| Investments | 3)
Investments The
Company’s investments as of March 31, 2024 are summarized as follows: Schedule
of Investments
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses (1) Allowance for Credit Losses Estimated Fair Value
March 31, 2024:
Fixed maturity securities, available for sale, at estimated fair value:
U.S. Treasury securities and obligations of U.S. Government agencies $ 108,273,666 $ 21,718 $ (1,168,930 ) $ - $ 107,126,454
Obligations of states and political subdivisions 6,314,947 327 (312,669 ) - 6,002,605
Corporate securities including public utilities 231,778,966 2,770,637 (7,446,098 ) (398,500 ) 226,705,005
Mortgage-backed securities 39,788,398 342,124 (4,379,130 ) (12,049 ) 35,739,343
Redeemable preferred stock 250,000 10,000 - - 260,000
Total fixed maturity securities available for sale $ 386,405,977 $ 3,144,806 $ (13,306,827 ) $ (410,549 ) $ 375,833,407
Equity securities at estimated fair value:
Common stock:
Industrial, miscellaneous and all other $ 11,160,744 $ 4,284,537 $ (283,282 ) $ 15,161,999
Total equity securities at estimated fair value $ 11,160,744 $ 4,284,537 $ (283,282 ) $ 15,161,999
Mortgage loans held for investment at amortized cost:
Residential $ 106,764,632
Residential construction 99,748,408
Commercial 67,076,085
Less: Unamortized deferred loan fees, net (1,711,491 )
Less: Allowance for credit losses (2,921,614 )
Less: Net discounts (319,236 )
Total mortgage loans held for investment $ 268,636,784
Real estate held for investment - net of accumulated depreciation:
Residential $ 54,638,976
Commercial 128,923,346
Total real estate held for investment $ 183,562,322
Real estate held for sale:
Residential $ 859,599
Commercial 12,263,325
Total real estate held for sale $ 13,122,924
Other investments and policy loans at amortized cost:
Policy loans $ 13,248,999
Insurance assignments 46,710,578
Federal Home Loan Bank stock (2) 2,325,900
Other investments 9,813,032
Less: Allowance for credit losses for insurance assignments (1,587,525 )
Total other investments and policy loans $ 70,510,984
Accrued investment income $ 8,961,065
Total investments $ 935,789,485
(1) Gross unrealized
losses are net of allowance for credit losses
(2) Includes $ 552,600 1,773,300 SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes
to Condensed Consolidated Financial Statements March
31, 2024 (Unaudited)
3) Investments
(Continued) The
Company’s investments as of December 31, 2023 are summarized as follows:
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses (1) Allowance for Credit Losses Estimated Fair Value
December 31, 2023:
Fixed maturity securities, available for sale, at estimated fair value:
U.S. Treasury securities and obligations of U.S. Government agencies $ 111,450,753 $ 344,425 $ (1,416,448 ) $ - $ 110,378,730
Obligations of states and political subdivisions 6,524,083 500 (319,260 ) - 6,205,323
Corporate securities including public utilities 232,299,727 3,688,642 (7,145,507 ) (308,500 ) 228,534,362
Mortgage-backed securities 40,359,878 506,647 (4,702,905 ) (6,049 ) 36,157,571
Redeemable preferred stock 250,000 10,000 - - 260,000
Total fixed maturity securities available for sale $ 390,884,441 $ 4,550,214 $ (13,584,120 ) $ (314,549 ) $ 381,535,986
Equity securities at estimated fair value:
Common stock:
Industrial, miscellaneous and all other $ 10,571,505 $ 3,504,141 $ (439,575 ) $ 13,636,071
Total equity securities at estimated fair value $ 10,571,505 $ 3,504,141 $ (439,575 ) $ 13,636,071
Mortgage loans held for investment at amortized cost:
Residential $ 103,153,587
Residential construction 104,052,748
Commercial 74,176,538
Less: Unamortized deferred loan fees, net (1,623,226 )
Less: Allowance for credit losses (3,818,653 )
Less: Net discounts (324,157 )
Total mortgage loans held for investment $ 275,616,837
Real estate held for investment - net of accumulated depreciation:
Residential $ 40,924,865
Commercial 142,494,427
Total real estate held for investment $ 183,419,292
Real estate held for sale:
Residential $ -
Commercial 3,028,973
Total real estate held for sale $ 3,028,973
Other investments and policy loans at amortized cost:
Policy loans $ 13,264,183
Insurance assignments 45,605,322
Federal Home Loan Bank stock (2) 2,279,800
Other investments 9,809,148
Less: Allowance for credit losses for insurance assignments (1,553,836 )
