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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

 

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.)
     
433 Ascension Way, 6th Floor, Salt Lake City, Utah   84123
(Address of principal executive offices)   (Zip Code)

 

(801) 264-1060

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading symbol   Name of each exchange on which registered
Class A Common Stock   SNFCA   The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

 

Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ☐ No

 

As of May 3, 2024, the registrant had 20,057,835 shares of Class A Common Stock, $2.00 par value, outstanding and 2,971,588 shares of Class C Common Stock, $2.00 par value, outstanding.

 

 

 

 
 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q

 

QUARTER ENDED MARCH 31, 2024

 

Table of Contents

 

    Page No.
  Part I - Financial Information  
Item 1. Financial Statements  
  Condensed Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023 3-4
  Condensed Consolidated Statements of Earnings for the three month periods ended March 31, 2024 and 2023 (unaudited) 5
  Condensed Consolidated Statements of Comprehensive Income for the three month periods ended March 31, 2024 and 2023 (unaudited) 6
  Condensed Consolidated Statements of Stockholders’ Equity as of March 31, 2024 and March 31, 2023 (unaudited) 7
  Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2024 and 2023 (unaudited) 8-9
  Notes to Condensed Consolidated Financial Statements (unaudited) 10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 60
Item 3. Quantitative and Qualitative Disclosures about Market Risk 65
Item 4. Controls and Procedures 65
  Part II - Other Information  
Item 1. Legal Proceedings 65
Item 1A. Risk Factors 66
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 66
Item 3. Defaults Upon Senior Securities 66
Item 4. Mine Safety Disclosures 66
Item 5. Other Information 67
Item 6. Exhibits 67
  Signatures 68

 

2
 

 

Part I - Financial Information

 

Item 1. Financial Statements.

 

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   March 31, 2024   December 31, 2023 
   (Unaudited)     
Assets          
Investments:          
Fixed maturity securities, available for sale, at estimated fair value (amortized cost of $386,405,977 and $390,884,441 for 2024 and 2023, respectively; net of allowance for credit losses of $410,549 and $314,549 for 2024 and 2023, respectively)  $375,833,407   $381,535,986 
Equity securities at estimated fair value (cost of $11,160,744 and $10,571,505 for 2024 and 2023, respectively)   15,161,999    13,636,071 
Mortgage loans held for investment (net of allowance for credit losses of $2,921,614 and $3,818,653 for 2024 and 2023, respectively)   268,636,784    275,616,837 
Real estate held for investment (net of accumulated depreciation of $27,161,160 and $29,307,791 for 2024 and 2023, respectively)   183,562,322    183,419,292 
Real estate held for sale   13,122,924    3,028,973 
Other investments and policy loans (net of allowance for credit losses of $1,587,525 and $1,553,836 for 2024 and 2023, respectively)   70,510,984    69,404,617 
Accrued investment income   8,961,065    10,170,790 
Total investments   935,789,485    936,812,566 
Cash and cash equivalents   150,930,786    126,941,658 
Loans held for sale at estimated fair value   112,678,958    126,549,190 
Receivables (net of allowance for credit losses of $1,755,553 and $1,897,887 for 2024 and 2023, respectively)   16,875,546    15,335,315 
Restricted assets (including $10,083,226 and $9,239,063 for 2024 and 2023 respectively, at estimated fair value)   20,878,561    20,028,976 
Cemetery perpetual care trust investments (including $5,217,068 and $4,969,005 for 2024 and 2023, respectively, at estimated fair value)   8,368,975    8,082,917 
Receivable from reinsurers   14,726,731    14,857,059 
Cemetery land and improvements   9,557,577    9,163,691 
Deferred policy and pre-need contract acquisition costs   118,117,308    116,351,067 
Mortgage servicing rights, net   3,318,155    3,461,146 
Property and equipment, net   18,806,536    19,175,099 
Value of business acquired   8,457,054    8,467,613 
Goodwill   5,253,783    5,253,783 
Other   22,742,841    20,072,195 
           
