UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A
Amendment No. 110-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31,September 30, 2017, or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____ to ________

Commission file number: 000-09341

SECURITY NATIONAL FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

UTAH
87-0345941
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
  
5300 South 360 West, Suite 250, Salt Lake City, Utah
84123
(Address of principal executive offices)(Zip Code)
  
 (801) 264-1060
(Registrant's telephone number, including area code)


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, or smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer [  ]Accelerated filer [  ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company)Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [  ]   No[X]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class A Common Stock, $2.00 par value
13,820,079
Title of ClassNumber of Shares Outstanding as of November 14, 2017
 May 11, 2017
  
Class C Common Stock, $2.00 par value
2,005,026
Title of ClassNumber of Shares Outstanding as of
May 11, November 14, 2017

EXPLANATORY NOTE

Security National Financial Corporation ("the Company") is filing this Amendment No. 1 on Form 10-Q/A (this "Form 10-Q/A") to amend its Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, as originally filed with the Securities and Exchange Commission (the "SEC") on May 15, 2017 (the "Original Filing"), to restate its Condensed Consolidated Financial Statements and related disclosures as of March 31, 2017 and 2016. This Form 10-Q/A also amends certain other items in the Original Filing, as listed in "Items Amended in This Filing" below.

Background and Effects of Restatement

Subsequent to the Original Filing, the Company identified errors relating to the application of accounting principles that related to its treatment of warehouse line repurchase agreements and its assessment of the tax valuation allowance, which is a component of the Company's deferred tax assets.  As disclosed in the Current Report on Form 8-K that was filed by the Company with the SEC on August 4, 2017, the Company's management and the Audit Committee of its Board of Directors determined, based on the preliminary results of an internal investigation, that the Company's condensed consolidated and combined financial statements within its Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, originally filed with the SEC on May 15, 2017, should no longer be relied upon as a result of these errors.

Along with restating its financial statements to correct the errors discussed above, the Company elected to record adjustments for certain immaterial accounting errors related to the periods covered in its Form 10-Q/A.

Related financial information in this Form 10-Q/A has been restated to reflect adjustments for the accounting errors related to the matters described above. For further details, see Note 13 "Correction of Errors." Restated balances have been identified with the notation "As Restated" where appropriate and the terms and "As Previously Reported" are used to refer to balances from the 2017 condensed consolidated financial statements as reported in the Original Filing.

The Company has not filed amendments to any previously filed Quarterly Reports on Form 10-Q to restate financial information presented for the periods affected by the restatement. The Company believes that presenting amended and restated unaudited quarterly financial information in this Form 10-Q/A allows the readers to review relevant data in a single presentation along with the revised evaluation of controls and procedures. Accordingly, investors should rely only on the financial information regarding the restated periods in this Form 10-Q/A or in future filings with the SEC (as applicable), and not on any previously filed reports relating to those periods.

Items Amended in This Filing

For the convenience of the reader, this Amendment sets forth the information in the Original Filing, in its entirety, as such information is modified and superseded where necessary to reflect the restatement of the Company's condensed consolidated financial statements as a result of the errors discussed above. References throughout this document to "Form 10-Q" have been amended to "Form 10-Q/A" where appropriate. Except as noted below, this Amendment does not affect any other parts of the Original Filing, nor does it reflect events occurring after the date of the Original Filing or amend or otherwise update any information in the Original Filing. The following Items have been amended as a result of the restatement:

- Part I, Item 1. Financial Statements
- Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
- Part I, Item 4. Controls and Procedures

In addition, in accordance with applicable SEC rules, this Amendment includes new certifications required by Rule 13a-14 under the Securities Exchange Act of 1934 ("Exchange Act") from the Company's Chief Executive Officer and Chief Financial Officer dated as of the date of filing of this Amendment. These certifications are filed as Exhibits 31.1, 31.2, 32.1 and 32.2.

Internal Control Consideration

The Company's management has reassessed its evaluation of the effectiveness of its internal control over financial reporting as of March 31, 2017. As a result of that reassessment, management identified additional material weaknesses that existed as of March 31, 2017.  For a description of the material weaknesses, see Part I, Item 4. "Controls and Procedures."
2
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q/A10-Q

QUARTER ENDED MARCH 31,SEPTEMBER 30, 2017

Table of Contents


  Page No.
 Part I  - Financial Information 
Item 1.Financial Statements 
   
 Condensed Consolidated Balance Sheets as of March 31,September 30, 2017 (as restated) (unaudited) and December 31, 2016 (as restated)(unaudited)4-53-4
   
 Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended March 31,September 30, 2017 and 2016 (as restated) (unaudited)65
   
 Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended March 31,September 30, 2017 and 2016 (as restated) (unaudited)76
   
 Condensed Consolidated Statements of Stockholders' Equity as of March 31,September 30, 2017 and March 31,September 30, 2016 (as restated) (unaudited)87
   
 Condensed Consolidated Statements of Cash Flows for the ThreeNine Months Ended March 31,Septemer 30, 2017 and 2016 (as restated) (unaudited)98
   
 Notes to Condensed Consolidated Financial Statements (as restated) (unaudited)109
   
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations4346
   
Item 3.Quantitative and Qualitative Disclosures about Market Risk4752
   
Item 4.Controls and Procedures4752
   
 Part II - Other Information 
   
Item 1.Legal Proceedings4852
Item 1A.Risk Factors52
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds4852
   
Item 3.Defaults Upon Senior Securities4853
   
Item 4.Mine Safety Disclosures4953
   
Item 5.Other Information4953
   
Item 6.Exhibits4954
   
 Signature Page5256


32
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

Part I - Financial Information

Item 1.   Financial Statements.

Assets 
March 31
2017
(As Restated)
(Unaudited)
  
December 31
2016
(As Restated)
  
September 30
2017
(Unaudited)
  
December 31
2016
(As Restated)
 
Investments:            
Fixed maturity securities, held to maturity, at amortized cost $186,445,498  $184,979,644  $230,811,272  $184,979,644 
Equity securities, available for sale, at estimated fair value  10,735,239   10,573,356   5,957,488   9,911,256 
Mortgage loans on real estate and construction loans, held for investment net of allowances for loan losses of $1,955,443 and $1,748,783 for 2017 and 2016  134,123,773   149,181,578 
Real estate held for investment, net of accumulated depreciation of $16,732,122 and $16,138,439 for 2017 and 2016  151,417,470   145,165,921 
Policy loans and other investments, net of allowances for doubtful accounts of $1,050,111 and $1,119,630 for 2017 and 2016  41,773,152   40,937,146 
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  28,346,922   27,560,040   17,830,990   27,560,040 
Accrued investment income  3,008,839   2,972,596   3,391,688   2,972,596 
Total investments  555,850,893   561,370,281   598,350,276   561,179,435 
Cash and cash equivalents  85,069,717   38,987,430   38,593,462   38,987,430 
Mortgage loans sold to investors  151,891,428   189,139,832 
Receivables, net  6,302,801   6,373,364 
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  10,230,360   10,391,394   10,815,726   10,391,394 
Cemetery perpetual care trust investments  4,211,337   4,131,885   4,438,788   4,131,885 
Receivable from reinsurers  13,227,385   13,079,668   13,394,586   13,079,668 
Cemetery land and improvements  10,641,141   10,672,836   10,581,368   10,672,836 
Deferred policy and pre-need contract acquisition costs  71,643,040   69,118,745   78,049,594   69,118,745 
Mortgage servicing rights, net  19,432,993   18,872,362   20,396,568   18,872,362 
Property and equipment, net  8,478,347   8,791,522   7,560,662   8,791,522 
Value of business acquired  7,375,084   7,570,300   6,831,777   7,570,300 
Goodwill  2,765,570   2,765,570   2,765,570   2,765,570 
Other  12,397,267   10,413,394   5,616,664   9,310,040 
                
Total Assets $959,517,363  $951,678,583  $1,007,904,311  $952,421,565 

See accompanying notes to condensed consolidated financial statements (as restated) (unaudited).
43
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

 
March 31
2017
(As Restated)
(Unaudited)
  
December 31
2016
(As Restated)
  
September 30
2017
(Unaudited)
  
December 31
2016
(As Restated)
 
Liabilities and Stockholders' Equity            
Liabilities            
Future life, annuity, and other benefits $588,248,948  $584,067,692 
Future policy benefits and unpaid claims $600,643,308  $584,067,692 
Unearned premium reserve  4,405,472   4,469,771   4,290,164   4,469,771 
Bank and other loans payable  153,594,078   152,140,679   182,769,669   152,140,679 
Deferred pre-need cemetery and mortuary contract revenues  12,350,470   12,360,249   12,716,761   12,360,249 
Cemetery perpetual care obligation  3,624,895   3,598,580   3,679,925   3,598,580 
Accounts payable  3,113,519   4,213,109   3,279,790   4,213,109 
Other liabilities and accrued expenses  34,128,938   33,950,503   33,448,055   34,693,485 
Income taxes  25,370,027   24,318,869   27,732,758   24,318,869 
Total liabilities  824,836,347   819,119,452   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 13,820,078 shares in 2017 and 13,819,006 shares in 2016  27,640,156   27,638,012 
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 1,901,624 shares in 2017 and 1,902,229 shares in 2016  3,803,248   3,804,458 
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  35,095,594   34,813,246   35,490,027   34,813,246 
Accumulated other comprehensive income, net of taxes  286,114   264,822   336,631   264,822 
Retained earnings  69,265,920   67,409,204   72,848,622   67,409,204 
Treasury stock at cost - 686,549 Class A shares in 2017 and 704,122 Class A shares in 2016  (1,410,016)  (1,370,611)
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  134,681,016   132,559,131   139,343,881   132,559,131 
                
Total Liabilities and Stockholders' Equity $959,517,363  $951,678,583  $1,007,904,311  $952,421,565 

See accompanying notes to condensed consolidated financial statements (as restated) (unaudited).
54
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(As Restated) (Unaudited)

 Three Months Ended March 31  
Three Months Ended
 September 30
  
Nine Months Ended
September 30
 
 2017  2016  2017  2016  2017  2016 
Revenues:                  
Insurance premiums and other considerations $17,357,124  $14,451,575  $17,489,560  $17,157,319  $52,345,184  $47,508,420 
Net investment income  9,563,282   8,992,191   8,361,466   8,089,857   25,559,113   23,484,280 
Net mortuary and cemetery sales  3,358,973   3,245,856   2,717,311   2,776,023   9,356,659   9,541,950 
Realized gains on investments and other assets  145,330   97,922 
Realized gains (losses) on investments and other assets  (319,666)  (39,169)  713,066   179,296 
Other than temporary impairments on investments  (52,139)  (73,630)  (163,375)  (30,000)  (481,741)  (133,630)
Mortgage fee income  38,427,854   41,212,008   41,597,573   53,195,763   122,086,734   146,967,246 
Other  2,028,873   1,530,426   2,288,982   1,798,864   6,393,691   4,944,670 
Total revenues  70,829,297   69,456,348   71,971,851   82,948,657   215,972,706   232,492,232 
                        
Benefits and expenses:                        
Death benefits  8,794,598   7,824,001   8,772,153   7,250,100   26,113,770   22,410,230 
Surrenders and other policy benefits  857,531   518,321   547,648   630,735   2,085,296   1,709,915 
Increase in future policy benefits  5,568,042   4,121,701   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  2,264,039   2,212,836   2,238,955   2,301,107   6,271,763   6,221,495 
Selling, general and administrative expenses:                        
Commissions  16,355,048   19,210,968   18,999,583   24,395,173   53,877,389   68,214,894 
Personnel  18,589,687   17,197,372   17,200,315   17,755,070   53,754,920   52,535,277 
Advertising  1,310,674   1,078,010   1,611,599   2,006,013   4,407,877   5,053,968 
Rent and rent related  2,139,538   2,064,325   2,257,259   2,122,708   6,693,292   6,235,430 
Depreciation on property and equipment  625,812   521,455   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  2,219,649   2,632,754   2,809,471   2,365,395   7,315,227   6,956,774 
Other  7,430,951   6,480,711   7,035,570   8,075,906   22,227,370   21,388,693 
Interest expense  1,254,039   1,064,195   1,655,870   1,476,137   4,295,263   3,775,483 
Cost of goods and services sold-mortuaries and cemeteries  521,919   458,619   453,229   485,783   1,507,295   1,396,574 
Total benefits and expenses  67,931,527   65,385,268   70,833,834   76,375,127   207,942,620   213,861,736 
                        
Earnings before income taxes  2,897,770   4,071,080   1,138,017   6,573,530   8,030,086   18,630,496 
Income tax expense  (1,037,770)  (1,533,139)  (41,179)  (2,390,525)  (2,587,384)  (6,892,544)
                        
Net earnings $1,860,000  $2,537,941  $1,096,838  $4,183,005  $5,442,702  $11,737,952 
                        
Net earnings per Class A Equivalent common share (1) $0.12  $0.17  $0.07  $0.28  $0.36  $0.80 
                        
Net earnings per Class A Equivalent common share-assuming dilution (1) $0.12  $0.17  $0.07  $0.27  $0.35  $0.77 
                        
Weighted-average Class A equivalent common share outstanding (1)  15,058,153   14,656,450   15,256,857   14,830,078   15,159,569   14,744,779 
                        
Weighted-average Class A equivalent common shares outstanding-assuming dilution (1)  15,527,996   15,112,278   15,542,660   15,269,613   15,474,826   15,166,045 

(1) Net earnings per share amounts have been adjusted retroactively for the effect of annual stock dividends.

See accompanying notes to condensed consolidated financial statements (as restated)(unaudited).
5
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 

See accompanying notes to condensed consolidated financial statements (unaudited).
6
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMESTOCKHOLDERS' EQUITY
(As Restated) (Unaudited)

  Three Months Ended March 31 
  2017  2016 
Net earnings $1,860,000  $2,537,941 
Other comprehensive income:        
  Net unrealized gains on derivative instruments  973   1,669 
  Net unrealized gains on available for sale securities  20,319   297,897 
Other comprehensive income  21,292   299,566 
Comprehensive income $1,881,292  $2,837,507 
  
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 

See accompanying notes to condensed consolidated financial statements (as restated) (unaudited).
7
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITYCASH FLOWS
(As Restated) (Unaudited)

  
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  -   -   -   -   2,537,941   -   2,537,941 
Other comprehensive income  -   -   -   299,566   -   -   299,566 
Grant of stock options  -   -   84,452   -   -   -   84,452 
Exercise of stock options  56,920   -   4,367   -   -   -   61,287 
Sale of treasury stock  -   -   136,826   -   -   149,639   286,465 
Stock Dividends  274   12,768   30,779   -   (43,821)  -   - 
Balance at March 31, 2016 $26,275,394  $3,432,048  $30,489,006  $(199,792) $63,019,524  $(2,029,790) $120,986,390 
                             
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  -   -   -   -   1,860,000   -   1,860,000 
Other comprehensive income  -   -   -   21,292   -   -   21,292 
Grant of stock options  -   -   101,996   -   -   -   101,996 
Sale of treasury stock  -   -   178,002   -   -   146,065   324,067 
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 March 31, 2017 $27,640,156  $3,803,248  $35,095,594  $286,114  $69,265,920  $(1,410,016) $134,681,016 

  
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 
See accompanying notes to condensed consolidated financial statements (as restated) (unaudited).
8
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(As Restated) (Unaudited)

  Three Months Ended March 31 
  2017  2016 
Cash flows from operating activities:      
     Net cash provided by operating activities $30,431,376  $27,275,404 
         
Cash flows from investing activities:        
Securities held to maturity:        
        Purchase-fixed maturity securities  (2,575,997)  (4,481,397)
        Calls and maturities - fixed maturity securities  830,595   2,470,005 
Securities available for sale:        
       Purchase - equity securities  (4,190,458)  (1,651,302)
       Sales - equity securities  4,092,734   1,487,110 
Purchase of short-term investments  (3,053,797)  (3,258,070)
Sales of short-term investments  2,266,915   2,364,571 
Purchase of restricted assets  174,197   1,242,342 
Changes in assets for perpetual care trusts  (104,731)  (51,461)
Amount received for perpetual care trusts  26,315   11,735 
Mortgage loans, policy loans, and other investments made  (108,649,435)  (112,920,364)
Payments received for mortgage loans, policy loans and other investments  127,506,014   99,348,725 
Purchase of property and equipment  (312,640)  (1,084,975)
Purchase of real estate  (3,103,471)  (3,432,051)
Sale of real estate  2,891,887   843,701 
      Net cash provided by (used in) investing activities  15,798,128   (19,111,431)
         
Cash flows from financing activities:        
Annuity contract receipts  3,051,883   2,516,596 
Annuity contract withdrawals  (4,468,624)  (3,025,833)
Proceeds from stock options exercised  -   61,287 
Purchase of treasury stock  (185,470)  - 
Repayment of bank loans on notes and contracts  (673,454)  (390,168)
Proceeds from borrowing on bank loans  7,255,187   737,232 
Net change in warehouse line borrowings  (6,376,739)  (1,412,370)
Change in line of credit borrowings  1,250,000   - 
      Net cash used in financing activities  (147,217)  (1,513,256)
         
Net change in cash and cash equivalents  46,082,287   6,650,717 
         
Cash and cash equivalents at beginning of period  38,987,430   40,053,242 
         
Cash and cash equivalents at end of period $85,069,717  $46,703,959 
         
Supplemental Disclosure of Cash Flow Information:        
Cash paid during the year for:        
Interest (net of amount capitalized) $1,234,420  $1,079,891 
Income taxes (net of refunds)  (3,215)  12,321 
         
Non Cash Investing and Financing Activities:        
Accrued real estate construction costs and retainage $6,794,065  $- 
Transfer of loans held for sale to mortgage loans held for investment  5,032,147   7,386,432 
Mortgage loans foreclosed into real estate  204,839   87,000 

See accompanying notes to condensed consolidated financial statements (as restated) (unaudited).
9
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)


1)    Basis of Presentation

The 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‑Q and Articles 8 and 10 of Regulation 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, included in the Company's Annual Report on Form 10-K10-K/A (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 threenine months ended March 31,September 30, 2017 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. See additionalThe 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 NoteNotes 21 and 22 included in the Company's Form 10-K/A and in Note 13 of this Form 10-Q/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 make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. 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,liabilities; those used in determining deferred acquisition costs and the value of business acquired,acquired; those used in determining the value of mortgage loans foreclosed to real estate held for investment,investment; those used in determining the liability for future policy benefits and unearned revenue,revenue; those used in determining the estimated future costs for pre-need sales,sales; those used in determining the value of mortgage servicing rights,rights; those used in determining allowances for loan losses for mortgage loans on real estate,held for investment; those used in determining loan loss reserve,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.

