $ | 7,265 | $ | 752,470 | $ | 12,629 | $ | 620,505 | $ | 19,894 | $ | 1,372,975 | ||||||||||||
| At December 31, 2022 | ||||||||||||||||||||||||
| Obligations of states and political subdivisions | $ | 11,891 | $ | 760,255 | $ | 3,469 | $ | 58,072 | $ | 15,360 | $ | 818,327 | ||||||||||||
| Corporate securities including public utilities | 3,016 | 198,755 | - | - | 3,016 | 198,755 | ||||||||||||||||||
| Total unrealized losses | $ | 14,907 | $ | 959,010 | $ | 3,469 | $ | 58,072 | $ | 18,376 | $ | 1,017,082 | ||||||||||||
Relevant holdings were comprised of 18 securities with fair value of 98.6% of amortized cost at June 30, 2023. Relevant holdings were comprised of 17 securities with fair value of 98.2% of amortized cost at December 31, 2022. No credit losses have been recognized for the three and six month periods ended June 30, 2023 and 2022, since the increase in unrealized losses is primarily a result of the recent increase in interest and inflation rates.
The table below presents the amortized cost and estimated fair value of fixed maturity securities available for sale at June 30, 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:
Schedule of Investments Classified by Contractual Maturity Date
| Amortized | Estimated Fair | |||||||
| Cost | Value | |||||||
| Due in 1 year | $ | - | $ | - | ||||
| Due in 2-5 years | 705,807 | 694,536 | ||||||
| Due in 5-10 years | 111,301 | 110,683 | ||||||
| Due in more than 10 years | 753,425 | 745,749 | ||||||
| Total | $ | 1,570,533 | $ | 1,550,968 | ||||
See Notes 3 and 8 for additional information regarding restricted assets and cemetery perpetual care trust investments.
| 56 |
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
16) Accumulated Other Comprehensive Income (loss)
The Company'sfollowing summarizes the changes in accumulated other comprehensive income (loss):
Schedule of Changes in Accumulated Other Comprehensive Income
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Unrealized gains (losses) on fixed maturity securities available for sale | $ | (4,913,327 | ) | $ | (13,114,816 | ) | $ | 523,602 | $ | (28,486,911 | ) | |||||
| Amounts reclassified into net earnings | (79,850 | ) | 119,684 | (298,750 | ) | 164,877 | ||||||||||
| Net unrealized gains (losses) before taxes | (4,993,177 | ) | (12,995,132 | ) | 224,852 | (28,322,034 | ) | |||||||||
| Tax (expense) benefit | 1,048,567 | 2,728,977 | (47,219 | ) | 5,947,627 | |||||||||||
| Net | (3,944,610 | ) | (10,266,155 | ) | 177,633 | (22,374,407 | ) | |||||||||
| Unrealized losses on restricted assets (1) | (6,189 | ) | (43,169 | ) | (2,056 | ) | (115,118 | ) | ||||||||
| Tax benefit | 1,542 | 10,754 | 512 | 28,676 | ||||||||||||
| Net | (4,647 | ) | (32,415 | ) | (1,544 | ) | (86,442 | ) | ||||||||
| Unrealized losses on cemetery perpetual care trust investments (1) | (3,738 | ) | (15,868 | ) | (812 | ) | (53,225 | ) | ||||||||
| Tax benefit | 943 | 3,953 | 229 | 13,259 | ||||||||||||
| Net | (2,795 | ) | (11,915 | ) | (583 | ) | (39,966 | ) | ||||||||
| Other comprehensive income (loss) changes | $ | (3,952,052 | ) | $ | (10,310,485 | ) | $ | 175,506 | $ | (22,500,815 | ) | |||||
| (1) | Fixed maturity securities available for sale |
The following is the accumulated balances of other comprehensive income (loss) as of June 30, 2023:
Schedule of Accumulated Balances of Other Comprehensive Income
| Beginning Balance December 31, 2022 | Change for the period | Ending Balance June 30, 2023 | ||||||||||
| Unrealized gains (losses) on fixed maturity securities available for sale | $ | (13,050,767 | ) | $ | 177,633 | $ | (12,873,134 | ) | ||||
| Unrealized losses on restricted assets (1) | (13,148 | ) | (1,544 | ) | (14,692 | ) | ||||||
| Unrealized losses on cemetery perpetual care trust investments (1) | (6,362 | ) | (583 | ) | (6,945 | ) | ||||||
| Other comprehensive income (loss) | $ | (13,070,277 | ) | $ | 175,506 | $ | (12,894,771 | ) | ||||
| (1) | Fixed maturity securities available for sale |
The following is the accumulated balances of other comprehensive income (loss) as of December 31, 2022:
| Beginning Balance December 31, 2021 | Change for the period | Ending Balance December 31, 2022 | ||||||||||
| Unrealized gains (losses) on fixed maturity securities available for sale | $ | 18,021,265 | $ | (31,072,032 | ) | $ | (13,050,767 | ) | ||||
| Unrealized gains (losses) on restricted assets (1) | 40,192 | (53,340 | ) | (13,148 | ) | |||||||
| Unrealized gains (losses) on cemetery perpetual care trust investments (1) | 8,991 | (15,353 | ) | (6,362 | ) | |||||||
| Other comprehensive income (loss) | $ | 18,070,448 | $ | (31,140,725 | ) | $ | (13,070,277 | ) | ||||
| (1) | Fixed maturity securities available for sale |
| 57 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Overview
The Company’s operations over the last several years generally reflect three trends or eventsstrategies which the Company expects to continue: (i) increased attention to "niche"“niche” insurance products, such as the Company'sCompany’s funeral plan policies and traditional whole life products; (ii) increased emphasis on the cemetery and mortuary business; and (iii) capitalizing on relatively low interest ratesan improving housing market by originating mortgage loans.
Insurance Operations
The Company'sCompany’s life insurance business includes funeral plans and interest-sensitive life insurance, as well as other traditional life, accident and health insurance products. The Company places specific marketing emphasis on funeral plans through pre-need planning.