Total Assets  $1,446,502,296   $1,430,552,275 

 

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

 

3
 

 

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

 

   March 31, 2024   December 31, 2023 
   (Unaudited)     
Liabilities and Stockholders’ Equity          
Liabilities          
Future policy benefits and unpaid claims  $923,292,031   $916,038,616 
Unearned premium reserve   2,491,281    2,543,822 
Bank and other loans payable   104,335,116    105,555,137 
Deferred pre-need cemetery and mortuary contract revenues   18,501,474    18,237,246 
Cemetery perpetual care obligation   5,384,115    5,326,196 
Accounts payable   3,560,096    2,936,968 
Other liabilities and accrued expenses   53,175,654    53,266,090 
Income taxes   15,658,555    13,752,981 
Total liabilities   1,126,398,322    1,117,657,056 
           
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; 40,000,000 shares authorized; 20,048,581 shares issued and outstanding as of March 31, 2024 and 20,048,002 shares issued and outstanding as of December 31, 2023   40,097,162    40,096,004 
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; 6,000,000 shares authorized; 2,971,680 shares issued and outstanding as of March 31, 2024  and 2,971,854 shares issued and outstanding as of December 31, 2023   5,943,360    5,943,708 
Additional paid-in capital   72,727,294    72,424,429 
Accumulated other comprehensive loss, net of taxes   (7,780,656)   (6,885,558)
Retained earnings   214,452,895    206,978,373 
Treasury stock at cost - 756,386 Class A shares and 35,717 Class C shares as of March 31, 2024; and 806,311 Class A shares and 35,717 Class C shares as of December 31, 2023   (5,336,081)   (5,661,737)
           
Total stockholders’ equity   320,103,974    312,895,219 
           
Total Liabilities and Stockholders’ Equity  $1,446,502,296   $1,430,552,275 

 

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

 

4
 

 

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
Revenues:          
Mortgage fee income  $21,831,670   $25,989,006 
Insurance premiums and other considerations   29,852,093    27,967,292 
Net investment income   19,946,568    17,774,883 
Net mortuary and cemetery sales   6,948,491    6,471,429 
Gains on investments and other assets   1,669,426    111,154 
Other   939,950    1,186,970 
Total revenues   81,188,198    79,500,734 
           
Benefits and expenses:          
Death benefits   15,713,753    16,678,366 
Surrenders and other policy benefits   1,215,793    1,132,693 
Increase in future policy benefits   9,345,887    8,054,939 
Amortization of deferred policy and pre-need acquisition costs and value of business acquired   4,743,913    4,883,581 
Selling, general and administrative expenses:          
Commissions   7,981,217    9,673,310 
Personnel   19,855,135    21,962,512 
Advertising   687,655    903,411 
Rent and rent related   1,401,477    1,776,780 
Depreciation on property and equipment   587,449    588,416 
Costs related to funding mortgage loans   1,449,095    1,842,342 
Other   6,285,910    7,780,535 
Interest expense   1,027,474    1,453,333 
Cost of goods and services sold-mortuaries and cemeteries   1,274,129    1,185,628 
Total benefits and expenses   71,568,887    77,915,846 
           
Earnings before income taxes   9,619,311    1,584,888 
Income tax expense   (2,144,789)   (344,716)
           
Net earnings  $7,474,522   $1,240,172 
           
Net earnings per Class A Equivalent common share (1)  $0.34   $0.06 
           
Net earnings per Class A Equivalent common share-assuming dilution (1)  $0.33   $0.05 
           
Weighted-average Class A equivalent common shares outstanding (1)   22,219,490    22,129,713 
           
Weighted-average Class A equivalent common shares outstanding-assuming dilution (1)   22,945,842    22,687,773 

 

 

(1)Net earnings per share amounts have been adjusted retroactively for the effect of annual stock dividends. The weighted-average shares outstanding includes the weighted-average Class A common shares and the weighted-average Class C common shares determined on an equivalent Class A common stock basis. Net earnings per common share represent net earnings per equivalent Class A common share.