2)    Recent Accounting Pronouncements

ASU No. 2017-01: "Business Combinations (Topic 805): Clarifying the Definition of a Business" – Issued 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 Instruments – Credit Losses (Topic 326)" – Issued in June 2016, ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current generally accepted accounting principles ("GAAP") and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2019. The Company is in the process of evaluating the potential impact of this standard.
9
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2017 (Unaudited)

2)    Recent Accounting Pronouncements (Continued)
ASU No. 2016-02: "Leases (Topic 842)" - Issued in February 2016, ASU 2016-02 supersedes the leases requirements in ASC Topic 840, "Leases", and was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2018. The Company is in the process of evaluating the potential impact of this standard.standard, which is not expected to be material to the Company's results of operations but will have an effect on the balance sheet presentation for leased assets and obligations.

ASU No. 2016-01: "Financial Instruments – Overall (Topic 825-10)" – Issued in January 2016, ASU 2016-01 changes the accounting for non-consolidated equity investments that are not accounted for under the equity method of accounting by requiring changes in fair value to be recognized in income. Under current guidance, changes in fair value for investments of this nature are recognized in accumulated other comprehensive income as a component of stockholders' equity.  Additionally, ASU 2016-01 simplifies the impairment assessment of equity investments without readily determinable fair values; requires entities to use the exit price when estimating the fair value of financial instruments; and modifies various presentation disclosure requirements for financial instruments. The Company holds equity securities classified as available for sale securities that are currently measured at fair value with changes in fair value recognized through other comprehensive income. Upon adoption of ASU 2016-01 the Company will be required to recognize changes in the fair value of these equity securities through earnings, thus increasing the volatility of the Company's earnings. However, adoption of this standard will not significantly affect the Company's comprehensive income or stockholders' equity. This new authoritative guidance is effective for interim and annual periods beginning after December 15, 2017.2017, with the cumulative effect of the adoption made to the balance sheet as of the date of adoption. Thus, the adoption will result in a reclassification of the related accumulated net unrealized gains (losses) currently included in accumulated other comprehensive income to retained earnings. See Note 3 for details regarding the Company's equity securities currently classified as available for sale. The Company is in the process of evaluating the potential impact ofwill adopt this standard.
10
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2017 (As Restated) (Unaudited)standard beginning January 1, 2018.

2)   Recent Accounting Pronouncements (Continued)

ASU No. 2014-09: "Revenue from Contracts with Customers (Topic 606)" - Issued in May 2014, ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, "Revenue Recognition", and requires entities to recognize. ASU 2014-09 clarifies the principles for recognizing revenue in order to improve comparability of revenue recognition practices across entities and industries. ASU 2014-09 provides guidance intended to assist in the identification of contracts with customers and separate performance obligations within those contracts, the determination and allocation of the transaction price to those identified performance obligations and the recognition of revenue when a way that depictsperformance obligation has been satisfied. ASU 2014-09 also requires disclosures regarding the transfernature, amount, timing, and uncertainty of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.revenues and cash flows from contracts with customers. Insurance contracts are excluded from the scope of this new guidance.

Upon adoption, ASU 2014-09 provides for transition through either a full retrospective approach requiring the restatement of all presented prior periods or a modified retrospective approach, which allows the new recognition standard to be applied to only those contracts that are not completed at the date of transition. If the modified retrospective approach is adopted, a cumulative effect adjustment to retained earnings is performed with additional disclosures required including the amount by which each line item is affected by the transition as compared to the guidance in effect before adoption and an explanation of the reasons for significant changes in these amounts. The Company intends to adopt ASU 2014-09 using the modified retrospective method. The Company does not expect to record a cumulative effect adjustment to its beginning retained earnings as a result of adoption of ASU 2014-09.

The Company's revenues from contracts with customers that are subject to ASU 2014-09 include revenues on mortuary and cemetery contracts. The recognition and measurement of these items is not expected to change as a result of the Company's adoption of ASU 2014-09 and thus the Company does not expect that the adoption of ASU 2014-09 will significantly impact the Company's results of operations or financial position but is still in the process of evaluating the final impact, including the potential impact on disclosures of contracts with customers. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2017. The Company is in the process of evaluating the potential impact ofwill adopt this standard which is not expected to be material to the Company's results of operations or financial position.beginning January 1, 2018.

The Company has reviewed other recent accounting pronouncements and has determined that they will not significantly impact the Company's results of operations or financial position.
10
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2017 (Unaudited)

3)    Investments

The Company's investments in fixed maturity securities held to maturity and equity securities available for sale as of March 31,September 30, 2017 are summarized as follows:

  

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             
  
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Estimated
Fair
Value
 
March 31, 2017
            
Fixed maturity securities held to maturity carried at amortized cost:          
Bonds:            
U.S. Treasury securities and obligations of U.S. Government agencies $4,357,040  $244,853  $(57,240) $4,544,653 
Obligations of states and political subdivisions  5,995,384   146,273   (132,140)  6,009,517 
Corporate securities including public utilities  165,716,233   11,763,828   (2,443,238)  175,036,823 
Mortgage-backed securities  9,753,206   246,004   (233,586)  9,765,624 
Redeemable preferred stock  623,635   14,954   (8,627)  629,962 
Total fixed maturity securities held to maturity $186,445,498  $12,415,912  $(2,874,831) $195,986,579 
                 
Equity securities available for sale at estimated fair value:                
                 
Common stock:                
                 
Industrial, miscellaneous and all other $11,139,482  $412,535  $(816,778) $10,735,239 
                 
Total equity securities available for sale at estimated fair value $11,139,482  $412,535  $(816,778) $10,735,239 
                 
Mortgage loans on real estate and construction loans held for investment at amortized cost:         
Residential $64,629,906             
Residential construction  33,917,309             
Commercial  37,532,001             
Less: Allowance for loan losses  (1,955,443)            
Total mortgage loans on real estate and construction loans held for investment $134,123,773             
                 
Real estate held for investment - net of depreciation $151,417,470             
                 
Policy loans and other investments are shown at amortized cost:             
Policy loans $6,666,500             
Insurance assignments  33,857,966             
Promissory notes  48,797             
Other investments  2,250,000             
Less: Allowance for doubtful accounts  (1,050,111)            
                 
Total policy loans and other investments $41,773,152             
                 
Short-term investments at amortized cost $28,346,922             

 
11
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

3)    Investments (Continued)

The Company's investments in fixed maturity securities held to maturity and equity securities available for sale as of December 31, 2016 are summarized as follows:

 Cost  
Gross
 Unrealized
 Gains
  
Gross
 Unrealized
Losses
  
Estimated
Fair
Value
  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  $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   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   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   9,488,083   221,400   (280,871)  9,428,612 
Redeemable preferred stock  623,635   13,418   -   637,053   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  $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 $10,985,338  $447,110  $(859,092) $10,573,356  $10,323,238  $447,110  $(859,092) $9,911,256 
                                
Total securities available for sale carried at estimated fair value $10,985,338  $447,110  $(859,092) $10,573,356  $10,323,238  $447,110  $(859,092) $9,911,256 
                                
Mortgage loans on real estate and construction loans held for investment at amortized cost:                
Mortgage loans held for investment at amortized cost:                
Residential $58,593,622              $58,593,622             
Residential construction  40,800,117               40,800,117             
Commercial  51,536,622               51,536,622             
Less: Unamortized deferred loan fees, net  (190,846)            
Less: Allowance for loan losses  (1,748,783)              (1,748,783)            
                                
Total mortgage loans on real estate and construction loans held for investment $149,181,578             
Total mortgage loans held for investment $148,990,732             
                                
Real estate held for investment - net of depreciation $145,165,921             
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 are shown at amortized cost:                
Policy loans and other investments at amortized cost:                
Policy loans $6,694,148              $6,694,148             
Insurance assignments  33,548,079               33,548,079             
Promissory notes  48,797               48,797             
Federal Home Loan Bank stock  662,100             
Other investments  1,765,752               1,765,752             
Less: Allowance for doubtful accounts  (1,119,630)              (1,119,630)            
                                
Total policy loans and other investments $40,937,146              $41,599,246             
                                
Short-term investments at amortized cost $27,560,040              $27,560,040             
                
Accrued investment income $2,972,596             

12
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

3)    Investments (Continued)

Fixed Maturity Securities

The following tables summarize unrealized losses on fixed maturity securities held to maturity, which are carried at amortized cost, at March 31,September 30, 2017 and December 31, 2016. 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  
Unrealized
Losses for
Less than
Twelve Months
  Fair Value  
Unrealized
Losses for
More than
Twelve Months
  Fair Value  
Total
Unrealized
Loss
  Fair Value 
At March 31, 2017
                  
At September 30, 2017
                  
U.S. Treasury Securities and Obligations of U.S. Government Agencies $57,240  $1,345,231  $-  $-  $57,240  $1,345,231  $182,493  $51,456,444  $44,050  $851,779  $226,543  $52,308,223 
Obligations of states and political subdivisions  132,140   3,270,595   -   -   132,140   3,270,595   18,357   2,486,400   58,915   1,651,253   77,272   4,137,653 
Corporate securities  1,094,907   29,075,748   1,348,331   12,362,900   2,443,238   41,438,648   286,166   16,526,010   999,195   10,820,005   1,285,361   27,346,015 
Mortgage-backed securities  126,828   1,745,284   106,758   1,470,559   233,586   3,215,843   68,972   2,026,033   102,451   1,156,803   171,423   3,182,836 
Redeemable preferred stock  8,627   98,110   -   -   8,627   98,110 
Total unrealized losses $1,419,742  $35,534,968  $1,455,089  $13,833,459  $2,874,831  $49,368,427  $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  $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   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   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   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  $2,104,387  $51,001,049  $2,102,857  $13,909,413  $4,207,244  $64,910,462 

There were 195143 securities with unrealized lossesan average fair value of 94.5%98.3% of amortized cost at March 31,September 30, 2017. There were 250 securities with unrealized lossesan average fair value of 93.9% of amortized cost at December 31, 2016. During the three months ended March 31,September 30, 2017 and 2016 an other than temporary decline in fair value resulted in the recognition of credit losses on fixed maturity securities of $52,139$100,000 and $30,000, respectively, and for the nine months ended September 30, 2017 and 2016 an other than temporary decline in fair value resulted in the recognition of credit losses on fixed maturity securities of $418,366 and $90,000, respectively.

On a quarterly basis, the Company reviewsevaluates its available for sale andfixed maturity securities held to maturity fixedmaturity. 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 securities relatedgrade and are not reviewed for impairment. Securities with ratings of 3 to corporate securities5 are evaluated for impairment. Securities with a rating of 6 are automatically determined to be impaired and other public utilities, consisting of bonds and preferred stocks that are in a loss position.written down. The reviewevaluation involves an analysis of the securities in relation to historical values, andinterest payment history, projected earnings and revenue growth rates.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 athe security will likely recover frommake interest and principal payments in accordance with the loss position within a reasonable periodterms of time.the financial instrument. If it is unlikely that the investmentsecurity will recover from the loss position,meet contractual obligations, the loss is considered to be other than temporary, the security is written down to the impairednew anticipated market value and an impairment loss is recognized. Impairment losses are treated as credit losses as the Company holds fixed maturity securities to maturity unless the underlying conditions have changed in the financial instrument to require an impairment. 

The fair values of fixed maturity securities are based on quoted market prices, when available. For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services, or in the case of private placements, are estimated by discounting expected future cash flows using a current market value applicable to the coupon rate, credit and maturity of the investments.
13
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

3)    Investments (Continued)
The amortized cost and estimated fair value of fixed maturity securities held to maturity, at September 30, 2017, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

  
Amortized
Cost
  
Estimated Fair
Value
 
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 
The Company is a member of the Federal Home Loan Bank of Des Moines ("FHLB"). In June through August of 2017, the Company purchased a total of $50,000,000, par value, of United States Treasury fixed maturity securities that it deposited with the FHLB. These securities will generate interest income for the Company and will be available to use as collateral on any cash borrowings from the FHLB. As of September 30, 2017, the Company did not have any outstanding amounts owed to FHLB.

Equity Securities

The following tables summarize unrealized losses on equity securities available for sale, that were carried at estimated fair value based on quoted trading prices at March 31,September 30, 2017 and December 31, 2016. The unrealized losses were primarily the result of decreases in fair value due to overall equity market declines.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:

  
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 

  
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 March 31, 2017
               
Industrial, miscellaneous and all other $178,006   149  $638,772   105  $816,778 
Total unrealized losses $178,006   149  $638,772   105  $816,778 
Fair Value $3,955,133      $1,154,812      $5,109,945 
                     
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 

The average marketfair value of the equity securities available for sale was 86.2%74.8% and 81.4% of the original investment as of March 31,September 30, 2017 and December 31, 2016, respectively. The intent of the Company is to retain equity securities for a period of time sufficient to allow for the recovery in fair value. However, the Company may sell equity securities during a period in which the fair value has declined below the amount of the original investment. In certain situations, new factors, including changes in the business environment, can change the Company's previous intent to continue holding a security. During the three months ended March 31,September 30, 2017 and 2016, an other than temporary decline in the fair value resulted in the recognition of an impairment loss on equity securities of $63,375 and $-0-, respectively, and for the nine months ended September 30, 2017 and 2016, an other than temporary decline in the fair value resulted in the recognition of an impairment loss on equity securities of $63,375 and $43,630, respectively.
14
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2017 (Unaudited)

3)    Investments (Continued)

On a quarterly basis, the Company reviews its investment in industrial, miscellaneous and all other equity securities that are in a loss position. The review involves an analysis offirst step is to identify securities 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 values,value, price earnings ratios, projected earnings, and revenue growth rates.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 period of time. If it is unlikely that the investmentsecurity will recover from the loss position, the loss is considered to be other than temporary, the security is written down to the impaireda restated value and an impairment loss is recognized.

The fair values of fixed maturity securities are based on quoted market prices, when available. For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services, or in the case of private placements, are estimated by discounting expected future cash flows using a current market value applicable to the coupon rate, credit and maturity of the investments. The fair values for equity securities are based on quoted market prices.
14
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2017 (As Restated) (Unaudited)

3)  Investments (Continued)
The amortized cost and estimated fair value of fixed maturity securities at March 31, 2017, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

  
Amortized
Cost
  
Estimated Fair
Value
 
Held to Maturity:      
Due in 2017 $5,625,049  $5,677,028 
Due in 2018 through 2021  42,733,718   44,794,103 
Due in 2022 through 2026  43,263,792   45,020,917 
Due after 2026  84,446,098   90,098,945 
Mortgage-backed securities  9,753,206   9,765,624 
Redeemable preferred stock  623,635   629,962 
Total held to maturity $186,445,498  $195,986,579 

The cost and estimated fair value of available for sale securities at March 31, 2017, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Equities are valued using the specific identification method.

  

Cost
  
Estimated Fair
Value
 
Available for Sale:      
Common stock $11,139,482  $10,735,239 
Total available for sale $11,139,482  $10,735,239 

The Company's realized gains and losses and other than temporary impairments from investments and other assets, are summarized as follows:

  Three Months Ended Mar 31 
  2017  2016 
Fixed maturity securities held to maturity:      
Gross realized gains $2,434  $- 
Gross realized losses  -   (24,795)
Other than temporary impairments  (52,139)  (30,000)
         
Securities available for sale:        
Gross realized gains  60,978   63,495 
Gross realized losses  (4,556)  (23,878)
Other than temporary impairments  -   (43,630)
         
Other assets:        
Gross realized gains  456,275   84,768 
Gross realized losses  (369,801)  (1,668)
Total $93,191  $24,292 

The net carrying amount of held to maturity securities sold was $28,073 and $-0- for the three months ended March 31, 2017 and 2016, respectively.  The net realized gain related to these sales was $2,434 and $-0- for the three months ended March 31, 2017 and 2016, respectively. Although the intent is to buy and hold a bond to maturity the Company will sell a bond prior to maturity if conditions have changed within the entity that issued the bond to increase the risk of default to an unacceptable level.