A funeral plan is a small face value life insurance policy that generally has face coverage of up to $25,000.$30,000. The Company believes that funeral plans represent a marketing niche that has lower competitionis less competitive because most insurance companies do not offer similar coverage. The purpose of the funeral plan policy is to pay the costs and expenses incurred at the time of a person'sperson’s death. On a per thousand-dollar cost of insurance basis, these policies can be more expensive to the policyholder than many types of non-burial insurance due to their low face amount, requiring the fixed cost of the policy administration to be distributed over a smaller policy size, and the simplified underwriting practices that result in higher mortality costs.
The following table shows the condensed financial results of the insurance operations for three and nine monthssix month periods ended SeptemberJune 30, 20172023, and 2016.2022. See Note 7 to the condensed consolidated financial statements.
Three months ended September 30 (in thousands of dollars) | Nine months ended September 30 (in thousands of dollars) | |||||||||||||||||||||||
| 2017 | 2016 | % Increase (Decrease) | 2017 | 2016 | % Increase (Decrease) | |||||||||||||||||||
| Revenues from external customers | ||||||||||||||||||||||||
| Insurance premiums | $ | 17,490 | $ | 17,157 | 2 | % | $ | 52,345 | $ | 47,508 | 10 | % | ||||||||||||
| Net investment income | 8,110 | 7,828 | 4 | % | 24,831 | 22,768 | 9 | % | ||||||||||||||||
| Other | (370 | ) | (13 | ) | 2746 | % | (64 | ) | 341 | (119 | %) | |||||||||||||
| Total | $ | 25,230 | $ | 24,972 | 1 | % | $ | 77,112 | $ | 70,617 | 9 | % | ||||||||||||
| Intersegment revenue | $ | 3,334 | $ | 3,319 | 0 | % | $ | 9,300 | $ | 9,781 | (5 | %) | ||||||||||||
| Earnings before income taxes | $ | 523 | $ | 2,139 | (76 | %) | $ | 4,825 | $ | 5,785 | (17 | %) | ||||||||||||
| Three months ended June 30, (in thousands of dollars) | Six months ended June 30, (in thousands of dollars) | |||||||||||||||||||||||
| 2023 | 2022 | % Increase (Decrease) | 2023 | 2022 | % Increase (Decrease) | |||||||||||||||||||
| Revenues from external customers | ||||||||||||||||||||||||
| Insurance premiums | $ | 28,813 | $ | 25,912 | 11 | % | $ | 56,781 | $ | 52,254 | 9 | % | ||||||||||||
| Mortgage fee income | 22 | - | 100 | % | $ | 66 | $ | - | 100 | % | ||||||||||||||
| Net investment income | 18,420 | 15,126 | 22 | % | 35,175 | 29,707 | 18 | % | ||||||||||||||||
| Gains on investments and other assets | 458 | (266 | ) | 272 | % | 515 | (159 | ) | 424 | % | ||||||||||||||
| Other | 358 | 394 | (9 | )% | 949 | 866 | 10 | % | ||||||||||||||||
| Total | $ | 48,071 | $ | 41,166 | 17 | % | $ | 93,486 | $ | 82,668 | 13 | % | ||||||||||||
| Intersegment revenue | $ | 2,517 | $ | 2,076 | 21 | % | $ | 4,028 | $ | 3,772 | 7 | % | ||||||||||||
| Earnings before income taxes | $ | 9,158 | $ | 3,932 | 133 | % | $ | 12,842 | $ | 4,748 | 170 | % | ||||||||||||
Intersegment revenues are primarily interest income from the warehouse line for loans held for sale provided to SecurityNational Mortgage Company ("(“SecurityNational Mortgage"Mortgage”). Profitability infor the three and nine monthssix month period ended SeptemberJune 30, 2017 has decreased2023 increased due to increases(a) a $5,468,000 increase in net investment income, (b) a $4,527,000 increase in insurance premiums and other considerations, (c) a $1,494,000 decrease in selling, general and administrative expenses, (d) a $674,000 increase in gains on investments and other assets, (e) a $256,000 increase in intersegment revenue, (f) a $83,000 increase in other revenues, and (g) a $66,000 increase in mortgage fee income, which were partially offset by (i) a $3,183,000 increase in future policy benefits, (ii) a $732,000 increase in amortization of deferred policy acquisition costs, (iii) a $417,000 increase in interest expense, (iv) a 125,000 increase in intersegment interest expense and other expenses, and increases(v) a $16,000 increase in death, surrenders and other than temporary impairments.policy benefits.
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Cemetery and Mortuary Operations
The Company sells mortuary services and products through its eightnine mortuaries in Utah.Utah and three mortuaries in New Mexico. The Company also sells cemetery products and services through its five cemeteries in Utah, and one cemetery in San Diego County, California.California, and one cemetery in Santa Fe, New Mexico. At-need product sales and services are recognized as revenue when the services are performed or when the products are delivered. Pre-need cemetery product sales are deferred until the merchandise is delivered and services performed. Recognition of revenue for cemetery land sales occurs when 10% of the purchase price is received.
The following table shows the condensed financial results of the cemetery and mortuary operations for the three and nine monthssix month periods ended SeptemberJune 30, 20172023, and 2016.2022. See Note 7 to the condensed consolidated financial statements.
