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xbrli:pure

 

 

 

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 September 30, 2022

 

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 November 7, 2022, the registrant had 18,722,859 shares of Class A Common Stock, $2.00 par value, outstanding and 2,889,859 shares of Class C Common Stock, $2.00 par value, outstanding.

 

 

 

 
 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q

 

QUARTER ENDED SEPTEMBER 30, 2022

 

Table of Contents

 

    Page No.
  Part I - Financial Information  
Item 1. Financial Statements  
  Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021 3-4
  Condensed Consolidated Statements of Earnings for the three and nine months ended September 30, 2022 and 2021 (unaudited) 5
  Condensed Consolidated Statements of Comprehensive Income (loss) for the three and nine months ended September 30, 2022 and 2021 (unaudited) 6
  Condensed Consolidated Statements of Stockholders’ Equity as of September 30, 2022 and September 30, 2021 (unaudited) 7-8
  Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited) 9-10
  Notes to Condensed Consolidated Financial Statements (unaudited) 11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 53
Item 3. Quantitative and Qualitative Disclosures about Market Risk 60
Item 4. Controls and Procedures 60
  Part II - Other Information  
Item 1. Legal Proceedings 61
Item 1A. Risk Factors 61
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 61
Item 3. Defaults Upon Senior Securities 61
Item 4. Mine Safety Disclosures 61
Item 5. Other Information 61
Item 6. Exhibits 62
  Signatures 63

 

2
 

 

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

Part I - Financial Information

 

Item 1. Financial Statements.

 

   September 30 2022
(Unaudited)		   December 31 2021 
Assets          
Investments:          
Fixed maturity securities, available for sale, at estimated fair value (amortized cost of $340,262,502 and $236,303,310 for 2022 and 2021)  $320,806,385   $259,287,603 
Equity securities at estimated fair value (cost of $9,792,380 and $8,275,772 for 2022 and 2021)   10,371,032    11,596,414 
Mortgage loans held for investment (net of allowances for loan losses of $1,675,015 and $1,699,902 for 2022 and 2021)   320,563,600    277,306,046 
Real estate held for investment (net of accumulated depreciation of $22,293,450 and $17,692,038 for 2022 and 2021)   196,077,537    197,365,797 
Real estate held for sale   151,553    3,731,300 
Other investments and policy loans (net of allowances for doubtful accounts of $1,736,761 and $1,686,218 for 2022 and 2021)   65,613,561    67,955,155 
Accrued investment income   10,844,025    6,313,012 
Total investments   924,427,693    823,555,327 
Cash and cash equivalents   84,947,720    131,354,470 
Loans held for sale at estimated fair value   161,981,923    302,776,827 
Receivables (net of allowances for doubtful accounts of $1,660,221 and $1,800,725 for 2022 and 2021)   17,033,643    18,316,116 
Restricted assets (including $5,730,936 and $5,205,510 for 2022 and 2021 at estimated fair value)   16,364,853    16,938,122 
Cemetery perpetual care trust investments (including $3,440,102 and $4,087,245 for 2022 and 2021 at estimated fair value)   6,831,411    7,835,721 
Receivable from reinsurers   14,693,234    14,850,608 
Cemetery land and improvements   9,095,125    8,977,877 
Deferred policy and pre-need contract acquisition costs   107,656,401    105,049,983 
Mortgage servicing rights, net   54,379,245    53,060,455 
Property and equipment, net   20,569,638    21,517,598 
Value of business acquired   10,208,715    8,421,432 
Goodwill   5,253,783    5,253,783 
Other   26,630,483    29,684,987 
           
Total Assets  $1,460,073,867   $1,547,593,306 

 

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

 

3
 

 

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

 

   September 30 2022
(Unaudited)		   December 31 2021 
Liabilities and Stockholders’ Equity          
Liabilities          
Future policy benefits and unpaid claims  $881,916,853   $863,274,693 
Unearned premium reserve   2,880,970    3,060,738 
Bank and other loans payable   201,479,763    251,286,927 
Deferred pre-need cemetery and mortuary contract revenues   15,873,046    14,508,022 
Cemetery perpetual care obligation   5,041,728    4,915,285 
Accounts payable   4,860,801    10,166,573 
Other liabilities and accrued expenses   55,985,770    69,578,138 
Income taxes   23,173,059    31,036,096 
Total liabilities   1,191,211,990    1,247,826,472 
           