Total policy loans and other investments $ 69,404,617
Accrued investment income $ 10,170,790
Total investments $ 936,812,566
(1) Gross unrealized
losses are net of allowance for credit losses
(2) Includes $ 530,900 1,748,900 SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes
to Condensed Consolidated Financial Statements March
31, 2024 (Unaudited)
3) Investments
(Continued) There
were no investments, aggregated by issuer, of more than 10% of shareholders’ equity (before net unrealized gains and losses on
equity securities and fixed maturity securities) as of March 31, 2024, other than investments issued or guaranteed by the United States
Government. Fixed
Maturity Securities The
table below summarizes unrealized losses on fixed maturity securities available for sale that were carried at estimated fair value as
of March 31, 2024 and December 31, 2023. 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 table below sets forth unrealized losses by duration with the fair value
of the related fixed maturity securities. Schedule
of Fair Value of Fixed Maturity Securities
Unrealized Losses for Less than Twelve Months Fair Value Unrealized Losses for More than Twelve Months Fair Value Total Unrealized Loss Combined Fair Value
March 31, 2024
U.S. Treasury securities and obligations of U.S. Government agencies $ 167,532 $ 53,312,759 $ 1,001,398 $ 29,735,785 $ 1,168,930 $ 83,048,544
Obligations of states and political subdivisions 12,735 469,060 299,934 5,083,218 312,669 5,552,278
Corporate securities 613,453 35,567,960 6,832,645 110,572,963 7,446,098 146,140,923
Mortgage-backed securities 18,656 4,044,375 4,360,474 23,420,838 4,379,130 27,465,213
Totals $ 812,376 $ 93,394,154 $ 12,494,451 $ 168,812,804 $ 13,306,827 $ 262,206,958
December 31, 2023
U.S. Treasury securities and obligations of U.S. Government agencies $ 29,394 $ 9,436,090 $ 1,387,054 $ 70,885,403 $ 1,416,448 $ 80,321,493
Obligations of states and political subdivisions 11,105 470,325 308,155 5,284,498 319,260 5,754,823
Corporate securities 529,660 32,507,773 6,615,847 107,556,216 7,145,507 140,063,989
Mortgage-backed securities 29,799 2,260,445 4,673,106 22,184,174 4,702,905 24,444,619
Totals $ 599,958 $ 44,674,633 $ 12,984,162 $ 205,910,291 $ 13,584,120 $ 250,584,924 Relevant
holdings were comprised of 634 securities with fair values aggregating 95.2 94.9 96,000 179,500 SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes
to Condensed Consolidated Financial Statements March
31, 2024 (Unaudited)
3) Investments
(Continued) Evaluation
of Allowance for Credit Losses See
Note 2 regarding the adoption of ASU 2016-13. On
a quarterly basis, the Company evaluates its fixed maturity securities classified as available for sale to identify any potential credit
losses. This evaluation includes a review of current ratings by the National Association of Insurance Commissions (“NAIC”)
and other industry rating agencies. Securities with a rating of 1 or 2 are considered investment grade and are not reviewed for credit
loss unless current market data or recent company news could lead to a credit downgrade. Securities with ratings of 3 to 5 are evaluated
for credit loss. The evaluation involves assessing all facts and circumstances surrounding each security including, but not limited to,
historical values, interest payment history, projected earnings, and revenue growth rates as well as a review of the reason for a downgrade
in the NAIC rating. Based on the analysis of a security that is rated 3 to 5, a determination is made whether the security will likely
make interest and principal payments in accordance with the terms of the financial instrument. Securities with a rating of 6 are automatically
determined to be impaired and a credit loss is recognized in earnings. Where
the decline in fair value of fixed maturity securities is attributable to changes in market interest rates or to factors such as market
volatility, liquidity and spread widening, and the Company anticipates recovery of all contractual or expected cash flows, the Company
does not consider these securities to have credit loss because the Company does not intend to sell these securities and it is not more
likely than not the Company will be required to sell these securities before a recovery of amortized cost, which may be at maturity. If