Three months ended September 30 (in thousands of dollars) | Nine months ended September 30 (in thousands of dollars) | |||||||||||||||||||||||
| 2017 | 2016 | % Increase (Decrease) | 2017 | 2016 | % Increase (Decrease) | |||||||||||||||||||
| Revenues from external customers | ||||||||||||||||||||||||
| Mortuary revenues | $ | 1,161 | $ | 1,059 | 10 | % | $ | 3,749 | $ | 3,711 | 1 | % | ||||||||||||
| Cemetery revenues | 1,697 | 1,818 | (7 | %) | 6,041 | 6,186 | (2 | %) | ||||||||||||||||
| Other | 130 | 24 | 442 | % | 117 | 148 | (21 | %) | ||||||||||||||||
| Total | $ | 2,988 | $ | 2,901 | 3 | % | $ | 9,907 | $ | 10,045 | (1 | %) | ||||||||||||
| Earnings before income taxes | $ | 237 | $ | 55 | 331 | % | $ | 1,332 | $ | 1,284 | 4 | % | ||||||||||||
| Three months ended June 30, (in thousands of dollars) | Six months ended June 30, (in thousands of dollars) | |||||||||||||||||||||||
| 2023 | 2022 | % Increase (Decrease) | 2023 | 2022 | % Increase (Decrease) | |||||||||||||||||||
| Revenues from external customers | ||||||||||||||||||||||||
| Mortuary revenues | $ | 3,125 | $ | 3,106 | 1 | % | $ | 6,400 | $ | 6,872 | (7 | )% | ||||||||||||
| Cemetery revenues | 4,044 | 4,144 | (2 | )% | 7,240 | 7,584 | (5 | )% | ||||||||||||||||
| Net investment income | 1,343 | 739 | 82 | % | 1,945 | 1,236 | 57 | % | ||||||||||||||||
| Gains (losses) on investments and other assets | 198 | (720 | ) | 128 | % | 252 | (975 | ) | 126 | % | ||||||||||||||
| Other | 103 | 21 | 390 | % | 174 | 36 | 383 | % | ||||||||||||||||
| Total | $ | 8,813 | $ | 7,290 | 21 | % | $ | 16,011 | $ | 14,753 | 9 | % | ||||||||||||
| Earnings before income taxes | $ | 2,828 | $ | 1,486 | 90 | % | $ | 4,613 | $ | 3,506 | 32 | % | ||||||||||||
Profitability in the six month period ended June 30, 2023 increased due to (a) a $1,227,000 increase in gains on investments and other assets, (b) a $709,000 increase in net investment income, (c) a $495,000 increase in cemetery pre-need sales, and (d) a $138,000 increase in other revenue is rental income from residentialrevenues, (e) a $46,000 decrease in amortization of deferred policy acquisition costs, and commercial properties purchased from Security National Life. Memorial Estates purchased these properties from financing provided by Security National Life. The rental income is(f) a $28,000 decrease in intersegment interest expense and other expenses, which were partially offset by property insurance, taxes(i) an $839,000 decrease in mortuary at-need sales, (ii) a $473,000 decrease in cemetery at-need sales, (iii) a $116,000 increase in selling, general and maintenance expenses. Memorial Estates has recorded depreciation on these propertiesadministrative expenses, (iv) a $99,000 decrease in intersegment revenues, and a (v) 9,000 increase in cost of $157,000goods and $176,000 for the three months ended September 30, 2017 and 2016, respectively, and $490,000 and $543,000 for the nine months ended September 30, 2017 and 2016, respectively.
Mortgage Operations
The Company'sCompany’s wholly owned subsidiaries,subsidiary, SecurityNational Mortgage, and EverLEND Mortgage Company (formerly known as Green Street Mortgage Services, Inc.), areis a mortgage lenderslender incorporated under the laws of the State of Utah and approved and regulated by the Federal Housing Administration (FHA), a department of the U.S. Department of Housing and Urban Development (HUD), which originate mortgage loans that qualify for government insurance in the event of default by the borrower, in addition to various conventional mortgage loan products. SecurityNational Mortgage originates and EverLEND Mortgage originate and refinancerefinances mortgage loans on a retail basis. Mortgage loans originated or refinanced by the Company's mortgage subsidiariesSecurityNational Mortgage are funded through loan purchase agreements with Security National Life, Kilpatrick Life and unaffiliated financial institutions.
SecurityNational Mortgage receive fees from borrowers that are involved in mortgage loan originations and refinancings, and secondary fees earned from third party investors that purchase the mortgage loans originated by the mortgage subsidiaries.loans. Mortgage loans originated by the mortgage subsidiaries are generally sold with mortgage servicing rights (“MSRs”) released to third-party investors or retained by SecurityNational Mortgage. SecurityNational Mortgage currently retains the mortgage servicing rights on approximately 30%5% of its loan origination volume. These mortgage loans are serviced by either SecurityNational Mortgage or an approved third-party sub-servicer. On October 31, 2022, the Company sold certain of its MSRs. The MSRs related to mortgage loans previously originated by the Company in aggregate unpaid principal amount of approximately $7.02 billion. As a result of the sale, the book value of the Company’s MSRs decreased by $51,185,906.
Mortgage rates have followed the US Treasury yields up in response to the higher than expected inflation and the expectation that the Federal Reserve will continue to raise rates in the near term. As expected, the rapid increase in mortgage rates has resulted in a decrease in loan originations classified as ‘refinance.’ Higher mortgage rates have also had a negative effect on loan originations classified as ‘purchases,’ although not as significant as those in the refinance classification.
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For the nine monthssix month periods ended SeptemberJune 30, 20172023 and 2016,2022, SecurityNational Mortgage originated 9,7733,738 loans ($1,913,207,0001,139,735,000 total volume) and 11,7206,419 loans ($2,252,108,0002,049,959,000 total volume), respectively. For the nine months ended September 30, 2017 and 2016, EverLEND Mortgage originated 29 loans ($6,715,000 total volume) and one loan ($256,000 total volume), respectively.
The following table shows the condensed financial results of the mortgage operations for the three and nine monthssix month periods ended SeptemberJune 30, 20172023, and 2016.2022. See Note 7 to the condensed consolidated financial statements.