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; issued 18,717,540 shares in 2022 and 17,642,722 shares in 2021   37,435,080    35,285,444 
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; issued 2,889,859 shares in 2022 and 2,866,565 shares in 2021   5,779,718    5,733,130 
Additional paid-in capital   64,840,595    57,985,947 
Accumulated other comprehensive income (loss), net of taxes   (15,071,680)   18,070,448 
Retained earnings   180,919,986    184,537,489 
Treasury stock at cost - 599,219 Class A shares and 34,016 Class C shares in 2022; and 108,079 Class A shares and 109,193 Class C shares in 2021   (5,041,822)   (1,845,624)
           
Total stockholders’ equity   268,861,877    299,766,834 
           
Total Liabilities and Stockholders’ Equity  $1,460,073,867   $1,547,593,306 

 

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

 

4
 

 

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

 

   2022   2021   2022   2021 
   Three Months Ended September 30   Nine Months Ended September 30 
   2022   2021   2022   2021 
Revenues:                    
Mortgage fee income  $28,607,888   $66,257,851   $118,983,231   $204,414,276 
Insurance premiums and other considerations   26,237,417    26,445,618    78,491,364    74,754,856 
Net investment income   18,603,070    15,092,962    49,768,664    43,564,167 
Net mortuary and cemetery sales   6,470,363    5,967,675    20,926,587    18,228,199 
Gains (losses) on investments and other assets   (2,178,952)   976,900    (2,921,372)   4,414,217 
Other   5,737,434    4,768,125    16,221,307    13,542,337 
Total revenues   83,477,220    119,509,131    281,469,781    358,918,052 
                     
Benefits and expenses:                    
Death benefits   13,996,753    15,474,512    45,720,503    48,630,585 
Surrenders and other policy benefits   1,337,507    977,190    3,814,442    2,725,791 
Increase in future policy benefits   7,389,732    7,485,565    20,761,276    19,140,939 
Amortization of deferred policy and pre-need acquisition costs and value of business acquired   5,061,713    4,709,979    13,511,235    11,940,905 
Selling, general and administrative expenses:                    
Commissions   15,004,275    28,769,191    53,303,814    91,392,436 
Personnel   24,392,703    25,122,254    76,772,417    73,822,449 
Advertising   1,372,636    1,691,236    4,680,169    5,089,301 
Rent and rent related   1,701,164    1,853,960    5,062,696    5,594,206 
Depreciation on property and equipment   636,246    412,152    1,880,095    1,387,275 
Costs related to funding mortgage loans   1,371,315    2,379,085    6,255,415    8,055,810 
Other   11,178,276    13,775,139    34,444,040    37,754,717 
Interest expense   2,136,763    1,807,461    5,764,327    5,327,072 
Cost of goods and services sold-mortuaries and cemeteries   1,200,481    908,014    3,628,334    2,880,766 
Total benefits and expenses   86,779,564    105,365,738    275,598,763    313,742,252 
                     
Earnings (loss) before income taxes   (3,302,344)   14,143,393    5,871,018    45,175,800 
Income tax benefit (expense)   949,159    (3,352,663)   (1,421,036)   (10,998,876)
                     
Net earnings (loss)  $(2,353,185)  $10,790,730   $4,449,982   $34,176,924 
                     
Net earnings (loss) per Class A Equivalent common share (1) $(0.11)  $0.51   $0.21   $1.62 
                     
Net earnings (loss) per Class A Equivalent common share-assuming dilution (1) $(0.11)  $0.49   $0.20   $1.56 
                     
Weighted-average Class A equivalent common shares outstanding (1)  20,926,823    21,152,747    21,164,377    21,109,092 
                     
Weighted-average Class A equivalent common shares outstanding-assuming dilution (1)  21,612,255    22,013,714    21,947,584    21,960,052 

 

 

(1) Net earnings (loss) 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 (loss) per common share represent net earnings (loss) 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 (LOSS)

(Unaudited)

 

   2022   2021   2022   2021 
   Three Months Ended September 30   Nine Months Ended September 30 
   2022   2021   2022   2021 
Net earnings (loss)  $(2,353,185)  $10,790,730   $4,449,982   $34,176,924 
Other comprehensive income:                    
Unrealized losses on fixed maturity securities available for sale  $(13,523,240)   (1,406,615)   (41,845,274)   (3,477,826)
Unrealized gains (losses) on restricted assets   27,060    (13,951)   (88,058)   (21,682)
Unrealized gains (losses) on cemetery perpetual care trust investments   28,931    (4,669)   (24,294)   (10,927)
Foreign currency translation adjustments   -    -    -    2,835 
Other comprehensive loss, before income tax   (13,467,249)   (1,425,235)   (41,957,626)   (3,507,600)
Income tax benefit   2,825,936    300,029    8,815,498    737,759 
Other comprehensive loss, net of income tax   (10,641,313)   (1,125,206)   (33,142,128)   (2,769,841)
Comprehensive income (loss)  $(12,994,498)  $9,665,524   $(28,692,146)  $31,407,083 