There were no investments, aggregated by issuer, in excess of 10% of shareholders' equity (before net unrealized gains and losses on equity securities available for sale securities)sale) at March 31,September 30, 2017, other than investments issued or guaranteed by the United States Government.
The Company's net realized gains 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 
The net realized gains and losses on the sale of securities are recorded on the trade date, and the cost of the securities sold is determined using the specific identification method.

The carrying amount of held to maturity securities sold was $2,240,249 and $1,989,159 for the nine months ended September 30, 2017 and 2016, respectively.  The net realized loss related to these sales was $385,484 for the nine months ended September 30, 2017 and the net realized gain related to these sales was $156,154 for the nine months ended September 30, 2016. Although the intent is to buy and hold a fixed maturity security to maturity, the Company will sell a security prior to maturity if conditions have changed within the entity that issued the security to increase the risk of default to an unacceptable level.
15
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

3)    Investments (Continued)

Major categories of net investment income are as follows:
  Three Months Ended Mar 31 
  2017  2016 
Fixed maturity securities $2,368,710  $2,050,569 
Equity securities  54,786   71,041 
Mortgage loans on real estate  2,223,139   2,026,515 
Real estate  2,894,331   2,838,484 
Policy loans  193,734   182,206 
Insurance assignments  3,364,642   3,104,788 
Other investments  7,543   - 
Short-term investments,  principally interest on sale of mortgage loans and other  1,804,746   1,863,144 
Gross investment income  12,911,631   12,136,747 
Investment expenses  (3,348,349)  (3,144,556)
Net investment income $9,563,282  $8,992,191 
  
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 
Net investment income includes income earned by the restricted assets of the cemeteries and mortuaries of $115,501$129,235 and $87,976$133,289 for the three months ended March 31,September 30, 2017 and 2016, respectively, and $369,721 and $295,630 for the nine months ended September 30, 2017 and 2016, respectively.
Net investment income on real estate consists primarily of rental revenue.
Investment expenses consist primarily of depreciation, property taxes, operating expenses of real estate and an estimated portion of administrative expenses relating to investment activities.
Securities on deposit forwith regulatory authorities as required by law amounted to $9,268,330$9,166,082 at March 31,September 30, 2017 and $9,269,121 at December 31, 2016. The restrictedpledged securities are included in various assets under investments on the accompanying condensed consolidated balance sheets.
Real Estate Held for Investment
The Company continues to strategically deploy resources into real estate to match the income and yield durations of its primary obligations. The sources for these real estate assets come through its various business units in the form of acquisition, development and foreclosures on mortgage foreclosures.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's goals and objectives for risk-adjusted returns. Due diligence is conducted on each asset using internal and third-party reports. Geographic locations and asset classes of the investment activity is determined by senior management under the direction of the Board of Directors.
The Company employs full-time employees to attend to the day-to-day operations of those assets within the greater Salt Lake area and close surrounding markets.  The Company utilizes third party property managers when the geographic boundary does not warrant full-time staff or through strategic lease-up periods. The Company generally looks to acquire assets in regions that are high growth regions for employment and population and in assets that provide operational efficiencies.
The Company currently owns and operates 1312 commercial properties in 7 states. These properties include industrial warehouses, office buildings, retail centers, undeveloped land and includes the redevelopment and expansion of its corporate campus in Salt Lake City, Utah. The assets are primarily held without debt; however, the Company does use debt in strategic cases to leverage established yields or to acquire a higher quality or different class of asset.

The aggregated net ending balance of commercial real estate that serves as collateral for bank borrowings was approximately $65,907,000 and $51,507,000 as of September 30, 2017 and December 31, 2016, respectively. The associated bank loan carrying values totaled approximately $38,161,000 and $21,831,000 as of September 30, 2017 and December 31, 2016, respectively.
16
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

3)    Investments (Continued)

The following is a summary of the Company's investment in commercial real estate held for investment for the periods presented:

  Net Ending Balance    Total Square Footage 
  March 31    December 31    March 31  December 31 
  2017    2016    2017  2016 
Arizona $447,229 (1) $450,538 (1)  16,270   16,270 
Arkansas  99,319     100,369     3,200   3,200 
Kansas  12,512,451     12,450,297     222,679   222,679 
Louisiana  512,324     518,700     7,063   7,063 
Mississippi  3,795,355     3,818,985     33,821   33,821 
New Mexico  7,000 (1)  7,000 (1)  -   - 
Texas  3,760,499     3,734,974     23,470   23,470 
Utah  57,104,854 (2)  47,893,073 (2)  433,244   433,244 
                     
  $78,239,031    $68,973,936     739,747   739,747 
(1) Includes undeveloped land
(2) Includes 53rd Center to be completed in July 2017
  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          

Residential Real Estate Held for Investment

The Company owns a 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 dispose or to continue and hold them for cash flow and acceptable returns.
The Company established Security National Real Estate Services ("SNRE") to manage the residential portfolio. SNRE cultivates and maintains the preferred vendor relationships necessary to manage costs and quality of work performed on the portfolio of homes across the country.
As of March 31,September 30, 2017, SNRE manages 124107 residential properties in 9 states across the United States which includes a newly constructed apartment complex, Dry Creek at East Village, in Sandy, Utah.
The following isnet ending balance of residential real estate that serves as collateral for a summarybank borrowing was approximately $34,772,000 and $35,798,000, as of the Company's investmentSeptember 30, 2017 and December 31, 2016, respectively. The associated bank loan carrying value was approximately $26,893,000 and $27,377,000 as of September 30, 2017 and December 31, 2016, respectively.
The net ending balance of foreclosed residential real estate included in residential real estate held for the periods presented:

  Net Ending Balance 
  March 31  December 31 
  2017  2016 
Arizona $739,333  $742,259 
California  5,404,417   5,848,389 
Colorado  204,538   364,489 
Florida  8,273,416   8,327,355 
Ohio  46,658   46,658 
Oklahoma  17,500   - 
Texas  777,843   1,091,188 
Utah  57,428,553   59,485,466 
Washington  286,181   286,181 
  $73,178,439  $76,191,985 

investment is $34,167,065 and $39,856,434 as of September 30, 2017 and December 31, 2016, respectively.
17
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

3)    Investments (Continued)

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

  Net Ending Balance 
  September 30  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.

As of March 31,September 30, 2017, real estate owned and occupied by the companyCompany is summarized as follows:

LocationBusiness Segment Approximate Square Footage  Square Footage Occupied by the Company 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%Corporate Offices, Life Insurance and Cemetery/Mortuary Operations  36,000   100%
5201 Green Street, Salt Lake City, UTMortgage Operations  36,899   34%Mortgage Operations  36,899   34%
1044 River Oaks Dr., Flowood, MSLife Insurance Operations  5,522   27%Life Insurance Operations  5,522   27%
                  
(1) This asset is included in property and equipment on the Condensed Consolidated Balance Sheet     
(1) This asset is included in property and equipment on the condensed consolidated balance sheet(1) This asset is included in property and equipment on the condensed consolidated balance sheet     

18
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2017 (Unaudited)

3)    Investments (Continued)

Mortgage Loans Held for Investment

Mortgage loans held for investment consist of first and second mortgages. The mortgage loans bear interest at rates ranging from 2.0% to 10.5%, maturity dates range from three months to 30 years and are secured by real estate. Concentrations of credit risk arise when a number of mortgage loan debtors have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. Although the Company has a diversified mortgage loan portfolio consisting of residential mortgages, commercial loans and residential construction loans and requires collateral on all real estate exposures, a substantial portion of its debtors' ability to honor obligations is reliant on the economic stability of the geographic region in which the debtors do business. At March 31,September 30, 2017, the Company had 42%45%, 15%11%, 10%11%, 8%7%, 5%, 5% and 3%4% of its mortgage loans from borrowers located in the states of Utah, California, Texas, Florida, Oregon,Arizona, Nevada, and Nevada,Tennessee, respectively.

Mortgage loans held for investment are carried at their unpaid principal balances adjusted for net deferred fees, charge-offs and the related allowance for loan losses. Interest income is included in net investment income on the condensed consolidated statements of earnings and is recognized when earned. The Company defers related material loan origination fees, net of related direct loan origination costs, and amortizes the net fees over the term of the loans. Origination fees are included in net investment income on the condensed consolidated statements of earnings.

Mortgage loans are secured by the underlying property and require an appraisal at the time of underwriting and funding.  Generally, the Company will fund a loan not to exceed 80% of the loan's collateral fair market value.  Amounts over 80% will require additional collateral or mortgage insurance by an approved third-party insurer.

The Company provides for losses on its mortgage loans on real estate balances on the Condensed Consolidated Balance Sheet are reflected net ofheld for investment through an allowance for loan losses (a contra-asset account). The allowance is comprised of $1,955,443two components. The first component is an allowance for collectively evaluated impairment that is based upon the Company's historical experience in collecting similar receivables. The second component is based upon individual evaluation of loans that are determined to be impaired. Upon determining impairment, the Company establishes an individual impairment allowance based upon an assessment of the fair value of the underlying collateral. When a loan becomes delinquent, the Company proceeds to foreclose on the real estate and $1,748,783all expenses for foreclosure are expensed as incurred. Once foreclosed, an adjustment for the lower of cost or fair value is made, if necessary, and the amount is classified as real estate held for investment. The Company will rent the properties until it is deemed desirable to sell them.

The allowance for losses on mortgage loans held for investment could change based on changes in the value of the underlying collateral, the performance status of the loans, or the Company's actual collection experience. The actual losses could change, in the near term, from the established allowance, based upon the occurrence or non-occurrence of these events.

For purposes of determining the allowance for losses, the Company has segmented its mortgage loans held for investment by loan type. The Company's loan types are commercial, residential, and residential construction. The inherent risks within the portfolio vary depending upon the loan type as follows:

Commercial - Underwritten in accordance with the Company's policies to determine the borrower's ability to repay the obligation as agreed. Commercial loans are made primarily based on the underlying collateral supporting the loan. Accordingly, the repayment of a commercial loan depends primarily on the collateral and its ability to generate income and secondary on the borrower's (or guarantors) ability to repay.

Residential – Secured by family dwelling units. These loans are secured by first mortgages on the unit, which are generally the primary residence of the borrower, generally at March 31, 2017a loan-to-value ratio ("LTV") of 80% or less.

Residential construction (including land acquisition and December 31, 2016, respectively.development) – Underwritten in accordance with the Company's underwriting policies which include a financial analysis of the builders, borrowers (guarantors), construction cost estimates, and independent appraisal valuations. These loans will rely on the value associated with the project upon completion. These cost and valuation estimates may be inaccurate. Construction loans generally involve the disbursement of substantial funds over a short period of time with repayment substantially dependent upon the success of the completed project and the ability of the borrower to secure long-term financing.  Additionally, land is underwritten according to the Company's policies, which include independent appraisal valuations as well as the estimated value associated with the land upon completion of development into finished lots. These cost and valuation estimates may be inaccurate. These loans are considered to be of a higher risk than other mortgage loans due to their ultimate repayment being sensitive to general economic conditions, availability of long-term or construction financing, and interest rate sensitivity.
1819
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

3)    Investments (Continued)

The Company establishes a valuation allowance for credit losses in its portfolio. 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 LoansAllowance for Credit Losses and Recorded Investment in Mortgage Loans Allowance for Credit Losses and Recorded Investment in Mortgage Loans 
                        
 Commercial  Residential  Residential Construction  Total  Commercial  Residential  Residential Construction  Total 
March 31, 2017            
September 30, 2017            
Allowance for credit losses:                        
Beginning balance - January 1, 2017 $187,129  $1,461,540  $100,114  $1,748,783  $187,129  $1,461,540  $100,114  $1,748,783 
Charge-offs  -   (16,226)  -   (16,226)  -   (49,775)  (64,894)  (114,669)
Provision  -   222,886   -   222,886   -   417,704   -   417,704 
Ending balance -March 31, 2017 $187,129  $1,668,200  $100,114  $1,955,443 
Ending balance - September 30, 2017 $187,129  $1,829,469  $35,220  $2,051,818 
                                
Ending balance: individually evaluated for impairment $-  $423,487  $-  $423,487  $-  $411,172  $-  $411,172 
                                
Ending balance: collectively evaluated for impairment $187,129  $1,244,713  $100,114  $1,531,956  $187,129  $1,418,297  $35,220  $1,640,646 
                
Ending balance: loans acquired with deteriorated credit quality $-  $-  $-  $- 
                                
Mortgage loans:                                
Ending balance $37,532,001  $64,629,906  $33,917,309  $136,079,216  $42,923,761  $65,759,761  $41,306,722  $149,990,244 
                                
Ending balance: individually evaluated for impairment $203,264  $4,842,306  $484,196  $5,529,766  $203,806  $5,425,757  $-  $5,629,563 
                                
Ending balance: collectively evaluated for impairment $37,328,737  $59,787,600  $33,433,113  $130,549,450  $42,719,955  $60,334,004  $41,306,722  $144,360,681 
                
Ending balance: loans acquired with deteriorated credit quality $-  $-  $-  $- 
                                
December 31, 2016                                
Allowance for credit losses:                                
Beginning balance - January 1, 2016 $187,129  $1,560,877  $100,114  $1,848,120  $187,129  $1,560,877  $100,114  $1,848,120 
Charge-offs  -   (420,135)  -   (420,135)  -   (420,135)  -   (420,135)
Provision  -   320,798   -   320,798   -   320,798   -   320,798 
Ending balance - December 31, 2016 $187,129  $1,461,540  $100,114  $1,748,783  $187,129  $1,461,540  $100,114  $1,748,783 
                                
Ending balance: individually evaluated for impairment $-  $374,501  $-  $374,501  $-  $374,501  $-  $374,501 
                                
Ending balance: collectively evaluated for impairment $187,129  $1,087,039  $100,114  $1,374,282  $187,129  $1,087,039  $100,114  $1,374,282 
                                
Ending balance: loans acquired with deteriorated credit quality $-  $-  $-  $- 
                
Mortgage loans:                                
Ending balance $51,536,622  $58,593,622  $40,800,117  $150,930,361  $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  $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  $51,333,630  $55,677,084  $40,735,222  $147,745,936 
                
Ending balance: loans acquired with deteriorated credit quality $-  $-  $-  $- 

1920
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

3)    Investments (Continued)

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

Age Analysis of Past Due Mortgage Loans 
Age Analysis of Mortgage Loans Held for InvestmentAge 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
  
Net Mortgage
Loans
  
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
 
March 31, 2017                         
September 30, 2017September 30, 2017                            
Commercial $1,547,419  $-  $-  $203,264  $1,750,683  $35,781,318  $37,532,001  $(187,129) $37,344,872  $513,218  $-  $-  $203,806  $717,024  $42,206,737  $42,923,761  $(187,129) $(229,603) $42,507,029 
Residential  733,374   91,433   1,451,582   3,390,724   5,667,113   58,962,793   64,629,906   (1,668,200)  62,961,706   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
  -   -   64,895   419,301   484,196   33,433,113   33,917,309   (100,114)  33,817,195   -   -   -   -   -   41,306,722   41,306,722   (35,220)  (386,554)  40,884,948 
                                                                            
Total $2,280,793  $91,433  $1,516,477  $4,013,289  $7,901,992  $128,177,224  $136,079,216  $(1,955,443) $134,123,773  $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, 2016December 31, 2016                                 December 31, 2016                                     
Commercial $-  $-  $-  $202,992  $202,992  $51,333,630  $51,536,622  $(187,129) $51,349,493  $-  $-  $-  $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)  57,132,082   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   -   -   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) $149,181,578  $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.(1) Interest income is not recognized on loans past due greater than 90 days or in foreclosure. (1) Interest income is not recognized on loans past due greater than 90 days or in foreclosure. 