Three months ended September 30 (in thousands of dollars) | Nine months ended September 30 (in thousands of dollars) | |||||||||||||||||||||||
| 2017 | 2016 | % Increase (Decrease) | 2017 | 2016 | % Increase (Decrease) | |||||||||||||||||||
| Revenues from external customers | ||||||||||||||||||||||||
| Income from loan originations | $ | 15,204 | $ | 13,728 | 11 | % | $ | 41,788 | $ | 43,163 | (3 | %) | ||||||||||||
| Secondary gains from investors | 28,550 | 41,347 | (31 | %) | 87,166 | 108,667 | (20 | %) | ||||||||||||||||
| Total | $ | 43,754 | $ | 55,075 | (21 | %) | $ | 128,954 | $ | 151,830 | (15 | %) | ||||||||||||
| Earnings before income taxes | $ | 379 | $ | 4,379 | (91 | %) | $ | 1,874 | $ | 11,561 | (84 | %) | ||||||||||||
| Three months ended June 30, (in thousands of dollars) | Six months ended June 30, (in thousands of dollars) | |||||||||||||||||||||||
| 2023 | 2022 | % Increase (Decrease) | 2023 | 2022 | % Increase (Decrease) | |||||||||||||||||||
| Revenues from external customers | ||||||||||||||||||||||||
| Secondary gains from investors | $ | 19,276 | $ | 37,161 | (48 | )% | $ | 37,193 | $ | 76,764 | (52 | )% | ||||||||||||
| Income from loan originations | 8,334 | 10,581 | (21 | )% | 14,889 | 19,393 | (23 | )% | ||||||||||||||||
| Change in fair value of loans held for sale | (1,402 | ) | (3,464 | ) | (60 | )% | (607 | ) | (6,210 | ) | (90 | )% | ||||||||||||
| Change in fair value of loan commitments | (151 | ) | (2,247 | ) | (93 | )% | 527 | 428 | 23 | % | ||||||||||||||
| Net investment income | 409 | 106 | 286 | % | 827 | 223 | 271 | % | ||||||||||||||||
| Gains on investments and other assets | 161 | 72 | 124 | % | 161 | 391 | (59 | )% | ||||||||||||||||
| Other | 336 | 4,901 | (93 | )% | 860 | 9,581 | (91 | )% | ||||||||||||||||
| Total | $ | 26,963 | $ | 47,110 | (43 | )% | $ | 53,850 | $ | 100,570 | (46 | )% | ||||||||||||
| Earnings before income taxes | $ | (3,837 | ) | $ | (688 | ) | (458 | )% | $ | (7,720 | ) | $ | 919 | (940 | )% | |||||||||
Included in other revenues is service fee income. Profitability for the six month period ended June 30, 2023 decreased due to (a) a $39,571,000 decrease in earnings for the three and nine months ended September 30, 2017 was due tosecondary gains from investors, (b) a reduction$8,721,000 decrease in mortgageother revenues, (c) a $4,504,000 decrease in income from loan originations, (d) a $274,000 increase in rent and refinancings,rent related expenses, (e) a $230,000 decrease in gains on investments and subsequent sales intoother assets, and (f) a $167,000 increase in intersegment interest expense and other expenses, which were partially offset by (i) a $18,025,000 decrease in commissions, (ii) a $9,849,000 decrease in personnel expenses, (iii) a $7,503,000 decrease in other expenses, (iv) a $5,603,000 increase in the secondary market.
Consolidated Results of Operations
Three month period ended June 30, 2017 and December 31, 2016, the balances were $2,171,000 and $628,000, respectively.
Total revenues decreased by $10,977,000,$11,721,000, or 13.2%12.3%, to $71,972,000$83,846,000 for the three monthsmonth period ended SeptemberJune 30, 2017,2023, from $82,949,000$95,567,000 for the comparable period in 2016.2022. Contributing to this decrease in total revenues was a $11,598,000$15,952,000 decrease in mortgage fee income, a $280,000$4,520,000 decrease in realizedother revenues, and an $82,000 decrease in net mortuary and cemetery sales, which were partially offset by a $4,201,000 increase in net investment income, a $1,731,000 increase in gains on investments and other assets, a $133,000 increase in other than temporary impairments on investments, and a $59,000 decrease in net mortuary and cemetery sales. This decrease in total revenues was partially offset by a $490,000 increase in other revenues, a $332,000$2,901,000 increase in insurance premiums and other considerations,considerations.
Mortgage fee income decreased by $15,952,000, or 38.0%, to $26,079,000, for the three month period ended June 30, 2023, from $42,031,000 for the comparable period in 2022. This decrease was primarily due to a $17,863,000 decrease in secondary gains from mortgage loans sold to third-party investors into the secondary market due to the decline in origination activity because of increasing interest rates, and a $271,000$2,247,000 decrease in loan fees and interest income net of a decrease in the provision for loan loss reserve, which were partially offset by a $2,096,000 increase in net investment income.
Insurance premiums and other considerations increased by $332,000,$2,901,000, or 1.9%11.2%, to $17,489,000$28,813,000 for the three monthsmonth period ended SeptemberJune 30, 2017,2023, from $17,157,000$25,912,000 for the comparable period in 2016.2022. This increase was primarily due to an increase of $2,829,000 in renewalfirst year premiums and an increase of $72,000 in first year premiums as a result of increased insurance sales.renewal premiums.
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Net investment income increased by $271,000,$4,201,000, or 3.4%26.3%, to $8,361,000$20,172,000 for the three monthsmonth period ended SeptemberJune 30, 2017,2023, from $8,090,000$15,971,000 for the comparable period in 2016.2022. This increase was primarily attributable to a $282,000$1,332,000 increase in fixed maturity securities income, an $885,000 increase in real estate income, a $282,000$672,000 increase in interest on cash and cash equivalents, a $585,000 decrease in investment expenses, a $368,000 increase in insurance assignment income, a $142,000$223,000 increase in mortgage loan interest, an $89,000a $115,000 increase in short-termother investment income, an $82,000 increase in rental income from real estate owned, and a $16,000$21,000 increase in income from other investments. This increase was partially offset by a $600,000 increase in investment expenses, a $12,000 decrease in equity securities income, and a $10,000 decrease in policy loan income.
Net mortuary and cemetery sales decreased by $59,000,$82,000, or 2.1%1.1%, to $2,717,000$7,169,000 for the three monthsmonth period ended SeptemberJune 30, 2017,2023, from $2,776,000$7,250,000 for the comparable period in 2016.2022. This decrease was primarily due to a $617,000 decrease in cemetery at-need sales, ofwhich were partially offset by a $517,000 increase in cemetery plots, markerspre-need sales and vaults.
Gains on investments and other assets decreasedincreased by $280,000,$1,731,000, or 716.1%189.3%, to $319,000$817,000 in realized lossesnet gains for the three monthsmonth period ended SeptemberJune 30, 2017,2023, from $39,000$914,000 in realizednet losses for the comparable period in 2016.2022. This decreaseincrease in realized gains on investments and other assets was primarily due to a $2,597,000 increase in gains on equity securities mostly attributable to increases in the fair value of these equity, which were partially offset by securities a $602,000 increase$558,000 decrease in realized lossesgains on other assets, a $199,000 decrease in gains on fixed maturity securities, and a $6,000 increase$109,000 decrease in realized losses on securities available for sale. This increase was partially offset by a $328,000 increase in realized gains on other assets due to the sale of various residential real estate properties.