 

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 
   Nine Months Ended September 30, 2022 
   Class A Common Stock   Class C Common Stock   Additional Paid-in Capital   Accumulated Other Comprehensive Income (Loss)   Retained Earnings   Treasury Stock   Total 
                             
January 1, 2022  $35,285,444   $5,733,130   $57,985,947   $18,070,448   $184,537,489   $(1,845,624)  $299,766,834 
                                    
Net earnings   -    -    -    -    3,228,718    -    3,228,718 
Other comprehensive loss   -    -    -    (12,190,330)   -    -    (12,190,330)
Stock-based compensation expense   -    -    271,747    -    -    -    271,747 
Exercise of stock options   100,446    -    (8,487)   -    -    -    91,959 
Sale of treasury stock   -    -    24,055    -    -    1,880,125    1,904,180 
Purchase of treasury stock   -    -    106,176    -    -    (878,417)   (772,241)
Conversion Class C to Class A   414    (414)   -    -    -    -    - 
March 31, 2022  $35,386,304   $5,732,716   $58,379,438   $5,880,118   $187,766,207   $(843,916)  $292,300,867 
                                    
Net earnings   -    -    -    -    3,574,449    -    3,574,449 
Other comprehensive loss   -    -    -    (10,310,485)   -    -    (10,310,485)
Stock-based compensation expense   -    -    220,175    -    -    -    220,175 
Exercise of stock options   37,746    -    (2,440)   -    -    -    35,306 
Sale of treasury stock   -    -    50,401    -    -    1,119,392    1,169,793 
Purchase of treasury stock   -    -    -    -    -    (6,505,050)   (6,505,050)
Conversion Class C to Class A   154,218    (154,218)   -    -    -    -    - 
Stock dividends   1,779,108    278,924    6,009,453    -    (8,067,485)   -    - 
June 30, 2022  $37,357,376   $5,857,422   $64,657,027   $(4,430,367)  $183,273,171   $(6,229,574)  $280,485,055 
                                    
Net loss   -    -    -    -    (2,353,185)   -    (2,353,185)
Other comprehensive loss   -    -    -    (10,641,313)   -    -    (10,641,313)
Stock-based compensation expense   -    -    230,853    -    -    -    230,853 
Sale of treasury stock   -    -    (47,285)   -    -    1,187,752    1,140,467 
Conversion Class C to Class A   77,704    (77,704)   -    -    -    -    - 
September 30, 2022  $37,435,080   $5,779,718   $64,840,595   $(15,071,680)  $180,919,986   $(5,041,822)  $268,861,877 

 

7
 

 

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

(Unaudited)

 

   Nine Months Ended September 30, 2021 
   Class A Common Stock   Class C Common Stock   Additional Paid-in Capital   Accumulated Other Comprehensive Income (Loss)   Retained Earnings   Treasury Stock   Total 
                             
January 1, 2021  $33,191,566   $5,359,206   $50,287,253   $23,243,133   $153,739,167   $(1,833,272)  $263,987,053 
                                    
Net earnings   -    -    -    -    12,128,715    -    12,128,715 
Other comprehensive loss   -    -    -    (5,388,522)   -    -    (5,388,522)
Stock-based compensation expense   -    -    39,153    -    -    -    39,153 
Exercise of stock options   55,852    -    33,401    -    -    -    89,253 
Sale of treasury stock   -    -    290,381    -    -    1,632,041    1,922,422 
Purchase of treasury stock   -    -    -    -    -    (910,233)   (910,233)
Conversion Class C to Class A   97,054    (97,054)   -    -    -    -    - 
March 31, 2021  $33,344,472   $5,262,152   $50,650,188   $17,854,611   $165,867,882   $(1,111,464)  $271,867,841 
                                    
Net earnings   -    -    -    -    11,257,479    -    11,257,479 
Other comprehensive income   -    -    -    3,743,887    -    -    3,743,887 
Exercise of stock options   106,044    -    7,655    -    -    -    113,699 
Sale of treasury stock   -    -    (38,048)   -    -    1,499,862    1,461,814 
Purchase of treasury stock   -    -    -    -    -    (2,596,006)   (2,596,006)
Stock dividends   1,672,526    263,108    6,774,719    -    (8,710,354)   -    (1)
June 30, 2021  $35,123,042   $5,525,260   $57,394,514   $21,598,498   $168,415,007   $(2,207,608)  $285,848,713 
                                    