2021
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

3)    Investments (Continued)

Impaired Mortgage Loans Held for Investment

Impaired mortgage loans held for investment include loans with a related specific valuation allowance or loans whose carrying amount has been reduced to the expected collectible amount because the impairment has been considered other than temporary. The recorded investment in and unpaid principal balance of impaired loans along with the related loan specific allowance for losses, if any, for each reporting period and the average recorded investment and interest income recognized during the time the loans were impaired were as follows:

Impaired LoansImpaired Loans Impaired Loans 
                              
 
Recorded
Investment
  
Unpaid
Principal
Balance
  Related Allowance  
Average
 Recorded
 Investment
  
Interest
Income
 Recognized
  
Recorded
 Investment
  
Unpaid
 Principal
 Balance
  
Related
Allowance
  
Average
Recorded
Investment
  
Interest
Income
 Recognized
 
March 31, 2017               
September 30, 2017               
With no related allowance recorded:                              
Commercial $203,264  $203,264  $-  $203,264  $-  $203,806  $203,806  $-  $456,524  $- 
Residential  -   -   -   -   -   3,872,587   3,872,587   -   3,281,980   - 
Residential construction  484,196   484,196   -   484,196   -   -   -   -   -   - 
                                        
With an allowance recorded:                                        
Commercial $-  $-  $-  $-  $-  $-  $-  $-  $-  $- 
Residential  4,842,306   4,842,306   423,487   4,842,306   -   1,553,170   1,553,170   411,172   1,287,394   - 
Residential construction  -   -   -   -   -   -   -   -   -   - 
                                        
Total:                                        
Commercial $203,264  $203,264  $-  $203,264  $-  $203,806  $203,806  $-  $456,524  $- 
Residential  4,842,306   4,842,306   423,487   4,842,306   -   5,425,757   5,425,757   411,172   4,569,374   - 
Residential construction  484,196   484,196   -   484,196   -   -   -   -   -   - 
                                        
December 31, 2016                                        
With no related allowance recorded:                                        
Commercial $202,992  $202,992  $-  $202,992  $-  $202,992  $202,992  $-  $202,992  $- 
Residential  -   -   -   -   -   -   -   -   -   - 
Residential construction  64,895   64,895   -   64,895   -   64,895   64,895   -   79,082   - 
                                        
With an allowance recorded:                                        
Commercial $-  $-  $-  $-  $-  $-  $-  $-  $-  $- 
Residential  2,916,538   2,916,538   374,501   2,916,538   -   2,916,538   2,916,538   374,501   3,001,850   - 
Residential construction  -   -   -   -   -   -   -   -   -   - 
                                        
Total:                                        
Commercial $202,992  $202,992  $-  $202,992  $-  $202,992  $202,992  $-  $202,992  $- 
Residential  2,916,538   2,916,538   374,501   2,916,538   -   2,916,538   2,916,538   374,501   3,001,850   - 
Residential construction  64,895   64,895   -   64,895   -   64,895   64,895   -   79,082   - 


Credit Risk Profile Based on Performance Status

The Company's mortgage loan held for investment portfolio is monitored based on performance of the loans. Monitoring a mortgage loan increases when the loan is delinquent or earlier if there is an indication of impairment. The Company defines non-performing mortgage loans as loans 90 days or greater delinquent or on non-accrual status.
2122
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

3)    Investments (Continued)

The Company's performing and non-performing mortgage loans held for investment were as follows:

Mortgage Loan Credit Exposure 
Mortgage Loans Held for Investment Credit ExposureMortgage Loans Held for Investment Credit Exposure 
Credit Risk Profile Based on Payment ActivityCredit Risk Profile Based on Payment Activity Credit Risk Profile Based on Payment Activity 
                                                
 Commercial  Residential  Residential Construction  Total  Commercial  Residential  Residential Construction  Total 
 
March
31, 2017
  
December
31, 2016
  
March
31, 2017
  
December
31, 2016
  
March
31, 2017
  
December
31, 2016
  
March
31, 2017
  
December
31, 2016
  
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 $37,328,737  $51,333,630  $59,787,600  $55,677,084  $33,433,113  $40,735,222  $130,549,450  $147,745,936  $42,719,955  $51,333,630  $60,334,004  $55,677,084  $41,306,722  $40,735,222  $144,360,681  $147,745,936 
Nonperforming  203,264   202,992   4,842,306   2,916,538   484,196   64,895   5,529,766   3,184,425 
Non-performing  203,806   202,992   5,425,757   2,916,538   -   64,895   5,629,563   3,184,425 
                                                                
Total $37,532,001  $51,536,622  $64,629,906  $58,593,622  $33,917,309  $40,800,117  $136,079,216  $150,930,361  $42,923,761  $51,536,622  $65,759,761  $58,593,622  $41,306,722  $40,800,117  $149,990,244  $150,930,361 

Non-Accrual Mortgage Loans Held for Investment

Once a loan is past due 90 days, it is the policy of the Company to end the accrual of interest income on the loan and write off any interest income that had been accrued. Payments received for loans on a non-accrual status are recognized on a cash basis. Interest income recognized from any payments received for loans on a non-accrual status was immaterial. Accrual of interest resumes if a loan is brought current. Interest not accrued on these loans totals approximately $156,000$185,000 and $172,000 as of March 31,September 30, 2017 and December 31, 2016, respectively.

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

 Mortgage Loans on Nonaccrual Status  Mortgage Loans on Non-Accrual Status 
      
 
As of
March 31
2017
  
As of
December 31
2016
  
As of
September 30
2017
  
As of
December 31
2016
 
Commercial $203,264  $202,992  $203,806  $202,992 
Residential  4,842,306   2,916,538   5,425,757   2,916,538 
Residential construction  484,196   64,895   -   64,895 
Total $5,529,766  $3,184,425  $5,629,563  $3,184,425 

23
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2017 (Unaudited)



4)    Loans Held for Sale

Fair Value Option Election

Accounting Standards Codification ("ASC") No. 825, "Financial Instruments", allows for the option to report certain financial assets and liabilities at fair value initially and at subsequent measurement dates with changes in fair value included in earnings. The option may be applied instrument by instrument, but it is irrevocable. The 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 changes in the fair value of the related derivatives used for these assets.

Interest income is recorded based on the contractual terms of the loan and in accordance with the Company's policy on mortgage loans held for investment and is included in mortgage fee income on the condensed consolidated statement of earnings. None of these loans are 90 or more days past due nor on nonaccrual status as of September 30, 2017. See Note 8 to the condensed consolidated financial statements for additional disclosures regarding loans held for sale.

The following is a summary of the aggregate fair value and the aggregate unpaid principal balance ("UPB") of loans held for sale for the periods presented:

  
As of
 September 30
2017
 
    
Aggregate fair value $166,990,187 
UPB  161,165,793 
Unrealized gain  5,824,394 

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 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 

Loan Loss Reserve

When a repurchase demand corresponding to a mortgage loan previously held for sale and sold to a third-party investor is received from a third-party investor, the relevant data is reviewed and captured so that an estimated future loss can be calculated. The key factors that are used in the estimated 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.
24
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2017 (Unaudited)

4)    Loans Held for Sale (Continued)

The following is a summary of the loan loss reserve that is included in other liabilities and accrued expenses:

 
As of
 March 31
2017
(As Restated)
(Unaudited)
  
As of
 December 31
2016
(As Restated)
  
As of
September 30
2017
  
As of
 December 31
2016
 
Balance, beginning of period $627,733  $2,805,900  $627,733  $2,805,900 
Provision for current loan originations (1)  426,634   2,988,754 
Provision on current loan originations (1)  1,435,180   2,988,754 
Additional provision for loan loss reserve  -   1,700,000   -   1,700,000 
Charge-offs, net of recaptured amounts  10,708   (6,866,921)  108,175   (6,866,921)
Balance, end of period $1,065,075  $627,733  $2,171,088  $627,733 
                
(1) Included in Mortgage fee income                

The Company believes the loan loss reserve represents probable loan losses incurred as of the balance sheet date. Actual loan loss experience could change, in the near-term, from the established reserve based upon claims that could be asserted by third partythird-party investors. SecurityNational MortgageThe Company believes there is potential to resolve any alleged claims by third partythird-party investors on acceptable terms. If SecurityNational Mortgagethe Company is unable to resolve such claims on acceptable terms, legal action may ensue. In the event of legal action by any third-party investor, SecurityNational Mortgagethe Company believes it has significant defenses to any such action and intends to vigorously defend itself against such action.
2225
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)


4)5)    Stock Compensation Plans

The Company has four fixed option plans (the "2003 Plan", the "2006 Director Plan", the "2013 Plan" and the "2014 Director Plan"). Compensation expense for options issued of $101,996$102,429 and $84,452$84,949 has been recognized for these plans for the three months ended March 31,September 30, 2017 and 2016, respectively, and $305,741 and $253,427 for the nine months ended September 30, 2017 and 2016, respectively. As of March 31,September 30, 2017, the total unrecognized compensation expense related to the options issued in December 2016 was $273,464,$69,719, which is expected to be recognized over the vesting period of one year.

The Company generally estimates the expected life of the options based upon the contractual term of the options adjusted for actual experience. Future volatility is estimated based upon the weighted historical volatility of the Company's Class A common stock over a period equal to the estimated life of the options. Common stock issued upon exercise of stock options are generally new share issuances rather than from treasury shares.

A summary of the status of the Company's stock incentivecompensation plans as of March 31,September 30, 2017, and the changes during the threenine months ended March 31,September 30, 2017, are presented below:

  
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  -       -     
Cancelled  -       -     
Outstanding at March 31, 2017  741,973  $4.33   556,298  $4.61 
                 
As of March 31, 2017:                
Options exercisable  636,764  $3.94   493,298  $4.26 
                 
As of March 31, 2017:                
Available options for future grant  253,432       -     
                 
                
Weighted average contractual term of options outstanding at March 31, 2017
 7.12 years      2.42 years     
                 
                
Weighted average contractual term of options exercisable at March 31, 2017
 6.70 years      2.13 years     
                 
                
Aggregated intrinsic value of options outstanding at March 31, 2017 (1)
 $1,837,828      $1,264,540     
                 
                
Aggregated intrinsic value of options exercisable at March 31, 2017 (1)
 $1,824,086      $1,264,540     
                 
                 
(1) The Company used a stock price of $6.80 as of March 31, 2017 to derive intrinsic value. 

  
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. 

2326
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

4)5)    Stock Compensation Plans (Continued)

A summary of the status of the Company's stock incentivecompensation plans as of March 31,September 30, 2016, and the changes during the threenine months ended March 31,September 30, 2016, are presented below:

  
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  (28,460)  2.15   -     
Cancelled  -       -     
Outstanding at March 31, 2016  589,801  $3.97   577,436  $3.54 
                 
As of March 31, 2016:                
Options exercisable  484,659  $3.45   498,686  $2.99 
                 
As of March 31, 2016:                
Available options for future grant  454,842       57,750     
                
Weighted average contractual term of options outstanding at March 31, 2016
 7.50 years      2.50 years     
                 
Weighted average contractual term of options exercisable at March 31, 2016
 7.03 years      2.16 years     
                
Aggregated intrinsic value of options outstanding at March 31, 2016 (1)
 $844,342      $1,096,391     
                
Aggregated intrinsic value of options exercisable at March 31, 2016 (1)
 $844,342      $1,096,391     
                 
(1) The Company used a stock price of $5.09 as of March 31, 2016 to derive intrinsic value. 


  
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.     
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 threenine months ended March 31,September 30, 2017 and 2016 was $-0-$578,017 and $91,989,$98,663, respectively.

2427
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

5)6)    Earnings Per Share

The basic and diluted earnings per share amounts were calculated as follows:

 
Three Months Ended
March 31 (As Restated) (Unaudited)
  
Three Months Ended
September 30
  
Nine Months Ended
September 30
 
 2017  2016  2017  2016  2017  2016 
Numerator:                  
Net earnings $1,860,000  $2,537,941  $1,096,838  $4,183,005  $5,442,702  $11,737,952 
Denominator:                        
Basic weighted-average shares outstanding  15,058,153   14,656,450   15,256,857   14,830,078   15,159,569   14,744,779 
Effect of dilutive securities:                        
Employee stock options  469,843   455,828   285,803   439,535   315,257   421,266 
                        
Diluted weighted-average shares outstanding  15,527,996   15,112,278   15,542,660   15,269,613   15,474,826   15,166,045 
                        
Basic net earnings per share $0.12  $0.17  $0.07  $0.28  $0.36  $0.80 
                        
Diluted net earnings per share $0.12  $0.17  $0.07  $0.27  $0.35  $0.77 

Net earnings per share amounts have been retroactively adjusted for the effect of annual stock dividends. For the threenine months ended March 31,September 30, 2017 and 2016, there were 89,250486,725 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.

6)7)    Business Segment Information

Description of Products and Services by Segment

The Company has three reportable business segments: life insurance, cemetery and mortuary, and mortgage. The Company's life insurance segment consists of life insurance premiums and operating expenses from the sale of insurance products sold by the Company's independent agency force and net investment income derived from investing policyholder and segment surplus funds. The Company'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's mortgage segment consists of fee income and expenses from the originations of residential mortgage loans and interest earned and interest expenses from warehousing pre-sold loans before the funds are received from financial institutional investors.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/A for the year ended December 31, 2016. Intersegment revenues are recorded at cost plus an agreed upon intercompany profit, and are eliminated upon consolidation.

Factors Management Used to Identify the Enterprise's Reportable Segments

The Company'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.
2528
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

6)7)    Business Segment Information(Continued)


  Life Insurance  
Cemetery/
Mortuary
  Mortgage  
Intercompany
Eliminations
  Consolidated 
For the Three Months Ended               
March 31, 2017
               
Revenues from external customers $26,158,701  $3,604,897  $41,065,699  $-  $70,829,297 
Intersegment revenues  2,988,651   109,351   95,770   (3,193,772) ��- 
Segment profit before income taxes  1,483,480   758,911   655,379   -   2,897,770 
                     
Identifiable Assets  833,999,127   99,554,821   164,990,647   (139,027,232)  959,517,363 
Goodwill  2,765,570   -   -   -   2,765,570 
                     
For the Three Months Ended                    
March 31, 2016
                    
Revenues from external customers $22,075,134  $3,330,766  $44,050,448  $-  $69,456,348 
Intersegment revenues  3,103,446   286,925   79,479   (3,469,850)  - 
Segment profit before income taxes  1,103,727   469,055   2,498,298   -   4,071,080 
                     
Identifiable Assets  724,858,698   96,827,903   157,602,831   (133,414,858)  845,874,574 
Goodwill  2,765,570   -   -   -   2,765,570 

  
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 

7)8)    Fair Value of Financial Instruments

Generally accepted accounting principles (GAAP) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. GAAP also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. Fair value measurements are classified under the following hierarchy:
29
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2017 (Unaudited)

8)    Fair Value of Financial Instruments (Continued)

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.
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 the Company's estimates of the assumptions that market participants would use in valuing the financial assets and financial liabilities.

The Company utilizes a combination of third party valuation service providers, brokers, and internal valuation models to determine fair value.

The following methods and assumptions were used by the Company in estimating the fair value disclosures related to other significant financial instruments:
26
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2017 (As Restated) (Unaudited)

7)  Fair Value of Financial Instruments (Continued)

The items shown under Level 1 and Level 2 are valued as follows:

Equity Securities Available for Sale and Held to Maturity: The fair values of investments in fixed maturity and equity securities along with methods used to estimate such values are disclosed in Note 3 of the Notes to Condensed Consolidated Statements.the condensed consolidated financial statements.

Restricted Assets: A portion of these assets include mutual funds and equity securities that have quoted market prices.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 sheetsheets for these financial instruments approximate their fair values.values due to their short-term nature.

Cemetery Endowment Care Trust Investments:  A portion of these assets include equity securities that have quoted market prices.prices that are used to determine fair value. Also included are cash and cash equivalents. The carrying amounts reported in the accompanying condensed consolidated balance sheetsheets for these financial instruments approximate their fair values.values due to their short-term nature.

Call and Put Options: The Company uses quoted market prices to value its call and put options.

Additionally, there were no transfers between Level 1 and Level 2 in the fair value hierarchy.

The items shown under Level 3 are valued as follows:

Policyholder Account Balances and Future Policy Benefits-AnnuitiesLoans Held for Sale, at Fair Value: Future policy benefit reservesThe Company elected the fair value option 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 ratesall loans held for interest-sensitive insurance products ranged from 4% to 6.5%.sale originated after July 1, 2017. The fair values for the Company's liabilities under investment-type insurance contracts (disclosed as policyholder account balances and future policy benefits – annuities) are estimatedvalue is based on quoted market prices, when available.  When a quoted market price is not readily available, the contracts' cash surrender values.

The fair values forCompany uses the Company's insurance contracts other than investment-type contracts are not required to be disclosed. However, the fair valuesmarket price from its last sale of liabilities under all insurance contracts are taken into consideration in the Company's overall management of interest rate risk, such that the Company's exposure to changing interest rates is minimized through the matching of investment maturities with amounts due under insurance contracts.similar assets.

Loan Commitments and Forward Sale Commitments: The Company's mortgage segment enters into loan commitments with potential borrowers and forward sale commitments to sell loans to third-party investors. The Company also uses a hedging strategy for these transactions. A loan commitment binds the Company to lend funds to a qualified borrower at a specified interest rate and within a specified period of time, generally up to 30 days after issuance of the loan commitment. Loan commitments are defined to be derivatives under GAAP and are recognized at fair value on the consolidated balance sheetsheets with changes in their fair values recorded in current earnings.

The Company estimates the fair value of a loan commitment based on the change in estimated fair value of the underlying mortgage loan, quoted MBS prices, estimates of the fair value of mortgage servicing rights, and an estimate of the probability that the mortgage loan will fund within the terms of the commitment net of estimated commission expense.commitment. 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.issued. Following issuance, the value of a mortgage loan commitment can be either positive or negative depending upon the change in value of the underlying mortgage loans. Fallout rates and other factors from the Company's recent historical data are used to estimate the quantity and value of mortgage loans that will fund within the terms of the commitments.
30
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2017 (Unaudited)

8)    Fair Value of Financial Instruments (Continued)

Interest Rate Swaps: Management considers the interest rate swap instruments to be an effective cash flow hedge against the variable interest rate on bank borrowings since the interest rate swap mirrors the term of the note payable and expires on the maturity date of the bank loan it hedges. The interest rate swaps are derivative financial instruments carried at their fair value. The fair value of the interest rate swap was derived from a proprietary model of the bank from whom thethat factors in current market assumptions about future interest rate swap was purchased and to whom the note is payable.rates.