Other revenues decreased by $11,598,000,$4,520,000, or 21.8%85.0%, to $41,598,000,$797,000 for the three monthsmonth period ended SeptemberJune 30, 2017,2023, from $53,196,000$5,316,000 for the comparable period in 2016.2022. This decrease was primarily dueattributable to a declinedecrease in mortgage loan originations that was indicativeservicing fee revenue as a result of the mortgage loan industry as a whole. The decline in mortgage loan originations was primarily caused by a shortagesale of available new housing for mortgage loan origination transactions, and the decline in mortgage loan refinancings was primarily caused by recent increases in interest rates on mortgage loans. Additionally, the decline in mortgage originations and refinancings by SecurityNational Mortgage has resulted in a decline in fees earned from third-party investors that purchase mortgage loans from SecurityNational Mortgage.
Total benefits and expenses were $70,834,000,$75,697,000, or 98.4%90.3% of total revenues, for the three monthsmonth period ended SeptemberJune 30, 2017,2023, as compared to $76,375,000,$90,837,000, or 92.1%95.1% of total revenues, for the comparable period in 2016.
Death benefits, surrenders and other policy benefits, and future policy benefits increased by an aggregate of $1,791,000$2,313,000 or 12.6%10.2%, to $16,055,000$24,906,000 for the three monthsmonth period ended SeptemberJune 30, 2017,2023, from $14,264,000$22,593,000 for the comparable period in 2016.2022. This increase was primarily the result of a $1,522,000$1,899,000 increase in future policy benefits and a $616,000 increase in death benefits, and a $352,000 increase in future policy benefits. This increase waswhich were partially offset by a $83,000$203,000 decrease in surrender and other policy benefits.
Amortization of deferred policy and pre-need acquisition costs and value of business acquired decreasedincreased by $62,000,$198,000, or 2.7%4.9%, to $2,239,000$4,251,000 for the three monthsmonth period ended SeptemberJune 30, 2017,2023, from $2,301,000$4,053,000 for the comparable period in 2016.2022. This decreaseincrease was primarily due to improved persistencyan increase in the traditional life business.
Selling, general and administrative expenses decreased by $7,417,000,$17,174,000, or 12.8%28.1%, to $50,431,000$43,873,000 for the three monthsmonth period ended SeptemberJune 30, 2017,2023, from $57,848,000$61,047,000 for the comparable period in 2016.2022. This decrease was primarily the result of a $5,396,000$7,661,000 decrease in commissions, resulting from a $4,997,000 decrease in sales (primarily mortgage fee income),personnel expenses, a $1,040,000$3,771,000 decrease in other expenses, a $600,000 decrease in the provision for loan loss reserve, a $555,000 decrease in personnel expenses, a $394,000$630,000 decrease in advertising andexpense, a $11,000$203,000 decrease in depreciation on property and equipment. This decrease was partially offset by a $444,000 increase in costs related to funding mortgage loans, and a $135,000$41,000 decrease in depreciation on property and equipment, which were partially offset by a $129,000 increase in rent and rent related expenses.
Interest expense increaseddecreased by $180,000,$485,000, or 12.2%25.5%, to $1,656,000$1,415,000 for the three monthsmonth period ended SeptemberJune 30, 2017,2023, from $1,476,000$1,900,000 for the comparable period in 2016.2022. This increasedecrease was primarily due to an increasea decrease of $776,000 in interest expense on mortgage warehouse lines andfor loans held for sale, which was partially offset by an increase of $291,000 in interest expense on bank loans for real estate held for investment.
Six month period ended SeptemberJune 30, 2017 and 2016 amounted to gains of $1,191,000 and $4,321,000, respectively. This $3,130,000 decrease in comprehensive income was primarily the result of a $3,086,000 decrease in net income and a $44,000 decrease in unrealized gains in securities available for sale.
Total revenues decreased by $16,519,000,$34,646,000, or 7.1%17.5%, to $215,973,000$163,347,000 for the nine monthssix month period ended SeptemberJune 30, 2017,2023, from $232,492,000$197,993,000 for the comparable period in 2016.2022. Contributing to this decrease in total revenues was a $24,881,000$38,308,000 decrease in mortgage fee income, a $348,000 increase$8,500,000 decrease in other than temporary impairments on investments,revenues, and a $185,000an $816,000 decrease in net mortuary and cemetery sales. This decrease in total revenues wassales, which were partially offset by $4,837,000a $6,781,000 increase in net investment income, a $4,527,000 increase in insurance premiums and other considerations, and a $2,075,000$1,670,000 increase in net investment income, a $1,449,000 increase in other revenues, and a $534,000 increase in realized gains on investments and other assets.
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Mortgage fee income decreased by $38,308,000, or 42.4%, to $52,068,000, for the six month period ended June 30, 2023, from $90,375,000 for the comparable period in 2022. This decrease was primarily due to a $39,504,000 decrease in secondary gains from mortgage loans sold to third-party investors into the secondary market due to the decline in origination activity because of increasing interest rates and a $4,505,000 decrease in loan fees and interest income net of a decrease in the provision for loan loss reserve, which were partially offset by a $5,603,000 increase in the fair value of loans held for sale and a $98,000 increase in the fair value of loan commitments.
Insurance premiums and other considerations increased by $4,837,000,$4,527,000, or 10.2%8.7%, to $52,345,000$56,781,000 for the nine monthssix month period ended SeptemberJune 30, 2017,2023, from $47,508,000$52,254,000 for the comparable period in 2016.2022. This increase was primarily due to an increase of $4,018,000 in renewalfirst year premiums and an increase of $509,000 in first year premiums as a result of increased insurance sales.