the Company intends to sell a fixed maturity security or if it is more likely than not that the Company will be required to sell a security
before recovery of its amortized cost basis, a credit loss has occurred and the difference between the amortized cost and the fair value
that relates to the expected credit loss is recognized as a loss in earnings, included in gains (losses) on investments and other assets
on the condensed consolidated statements of earnings. If
the Company does not intend to sell a debt security and it is less likely than not that the Company will be required to sell the debt
security but the Company also does not expect to recover the entire amortized cost basis of the security, a credit loss is recognized
in earnings for the amount of the expected credit loss with a corresponding allowance for credit losses as a contra-asset account. The
credit loss is included in gains (losses) on investments and other assets on the condensed consolidated statements of earnings. The recognized
credit loss is limited to the total unrealized loss on the security due to a change in credit. Amounts
on available for sale fixed maturities that are deemed to be uncollectible are written off and removed from the allowance for credit
loss. A write-off may also occur if the Company intends to sell a security or when it is more likely than not that the Company will be
required to sell the security before the recovery of its amortized cost. The
Company does not measure a credit loss allowance on accrued interest receivable, included in accrued investment income on the condensed
consolidated balance sheets, as the Company writes off any accrued interest receivable balance to net investment income in a timely manner
(after 90 days) when the Company has concerns regarding collectability. SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes
to Condensed Consolidated Financial Statements March
31, 2024 (Unaudited)
3) Investments
(Continued) Credit
Quality Indicators The
NAIC assigns designations to fixed maturity securities. These designations range from Class 1 (highest quality) to Class 6 (lowest quality).
The NAIC designations are utilized by insurers in preparing their annual statutory statements. NAIC Class 1 and 2 are considered investment
grade while the NAIC Class 3 through 6 designations are considered non-investment grade. Based on the NAIC designations, the Company
had 98.1 98.2 Schedule
of Credit Quality of Fixed Maturity Security Portfolio by NAIC Designation
March 31, 2024 December 31, 2023
NAIC Designation Amortized Estimated Fair Amortized Estimated Fair
1 $ 216,075,719 $ 210,349,942 $ 221,933,425 $ 216,975,288
2 162,441,509 158,181,139 161,062,016 157,346,803
3 6,318,939 5,939,193 6,418,829 5,953,542
4 1,078,897 1,053,757 982,290 948,478
5 239,704 49,375 236,648 51,875
6 1,209 1 1,233 -
Total $ 386,155,977 $ 375,573,407 $ 390,634,441 $ 381,275,986 The
following tables present a roll forward of the Company’s allowance for credit losses on fixed maturity securities available for
sale: Schedule
of Allowance for Credit Losses on Fixed Maturity Securities Available for Sale
Three Months Ended March 31, 2024
U.S. Treasury securities and obligations of U.S. Government agencies Obligations of states and political subdivisions Corporate securities including public utilities Mortgage-backed securities Total
Beginning balance - January 1, 2024 $ - $ - $ 308,500 $ 6,049 $ 314,549
Additions for credit losses not previously recorded - - 30,000 - 30,000
Change in allowance on securities with previous allowance - - 60,000 6,000 66,000
Reductions for securities sold during the period - - - - -
Reductions for securities with credit losses due to intent to sell - - - - -
Write-offs charged against the allowance - - - - -
Recoveries of amounts previously written off - - - - -
Ending Balance - March 31, 2024 $ - $ - $ 398,500 $ 12,049 $ 410,549 SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes
to Condensed Consolidated Financial Statements March
31, 2024 (Unaudited)
3) Investments
(Continued)
Three Months Ended March 31, 2023
U.S. Treasury securities and obligations of U.S. Government agencies Obligations of states and political subdivisions Corporate securities including public utilities Mortgage-backed securities Total
Beginning balance - January 1, 2023 $ - $ - $ - $ - $ -
Balance $ - $ - $ - $ - $ -