Impaired Mortgage Loans on Real EstateHeld for Investment: The Company believes that the fair values are estimated using interest rates currently being offered for similarvalue of these nonperforming loans will approximate the unpaid principal balance expected to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposesbe recovered based on the fair value of the calculations.underlying collateral.  For residential and commercial properties, the collateral value is estimated by obtaining an independent appraisal.  The carrying amounts reported inappraisal typically considers area comparables and property condition as well as potential rental income that could be generated (particularly for commercial properties).  For residential construction loans, the accompanying condensed consolidated balance sheet for these financial instruments approximate theircollateral is typically incomplete, so fair values.
27
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notesvalue is estimated as the replacement cost using data from Marshall and Swift, a provider of building cost information to Condensed Consolidated Financial Statements
March 31, 2017 (As Restated) (Unaudited)the real estate construction.

7)  Fair Value of Financial Instruments (Continued)
Real Estate Held for Investment: The Company believes that in an orderly market, fair value will approximate the replacement cost of a home and the rental income provides a cash flow stream for investment analysis. The Company believes the highest and best use of the properties are as income producing assets since it is the Company's intent to hold the properties as rental properties, matching the income from the investment in rental properties with the funds required for future estimated policy claims.

It should be noted that for replacement cost, when determining the fair value of mortgage properties, the Company uses Marshall and Swift, a provider of building cost information to the real estate construction industry. For the investment analysis, the Company used market data based upon its real estate operation experience and projected the present value of the net rental income over seven years. The Company used 20% of the projected cash flow analysisalso considers area comparables and 80% of the replacement cost to approximateproperty condition when determining fair value of the collateral.value.

In addition to this analysis performed by the Company, the Company depreciates Real Estate Held for Investment. This depreciation reduces the book value of these properties and lessens the exposure to the Company from further deterioration in real estate values.

Mortgage Servicing Rights: The Company initially recognizes Mortgage Servicing Rights ("MSRs") at their estimated fair values derived from the net cash flows associated with the servicing contracts, where the Company assumes the obligation to service the loan in the sale transaction. The precise fair value of MSRs cannot be readily determined because MSRs are not actively traded in stand-alone markets. Considerable judgment is required to estimate the fair values of these assets and the exercise of such judgment can significantly affect the Company's earnings.
The Company's subsequent accounting for MSRs is based on the class of MSRs. The Company has identified two classes of MSRs: MSRs backed by mortgage loans with initial term of 30 years and MSRs backed by mortgage loans with initial term of 15 years. The Company distinguishes between these classes of MSRs due to their differing sensitivities to change in value as the result of changes in market. After being initially recorded at fair value, MSRs backed by mortgage loans are accounted for using the amortization method. MSR amortization is determined by amortizing the balance straight-line over an estimated seven and nine-year life which estimates the 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'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.
2831
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

7)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 March 31, 2017, as restated.September 30, 2017.

  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     

  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 $10,735,239  $10,735,239  $-  $- 
Total securities available for sale $10,735,239  $10,735,239  $-  $- 
                 
Restricted assets of cemeteries and mortuaries $752,814  $752,814  $-  $- 
Cemetery perpetual care trust investments  672,922   672,922   -   - 
Derivatives - loan commitments  9,540,950   -   -   9,540,950 
Total assets accounted for at fair value on a recurring basis $21,701,925  $12,160,975  $-  $9,540,950 
                 
Liabilities accounted for at fair value on a  recurring basis                
Policyholder account balances $(49,155,440) $-  $-  $(49,155,440)
Future policy benefits - annuities  (98,714,812)  -   -   (98,714,812)
Derivatives  - bank loan interest rate swaps  (1,713)  -   -   (1,713)
   - call options  (38,628)  (38,628)  -   - 
   - put options  (13,700)  (13,700)  -   - 
   - loan commitments  (564,025)  -   -   (564,025)
Total liabilities accounted for at fair value on a recurring basis $(148,488,318) $(52,328) $-  $(148,435,990)

Following is a summary of changes in the condensed consolidated balance sheet line items measured using level 3 inputs:

  Policyholder Account Balances  Future Policy Benefits - Annuities  Loan Commitments  Bank Loan Interest Rate Swaps 
             
Balance - December 31, 2016, as restated $(49,421,125) $(99,388,662) $6,809,332  $(3,308)
                 
Total gains (losses):                
                 
Included in earnings  265,685   673,850   2,167,593   - 
                 
Included in other comprehensive income  -   -   -   1,595 
                 
Balance - March 31, 2017, as restated $(49,155,440) $(98,714,812) $8,976,925  $(1,713)
  
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 


2932
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

7)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 nonrecurring basis by their classification in the condensed consolidated balance sheet at March 31,September 30, 2017.

    Quoted Prices           Quoted Prices       
    in Active  Significant  Significant     in Active  Significant  Significant 
    Markets for  Observable  Unobservable     Markets for  Observable  Unobservable 
    Identical Assets  Inputs  Inputs     Identical Assets  Inputs  Inputs 
 Total  (Level 1)  (Level 2)  (Level 3)  Total  (Level 1)  (Level 2)  (Level 3) 
Assets accounted for at fair value on a nonrecurring basis                        
Mortgage loans on real estate $5,106,278  $-  $-  $5,106,278 
Mortgage servicing rights  1,357,867   -   -   1,357,867 
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 $6,464,145  $-  $-  $6,464,145  $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, as restated.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            
Common stock $10,573,356  $10,573,356  $-  $- 
Total securities available for sale $10,573,356  $10,573,356  $-  $- 
                 
Restricted assets of cemeteries and mortuaries $736,603  $736,603  $-  $- 
Cemetery perpetual care trust investments  698,202   698,202   -   - 
Derivatives - loan commitments  6,911,544   -   -   6,911,544 
Total assets accounted for at fair value on a recurring basis $18,919,705  $12,008,161  $-  $6,911,544 
Liabilities accounted for at fair value on a recurring basis                
Policyholder account balances $(49,421,125) $-  $-  $(49,421,125)
Future policy benefits - annuities  (99,388,662)  -   -   (99,388,662)
Derivatives - bank loan interest rate swaps  (3,308)  -   -   (3,308)
                   - call options  (109,474)  (109,474)  -   - 
                   - put options  (26,494)  (26,494)  -   - 
                   - loan commitments  (102,212)  -   -   (102,212)
Total liabilities accounted for at fair value on a recurring basis $(149,051,275) $(135,968) $-  $(148,915,307)
  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     

3033
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

7)8)    Fair Value of Financial Instruments (Continued)
 
Following is a summary of changes in the condensed consolidated balance sheet line items measured using level 3 inputs:
 
  
Policyholder
Account
 Balances
  
Future
Policy
 Benefits -
Annuities
  
Loan
Commitments
  
Bank
 Loan
Interest Rate
Swaps
 
Balance - December 31, 2015, as restated $(50,694,953) $(69,398,617) $7,671,495  $(13,947)
Purchases  -   (30,294,480)  -   - 
Total gains (losses):                
Included in earnings  1,273,828   304,435   (862,163)  - 
Included in other comprehensive income  -   -   -   10,639 
Balance - December 31, 2016, as restated $(49,421,125) $(99,388,662) $6,809,332  $(3,308)

  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 
The following tables summarize Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a nonrecurring basis by their classification in the condensed consolidated balance sheet at December 31, 2016.

    Quoted Prices           
Quoted Prices
in Active
       
    in Active  Significant  Significant      Markets for  Significant  Significant 
    Markets for  Observable  Unobservable      Identical  Observable  Unobservable 
    Identical Assets  Inputs  Inputs      Assets  Inputs  Inputs 
 Total  (Level 1)  (Level 2)  (Level 3)  Total  (Level 1)  (Level 2)  (Level 3) 
                        
Assets accounted for at fair value on a nonrecurring basis                        
Mortgage loans on real estate $2,809,925  $-  $-  $2,809,925 
Mortgage servicing rights  8,603,154   -   -   8,603,154 
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   2,347,820   -   -   2,347,820 
                
Total assets accounted for at fair value on a nonrecurring basis $13,760,899  $-  $-  $13,760,899  $13,760,899  $-  $-  $13,760,899 
34
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2017 (Unaudited)

8)    Fair Value of Financial Instruments (Continued)
Fair Value of Financial Instruments Carried at Other Than Fair Value

ASC 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value.

Management uses its best judgment in estimating the fair value of the Company's financial instruments; however, there are inherent limitations in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at March 31,September 30, 2017 and December 31, 2016.

The estimated fair value amounts for March 31, 2017carrying values and December 31, 2016 have been measured as of period-end, and have not been reevaluated or updated for purposes of these Condensed Consolidated Financial Statements subsequent to those dates. As such, the estimated fair values of thesefor such financial instruments, subsequent toand their corresponding placement in the reporting date may be different than the amounts reported at period-end.fair value hierarchy, are summarized as follows as of September 30, 2017:

  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.     

3135
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

7)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 March 31, 2017:

  Carrying Value  Level 1  Level 2  Level 3  
Total
Estimated
 Fair Value
 
Assets               
Fixed maturity securities, held to maturity $186,445,498  $-  $195,986,579  $-  $195,986,579 
Mortgage loans:                    
Residential  62,961,706   -   -   67,122,262   67,122,262 
Residential construction  33,817,195   -   -   33,817,195   33,817,195 
Commercial  37,344,872   -   -   38,610,972   38,610,972 
Mortgage loans, net $134,123,773  $-  $-  $139,550,429  $139,550,429 
Loans held for sale  151,891,428   -   -   156,891,384   156,891,384 
Policy loans  6,666,500   -   -   6,666,500   6,666,500 
Insurance assignments, net  32,856,652   -   -   32,856,652   32,856,652 
Short-term investments  28,346,922   -   -   28,346,922   28,346,922 
Mortgage servicing rights  19,432,993   -   -   26,632,996   26,632,996 
                     
Liabilities                    
Bank and other loans payable $(153,592,365) $-  $-  $(153,592,365) $(153,592,365)

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:

 Carrying Value  Level 1  Level 2  Level 3  
Total
 Estimated
 Fair Value
  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:                    
Fixed maturity securities held to maturity $184,979,644  $-  $191,850,749  $-  $191,850,749 
Mortgage loans held for investment:                    
Residential  57,132,082   -   -   61,357,393   61,357,393   57,096,961   -   -   61,357,393   61,357,393 
Residential construction  40,700,003   -   -   40,700,003   40,700,003   40,700,003   -   -   40,700,003   40,700,003 
Commercial  51,349,493   -   -   53,299,800   53,299,800   51,193,768   -   -   53,299,800   53,299,800 
Mortgage loans, net $149,181,578  $-  $-  $155,357,196  $155,357,196 
Mortgage loans held for investment, net $148,990,732  $-  $-  $155,357,196  $155,357,196 
Loans held for sale  189,139,832   -   -   192,289,854   192,289,854   189,578,243   -   -   192,289,854   192,289,854 
Policy loans  6,694,148   -   -   6,694,148   6,694,148   6,694,148   -   -   6,694,148   6,694,148 
Insurance assignments, net(1)  32,477,246   -   -   32,477,246   32,477,246   32,477,246   -   -   32,477,246   32,477,246 
Short-term investments  27,560,040   -   -   27,560,040   27,560,040   27,560,040   -   27,560,040   -   27,560,040 
Mortgage servicing rights  18,872,362   -   -   25,496,832   25,496,832 
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) $(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.(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.(2) Included in future policy benefits and unpaid claims on the condensed consolidated balance sheet.     

The methods, assumptions and significant valuation techniques and inputs used to estimate the fair value of these financial instruments are summarized as follows:

Fixed Maturity Securities Held to Maturity:The fair values of fixed maturity securities are based on quoted market prices, when available. For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services, or in the case of private placements, are estimated by discounting expected future cash flows using a current market value applicable to the coupon rate, credit and maturity of the investments.

Mortgage Loans on Real EstateHeld for Investment: The estimated fair value of the Company's mortgage loans held for investment is determined using various methods. The Company's mortgage loans are grouped into three categories: Residential, Residential Construction and Commercial. When estimating the expected future cash flows, it is assumed that all loans will be held to maturity, and any loans that are non-performing are evaluated individually for impairment.

Residential – The estimated fair value of mortgage loans originated prior to 2013 is determined by estimatingthrough 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. The estimated fair value of mortgage loans originated in 2013 thru 2016 is determined frommortgages) and considering pricing of similar loans that were sold in 2016.recently.
32
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2017 (As Restated) (Unaudited)

7)  Fair Value of Financial Instruments (Continued)

Residential Construction – These loans are primarily short in maturity (4-6 months) accordingly, the estimated fair value is determined to be the net bookcarrying 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.

Loans Held for Sale, at Amortized Cost: The fair value is based on quoted market prices, when available.  When a quoted market price is not readily available, the Company uses the market price from its last sale of similar assets.

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.
36
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2017 (Unaudited)

8)    Fair Value of Financial Instruments (Continued)

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.

Short-Term Investments: The carrying amounts reported in the accompanying condensed consolidated balance sheet for these financial instruments approximate their fair values due to their short-term nature.

Mortgage Servicing Rights, Net: The methods used to determine 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 nature.maturities and variable interest rates.

8)Policyholder Account Balances and Future Policy Benefits-Annuities:  Future policy benefit reserves for interest-sensitive insurance products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances. Interest crediting rates for interest-sensitive insurance products ranged from 1.5% to 6.5%. The fair values for these investment-type insurance contracts are estimated based on the present value of liability cash flows.

The fair values for the Company's insurance contracts other than investment-type contracts are not required to be disclosed. However, the fair values of liabilities under all insurance contracts are taken into consideration in the Company's overall management of interest rate risk, such that the Company's exposure to changing interest rates is minimized through the matching of investment maturities with amounts due under insurance contracts.

9) Allowance for Doubtful Accounts Allowance for Loan Losses and Impaired Loans

The Company records an allowance and recognizes an expense for potential losses from mortgage loans, other loansinvestments and receivables in accordance with generally accepted accounting principles.

Receivables are the result of cemetery and mortuary operations, mortgage loan operations and life insurance operations. The allowance is based upon the Company's historical experience for collectively evaluated impairment. Other allowances are based upon receivables individually evaluated for impairment. Collectability of the cemetery and mortuary receivables is significantly influenced by current economic conditions. The critical issues that impact recovery of mortgage loan operations are interest rate risk, loan underwriting, new regulations and the overall economy.

The Company provides allowances for losses on its mortgage loans held for investment through an allowance for loan losses. The allowance is comprised of two components. The first component is an allowance for collectively evaluated impairment that is based upon the Company's historical experience in collecting similar receivables. The second component is based upon individual evaluation of loans that are determined to be impaired. Upon determining impairment, the Company establishes an individual impairment allowance based upon an assessment of the fair value of the underlying collateral. See the schedules in Note 3 for additional information. In addition, when a mortgage loan is past due more than 90 days, the Company does not accrue any interest income. When a loan becomes delinquent, the Company proceeds to foreclose on the real estate and all expenses for foreclosure are expensed as incurred. Once foreclosed, an adjustment for the lower of cost or fair value is made, if necessary, and the amount is classified as real estate held for investment. The Company will rent the properties until it is deemed desirable to sell them.

The allowance for losses on mortgage loans held for investment could change based on changes in the value of the underlying collateral, the performance status of the loans, or the Company's actual collection experience. The actual losses could change, in the near term, from the established allowance, based upon the occurrence or non-occurrence of these events.
3337
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)


9)10)    Derivative Instruments

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'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 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 net of estimated commission expense.commitment. 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 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.

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 strategy of selling "out of the money" call options on its available for sale equity securities as a source of revenue.  The options give 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 strategy of selling put options as a means of generating cash or purchasing equity securities at lower than current market prices.  The Company receives an immediate payment of cash for the value of the option and establishes a liability for the fair value of the option.  The liability for options is adjusted to fair value at each reporting date. In the event ana call option is exercised, the Company recognizes a gain on the sale of the equity security and a gain onenhanced by the salevalue of the option.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.
3438
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

9)10)    Derivative Instruments (Continued)

The following table shows the notional amount and fair value of derivatives as of March 31,September 30, 2017 and December 31, 2016.

 Fair Value of Derivative Instruments  Fair Values and Notional Values of Derivative Instruments 
 Asset Derivatives Liability Derivatives     September 30, 2017  December 31, 2016 
 
March 31, 2017
(As Restated)
  
December 31, 2016
(As Restated)
 March 31, 2017 December 31, 2016 
 Balance Sheet Location  Fair Value  Balance Sheet Location  Fair Value Balance Sheet Location Fair Value Balance Sheet Location Fair Value 
Derivatives designated as hedging instruments:                  
Balance Sheet LocationBalance 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  $9,540,950  other assets  $6,911,544 Other liabilities $564,025 Other liabilities $102,212  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  38,628 Other liabilities  109,474  Other liabilities  1,473,050   --   50,452   2,169,850   --   109,474 
Put options  --   --   --   -- Other liabilities  13,700 Other liabilities  26,494  Other liabilities  2,593,300   --   63,637   1,336,750   --   26,494 
Derivatives designated as fair value hedging instruments:                          
Interest rate swaps  --   --   --   -- Bank loans payable  1,713 Bank loans payable  3,308  Bank and other loans payable  43,940   --   138   175,762   --   3,308 
Total     $9,540,950      $6,911,544   $618,066   $241,488    $151,196,333  $3,140,704  $123,153  $195,439,555  $6,911,544  $241,488 

The following table shows the gains and losses on derivatives for the periods presented. 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.