Net investment income increased by $2,074,000,$6,781,000, or 8.8%21.8%, to $25,559,000$37,947,000 for the nine monthssix month period ended SeptemberJune 30, 2017,2023, from $23,484,000$31,165,000 for the comparable period in 2016.2022. This increase was primarily attributable to a $1,028,000 increase in insurance assignment income, a $1,002,000$2,709,000 increase in fixed maturity securities income, a $565,000$1,384,000 increase in interest on cash and cash equivalents, a $1,210,000 increase in real estate income, an $883,000 decrease in investment expenses, a $750,000 increase in mortgage loan interest, a $378,000 increase in rental income from real estate owned, a $246,000 increase in short-term investment income, a $63,000 increase in policy loan income, and a $22,000$173,000 increase in income from other investments. Thisinvestments, and a $39,000 increase wasin equity securities income, which were partially offset by a $1,230,000 increase$261,000 decrease in investment expenses.
Net mortuary and cemetery sales decreased by $185,000,$816,000, or 1.9%5.6%, to $9,357,000$13,640,000 for the nine monthssix month period ended SeptemberJune 30, 2017,2023, from $9,542,000$14,456,000 for the comparable period in 2016.2022. This decrease was primarily due to aan $839,000 decrease in cemetery at-need sales ofand a $472,000 decrease in mortuary at-need sales, which were partially offset by a $495,000 increase in cemetery plots, markers and vaults.
Gains on investments and other assets increased by $534,000,$1,670,000, or 297.7%225.00%, to $713,000$928,000 in realized gains for the nine monthssix month period ended SeptemberJune 30, 2017,2023, from $179,000$742,000 in realized gainslosses for the comparable period in 2016.2022. This increase in realized gains on investments and other assets was primarily due to a $3,493,000 increase in gains on equity securities mostly attributable to a $1,374,000 increaseincreases in realized gains on other assets due to the salefair value of a commercial real estate property and various residential real estate properties. This increase wasthese equity securities, which were partially offset by a $775,000 increase$980,000 decrease in realized lossesgains on real estate, a $464,000 decrease in gains on fixed maturity securities, and a $65,000 increase$379,000 decrease in realized lossesgains on securities available for sale.
Other revenues decreased by $24,881,000,$8,500,000, or 16.9%81.1%, to $122,086,000,$1,984,000 for the nine monthssix month period ended SeptemberJune 30, 2017,2023, from $146,967,000$10,484,000 for the comparable period in 2016.2022. This decrease was primarily dueattributable to a declinedecrease in mortgage loan originations that was indicativeservicing fee revenue as a result of the mortgage loan industry as a whole. The decline in mortgage loan originations was primarily caused by a shortagesale of available new housing for mortgage loan origination transactions, and the decline in mortgage loan refinancings was primarily caused by recent increases in interest rates on mortgage loans. Additionally, the decline in mortgage originations and refinancings by SecurityNational Mortgage has resulted in a decline in fees earned from third-party investors that purchase mortgage loans from SecurityNational Mortgage.
Total benefits and expenses were $207,943,000,$153,613,000, or 96.3%94.0% of total revenues, for the nine monthssix month period ended SeptemberJune 30, 2017,2023, as compared to $213,862,000,$188,819,000, or 92.0%95.4% of total revenues, for the comparable period in 2016.
Death benefits, surrenders and other policy benefits, and future policy benefits increased by an aggregate of $5,971,000$3,200,000 or 15.0%6.7%, to $45,868,000$50,772,000 for the nine monthssix month period ended SeptemberJune 30, 2017,2023, from $39,897,000$47,572,000 for the comparable period in 2016.2022. This increase was primarily the result of a $3,704,000 increase in death benefits, a $1,892,000$3,183,000 increase in future policy benefits and a $375,000$410,000 increase in death benefits, which was partially offset by a $393,000 decrease in surrender and other policy benefits.
Amortization of deferred policy and pre-need acquisition costs and value of business acquired increased by $50,000,$685,000, or 0.8%8.1%, to $6,271,000$9,135,000 for the nine monthssix month period ended SeptemberJune 30, 2017,2023, from $6,221,000$8,450,000 for the comparable period in 2016.2022. This increase was primarily due to an increase in insurance sales expenses.
Selling, general and administrative expenses decreased by $12,571,000,$38,341,000, or 7.7%30.3%, to $150,000,000$88,401,000 for the nine monthssix month period ended SeptemberJune 30, 2017,2023, from $162,571,000$126,742,000 for the comparable period in 2016.2022. This decrease was primarily the result of a $14,338,000$17,890,000 decrease in commissions, resulting from a $9,909,000 decrease in sales (primarily mortgage fee income), a $646,000 decrease in advertising, and a $600,000 decrease in the provision for loan loss reserve. This increase was partially offset by a $1,220,000 increase in personnel expenses, a $839,000 increase$8,082,000 decrease in other expenses, a $458,000 increase$1,438,000 decrease in rent and rent related expenses,advertising expense, a $358,000 increase$1,200,000 decrease in costs related to funding mortgage loans, and a $138,000 increase$68,000 decrease in depreciation on property and equipment.equipment, which were partially offset by a $246,000 increase in rent and rent related expenses.
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Interest expense increaseddecreased by $520,000,$759,000, or 13.8%20.9%, to $4,295,000$2,868,000 for the nine monthssix month period ended SeptemberJune 30, 2017,2023, from $3,775,000$3,627,000 for the comparable period in 2016.2022. This increasedecrease was primarily due to an increasea decrease of $1,177,000 in interest expense on mortgage warehouse lines andfor loans held for sale, which was partially offset by an increase of $418,000 in interest expense on bank loans related to real estate held for investment.
Liquidity and Capital Resources
The Company'sCompany’s life insurance subsidiaries and cemetery and mortuary subsidiaries realize cash flow from premiums, contract payments and sales on personal services rendered for cemetery and mortuary business, from interest and dividends on invested assets, and from the proceeds from the sale or maturity of held to maturity investments or sale of other investments. The mortgage subsidiaries realize cash flow from fees generated by originating and refinancing mortgage loans and fees earned from mortgage loans held for sale that are sold to investors.investors into the secondary market. It should be noted that current conditions in the financial markets and economy may affect the realization of these expected cash flows. The Company considers these sources of cash flow to be adequate to fund future policyholder and cemetery and mortuary liabilities, which generally are long-term, and adequate to pay current policyholder claims, annuity payments, expenses related to the issuance of new policies, the maintenance of existing policies, debt service, and to meet current operating expenses.