Net earnings   -    -    -    -    10,790,730    -    10,790,730 
Other comprehensive loss   -    -    -    (1,125,206)   -    -    (1,125,206)
Exercise of stock options   61,320    -    24,182    -    -    -    85,502 
Sale of treasury stock   -    -    (6,274)   -    -    1,338,621    1,332,347 
Purchase of treasury stock   -    -    42,537    -    -    (258,455)   (215,918)
Stock dividends   2,294    (2)   8,022    -    (10,314)   -    - 
Conversion Class C to Class A   1,440    (1,440)   -    -    -    -    - 
September 30, 2021  $35,188,096   $5,523,818   $57,462,981   $20,473,292   $179,195,423   $(1,127,442)  $296,716,168 

 

8
 

 

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   2022   2021 
   Nine Months Ended September 30 
   2022   2021 
Cash flows from operating activities:          
Net cash provided by operating activities  $109,318,230   $128,890,897 
           
Cash flows from investing activities:          
Purchases of fixed maturity securities   (115,680,915)   (14,359,481)
Sales, calls and maturities of fixed maturity securities   11,695,675    40,856,383 
Purchases of equity securities   (3,591,283)   (1,382,227)
Sales of equity securities   2,295,931    3,334,697 
Net changes in restricted assets   (1,157,021)   28,770 
Net changes in perpetual care trusts   325,908    1,065,459 
Mortgage loans held for investment, other investments and policy loans made   (569,434,389)   (635,682,683)
Payments received for mortgage loans held for investment, other investments and policy loans   577,997,140    577,555,622 
Purchases of property and equipment   (966,375)   (4,187,580)
Sale of property and equipment   62,561    45,168 
Purchases of real estate   (20,892,501)   (70,404,325)
Sales of real estate   22,941,365    22,974,490 
Net cash used in investing activities   (96,403,904)   (80,155,707)
           
Cash flows from financing activities:          
Investment contract receipts   8,853,710    8,743,867 
Investment contract withdrawals   (11,964,046)   (11,776,818)
Proceeds from stock options exercised   127,265    288,454 
Purchases of treasury stock   (7,277,291)   (3,722,157)
Repayment of bank loans   (48,383,522)   (54,454,529)
Proceeds from bank loans   59,618,050    97,119,014 
Net change in warehouse line borrowings for loans held for sale   (61,081,557)   (77,374,340)
Net cash used in financing activities   (60,107,391)   (41,176,509)
           
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents   (47,193,065)   7,558,681 
           
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period   141,414,282    115,465,086 
           
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period  $94,221,217   $123,023,767 
           
Supplemental Disclosure of Cash Flow Information:          
Cash paid during the year for:          
Interest  $5,646,811   $5,464,423 
Income taxes (net of refunds)   468,578    2,684,737 
           
Non Cash Operating, Investing and Financing Activities:          
Transfer of loans held for sale to mortgage loans held for investment  $49,428,757   $201,951 
Benefit plans funded with treasury stock   4,214,440    4,716,583 
Accrued real estate construction costs and retainage   1,401,437    8,321,415 
Right-of-use assets obtained in exchange for operating lease liabilities   1,164,287    2,435,831 
Mortgage loans held for investment foreclosed into real estate held for investment   -    931,079 

 

9
 

 

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:

 

   Nine Months Ended September 30 
   2022   2021 
Cash and cash equivalents  $84,947,720   $111,498,676 
Restricted assets   8,276,613    10,004,204 
Cemetery perpetual care trust investments   996,884    1,520,887 
           
Total cash, cash equivalents, restricted cash and restricted cash equivalents  $94,221,217   $123,023,767 

 

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

 

10
 

 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (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, 2021, 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 and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

 

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; those used in determining the liability for future policy benefits and unearned revenue; those used in determining the estimated future costs for pre-need sales; those used in determining the value of mortgage servicing rights; those used in determining allowances for loan losses for mortgage loans held for investment; 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.