 Net Amount Gain (Loss) Recognized in OCI 
 Three Months Ended Mar 31 
Derivative - Cash Flow Hedging Relationships:
2017 2016 
Interest Rate Swaps $1,595  $2,737 
Sub Total  1,595   2,737 
Tax Effect  622   1,068 
Total $973  $1,669 
     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 

10)11)    Reinsurance, Commitments and Contingencies

Reinsurance

The Company follows the procedure of reinsuring risks in excess of a specified limit, which ranges from $25,000 to $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 has also assumed insurance from other companies.

Mortgage Loan Loss Settlements

Future loan losses can be extremely difficult to estimate. However, management believes that the Company's reserve methodology and its current practice of property preservation allow it to estimate its potential losses on loans sold. The estimated liability for indemnification losses is included in other liabilities and accrued expenses and, as of March 31,September 30, 2017 and December 31, 2016, the balances were $1,065,000$2,171,000 and $628,000, respectively.

Mortgage Loan Loss Litigation

ForLehman Brothers Holdings Litigation – Delaware and New York

In January 2014, Lehman Brothers Holdings, Inc. ("Lehman Holdings") entered into a descriptionsettlement with the Federal National Mortgage Association (Fannie Mae) concerning the mortgage loan claims that Fannie Mae had asserted against Lehman Holdings, which were based on alleged breaches of certain representations and warranties by Lehman Holdings in the 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 based on similar circumstances was entered into between Lehman Holdings and the Federal Home Loan Mortgage Corporation (Freddie Mac) in February 2014.
39
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2017 (Unaudited)

11)    Reinsurance, Commitments and Contingencies (Continued)

Lehman Holdings filed a motion in May 2014 with the U.S. Bankruptcy Court of the litigation involvingSouthern 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 Mae and Freddie Mac settlements with Lehman Holdings.  The mediation was not successful in resolving any issues between SecurityNational Mortgage and Lehman Brothers and Aurora Loan Services, reference is to Part II, Item 1. Legal Proceedings.Holdings.

On January 26, 2016, SecurityNational Mortgage filed a declaratory judgment action against Lehman Holdings in the Superior Court for the State of Delaware.  In the Delaware action, SecurityNational Mortgage asserted its right to obtain a declaration of rights in that there are allegedly millions of dollars in dispute with Lehman Holdings pertaining to approximately 136 loans.  SecurityNational Mortgage sought a declaratory judgment as to its rights as it contends that it has no liability to Lehman Holdings as a result of Lehman Holdings' settlements with Fannie Mae and Freddie Mac.  Lehman Holdings filed a motion in the Delaware court seeking to stay or dismiss the declaratory judgment action.  On August 24, 2016, the Court ruled that it would exercise its discretion to decline jurisdiction over the action and granted Lehman Holdings' motion to dismiss.

On February 3, 2016, Lehman Holdings filed an adversary proceeding against approximately 150 mortgage loan originators, including SecurityNational Mortgage, in the U.S. Bankruptcy Court of the Southern District of New York seeking a declaration of rights similar in nature to the declaratory judgment that SecurityNational Mortgage sought in its Delaware lawsuit, and for damages relating to the alleged obligations of the defendants under the indemnification provisions of the alleged agreements, in amounts to be determined at trial, including interest, attorneys' fees and costs incurred by Lehman Holdings in enforcing the obligations of the defendants. No response was required to be filed relative to the Complaint or the Amended Complaint dated March 7, 2016. A Case Management Order was entered on November 1, 2016.

On December 27, 2016, pursuant to the Case Management Order, Lehman Holdings filed a Second Amended Complaint against SecurityNational Mortgage, which eliminates the declaratory judgment claim but retains a similar claim for damages as in the Complaint.  The case is presently in a motion period. Many of the defendants, including SecurityNational Mortgage, filed a joint motion in the case asserting that the Bankruptcy Court does not have subject matter jurisdiction concerning the matter and that venue is improper. Lehman Holdings' response memorandum was filed on May 31, 2017 and a reply memorandum of the defendants filing the motion was filed on July 14, 2017. A hearing date for the motion has not been set. No Answer to the Second Amended Complaint is required to be filed by SecurityNational Mortgage pending further order of the Court.  SecurityNational Mortgage denies that it has any liability to Lehman Holdings and intends to vigorously protect and defend its position.
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 March 31,September 30, 2017, the Company's commitments were approximately $45,923,000$69,601,000 for these loans, of which $33,917,000$41,307,000 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% and 80% of appraised value. The Company receives fees and interest for these loans and the interest rate is generally fixed 5.50% to 8.00% per annum. Maturities range between six and eighteen months.
35
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2017 (As Restated) (Unaudited)

10)  Reinsurance, Commitments and Contingencies (Continued)

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. At March 31, 2017, $471,607 of reserves was established related to such insurance programs versus $416,576 at December 31, 2016.

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The Company is a defendant in various other legal actions arising from the normal conduct of business. Management believes that none of the actions will have a material effect on the Company's financial position or results of operations. Based on management's assessment and legal counsel'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.

11)12)    Mortgage Servicing Rights

The Company reportsinitially records these MSRs pursuant to the accounting policyMortgage Servicing Rights ("MSRs") at fair value as discussed in Note 7.8.

The Company's subsequent accounting for MSRs is based on the class of MSRs. The Company has identified two classes of MSRs: MSRs backed by mortgage loans with initial term of 30 years and MSRs backed by mortgage loans with initial term of 15 years. The Company distinguishes between these classes of MSRs due to their differing sensitivities to change in value as the result of changes in market. After being initially recorded at fair value, MSRs backed by mortgage loans are accounted for using the amortization method. MSR amortization is determined by amortizing the balance straight-line over an estimated seven and nine-year life which estimates the 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'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.
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SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2017 (Unaudited)

12)    Mortgage Servicing Rights (Continued)

The following is a summary of the MSR activity for the periods presented.
 
 
As of
March 31
2017
  
As of
December 31
2016
  
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  $18,872,362  $12,679,755 
MSRs proceeds from loan sales  1,357,867   8,603,154 
MSR additions resulting from loan sales  4,057,974   8,603,154 
Amortization(1)  (797,236)  (2,410,547)  (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 $19,432,993  $18,872,362  $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 $19,432,993  $18,872,362  $20,396,568  $18,872,362 
                
Estimated fair value of MSRs at end of period $26,632,996  $25,496,832  $26,785,380  $25,496,832 
        
(1) Included in other expenses on the condensed consolidated statements of earnings(1) Included in other expenses on the condensed consolidated statements of earnings 

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SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2017 (As Restated) (Unaudited)The following table summarizes the Company's estimate of future amortization of its existing MSRs carried at amortized cost:

11)  Mortgage Servicing Rights (Continued)
  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 

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 

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SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Statement of Earnings:Financial Statements
September 30, 2017 (Unaudited)

 
Three Months Ended
Mar 31
 
 2017 2016 
Contractual servicing fees $1,835,873  $1,314,285 
Late fees  86,338   63,055 
Total $1,922,211  $1,377,340 
12)    Mortgage Servicing Rights (Continued)

The following is a summary of the unpaid principal balances ("UPB") of the servicing portfolio for the periods presented:

  
As of
 March 31
 2017
  
As of
December 31
2016
 
Servicing UPB $2,744,354,316  $2,720,441,340 
  
As of
 September 30
2017
  
As of
December 31
2016
 
Servicing UPB $3,003,608,494  $2,720,441,340 

The following key assumptions were used in determining MSR value:

 
Prepayment
Speeds
  
Average
Life(Years)
  
Discount
Rate
  
Prepayment
Speeds
  
Average
Life (Years)
  
Discount
Rate
 
March 31, 2017  3.79%  6.55   10.01 
September 30, 2017  3.59   6.2   10.01 
December 31, 2016  3.77%  6.52   10.01   3.77   6.52   10.01 
3743
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

12)13) Acquisitions

Acquisition of First Guaranty Insurance Company

On July 11, 2016, the Company, through its wholly owned subsidiary Security National Life, completed the stock purchase transaction with the shareholders of Reppond Holding Corporation, an Arkansas corporation ("Reppond Holding") and sole shareholder of First Guaranty Insurance Company, a Louisiana domestic stock legal reserve life insurance company ("First Guaranty"), to purchase all the outstanding shares of common stock of Reppond Holding. Under the terms of the stock purchase agreement, dated February 17, 2016, between Security National Life and Reppond Holding, which was later amended on March 4 and 17, 2016, Security National Life paid a total of $6,753,000 at the closing in consideration for the purchase of all the outstanding shares of stock of Reppond Holding from its shareholders.

The estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition were as follows:

Fixed maturity securities, held to maturity $43,878,084  $43,878,084 
Equity securities, available for sale  646,335   646,335 
Mortgage loans on real estate  4,528,582 
Mortgage loans held for investment  4,528,582 
Real estate held for investment  528,947   528,947 
Policy loans  145,953   145,953 
Short-term investments  5,358,403   5,358,403 
Accrued investment income  585,985   585,985 
Cash and cash equivalents  2,424,480   2,424,480 
Receivables  73,347   73,347 
Property and equipment  21,083   21,083 
Deferred tax asset  1,190,862   1,190,862 
Receivable from reinsurers  34,948   34,948 
Other  57,768   57,768 
Total assets acquired  59,474,777   59,474,777 
Future life, annuity, and other benefits  (52,648,838)
Future policy benefits and unpaid claims  (52,648,838)
Accounts payable  (6,953)  (6,953)
Other liabilities and accrued expenses  (65,986)  (65,986)
Total liabilities assumed  (52,721,777)  (52,721,777)
Fair value of net assets acquired/consideration paid $6,753,000  $6,753,000 

The estimated fair value of the fixed maturity securities and the equity securities is based on unadjusted quoted prices for identical assets in an active market.  These types of financial assets are considered Level 1 under the fair value hierarchy. The estimated fair value of future life, annuity,policy benefits and other benefitsunpaid claims is based on assumptions of the future value of the business acquired. Based on the unobservable nature of certain of these assumptions, the valuation for these financial liabilities is considered to be Level 3 under the fair value hierarchy. The Company determined that the estimated fair value of the remaining assets and liabilities acquired approximated their book values. The fair value of assets acquired and liabilities assumed arewere subject to adjustment during the first twelve months after the acquisition date if additional information becomesbecame available to indicate a more accurate or appropriate value for an asset or liability. No adjustments were made.
3844
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31,September 30, 2017 (As Restated) (Unaudited)

12)13)    Acquisitions (Continued)

The following unaudited pro forma information has been prepared to present the results of operations of the Company assuming the acquisition of First Guaranty had occurred at the beginning of the three monthand nine-month periods ended March 31, 2017 andSeptember 30, 2016. This pro forma information is supplemental and does not necessarily present the operations of the Company that would have occurred had the acquisition occurred on those dates and may not reflect the operations that will occur in the future:

 
For the Three Months Ended
March 31
(As Restated) (Unaudited)
  
For the Nine Months Ended
September 30
(unaudited)
 
 2017  2016  2016 
Total revenues $70,829,297  $70,614,654  $234,629,101 
Net earnings $1,860,000  $2,302,158  $11,472,978 
Net earnings per Class A equivalent common share $0.12  $0.16  $0.78 
Net earnings per Class A equivalent common share assuming dilution
 $0.12  $0.15 
Net earnings per Class A equivalent common share    
assuming dilution $0.76 

13) Correction of Errors

The accompanying Condensed Consolidated Financial Statements includepro forma results for the restatement ofthree and nine-month periods ended September 30, 2017 and for the three-month period ended September 30, 2016 are not included in the table above because the operating results for the First Guaranty acquisition were included in the Company's previously filed condensed consolidated balance sheets for the quarter ended March 31, 2017 and year ended December 31, 2016 and the related condensed consolidated statements of operations, shareholders' equity and cash flowsearnings for the quarters ended March 31, 2017 and March 31, 2016. For additional information about the correction of errors see Note 21 of the Company's Annual Report on Form 10-K/A.these periods.

Subsequent to the issuance of the company's 2016 Consolidated Financial Statements, the Company identified the following errors, ("Adjustments"):

14) Material Error in Accounting for Repurchase AgreementsIncome Taxes: The Company has concluded it should account for its Repurchase Agreements with unaffiliated banks as "On-Balance-Sheet" transactions, rather than as "Off-Balance-Sheet" as previously reported.  Accordingly, the Company will reflect any outstanding loans as Loans Held for Sale and the corresponding debt as a Bank Loan Payable.  The Company has corrected its sale accounting practice to defer revenue and costs on loans that remain as Held for Sale.  The Company will recognize these deferred items at the time the loan is purchased by the ultimate investor.

Material Error in Accounting for Tax Valuation Allowance:  The Company determined that it should have reversed its valuation allowance in its entirety in 2012 when the Company no longer qualified for the small life insurance company deduction, rather than in other periods as previously reported.

Other Immaterial Corrections and Reclassifications: In addition, the Company has recorded the following additional corrections in the accompanying Consolidated Financial Statements:

1.Reclassification of Receivables to Loans Held for Sale
2.Reclassification of the Provision for Loan Loss Reserve to net against Mortgage Fee Income
3.Correction to Future Life, Annuity and Other Benefits to reverse a deferred profit liability
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SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2017 (As Restated) (Unaudited)


13)  Correction of Errors (Continued)

The tables below present the impact of the restatement of the Company's Condensed Consolidated Balance Sheetsoverall effective tax rate for the three months ended September 30, 2017 and 2016 was 3.6% and 36.4%, respectively, which resulted in a provision for income taxes of $41,000 and $2,390,000, respectively.  The Company's overall effective tax rate for the nine months ended September 30, 2017 and 2016 was 32.2% and 37.0%, respectively, which resulted in a provision for income taxes of $2,587,000 and $6,892,000, respectively.  The Company's effective tax rates differ from the U.S. federal statutory rate of 34% largely due to its provision for state income taxes and a reduction in the valuation allowance related to the prior acquisition of First Guaranty Insurance Company that decreased the effective income tax rates for both periods, presented:

  As of March 31, 2017 
  
As
Previously
 Reported
  Adjustments  As Restated 
Loans held for sale (formerly called Mortgage loans sold to investors) $54,401,522  $97,489,906  $151,891,428 
Receivables, net  15,736,045   (9,433,244)  6,302,801 
Other assets  8,141,683   4,255,584   12,397,267 
Total Assets  867,205,117   92,312,246   959,517,363 
Future life, annuity, and other benefits  589,405,726   (1,156,778)  588,248,948 
Bank and other loans payable  61,548,686   92,045,392   153,594,078 
Income taxes  28,717,508   (3,347,481)  25,370,027 
Total liabilities  737,292,214   87,544,133   824,836,347 
Retained earnings  64,494,807   4,771,113   69,265,920 
Total stockholders' equity  129,909,903   4,771,113   134,681,016 
Total Liabilities and Stockholders' Equity  867,205,117   92,312,246   959,517,363 
             
  As of December 31, 2016 
  
As
Previously
 Reported
  Adjustments  As Restated 
Loans held for sale (formerly called Mortgage loans sold to investors) $82,491,091  $106,648,741  $189,139,832 
Receivables, net  18,870,119  $(12,496,755)  6,373,364 
Other assets  6,891,468   3,521,926   10,413,394 
Total Assets  854,004,671   97,673,912   951,678,583 
Future life, annuity, and other benefits  585,610,063   (1,542,371)  584,067,692 
Bank and other loans payable  53,718,548   98,422,131   152,140,679 
Income taxes  27,904,294   (3,585,425)  24,318,869 
Total liabilities  725,825,117   93,294,335   819,119,452 
Retained earnings  63,029,627   4,379,577   67,409,204 
Total stockholders' equity  128,179,554   4,379,577   132,559,131 
Total Liabilities and Stockholders' Equity  854,004,671   97,673,912   951,678,583 
             
  As of January 1, 2016 
  
As
Previously
 Reported
  Adjustments  As Restated 
Retained earnings  54,054,950   6,470,454   60,525,404 

when compared to the prior year periods.
4045
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2017 (As Restated) (Unaudited)


13)  Correction of Errors (Continued)
The tables below present the impact of the restatement on the Company's Condensed Consolidated Statements of Earnings for the periods presented:

  Three Months Ended March 31, 2017 
  
As
 Previously
Reported
  Adjustments  As Restated 
Mortgage fee income $37,050,926  $1,376,928  $38,427,854 
Total revenues  69,452,369   1,376,928   70,829,297 
Increase in future policy benefits  5,182,449   385,593   5,568,042 
Commissions  15,721,074   633,974   16,355,048 
Provision for loan loss reserve  426,634   (426,634)  - 
Cost related to funding mortgage loans  2,065,134   154,515   2,219,649 
Total benefits and expenses  67,184,079   747,448   67,931,527 
Earnings before income taxes  2,268,290   629,480   2,897,770 
Income tax expense  (799,826)  (237,944)  (1,037,770)
Net earnings  1,468,464   391,536   1,860,000 
Net earnings per common share (1) $0.10  $0.03  $0.12 
Net earnings per common share assuming dilution (1) $0.09  $0.03  $0.12 
             
  Three Months Ended March 31, 2016 
  As Previously Reported  Adjustments  As Restated 
Mortgage fee income $39,110,967  $2,101,041  $41,212,008 
Total revenues  67,355,307   2,101,041   69,456,348 
Increase in future policy benefits  4,160,260   (38,559)  4,121,701 
Commissions  16,842,270   2,368,698   19,210,968 
Provision for loan loss reserve  586,778   (586,778)  - 
Cost related to funding mortgage loans  2,154,397   478,357   2,632,754 
Total benefits and expenses  63,163,550   2,221,718   65,385,268 
Earnings before income taxes  4,191,757   (120,677)  4,071,080 
Income tax expense  (1,580,220)  47,081   (1,533,139)
Net earnings  2,611,537   (73,596)  2,537,941 
Net earnings per common share (1) $0.18  $ (0.01) $0.17 
Net earnings per common share assuming dilution (1) $0.17  $ (0.00) $0.17 
(1)Earnings per share amounts have been adjusted retroactively for the effect of annual stock dividends.