During the nine monthssix month periods ended SeptemberJune 30, 20172023 and 2016,2022, the Company'sCompany’s operations provided cash of $6,030,000$2,181,000 and $17,639,672,$97,639,000, respectively. ThisThe decrease in cash provided by operations was due primarily to a decline in cash collected ondecreased proceeds from the sale of mortgage loans held for sale during the nine months ended September 30, 2017.
The Company'sCompany’s liability for future policy benefits is expected to be paid out over the long-term due to the Company'sCompany’s market niche of selling funeral plans. Funeral plans are small face value life insurance policies that will pay the costs and expenses incurred at the time ofpayout upon a person's death. A personperson’s death to cover funeral burial costs. Policyholders generally will keep these policies in force and willdo not surrender them prior to a person's death. Because of the long-term nature of these liabilities, the Company is able to hold to maturity its bonds, real estate, and mortgage loans thus reducing the risk of liquidating these long-term investments as a result of any sudden changes in their fair values.
The Company attempts to match the duration of invested assets with its policyholder and cemetery and mortuary liabilities. The Company may sell investments other than those held to maturity in the portfolio to help in this timing.timing matching. The Company purchases short-term investments on a temporary basis to meet the expectations of short-term requirements of the Company'sCompany’s products. The Company'sCompany’s investment philosophy is intended to provide a rate of return, thatwhich will persist during the expected duration of policyholder and cemetery and mortuary liabilities regardless of future interest rate movements.
The Company'sCompany’s investment policy is also to invest predominantly in fixed maturity securities, real estate, mortgage loans, and warehousing of mortgage loans held for sale on a short-term basis before selling the loans to investors in accordance with the requirements and laws governing the life insurance subsidiaries. Bonds owned by the insurance subsidiaries amounted to $230,188,000$340,331,000 (at estimated fair value) and $184,356,000$345,598,000 (at estimated fair value) as of SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively. This represents 38.5%represented 38.0% and 33.1%36.4% of the total investments as of SeptemberJune 30, 20172023, and December 31, 2016,2022, respectively. Generally, all bonds owned by the life insurance subsidiaries are rated by the National Association of Insurance Commissioners. Under this rating system, there are six categories used for rating bonds. At SeptemberJune 30, 2017, 5.4%2023, 2.0% (or $12,449,000)$6,932,000) and at December 31, 2016, 9.0%2022, 2.2% (or $16,513,000)$7,833,000) of the Company'sCompany’s total bond investments were invested in bonds in rating categories three through six, which wereare considered non‑investmentnon-investment grade.
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The Company is subject to risk basedrisk-based capital guidelines established by statutory regulators requiring minimum capital levels based on the perceived risk of assets, liabilities, disintermediation, and business risk. At SeptemberJune 30, 20172023 and December 31, 2016,2022, the life insurance subsidiaries were in compliance with the regulatory criteria.
The Company'sCompany’s total capitalization of stockholders'stockholders’ equity, bank and other loans payable was $322,114,000$402,064,000 as of SeptemberJune 30, 2017,2023, as compared to $284,700,000$454,499,000 as of December 31, 2016. Stockholders'2022. Stockholders’ equity as a percent of total capitalization was 43.3%74.3% and 46.6%64.4% as of SeptemberJune 30, 20172023, and December 31, 2016,2022, respectively.
Lapse rates measure the amount of insurance terminated during a particular period. The Company'sCompany’s lapse rate for life insurance in 20162022 was 9.6%4.3% as compared to a rate of 7.4%4.8% for 2015.2021. The 20172023 lapse rate to date has been approximately the same as 2016.
The combined statutory capital and surplus of the Company'sCompany’s life insurance subsidiaries was $42,584,000.$99,865,000 and $94,254,000 as of June 30, 2023, and December 31, 2022, respectively. The life insurance subsidiaries cannot pay a dividend to itstheir parent company without the approval of state insurance regulatory authorities.
Banking Environment
On March 10, 2023 and Qualitative Disclosures About Market Risk.
The Company does not maintain any deposit or other accounts or credit facilities with Silicon Valley Bank, Signature Bank or First Republic Bank. The Company may periodically transfer funds to these banks to pay for services rendered by third party vendors that continue to maintain banking relationships with these banks. The Company continues to monitor the banking industry and its relationships with regional and community banks.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
As a smaller reporting company, the Company is not required to provide information typically disclosed under this item.
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| Item 4. | Controls and Procedures. |
Disclosure Controls and Procedures
As of SeptemberJune 30, 2017,2023, the Company carried out an evaluation under the supervision and with the participation of its Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the Company'sCompany’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”). The Company'sCompany’s disclosure controls and procedures are designed to ensure that information required to be disclosed in the Securities and Exchange Commission (SEC) reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time period specified by the SEC'sSEC’s rules and forms and that such information is accumulated and communicated to management, including the Company'sCompany’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. The executive officers have concluded that the Company'sCompany’s disclosure controls and procedures were not effective as of SeptemberJune 30, 2017,2023, and that the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, the Company'sCompany’s financial condition, results of operations, and cash flows for the periods presented in conformity with United States Generally Accepted Accounting Principles (GAAP).
Changes in Internal Control over Financial Reporting
There have not been any significant changes in the Company'sCompany’s internal control over financial reporting (as defined in Rule 13a-15(f) underduring the Securities and Exchange Act of 1934, as amended) in the thirdmost recently completed fiscal quarter of 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II
- Other Information| Item1. | Legal Proceedings. |
The Company is not a party to any other material legal proceedings outside the ordinary course of business or to any other legal proceedings, which if adversely determined, would be expected to have a material adverse effect on its financial condition or results of operation.
| Item 1A. | Risk Factors. |
As a smaller reporting company, the Company is not required to provide information typically disclosed under this item.
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| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
Recent Sales of Unregistered Securities and Use of Proceeds from Registered Securities
None.