 

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

 

5
 

 

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
Net earnings  $7,474,522   $1,240,172 
Other comprehensive income:          
Unrealized gains (losses) on fixed maturity securities available for sale  $(1,131,650)   5,218,029 
Unrealized gains (losses) on restricted assets (1)   (1,890)   4,133 
Unrealized gains (losses) on cemetery perpetual care trust investments (1)   (774)   2,926 
Other comprehensive income (loss), before income tax   (1,134,314)   5,225,088 
Income tax (expense) benefit   239,216    (1,097,530)
Other comprehensive income (loss), net of income tax   (895,098)   4,127,558 
Comprehensive income  $6,579,424   $5,367,730 

 

 

(1)Fixed maturity securities available for sale

 

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

 

6
 

 

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

   Class A Common Stock   Class C Common Stock   Additional Paid-in Capital   Accumulated Other Comprehensive Income (Loss)   Retained Earnings   Treasury Stock   Total 
   Three Months Ended March 31, 2024 
   Class A Common Stock   Class C Common Stock   Additional Paid-in Capital   Accumulated Other Comprehensive Income (Loss)   Retained Earnings   Treasury Stock   Total 
                             
January 1, 2024  $40,096,004   $5,943,708   $72,424,429   $(6,885,558)  $206,978,373   $(5,661,737)  $312,895,219 
                                    
Net earnings   -    -    -    -    7,474,522    -    7,474,522 
Other comprehensive loss   -    -    -    (895,098)   -    -    (895,098)
Stock-based compensation expense   -    -    199,887    -    -    -    199,887 
Vesting of restricted stock units   810    -    (810)   -    -    -    - 
Sale of treasury stock   -    -    103,788    -    -    366,733    470,521 
Purchase of treasury stock   -    -    -    -    -    (41,077)   (41,077)
Conversion Class C to Class A   348    (348)   -    -    -    -    - 
March 31, 2024  $40,097,162   $5,943,360   $72,727,294   $(7,780,656)  $214,452,895   $(5,336,081)  $320,103,974 

 

   Three Months Ended March 31, 2023 
   Class A Common Stock   Class C Common Stock   Additional Paid-in Capital   Accumulated Other Comprehensive Income (Loss)   Retained Earnings   Treasury Stock   Total 
                             
January 1, 2023  $37,516,062   $5,779,718   $64,767,769   $(13,070,277)  $202,160,306   $(4,366,651)  $292,786,927 
                                    
Adoption of ASU 2016-13   -    -    -    -    (671,506)   -    (671,506)
Net earnings   -    -    -    -    1,240,172    -    1,240,172 
Other comprehensive income   -    -    -    4,127,558    -    -    4,127,558 
Stock-based compensation expense   -    -    143,671    -    -    -    143,671 
Exercise of stock options   96,092    -    (62,073)   -    -    -    34,019 
Sale of treasury stock   -    -    (43,493)   -    -    620,651    577,158 
Purchase of treasury stock   -    -    -    -    -    (1,204,357)   (1,204,357)
Conversion Class C to Class A   1,872    (1,872)   -    -    -    -    - 
March 31, 2023  $37,614,026   $5,777,846   $64,805,874   $(8,942,719)  $202,728,972   $(4,950,357)  $297,033,642 

 

7
 

 

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
Cash flows from operating activities:          
Net cash provided by (used in) operating activities  $25,077,244   $(16,073,799)
           
Cash flows from investing activities:          
Purchases of fixed maturity securities   (6,670,277)   (11,911,847)
Sales, calls and maturities of fixed maturity securities   11,440,209    5,375,819 
Purchases of equity securities   (2,038,459)   (4,596,981)
Sales of equity securities   1,412,118    4,150,683 
Purchases of restricted assets   (643,531)   (311,776)
Sales, calls and maturities of restricted assets   178,350    24,746 
Purchases of cemetery perpetual care trust investments   (46,725)   (113,238)
Sales, calls and maturities of perpetual care trust investments   54,601    27,199 
Mortgage loans held for investment, other investments and policy loans made   (166,160,908)   (165,651,041)
Payments received for mortgage loans held for investment, other investments and policy loans   175,017,132    184,156,157 
Purchases of property and equipment   (256,155)   (250,642)
Sales of property and equipment   71,469    10,974 
Purchases of real estate   (17,740,755)   (2,705,716)
Sales of real estate   7,082,265    9,160,065 
Net cash provided by investing activities   1,699,334    17,364,402 
           