41
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2017 (As Restated) (Unaudited)


13)  Correction of Errors (Continued)

The tables below present the impact of the restatement on the Company's Condensed Consolidated Statements of Comprehensive Income for the periods presented:

  Three Months Ended March 31, 2017 
  
As
Previously
 Reported
  Adjustments  As Restated 
Net earnings $1,468,464  $391,536  $1,860,000 
             
  Three Months Ended March 31, 2016 
  
As
Previously
Reported
  Adjustments  As Restated 
Net earnings $2,611,537  $(73,596) $2,537,941 

The tables below present the impact of the restatement on the Company's Condensed Consolidated Statements of Cash Flows for the periods presented:

  Three Months Ended March 31, 2017 
  As Previously Reported  Adjustments  As Restated 
Net cash provided by operating activities $24,054,637  $6,376,739  $30,431,376 
Net change in warehouse line borrowings  -   (6,376,739)  (6,376,739)
Net cash provided by (used in) financing activities  6,229,522   (6,376,739)  (147,217)
             
  Three Months Ended March 31, 2016 
  As Previously Reported  Adjustments  As Restated 
Net cash provided by operating activities $25,863,034  $1,412,370  $27,275,404 
Net change in warehouse line borrowings  -   (1,412,370)  (1,412,370)
Net cash provided by (used in) financing activities  (100,886)  (1,412,370)  (1,513,256)


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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

Overview

The accompanying management's discussion and analysis gives effect to the restatement discussed in Note 13 to the Condensed Consolidated Financial Statements.

The Company's operations over the last several years generally reflect three trends or events which the Company expects to continue: (i) increased attention to "niche" insurance products, such as the Company's funeral plan policies and traditional whole life products; (ii) emphasis on cemetery and mortuary business; and (iii) capitalizing on relatively low interest rates by originating mortgage loans.

Insurance Operations

The Company'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. The Company believes that funeral plans represent a marketing niche that has lower competition 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'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 months ended March 31,September 30, 2017 and 2016.  See Note 67 to the Condensed Consolidated Financial Statements.condensed consolidated financial statements.

 
Three months ended March 31
(in thousands of dollars)
  
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)  2017  2016  % Increase (Decrease) 
Revenues from external customers                           
Insurance premiums $17,357  $14,452   20% $17,490  $17,157   2% $52,345  $47,508   10%
Net investment income  7,586   6,963   9%  8,110   7,828   4%  24,831   22,768   9%
Income from loan originations  1,188   472   152%
Other  28   188   (85%)  (370)  (13)  2746%  (64)  341   (119%)
Total $26,159  $22,075   19% $25,230  $24,972   1% $77,112  $70,617   9%
Intersegment revenue $2,989  $3,103   (4%) $3,334  $3,319   0% $9,300  $9,781   (5%)
Earnings before income taxes $1,483  $1,104   34% $523  $2,139   (76%) $4,825  $5,785   (17%)

Intersegment revenues are primarily interest income from the warehouse line provided to SecurityNational Mortgage Company ("SecurityNational Mortgage"). Profitability in the three and nine months ended March 31,September 30, 2017 has increaseddecreased due to increases in insurance premiums, mortgage fee incomebenefits and net investment income.expenses and increases in other than temporary impairments.

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Cemetery and Mortuary Operations

The Company sells mortuary services and products through its eight mortuaries in Utah. The Company also sells cemetery products and services through its five cemeteries in Utah and one cemetery in San Diego County, California. Cemetery land sales and at-needAt-need product sales and services are recognized as revenue at the time of sale or when the services are performed.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.
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The following table shows the condensed financial results of the Cemeterycemetery and Mortuarymortuary operations for the three and nine months ended March 31,September 30, 2017 and 2016. See Note 67 to the Condensed Consolidated Financial Statements.condensed consolidated financial statements.

 
 
Three months ended March 31
(in thousands of dollars)
  
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)
  2017  2016  
% Increase
(Decrease)
 
Revenues from external customers                           
Mortuary revenues $1,406  $1,366   3% $1,161  $1,059   10% $3,749  $3,711   1%
Cemetery revenues  2,131   2,019   6%  1,697   1,818   (7%)  6,041   6,186   (2%)
Other  68   (54)  226%  130   24   442%  117   148   (21%)
Total $3,605  $3,331   8% $2,988  $2,901   3% $9,907  $10,045   (1%)
Earnings before income taxes $759  $469   62% $237  $55   331% $1,332  $1,284   4%

Included in other revenue is rental income from residential and commercial properties purchased from Security National Life. Memorial Estates purchased these properties from financing provided by Security National Life. The rental income is offset by property insurance, taxes and maintenance expenses. Memorial Estates has recorded depreciation on these properties of $170,000$157,000 and $187,000$176,000 for the three months ended March 31,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

Overview

The Company's wholly owned subsidiaries, SecurityNational Mortgage and EverLEND Mortgage Company (formerly known as Green Street Mortgage Services, Inc.), are mortgage lenders 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), 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 and EverLEND Mortgage obtainoriginate and refinance mortgage loans originated inon a retail offices and through independent brokers.basis. Mortgage loans originated or refinanced by the Company's mortgage subsidiaries are funded through loan purchase agreements fromwith Security National Life and unaffiliated financial institutions.

The Company's mortgage subsidiaries receive fees from the borrowers that are involved in mortgage loan originations and refinancings, and secondary fees earned from third party investors that purchase their loans. Loansthe mortgage loans originated by SecurityNationalthe mortgage subsidiaries. Mortgage loans originated by the mortgage subsidiaries are generally sold with mortgage servicing rights released to third partythird-party investors or retained by SecurityNational Mortgage. SecurityNational Mortgage currently retains the mortgage servicing rights on approximately 30% of its loan origination volume. These mortgage loans are serviced by either SecurityNational Mortgage or an approved third partythird-party sub-servicer.

For the threenine months ended March 31,September 30, 2017 and 2016, SecurityNational Mortgage originated 2,9859,773 loans ($568,846,0001,913,207,000 total volume) and 3,13911,720 loans ($586,580,0002,252,108,000 total volume), respectively. For the threenine months ended March 31,September 30, 2017 and 2016, EverLEND Mortgage originated one loan29 loans ($310,0006,715,000 total volume) and -0- loansone loan ($-0-256,000 total volume), respectively.

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The following table shows the condensed financial results of the mortgage operations for the three and nine months ended March 31,September 30, 2017 and 2016.  See Note 67 to the Condensed Consolidated Financial Statements.condensed consolidated financial statements.

 
Three months ended March 31
(in thousands of dollars)
  
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)  2017  2016  % Increase (Decrease) 
Revenues from external customers                           
Income from loan originations $35,822  $36,784   (3%) $15,204  $13,728   11% $41,788  $43,163   (3%)
Secondary gains from investors  5,244   7,266   (28%)  28,550   41,347   (31%)  87,166   108,667   (20%)
Total $41,066  $44,050   (7%) $43,754  $55,075   (21%) $128,954  $151,830   (15%)
Earnings before income taxes $655  $2,498   (74%) $379  $4,379   (91%) $1,874  $11,561   (84%)

The decrease in earnings for the three and nine months ended March 31,September 30, 2017 was due to a reduction in mortgage loan originations.originations and refinancings, and subsequent sales into the secondary market.
44
Mortgage Loan Loss Settlements

Future mortgage loan losses can be extremely difficult to estimate. However, management believes that the Company's reserve methodology and its current practice of property preservation allow it to estimate its potential losses on mortgage loans sold. The estimated liability for indemnification losses was included in other liabilities and accrued expenses and, as of March 31,September 30, 2017 and December 31, 2016, the balances were $1,065,000$2,171,000 and $628,000, respectively.

Mortgage Loan Loss Litigation

For a description of the litigation involving SecurityNational Mortgage and Lehman Brothers and Aurora Loan Services, reference is toHoldings, see Part II,I, Item 1. Legal Proceedings.Notes to Condensed Consolidated Financial Statements (unaudited) in Note 11.

Consolidation

Three Months Ended March 31,September 30, 2017 Compared to Three Months Ended March 31,September 30, 2016

Total revenues increaseddecreased by $1,373,000,$10,977,000, or 2.0%13.2%, to $70,829,000$71,972,000 for the three months ended March 31,September 30, 2017, from $69,456,000$82,949,000 for the comparable period in 2016. Contributing to this increasedecrease in total revenues was a $2,906,000 increase$11,598,000 decrease in insurance premiums and other considerations, a $571,000 increase in net investmentmortgage fee income, a $499,000 increase in other revenues, a $113,000 increase in net mortuary and cemetery sales, a $47,000 increase$280,000 decrease in realized gains on investments and other assets, and a $21,000 decrease$133,000 increase in other than temporary impairments on investments.investments, and a $59,000 decrease in net mortuary and cemetery sales. This increasedecrease in total revenues was partially offset by a $2,784,000 decrease$490,000 increase in mortgage feeother revenues, a $332,000 increase in insurance premiums and other considerations, and a $271,000 increase in net investment income.

Insurance premiums and other considerations increased by $2,906,000,$332,000, or 20.1%1.9%, to $17,357,000$17,489,000 for the three months ended March 31,September 30, 2017, from $14,451,000$17,157,000 for the comparable period in 2016. This increase was primarily due to an increase in renewal premiums and an increase in first year premiums as a result of increased insurance sales.

Net investment income increased by $571,000,$271,000, or 6.4%3.4%, to $9,563,000$8,361,000 for the three months ended March 31,September 30, 2017, from $8,992,000$8,090,000 for the comparable period in 2016. This increase was primarily attributable to a $318,000$282,000 increase in fixed maturity securities income, a $260,000$282,000 increase in insurance assignment income, a $197,000$142,000 increase in mortgage loan interest, and a $56,000an $89,000 increase in short-term investment income, an $82,000 increase in rental income from real estate owned.owned, and a $16,000 increase in income from other investments. This increase was partially offset by a $204,000$600,000 increase in investment expenses, a $58,000 decrease in short-term investment income, and a $17,000$12,000 decrease in equity securities income, and a $10,000 decrease in policy loan income.

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Net mortuary and cemetery sales increaseddecreased by $113,000,$59,000, or 3.5%2.1%, to $3,359,000$2,717,000 for the three months ended March 31,September 30, 2017, from $3,246,000$2,776,000 for the comparable period in 2016. This increasedecrease was primarily due to an increasea decrease in at-need sales in both theof cemetery plots, markers and mortuary operations.vaults.

Realized gains on investments and other assets increaseddecreased by $47,000,$280,000, or 48.4%716.1%, to $145,000$319,000 in realized gainslosses for the three months ended March 31,September 30, 2017, from $98,000$39,000 in realized gainslosses for the comparable period in 2016. This increasedecrease in realized gains on investments and other assets was primarily attributable to a $27,000$602,000 increase in realized gainslosses on fixed maturity securities, and a $17,000$6,000 increase in realized losses on securities available for sale. This increase was partially offset by a $328,000 increase in realized gains on securities available for sale.other assets due to the sale of various residential real estate properties.

Mortgage fee income decreased by $2,784,000,$11,598,000, or 6.8%21.8%, to $38,428,000,$41,598,000, for the three months ended March 31,September 30, 2017, from $41,212,000$53,196,000 for the comparable period in 2016.  This decrease was primarily due to a reductiondecline in mortgage loan originations.originations that was indicative of the mortgage loan industry as a whole. The decline in mortgage loan originations was primarily caused by a shortage 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.

Other revenues increased by $499,000,$490,000, or 32.6%27.2%, to $2,029,000$2,289,000 for the three months ended March 31,September 30, 2017, from $1,530,000$1,799,000 for the comparable period in 2016. This increase was due to an increase in mortgage servicing fees.

Total benefits and expenses were $67,932,000,$70,834,000, or 95.9%98.4% of total revenues, for the three months ended March 31,September 30, 2017, as compared to $65,385,000,$76,375,000, or 94.1%92.1% 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 $2,756,000$1,791,000 or 22.1%12.6%, to $15,220,000$16,055,000 for the three months ended March 31,September 30, 2017, from $12,464,000$14,264,000 for the comparable period in 2016. This increase was primarily the result of a $1,446,000 increase in future policy benefits, a $971,000$1,522,000 increase in death benefits and a $339,000$352,000 increase in future policy benefits. This increase was partially offset by a $83,000 decrease in surrender and other policy benefits.

Amortization of deferred policy and pre-need acquisition costs and value of business acquired decreased by $62,000, or 2.7%, to $2,239,000 for the three months ended September 30, 2017, from $2,301,000 for the comparable period in 2016. This decrease was primarily due to improved persistency in the traditional life business.

Selling, general and administrative expenses decreased by $7,417,000, or 12.8%, to $50,431,000 for the three months ended September 30, 2017, from $57,848,000 for the comparable period in 2016. This decrease was primarily the result of a $5,396,000 decrease in commissions resulting from a decrease in sales (primarily mortgage fee income), a $1,040,000 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 decrease in advertising, and a $11,000 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 increase in rent and rent related expenses.

Interest expense increased by $180,000, or 12.2%, to $1,656,000 for the three months ended September 30, 2017, from $1,476,000 for the comparable period in 2016. This increase was primarily due to an increase in interest expense on mortgage warehouse lines and interest expense on bank loans for real estate held for investment.

Comprehensive income for the three months ended September 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.
49
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Total revenues decreased by $16,519,000, or 7.1%, to $215,973,000 for the nine months ended September 30, 2017, from $232,492,000 for the comparable period in 2016. Contributing to this decrease in total revenues was a $24,881,000 decrease in mortgage fee income, a $348,000 increase in other than temporary impairments on investments, and a $185,000 decrease in net mortuary and cemetery sales. This decrease in total revenues was partially offset by $4,837,000 increase in insurance premiums and other considerations, a $2,075,000 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.

Insurance premiums and other considerations increased by $4,837,000, or 10.2%, to $52,345,000 for the nine months ended September 30, 2017, from $47,508,000 for the comparable period in 2016. This increase was primarily due to an increase in renewal premiums and an increase in first year premiums as a result of increased insurance sales.

Net investment income increased by $2,074,000, or 8.8%, to $25,559,000 for the nine months ended September 30, 2017, from $23,484,000 for the comparable period in 2016. This increase was primarily attributable to a $1,028,000 increase in insurance assignment income, a $1,002,000 increase in fixed maturity securities income, a $565,000 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 increase in income from other investments. This increase was partially offset by a $1,230,000 increase in investment expenses.

Net mortuary and cemetery sales decreased by $185,000, or 1.9%, to $9,357,000 for the nine months ended September 30, 2017, from $9,542,000 for the comparable period in 2016. This decrease was primarily due to a decrease in sales of cemetery plots, markers and vaults.

Realized gains on investments and other assets increased by $534,000, or 297.7%, to $713,000 in realized gains for the nine months ended September 30, 2017, from $179,000 in realized gains for the comparable period in 2016. This increase in realized gains on investments and other assets was primarily attributable to a $1,374,000 increase in realized gains on other assets due to the sale of a commercial real estate property and various residential real estate properties. This increase was partially offset by a $775,000 increase in realized losses on fixed maturity securities, and a $65,000 increase in realized losses on securities available for sale.

Mortgage fee income decreased by $24,881,000, or 16.9%, to $122,086,000, for the nine months ended September 30, 2017, from $146,967,000 for the comparable period in 2016.  This decrease was primarily due to a decline in mortgage loan originations that was indicative of the mortgage loan industry as a whole. The decline in mortgage loan originations was primarily caused by a shortage 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.

Other revenues increased by $1,449,000, or 29.3%, to $6,394,000 for the nine months ended September 30, 2017, from $4,945,000 for the comparable period in 2016. This increase was due to an increase in mortgage servicing fees.

Total benefits and expenses were $207,943,000, or 96.3% of total revenues, for the nine months ended September 30, 2017, as compared to $213,862,000, or 92.0% 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 or 15.0%, to $45,868,000 for the nine months ended September 30, 2017, from $39,897,000 for the comparable period in 2016. This increase was primarily the result of a $3,704,000 increase in death benefits, a $1,892,000 increase in future policy benefits, and a $375,000 increase in surrender and other policy benefits.

Amortization of deferred policy and pre-need acquisition costs and value of business acquired increased by $51,000,$50,000, or 2.3%0.8%, to $2,264,000$6,271,000 for the threenine months ended March 31,September 30, 2017, from $2,213,000$6,221,000 for the comparable period in 2016. This increase was primarily due to an increase in insurance sales expenses.