Issuer Purchases of Equity Securities
On September 11, 2015,December 27, 2022, the Board approved the Company's Stock Purchase Plan for the mutual benefitCompany executed a 10b5-1 agreement with a broker to repurchase shares of the Company and its stockholders.Company’s Class A Common Stock. Under the terms of the Plan,agreement, the Company may, in its discretion, purchasebroker is permitted to repurchase up to 1,000,000 shares of the Company’s Class A common stock from its officersCommon Stock. The agreement is subject to the daily time, price and directors who exercise the stock options granted to them under anyvolume conditions of Rule 10b-18. The initial term of the Company's stock option plans with the proceeds from such purchase to be used to pay the taxes owed by such officers and directors as a result of the exercise of their stock options. Additionally, the officers and directors who exercise their stock options may, in their discretion, request that the Company purchase shares of their Class A common stock with the proceeds from such sale to be used to pay the taxes owed by such officers and directors as a result of the exercise of their stock options.
The following table shows the Company'sCompany’s repurchase activity during the nine monthsthree month period ended SeptemberJune 30, 20172023 under the Stock Purchase10b5-1 agreement.
| Period | (a) Total Number of Class A Shares Purchased | (b) Average Price Paid per Class A Share (1) | (c) Total Number of Class A Shares Purchased as Part of Publicly Announced Plan or Program | (d) Maximum Number (or Approximate Dollar Value) of Class A Shares that May Yet Be Purchased Under the Plan or Program (2) | ||||||||||||
| 4/1/2023-4/30/2023 | - | $ | - | - | 318,043 | |||||||||||
| 5/1/2023-5/31/2023 | - | - | - | 318,043 | ||||||||||||
| 6/1/2023-6/30/2023 | - | - | - | 318,043 | ||||||||||||
| Total | - | $ | - | - | 318,043 | |||||||||||
| (1) | Includes fees and commissions paid on stock repurchases. | |
| (2) | In September 2018, the Board of Directors of the Company approved a Stock Repurchase Plan that authorized the repurchase of 300,000 shares of the Company’s Class A Common Stock in the open market. The Company amended the Stock Repurchase Plan on December 4, 2020. The amendment authorized the repurchase of a total of 1,000,000 shares of the Company’s Class A Common Stock in the open market. Any repurchased shares of Class A common stock are to be held as treasury shares to be used as the Company’s employer matching contribution to the Employee 401(k) Retirement Savings Plan and for shares held in the Deferred Compensation Plan. |
| Item 3. | Defaults Upon Senior Securities. |
None.
| Item 4. | Mine Safety Disclosures. |
None.
| Item 5. | Other Information. |
During the three-month period ended June 30, 2023, none of the Company’s directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.
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| Period | (a) Total Number of Class A Shares Purchased | (b) Average Price Paid per Class A Share | (c) Total Number of Class A Shares Purchased as Part of Publicly Announced Plan or Program | (d) Maximum Number (or Approximate Dollar Value) of Class A Shares that May Yet Be Purchased Under the Plan or Program | |||||||||||||
| 1/1/2017-1/31/2017 | - | - | |||||||||||||||
| 2/1/2017-2/28/2017 | - | - | |||||||||||||||
| 3/1/2017-3/31/2017 | 29,393 | (1 | ) | $ | 6.31 | ||||||||||||
| 4/1/2017-4/30/2017 | - | - | |||||||||||||||
| 5/1/2017-5/31/2017 | - | - | |||||||||||||||
| 6/1/2017-6/30/2017 | - | - | |||||||||||||||
| 7/1/2017-7/31/2017 | - | - | |||||||||||||||
| 8/1/2017-8/31/2017 | - | - | |||||||||||||||
| 9/1/2017-9/30/2017 | - | - | |||||||||||||||
| Total | 29,393 | $ | 6.31 | - | - | ||||||||||||
| (1) On March 29, 2017, the Company purchased 29,393 shares of its Class A common stock from Scott M. Quist, Chairman, President and Chief Executive Officer of the Company, pursuant to the Company's Stock Purchase Plan. | |||||||||||||||||
| Item 6. | Exhibits, Financial Statements Schedules and Reports on Form 8-K. |
| (a)(1) | Financial Statements |
See "Table“Table of Contents – Part I – Financial Information"Information” under page 2 above
| (a)(2) | Financial Statement Schedules |
None
All other schedules to the consolidated financial statements required by Article 7 of Regulation S‑XS-X are not required under the related instructions or are inapplicable and therefore have been omitted.
| (a)(3) | Exhibits |
The following Exhibits are filed herewith pursuant to Rule 601 of Regulation S‑KS-K or are incorporated by reference to previous filings.
3.1 | ||
| 3.2 | Amended and Restated Bylaws (6) | |
| 4.1 | ||
| Specimen Class A Stock Certificate (1) | ||
| 4.2 | Specimen Class C Stock Certificate (1) | |
| 4.3 | Specimen Preferred Stock Certificate and Certificate of Designation of Preferred Stock (1) | |
| 10.2 | ||
| 10.5 | Stock Repurchase Plan (5) | |
14 | ||
| Certification pursuant to 18 U.S.C. Section 1350, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification pursuant to 18 U.S.C. Section 1350, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS | Inline XBRL Instance Document | |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
| Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
| Inline XBRL Taxonomy Extension Label Linkbase Document | ||
| Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| (1) | Incorporated by reference from Registration Statement on Form | |
| Incorporated by reference from Report on Form 10-Q, as filed on | ||
| Incorporated by reference from Report on Form 10-Q, as filed on August 15, 2016 | ||
| (4) | Incorporated by reference from Report on Form 10-K, as filed on March 31, 2017 | |
| (5) | Incorporated by reference from Report on Form | |
| (6) | Incorporated by reference from Report on Form 10-Q, as filed on May 15, 2019 | |
| (7) | Incorporated by reference from Report on Form 10-Q, as filed on August |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
REGISTRANT
SECURITY NATIONAL FINANCIAL CORPORATION
Registrant
| Dated: | /s/ Scott M. Quist | |
| Scott M. Quist | ||
| Chairman, President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Dated: | /s/ Garrett S. Sill | |
| Garrett S. Sill | ||
| Chief Financial Officer and Treasurer | ||
| (Principal Financial Officer and Principal Accounting Officer) |
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