Cash flows from financing activities:          
Investment contract receipts   3,237,207    3,100,207 
Investment contract withdrawals   (4,105,463)   (3,831,218)
Proceeds from stock options exercised   -    34,019 
Purchases of treasury stock   (41,077)   (1,204,357)
Repayment of bank loans   (470,652)   (15,684,446)
Proceeds from bank loans   -    46,000,000 
Net change in warehouse line borrowings for loans held for sale   (769,236)   (53,656,378)
Net cash used in financing activities   (2,149,221)   (25,242,173)
           
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents   24,627,357    (23,951,570)
           
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period   139,923,399    133,483,817 
           
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period  $164,550,756   $109,532,247 
           
Supplemental Disclosure of Cash Flow Information:          
Cash paid during the year for:          
Interest  $1,022,460   $1,635,867 
Income taxes (net of refunds)   -    (6,878)
           
Non Cash Operating, Investing and Financing Activities:          
Transfer of loans held for sale to mortgage loans held for investment  $1,867,552   $- 
Loans held for sale foreclosed into real estate held for sale   858,977    - 
Right-of-use assets obtained in exchange for operating lease liabilities   479,462    139,095 
Benefit plans funded with treasury stock   470,521    577,158 
Transfer from mortgage loans held for investment to restricted assets   -    1,625,961 
Transfer from mortgage loans held for investment to cemetery perpetual care trust investments   -    1,611,550 

 

8
 

 

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

 

Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents as shown in the condensed consolidated statements of cash flows is presented in the table below:

 

   Three Months Ended March 31, 
   2024   2023 
Cash and cash equivalents  $150,930,786   $99,554,776 
Restricted assets   10,598,384    9,228,113 
Cemetery perpetual care trust investments   3,021,586    749,358 
           
Total cash, cash equivalents, restricted cash and restricted cash equivalents  $164,550,756   $109,532,247 

 

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

 

9
 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (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 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, 2023, included in the Company’s Annual Report on Form 10-K (File Number 000-09341). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month periods ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to adopt policies and make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. In applying these policies and estimates, the Company makes judgments that frequently require assumptions about matters that are inherently uncertain. Accordingly, significant estimates used in the preparation of the Company’s financial statements may be subject to significant adjustments in future periods. Actual results could differ from those estimates.

 

Material estimates that are particularly susceptible to significant changes in the near term are those used in determining the value of derivative assets and liabilities; those used in determining deferred acquisition costs and the value of business acquired; those used in determining the value of mortgage loans foreclosed to real estate held for investment or sale; those used in determining the liability for future policy benefits and unearned revenue; those used in determining the estimated future costs for pre-need sales; those used in determining the value of mortgage servicing rights; those used in determining the value of loans held for sale; those used in determining allowances for credit losses; those used in determining loan loss reserve; and those used in determining deferred tax assets and liabilities. Although some variability is inherent in these estimates, management believes the amounts provided are fairly stated in all material respects.

 

10
 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

 

2) Recent Accounting Pronouncements

 

Accounting Standards Adopted in 2023

 

ASU No. 2016-13: “Financial Instruments – Credit Losses (Topic 326)” — Issued in September 2016, ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis (such as mortgage loans held for investment and held to maturity debt securities) and available for sale debt securities. For assets held at an amortized cost basis, Topic 326 eliminates the probable initial recognition threshold 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 Topic 326 requires that credit losses be presented as an allowance rather than as a write-down. The Company adopted this standard on January 1, 2023, and after a review of the affected assets, decreased the opening balance of retained earnings in stockholders’ equity by $671,506 on January 1, 2023. The allowances for credit losses increased (decreased) by the following amounts.