50
Selling, general and administrative expenses decreased by $514,000,$12,571,000, or 1.0%7.7%, to $48,671,000$150,000,000 for the threenine months ended March 31,September 30, 2017, from $49,185,000$162,571,000 for the comparable period in 2016. This decrease was primarily the result of a $2,856,000$14,338,000 decrease in commissions resulting from a decrease in sales (primarily mortgage fee income), a $646,000 decrease in advertising, and a $413,000$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 in other expenses, a $458,000 increase in rent and rent related expenses, a $358,000 increase in costs related to funding mortgage loans. This decrease was partially offset byloans, and a $1,392,000 increase in personnel expenses resulting from increased salaries for existing employees and the hiring of new employees, a $950,000 increase in other expenses, a $233,000 increase in advertising, a $104,000$138,000 increase in depreciation on property and equipment, and a $75,000 increase in rent and rent related expenses.equipment.
45

Interest expense increased by $190,000,$520,000, or 17.8%13.8%, to $1,254,000$4,295,000 for the threenine months ended March 31,September 30, 2017, from $1,064,000$3,775,000 for the comparable period in 2016. This increase was primarily due to an increase in interest expense on mortgage warehouse lines and an increase in interest expense dueon bank loans related to the completion of the Dry Creek at East Village Apartments development in December 2015, resulting from interest from the bank loan that had been capitalized during the construction phase of each building and now being expensed.real estate held for investment.

Comprehensive income for the threenine months ended March 31,September 30, 2017 and 2016 amounted to gains of $1,881,000$5,515,000 and $2,837,000,$12,188,000, respectively. This $956,000$6,673,000 decrease in comprehensive income was primarily the result of a $679,000$6,295,000 decrease in net income and a $278,000$378,000 decrease in unrealized gains in securities available for sale.

Liquidity and Capital Resources

The Company'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 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 interestfees earned on mortgagesfrom mortgage loans sold to investors. 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 threenine months ended March 31,September 30, 2017 and 2016, the Company's operations provided cash of $30,431,000$6,030,000 and $27,275,000,$17,639,672, respectively. This decrease was due primarily to an increasea decline in cash collected on loans held for sale.sale during the nine months ended September 30, 2017.

The Company's liability for future life, annuity and otherpolicy benefits is expected to be paid out over the long-term due to the Company's market niche of selling funeral plans. Funeral plans are small face value life insurance that will pay the costs and expenses incurred at the time of a person's death. A person generally will keep these policies in force and will 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 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. The Company purchases short-term investments on a temporary basis to meet the expectations of short-term requirements of the Company's products. The Company's investment philosophy is intended to provide a rate of return that will persist during the expected duration of policyholder and cemetery and mortuary liabilities regardless of future interest rate movements.

The Company's investment policy is to invest predominantly in fixed maturity securities, real estate, mortgage loans, and warehousing of mortgage loans 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 $185,822,000$230,188,000 and $184,356,000 as of March 31,September 30, 2017 and December 31, 2016, respectively. This represents 33.4%38.5% and 33.1% of the total investments as of March 31,September 30, 2017 and December 31, 2016, 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 March 31,September 30, 2017, 8.8%5.4% (or $16,424,000)$12,449,000) and at December 31, 2016, 9.0% (or $16,513,000) of the Company's total bond investments were invested in bonds in rating categories three through six, which were considered non‑investment grade.

The Company has classified certain of its fixed income securities, including high-yield securities, in its portfolio as available for sale, with the remainder classified as held to maturity. In accordance with Company policy, however, any such securities purchased in the future will be classified as held to maturity. Notwithstanding, business conditions may develop in the future which may indicate a need for a higher level of liquidity in the investment portfolio. In that event, the Company believes it could sell short-term investment grade securities before liquidating higher yielding longer-term securities.
46

The Company is subject to risk based capital guidelines established by statutory regulators requiring minimum capital levels based on the perceived risk of assets, liabilities, disintermediation, and business risk. At March 31,September 30, 2017 and December 31, 2016, the life insurance subsidiaries were in compliance with the regulatory criteria.

The Company's total capitalization of stockholders' equity, bank loans and notesother loans payable was $288,275,000$322,114,000 as of March 31,September 30, 2017, as compared to $284,700,000 as of December 31, 2016. Stockholders' equity as a percent of total capitalization was 46.7%43.3% and 46.6% as of March 31,September 30, 2017 and December 31, 2016, respectively.

Lapse rates measure the amount of insurance terminated during a particular period. The Company's lapse rate for life insurance in 2016 was 9.6% as compared to a rate of 7.4% for 2015. The 2017 lapse rate to date has been approximately the same as 2016.

At March 31,September 30, 2017, $44,605,000 of the Company's consolidated stockholders' equity represented the statutory stockholders' equitycapital and surplus of the Company's life insurance subsidiaries.subsidiaries was $42,584,000. The life insurance subsidiaries cannot pay a dividend to its parent company, without approval of state insurance regulatory authorities.

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Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

There have been no significant changes sinceAs a smaller reporting company, the Annual Report on Form 10-K/A filed for the year ended December 31, 2016.Company is not required to provide information typically disclosed under this item.

Item 4.    Controls and Procedures.

Disclosure Controls and Procedures

As of March 31,September 30, 2017, 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'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"). The Company'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's rules and forms and that such information is accumulated and communicated to management, including the Company's CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. The officers have concluded that the Company's disclosure controls and procedures were not effective as of March 31,September 30, 2017, 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'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

Except for the material weaknesses discussed in the Company's Annual Report on Form 10K/A, there have not been any significant changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended) in the firstthird quarter of 2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Remediation Efforts to Address Material Weakness

During the fourth quarter of 2016, there were changes in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. Two of the prior errors were determined to be immaterial errors and were noted in connection with the annual audit of the Company's consolidated financial statements for the fiscal year ended December 31, 2016. The other two errors were discovered as a result of a review of current accounting policies and were determined to be material errors.  Management has corrected these errors in thisthe Form 10-K/A for the fiscal year ended December 2016. See Notes 21 and 22 to the Company's Consolidated Financial Statements.consolidated financial statements.

The Company is implementing measures to remediate the underlying causes that gave rise to the material weaknesses. The following remediation steps are among the measures currently being implemented at the time of this filing by management: (i) a thorough review of the accounting department to ensure that the staff has the appropriate training and the level of reviews are commensurate with the complexity of the accounting; and (ii) a thorough review of the processes and procedures used in the Company's accounting policies and the implementation of those policies.policies; and (iii) engaging an outside specialist to help with the complex accounting matters related to the Company's mortgage banking operations.

The Company believes the measures described above will remediate the control deficiencies that it has identified and strengthenstrengthened its internal control over financial reporting. The Company is committed to continuous improvement of its internal control processes and will continue to diligently review its financial reporting controls and procedures.
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Part II - Other Information

Item 1.    Legal Proceedings.

Lehman Brothers Litigation – Delaware and New York

In January 2014, Lehman Brothers Holdings, Inc. ("Lehman Holdings") entered intoFor a settlement with the Federal National Mortgage Association (Fannie Mae) concerning the mortgage loan claims that Fannie Mae had asserted against Lehman Holdings, which were based on alleged breaches of certain representations and warranties by Lehman Holdings in the 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 based on similar circumstances was entered into between Lehman Holdings and the Federal Home Loan Mortgage Corporation (Freddie Mac) in February 2014.

Lehman Holdings filed a motion in May 2014 with the U.S. Bankruptcy Courtdescription of the Southern District of New York to require the mortgage loan originators, including SecurityNational Mortgage, to engage in settlement discussions and non-binding mediations of the alleged indemnification claims against the mortgage loan originators concerning the Fannie Mae and Freddie Mac settlements with Lehman Holdings.  The mediation was not successful in resolving any issues betweenlitigation involving SecurityNational Mortgage and Lehman Holdings.

On January 26, 2016, SecurityNational Mortgage filed a declaratory judgment action against LehmanBrothers Holdings, see Part I, Item 1. Notes to Condensed Consolidated Financial Statements (unaudited) in the Superior Court for the State of Delaware.  In the Delaware action, SecurityNational Mortgage asserted its right to obtain a declaration of rights in that there are allegedly millions of dollars in dispute with Lehman Holdings pertaining to approximately 136 loans.  SecurityNational Mortgage sought a declaratory judgment as to its rights as it contends that it has no liability to Lehman Holdings as a result of Lehman Holdings' settlements with Fannie Mae and Freddie Mac.  Lehman Holdings filed a motion in the Delaware court seeking to stay or dismiss the declaratory judgment action.  On August 24, 2016, the Court ruled that it would exercise its discretion to decline jurisdiction over the action and granted Lehman Holdings' motion to dismiss.

On February 3, 2016, Lehman Holdings filed an adversary proceeding against approximately 150 mortgage loan originators, including SecurityNational Mortgage, in the U.S. Bankruptcy Court of the Southern District of New York seeking a declaration of rights similar in nature to the declaratory judgment that SecurityNational Mortgage sought in its Delaware lawsuit, and for damages relating to the alleged obligations of the defendants under the indemnification provisions of the alleged agreements, in amounts to be determined at trial, including interest, attorneys' fees and costs incurred by Lehman Holdings in enforcing the obligations of the defendants. No response was required to be filed relative to the Complaint or the Amended Complaint dated March 7, 2016. A Case Management Order was entered on November 1, 2016.

On December 27, 2016, pursuant to the Case Management Order, Lehman Holdings filed a Second Amended Complaint against SecurityNational Mortgage, which eliminates the declaratory judgment claim but retains a similar claim for damages as in the Complaint.  The case is presently in a motion period. Many of the defendants, including SecurityNational Mortgage, filed a joint motion in the case asserting that the Bankruptcy Court does not have subject matter jurisdiction concerning the matter and that venue is improper. Lehman Holdings' response is due at the end of May 2017. Defendants then have 45 days in which to file a reply brief. No Answer is required to be filed by SecurityNational Mortgage pending further order of the Court.  SecurityNational Mortgage denies that it has any liability to Lehman Holdings and intends to vigorously protect and defend its position.Note 11.

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 operation.

Item 1A.   Risk Factors.

As a smaller reporting company, the Company is not required to provide information typically disclosed under this item.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

NoneRecent Sales of Unregistered Securities and Use of Proceeds from Registered Securities

None.

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Issuer Purchases of Equity Securities

On September 11, 2015, the Board approved the Company's Stock Purchase Plan for the mutual benefit of the Company and its stockholders. Under the terms of the Plan, the Company may, in its discretion, purchase shares of Class A common stock from its officers and directors who exercise the stock options granted to them under any 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 Company is authorized under the plan to purchase no more than 60,000 shares of Class A common stock in any calendar year to pay the taxes owed by the officers and directors who exercise their stock options under the Stock Purchase Plan. The Company's purchase price for the Class A common stock under the Stock Purchase Plan shall be equal to the closing sales price of the Company's Class A common stock as reported by The Nasdaq National Market on the day that the applicable stock options are exercised by such officers and directors. The Company may only purchase shares of Class A common stock from the officers and directors exercising their stock options under the Stock Purchase Plan during the "Trading Window" as defined in the Company's Insider Trading Policy and Guidelines.

The following table shows the Company's repurchase activity during the nine months ended September 30, 2017 under the Stock Purchase Plan.

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 3.    Defaults Upon Senior Securities.

NoneNone.

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Item 4.    Mine Safety Disclosures.

NoneNone.

Item 5.    Other Information.

Completion of Acquisition of First Guaranty Insurance CompanyNone.

On July 11, 2016, the Company, through its wholly owned subsidiary, Security National Life, completed a stock purchase transaction with the shareholders of Reppond Holding Corporation, an Arkansas corporation ("Reppond Holding") and sole shareholder of First Guaranty Insurance Company, a Louisiana domestic stock legal reserve life insurance company ("First Guaranty"), to purchase all the outstanding shares of common stock of Reppond Holding. Under the terms of the Stock Purchase Agreement, dated February 17, 2016, between Security National Life and Reppond Holding, which was later amended on March 4, 2016 and March 17, 2016, Security National Life paid a total of $6,753,000 at the closing in consideration for the purchase of all the outstanding shares of stock of Reppond Holding from its shareholders.
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The transaction was completed following the satisfaction or waiver of certain conditions set forth in the Stock Purchase Agreement. These conditions included obtaining all the required material orders, consents, permits, authorizations, approvals and waivers (including, without limitation, obtaining the approval of the Louisiana Department of Insurance without the material abrogation or diminishment of First Guaranty's or Reppond Holding's authority or license or the imposition of signification restrictions upon the transactions contemplated thereby). This condition was satisfied on July 8, 2016 when the Department issued an order approving the transaction, as required. The closing of the transaction took place soon thereafter on July 11, 2016.

At December 31, 2015, First Guaranty had 37,069 policies in force and 320 agents. Also, as of December 31, 2015, First Guaranty had statutory revenues of $8,102,000 and a statutory net loss of $724,000. Additionally, as of December 31, 2015, the statutory assets and the capital and surplus of First Guaranty were $55,550,000 and $3,849,000, respectively. As of December 31, 2014, First Guaranty had revenues of $8,080,000 and a net loss of $172,000. Moreover, as of December 31, 2014, the statutory assets and the capital and surplus of First Guaranty were $54,696,000 and $4,581,000, respectively.

Item 6.    Exhibits, Financial Statements Schedules and Reports on Form 8-K.

(a)(1)Financial Statements

See "Table of Contents – Part I – Financial 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‑X are not required under the related instructions or are inapplicable and therefore have been omitted.

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(a)(3)Exhibits

The following Exhibits are filed herewith pursuant to Rule 601 of Regulation S‑K or are incorporated by reference to previous filings.

3.1
Articles of Amendment to Articles of Incorporation (11)(9)
3.2
Amended Bylaws (3)(11)
4.1Specimen Class A Stock Certificate (1)
4.2Specimen Class C Stock Certificate (1)
4.3Specimen Preferred Stock Certificate and Certificate of Designation of Preferred Stock (1)
7.1
Letter from Eide Bailly, LLP (10)
10.1Amended Employee Stock Ownership Plan (ESOP) and Trust Agreement (1)
10.2
2003 Stock Option Plan (2)
10.3
2006 Director Stock Option Plan (4)(3)
10.4
2013 Amended Stock Option and Other Equity Incentive Awards Plan (10)(8)
10.5
2014 Director Stock Option Plan (6)(4)
10.6
Employment agreement with Scott M. Quist (8)(6)
10.7Indemnification Agreement among SecurityNational Mortgage Company, Lehman Brothers Bank, and Aurora Loan Services (5)
10.8
Purchase Agreement among Security National Financial Corporation, SNFC Subsidiary, LLC, American Funeral Financial, LLC, and Hypershop, LLC (7)(5)
10.9
10.8
Stock Purchase Agreement among Security National Financial Corporation, and Reppond Holding Company, to purchase First Guaranty Insurance Company (10)(8)
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21
Subsidiaries of the Registrant (11)
23.1
Consent of Eide Bailly LLP (9)(7)
23.2
Consent of Mackey Price & Mecham (9)(7)
31.1Certification pursuant to 18 U.S.C. Section 1350, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002
31.2Certification pursuant to 18 U.S.C. Section 1350, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002
32.1Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.xmlInstance Document
101.xsdTaxonomy Extension Schema Document
101.calTaxonomy Extension Calculation Linkbase Document
101.defTaxonomy Extension Definition Linkbase Document
101.labTaxonomy Extension Label Linkbase Document
101.preTaxonomy Extension Presentation Linkbase Document

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(1)Incorporated by reference from Registration Statement on Form S‑1, as filed on September 29, 1987
(2)Incorporated by reference from Schedule 14A Definitive Proxy Statement, as filed on June 5, 2003, relating to the Company's Annual Meeting of Stockholders
(3)Incorporated by reference from Report on Form 10-Q, as filed on November 14, 2003
(4)Incorporated by reference from Schedule 14A Definitive Proxy Statement, as filed on June 1, 2007, relating to the Company's Annual Meeting of Stockholders
(5)Incorporated by reference from Report on Form 10-K, as filed on March 31, 2009
(6)(4)Incorporated by reference from Schedule 14A Definitive Proxy Statement, as filed on June 2, 2014, related to Company's Annual Meeting of Stockholders
(7)(5)Incorporated by reference from Report on Form 8-K, as filed on June 13, 2014
(8)(6)Incorporated by reference from Report on Form 10-Q, as filed on August 14, 2015
(9)(7)Incorporated by reference from Registration Statement on Form S-8, as filed on October 20, 2015
(10)(8)Incorporated by reference from Report on Form 10-Q, as filed on August 15, 2016
(11)
(9)
Incorporated by reference from Report on Form 10-K, as filed on March 31, 2017
(10)Incorporated by reference from Report on Form 8-K, as filed on August 4, 2017
(11)Incorporated by reference from Report on Form 10-Q, as filed on August 25, 2017



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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: August 25,November 14, 2017
/s/ Scott M. Quist
 Scott M. Quist
 Chairman, President and Chief Executive Officer
 (Principal Executive Officer)
  

Dated: August 25,November 14, 2017
/s/ Garrett S. Sill
 Garrett S. Sill
 Chief Financial Officer and Treasurer
 (Principal Financial Officer and Principal Accounting Officer)

 
 
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