Additions for credit losses not previously recorded - - 179,500 - 179,500
Change in allowance on securities with previous allowance - - - - -
Reductions for securities sold during the period - - - - -
Reductions for securities with credit losses due to intent to sell - - - - -
Write-offs charged against the allowance - - - - -
Recoveries of amounts previously written off - - - - -
Ending Balance - March 31, 2023 $ - $ - $ 179,500 $ - $ 179,500
Balance $ - $ - $ 179,500 $ - $ 179,500 The
table below presents the amortized cost and the estimated fair value of fixed maturity securities available for sale as of March 31,
2024, by contractual maturity. Actual or expected maturities may differ from contractual maturities because certain borrowers may have
the right to call or prepay obligations with or without call or prepayment penalties. Schedule
of Investments Classified by Contractual Maturity Date
Amortized Estimated Fair
Due in 1 year $ 72,470,984 $ 72,077,712
Due in 2-5 years 123,253,754 120,601,532
Due in 5-10 years 85,540,964 84,576,263
Due in more than 10 years 65,101,877 62,578,557
Mortgage-backed securities 39,788,398 35,739,343
Redeemable preferred stock 250,000 260,000
Total $ 386,405,977 $ 375,833,407 Information
regarding sales of fixed maturity securities available for sale is presented as follows. Schedule
of Major Categories of Net Investment Income
Three Months Ended March 31,
2024 2023
Proceeds from sales $ 179,989 $ 1,209,844
Gross realized gains 303 15,490
Gross realized losses (854 ) (54,104 ) SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes
to Condensed Consolidated Financial Statements March
31, 2024 (Unaudited)
3) Investments
(Continued) Assets
on Deposit, Held in Trust, and Pledged as Collateral Assets
on deposit with life insurance regulatory authorities as required by law were as follows: Schedule
of Assets on Deposit With Life Insurance
As of March 31, 2024 As of December 31, 2023
Fixed maturity securities available for sale $ 6,068,973 $ 6,206,650
Other investments 400,000 400,000
Cash and cash equivalents 1,982,298 1,909,215
Total assets on deposit $ 8,451,271 $ 8,515,865 Assets
held in trust related to third-party reinsurance agreements were as follows:
As of March 31, 2024 As of December 31, 2023
Fixed maturity securities available for sale $ 27,718,677 $ 27,903,952
Cash and cash equivalents 2,469,301 2,101,052
Total assets on deposit $ 30,187,978 $ 30,005,004 The
Company is a member of the Federal Home Loan Bank of Des Moines and Dallas (“FHLB”). Assets pledged as collateral with the
FHLB are presented below. These pledged securities are used as collateral for any FHLB cash advances.
As of March
31, 2024 As of December 31, 2023
Fixed maturity securities available for sale $ 94,098,666 $ 93,903,089
Total assets pledged as collateral $ 94,098,666 $ 93,903,089 Real
Estate Held for Investment and Held for Sale The
Company strategically deploys resources into real estate assets to match the income and yield durations of its primary obligations. The
sources for these real estate assets come through its various business units in the form of acquisition, development, and mortgage foreclosures. Commercial
Real Estate Held for Investment and Held for Sale The
Company owns and manages commercial real estate assets as a means of generating investment income. These assets are acquired in accordance
with the Company’s goals and objectives for risk-adjusted returns. Due diligence is conducted on each asset using internal and
third-party resources. The geographic locations and asset classes of investments are determined by senior management under the direction
of the Board of Directors. SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes
to Condensed Consolidated Financial Statements March
31, 2024 (Unaudited)
3) Investments
(Continued) The
Company employs full-time employees to attend to the day-to-day operations of those assets within the greater Salt Lake area and close
surrounding markets. The Company utilizes third party property managers where the geographic location does not warrant full-time staff
or through strategic lease-up periods. The Company generally looks to acquire assets that are in regions expected to have high growth
in employment and population and that provide operational efficiencies. The