 

COVID-19. During 2020, the outbreak of COVID-19 had spread worldwide and was declared a global pandemic by the World Health Organization on March 11, 2020. COVID-19, and its variants, pose a threat to the health and economic well-being of the Company’s employees, customers, and vendors. The Company continues to closely monitor developments relating to COVID-19 and assess its impact on the Company’s business. The continued uncertainty surrounding COVID-19 has had and continues to have a significant impact on the global economy and financial markets. Governments and businesses have taken numerous measures to try to contain the virus and its variants, which include the implementation of travel bans, self-imposed quarantine periods, social distancing, and various mask and vaccine mandates. These measures have disrupted and will continue to disrupt businesses globally. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. Most monetary and fiscal interventions have been significantly curtailed.

 

Like most businesses, COVID-19 has impacted the Company, including the temporary adoption of work from home arrangements and a restructuring of selling techniques for its products and services. The Company also experienced increased expenses for cleaning services of its offices. Throughout 2021 and 2022, the Company continued to adapt to the impact of COVID-19 and its related economic effects. The Company cannot, with any certainty predict the severity or duration with which COVID-19 will impact the Company’s business, financial condition, results of operations, and cash flows. To the extent COVID-19 adversely affects the Company’s business, financial condition, results of operations and cash flows, it may also have the effect of heightening many other risks to the Company. These uncertainties have the potential to negatively affect the risk of credit default for the issuers of the Company’s fixed maturity debt securities and individual borrowers with mortgage loans held by the Company.

 

The Company has implemented risk management, business continuity plans and has taken preventive measures and other precautions, including some remote work arrangements. Such measures and precautions have enabled the Company to continue to conduct business.

 

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SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

 

2) Recent Accounting Pronouncements

 

Accounting Standards Issued But Not Yet Adopted

 

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 amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current 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. In October 2019, the FASB proposed an update to ASU No. 2016-13 that would make the ASU effective for the Company on January 1, 2023. The Company has evaluated the potential impact of this standard and estimates that the allowance for credit losses will increase within a range of $500,000 to $750,000 for its residential mortgage loans held for investment. Upon adoption, on January 1, 2023, this will be an adjustment to the opening balance of retained earnings in stockholders’ equity. The Company is still evaluating the potential impact of this standard for its commercial mortgage loans held for investment.

 

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 ASU will improve the accounting for certain market-based options or guarantees associated with deposit or account balance contracts, simplify 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 made the ASU effective for the Company on January 1, 2025. The Company has made progress in the implementation of the new standard, including the involvement of actuaries, accountants, and systems specialists. However, the Company has not yet estimated the impact the new guidance will have 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.

 

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SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

 

3) Investments

 

The Company’s investments as of September 30, 2022 are summarized as follows:

  

   Amortized Cost   Gross Unrealized Gains   Gross Unrealized Losses   Estimated
Fair Value		 
September 30, 2022:                    
Fixed maturity securities, available for sale, at estimated fair value:                    
U.S. Treasury securities and obligations of U.S. Government agencies  $92,703,449   $40,553   $(2,712,674)  $90,031,328 
                     
Obligations of states and political subdivisions   6,967,633    68,118    (357,711)   6,678,040 
                     
Corporate securities including public utilities   207,475,636    1,360,888    (14,314,429)   194,522,095 
                     
Mortgage-backed securities   32,865,784    170,765    (3,721,627)   29,314,922 
                     
Redeemable preferred stock   250,000    10,000    -    260,000 
                     
Total fixed maturity securities available for sale  $340,262,502   $1,650,324   $(21,106,441)  $320,806,385 
                     
Equity securities at estimated fair value:                    
                     
Common stock:                    
                     
Industrial, miscellaneous and all other  $9,792,380   $1,871,973   $(1,293,321)  $10,371,032 
                     
Total equity securities at estimated fair value  $9,792,380   $1,871,973   $(1,293,321)  $10,371,032 
                     
Mortgage loans held for investment at amortized cost:                    
Residential  $89,281,273                
Residential construction   201,685,076                
Commercial   33,350,108                
Less: Unamortized deferred loan fees, net   (1,730,306)               
Less: Allowance for loan losses   (1,675,015)               
Less: Net discounts   (347,536)               
                     
Total mortgage loans held for investment  $320,563,600                
                     
Real estate held for investment - net of accumulated depreciation:                    
Residential  $38,506,725                
Commercial   157,570,812                
                     
Total real estate held for investment  $196,077,537                
                     
Real estate held for sale:                    
Commercial  $151,553                
                     
Total real estate held for sale  $151,553                
                     
Other investments and policy loans at amortized cost:                    
Policy loans  $13,066,150                
Insurance assignments   42,614,272                
Federal Home Loan Bank stock (1)   2,588,400                
Other in