 

 Schedule of Increased (Decrease) in Allowances for Credit Losses Upon ASU

   Amount 
Mortgage loans held for investment:     
Residential  $(192,607)
Residential construction   301,830 
Commercial   555,807 
Total   665,030 
      
Restriced assets - mortgage loans held for investment:     
Residential construction   3,463 
      
Cemetery perpetual care trust investments - mortgage loans held for investment:     
Residential construction   3,013 
      
Grand Total   671,506 

 

Accounting Standards Issued But Not Yet Adopted

 

ASU No. 2018-12: “Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts” — Issued in August 2018, ASU 2018-12 is intended to improve the timeliness of recognizing changes in the liability for future policy benefits on traditional long-duration contracts by requiring that assumptions be updated after contract inception and by modifying the rate used to discount future cash flows. The standard is aimed at improving the accounting for certain market-based options or guarantees associated with deposit or account balance contracts, simplifying amortization of deferred acquisition costs while improving and expanding required disclosures. In November 2020, the FASB issued an update to ASU No. 2018-12 that requires the standard to be adopted by the Company commencing on January 1, 2025. The Company is nearing completion of its analysis and implementation of the new standard, including the identification of cohorts, system updates, and design. The Company has engaged its team of actuaries, accountants, and systems specialists and consulted external system providers as part of the implementation. The Company is in the process of estimating the impact of the new guidance on the consolidated financial statements.

 

ASU No. 2023-09: “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” — Issued in December 2023, ASU 2023-09 requires that public business entities, on an annual basis: (i) disclose specific categories in the rate reconciliation and (ii) provide additional information for reconciling items that meet a quantitative threshold. In addition, the amendments in this update require that all entities disclose on an annual basis the following information about income taxes paid: (i) the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes and (ii) the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). ASU 2023-09 is effective for the Company beginning on January 1, 2025. The Company is in the process of estimating the impact of the new guidance on the consolidated financial statements.

 

ASU No. 2023-07: “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” — Issued in November 2023, ASU 2023-07 requires enhanced disclosures about significant segment expenses. The key amendments include: (i) disclosures on significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss on an annual and interim basis; (ii) disclosures on an amount for other segment items by reportable segment and a description of its composition on an annual and interim basis. The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss; (iii) providing all annual disclosures on a reportable segment’s profit or loss and assets currently required by FASB ASC Topic 280, Segment Reporting in interim periods; and (iv) specifying the title and position of the CODM. ASU 2023-07 is effective for the Company for annual periods beginning January 1, 2024 and interim periods beginning January 1, 2025. The Company is in the process of estimating the impact of the new guidance on the consolidated financial statements.

 

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.

 

11
 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

 

3) Investments

 

The Company’s investments as of March 31, 2024 are summarized as follows:

  

   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 of Membership stock and $1,773,300 of Activity stock attributable to short-term borrowings and letters of credit.

 

12
 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

 

13
 

 

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.

  

   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% of the aggregate amortized cost as of March 31, 2024. Relevant holdings were comprised of 606 securities with fair values aggregating 94.9% of the aggregate amortized cost as of December 31, 2023. Credit loss provision of $96,000 and $179,500 have been recognized for the three month periods ended March 31, 2024 and 2023, respectively. Credit losses are included in gains (losses) on investments and other assets on the condensed consolidated statements of earnings. Other unrealized losses for which no credit loss was recognized are primarily the result of increases in interest rates.

 

14
 

 

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.

 

15
 

 

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% and 98.2% of its fixed maturity securities rated investment grade as of March 31, 2024 and December 31, 2023, respectively. The following table summarizes the credit quality, by NAIC designation, of the Company’s fixed maturity securities available for sale, excluding redeemable preferred stock.

 

   March 31, 2024   December 31, 2023 
NAIC Designation  Amortized
Cost
   Estimated Fair
Value
   Amortized
Cost
   Estimated Fair
Value
 
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