Company currently owns and operates seven commercial properties in two states. These properties include office buildings, flex office
space, and the redevelopment and expansion of its corporate campus (“Center53”) in Salt Lake City, Utah. The Company uses
bank debt in strategic cases, primarily where it is anticipated to improve yields, or facilitate the acquisition of higher quality assets
or asset class diversification. The
aggregated net book value of commercial real estate serving as collateral for bank loans was $ 123,079,008 124,381,467 97,359,494 97,807,614 During
the three month periods ended March 31, 2024 and 2023, the Company did not record any impairment losses on commercial real estate held
for investment or held for sale. Impairment losses, if any, are included in gains (losses) on investment and other assets on the condensed
consolidated statements of earnings. During
the three month periods ended March 31, 2024 and 2023, the Company recorded depreciation expense on commercial real estate held for investment
of $ 1,527,793 1,565,927 The
Company’s commercial real estate held for investment is summarized as follows as of the respective dates indicated: Schedule
of Commercial Real Estate Investment
Net Book Value Total Square Footage
March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023
Utah (1) $ 128,904,262 $ 142,475,177 546,941 625,920
Louisiana 19,084 19,250 1,622 1,622
$ 128,923,346 $ 142,494,427 548,563 627,542
(1) Includes Center53 SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes
to Condensed Consolidated Financial Statements March
31, 2024 (Unaudited)
3) Investments
(Continued) The
Company’s commercial real estate held for sale is summarized as follows as of the respective dates indicated:
Net Book Value Total Square Footage
March 31, December 31, 2023 March 31, December 31, 2023
Mississippi (1) $ 151,553 $ 3,028,973 - 19,694
Utah (2) 12,111,772 - 78,979 -
$ 12,263,325 $ 3,028,973 78,979 19,694
(1) Consists of approximately
93 acres of undeveloped land for $ 151,553 2,877,420 250,000
(2) Sold in April 2024
for a gain of approximately $ 3,000 The
property is being marketed with the assistance of commercial real estate brokers in Mississippi. Residential
Real Estate Held for Investment and Held for Sale The
Company occasionally acquires a small portfolio of residential homes primarily because of loan foreclosures. The Company has the option
to sell these properties or to continue to hold them for expected cash flow and price appreciation. The Company also invests in residential
subdivision development. The
Company established Security National Real Estate Services (“SNRE”) to manage its residential property portfolio. SNRE cultivates
and maintains the preferred vendor relationships necessary to manage costs and quality of work performed on the Company’s entire
residential property portfolio. During
the three month periods ended March 31, 2024 and 2023 the Company did no During
the three month periods ended March 31, 2024 and 2023, the Company recorded depreciation expense on residential real estate held for
investment of $ 2,653 2,648 The
Company’s residential real estate held for investment is summarized as follows as of the respective dates indicated: Schedule
of Residential Real Estate Investment
Net Book Value
March 31, 2024 December 31, 2023
Utah (1) $ 54,638,976 $ 40,924,865
$ 54,638,976 $ 40,924,865
(1) Includes multiple
residential subdivision development projects SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes
to Condensed Consolidated Financial Statements March
31, 2024 (Unaudited)
3) Investments
(Continued) The
following table presents additional information regarding the Company’s residential subdivision development in Utah:
March 31, 2024 December 31, 2023
Lots developed 64 42
Lots to be developed 1,269 1,145
Book Value $ 54,449,234 $ 40,739,201 The
Company’s residential real estate held for sale is summarized as follows as of the respective dates indicated:
Net Book Value
March 31, 2024 December 31, 2023
Utah $ 859,599 $ -
$ 859,599 $ - The
net book value of foreclosed residential real estate included in residential real estate held for sale was $ 859,599 nil Real
Estate Owned and Occupied by the Company The
primary business units of the Company occupy a portion of the real estate owned by the Company. As of March 31, 2024, real estate owned
and occupied by the Company is summarized as follows: Schedule
of Real Estate Owned and Occupied by the Company
Location Business Segment Approximate Square Footage Square Footage Occupied by the Company
433 Ascension Way, Floors 4, 5 and 6, Salt Lake City, UT - Center53 Building 2 (1) Corporate Offices, Life Insurance, Cemetery/Mortuary Operations, and Mortgage Operations and Sales 221,000 50 %
1818 Marshall Street, Shreveport, LA (2) Life Insurance Operations 12,274 100 %
909 Foisy Street, Alexandria, LA (2) (3) Life Insurance Sales 8,059 100 %
812 Sheppard Street, Minden, LA (2) (4) Life Insurance Sales 1,560 100 %
(1) Included in real estate held for investment on the condensed consolidated balance sheets
(2) Included in property and equipment on the condensed consolidated balance sheets
(3) Sold in April 2024 for a loss of approximately $ 39,000
(4) Listed for sale 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 10.5 nine months 30 SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes
to Condensed Consolidated Financial Statements March
31, 2024 (Unaudited)
3) Investments
(Continued) 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 the relevant debtors’ ability to honor obligations is dependent upon the economic stability
of the geographic region in which the debtors do business or are employed. As of March 31, 2024, the Company had 43 11 8 8 7 44 11 10 7 6 Mortgage
loans held for investment are carried at their unpaid principal balances adjusted for net deferred fees, charge-offs, premiums, discounts,
and the related allowance for credit 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 terms 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
requires that loans not exceed 80% of the fair market value of the respective loan collateral. For loans of more than 80% of the fair
market value of the respective loan collateral, additional collateral or mortgage insurance by an approved third-party insurer is required. Evaluation
of Allowance for Credit Losses See
Note 2 regarding the adoption of ASU 2016-13. The
allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the Company’s mortgage loans
held for investment to present the net amount expected to be collected. The Company reports in net earnings, as a credit loss expense,
the amount necessary to adjust the allowance for credit losses for the Company’s current estimate of expected credit losses on
mortgage loans held for investment. This credit loss expense is included in other expenses on the condensed consolidated statements of
earnings. Once
a mortgage loan is past due 90 days, it is the policy of the Company to end the accrual of interest income on the loan and reverse any
interest income that had been accrued. Given this policy, the Company does not measure a credit loss allowance on accrued interest receivable.
Accrued interest receivable is included in accrued investment income on the condensed consolidated balance sheets. Payments received
for mortgage loans on a non-accrual status are recognized when received. The interest income recognized from payments received for mortgage
loans on a non-accrual status was immaterial. Accrual of interest resumes if a mortgage loan is brought current. Interest not accrued
on these loans totaled approximately $ 328,000 237,000 The
Company measures expected credit losses based on the fair value of the collateral when the Company determines that foreclosure is probable.
When a mortgage loan becomes delinquent, the Company proceeds to foreclose and all expenses for foreclosure are expensed as incurred.
Once foreclosed, the property is classified as real estate held for investment or held for sale. To
determine the allowance for credit losses, the Company has segmented its mortgage loans held for investment by loan type. The Company’s
loan types are commercial, residential, and residential construction. The inherent risks within the portfolio vary depending upon the
loan type as follows: Commercial
SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes
to Condensed Consolidated Financial Statements March
31, 2024 (Unaudited)
3) Investments
(Continued) Commercial
loans are evaluated for credit loss by analyzing common metrics that are predictors for future credit losses such as debt service coverage
ratio (“DSCR”), loan to value (“LTV”), local market conditions, borrower quality, and underlying collateral.
The fair value of the underlying collateral is based on a third-party appraisal of the property at origination of the loan. The fair
value is assessed if the loan becomes 90 days delinquent. The Company uses these metrics to pool similar loans. The allowance for credit
losses is based on estimates, historical experience, probability of loss, value of the underlying collateral, and other factors that
affect the collectability of the loan. The Company applies a future loss factor to the outstanding balance of each group to arrive at
the allowance for credit losses. Residential
Residential
loans are evaluated for credit loss by using relevant available information from both internal and external sources. Among other things,
the Company uses its historical delinquency information and considers current and forecasted economic conditions. External sources include
a monthly analysis of its residential portfolio by a third party. The third party uses the Company’s current loan data and runs
it through various models to project cash flows and provide a projected life of loan loss. The models consider loan features such as
loan type, loan to value, payment status, age, and current property values. Analyzing the information from the various sources allows
the Company to arrive at the allowance for credit losses. Residential
construction (including land acquisition and development) Additionally,
land acquisition and development loans are underwritten in accordance with the Company’s underwriting policies, which include independent
appraisal valuations as well as the estimated value associated with the land upon completion of development into finished lots. These
loans are of a higher risk than other mortgage loans due to their ultimate repayment being sensitive to general economic conditions,
availability of long-term or construction financing, and interest rate sensitivity. Residential
construction mortgage loans are evaluated for credit loss by considering historical activity and current housing market trends to arrive
at a per loan basis point allowance that is recognized at loan origination and for subsequent draws. The per loan basis point is reviewed
at least annually or as loan losses or market trends require. The
following table presents a roll forward of the allowance for credit losses as of the dates indicated: Schedule
of Allowance for Loan Losses
Three Months Ended
Commercial Residential Residential Construction Total
Beginning balance - January 1, 2024 $ 1,219,653 $ 2,390,894 $ 208,106 $ 3,818,653
-
Change in provision for credit losses (360,031 ) (528,399 ) (8,609 ) (897,039 )
Charge-offs - - - -
Ending balance - March 31, 2024 $ 859,622 $ 1,862,495 $ 199,497 $ 2,921,614
Beginning balance - January 1, 2023 $ 187,129 $ 1,739,980 $ 43,202 $ 1,970,311
Adoption of ASU 2016-13 (1) 555,807 (192,607 ) 301,830 665,030
Change in provision for credit losses (2) 15,195 137,727 (52,844 ) 100,078
Charge-offs - - - -
Ending balance - March 31, 2023 $ 758,131 $ 1,685,100 $ 292,188 $ 2,735,419
(1) See Note 2 of the
notes to the condensed consolidated financial statements
(2) Included in other
expenses on the condensed consolidated statements of earnings SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes
to Condensed Consolidated Financial Statements March
31, 2024 (Unaudited)
3) Investments The
following table presents the aging of mortgage loans held for investment by loan type as of the dates indicated: Schedule
of Aging of Mortgage Loans
Commercial Residential Residential Total
March 31, 2024
30-59 days past due $ 5,056,753 $ 3,868,858 $ - $ 8,925,611
60-89 days past due - 2,018,961 - 2,018,961
Over 90 days past due (1) 405,000 3,001,826 - 3,406,826
In process of foreclosure (1) 191,508 1,694,997 - 1,886,505
Total past due 5,653,261 10,584,642 - 16,237,903
Current 61,422,824 96,179,990 99,748,408 257,351,222
Total mortgage loans 67,076,085 106,764,632 99,748,408 273,589,125
Allowance for credit losses (859,622 ) (1,862,495 ) (199,497 ) (2,921,614 )
Unamortized deferred loan fees, net (144,981 ) (1,168,387 ) (398,123 ) (1,711,491 )
Unamortized discounts, net (159,979 ) (159,257 ) - (319,236 )
Net mortgage loans held for investment $ 65,911,503 $ 103,574,493 $ 99,150,788 $ 268,636,784
December 31, 2023
30-59 days past due $ - $ 3,387,673 $ - $ 3,387,673
60-89 days past due - 3,472,760 - 3,472,760
Over 90 days past due (1) 405,000 3,480,931 - 3,885,931
In process of foreclosure (1) 1,241,508 1,021,790 - 2,263,298
Total past due 1,646,508 11,363,154 - 13,009,662
Current 72,530,030 91,790,433 104,052,748 268,373,211
Total mortgage loans 74,176,538 103,153,587 104,052,748 281,382,873
Allowance for credit losses (1,219,653 ) (2,390,894 ) (208,106 ) (3,818,653 )
Unamortized deferred loan fees, net (172,989 ) (1,135,491 ) (314,746 ) (1,623,226 )
Unamortized discounts, net (216,705 ) (107,452 ) - (324,157 )
Net mortgage loans held for investment $ 72,567,191 $ 99,519,750 $ 103,529,896 $ 275,616,837
(1) Interest income
is not recognized on loans which are more than 90 days past due or in foreclosure. SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes
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