Annual Reports

 
Quarterly Reports

  • 10-Q (Nov 14, 2014)
  • 10-Q (Aug 14, 2014)
  • 10-Q (May 15, 2014)
  • 10-Q (Nov 14, 2013)
  • 10-Q (Aug 14, 2013)
  • 10-Q (May 15, 2013)

 
8-K

 
Other

Security National Financial 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
snfca10q20110930.htm



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

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2011, or

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

Commission file number: 000-09341

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

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


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 Yes [X] No [  ]

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

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


Class A Common Stock, $2.00 par value
 
9,179,739
Title of Class
 
Number of Shares Outstanding as of
   
November 14, 2011
     
Class C Common Stock, $.20 par value
 
9,653,311
Title of Class
 
Number of Shares Outstanding as of
   
November 14, 2011


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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


 

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2011

TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION



Item 1.
Financial Statements
Page No.
     
 
Condensed Consolidated Balance Sheets as of September 30, 2011
 
 
and December 31, 2010 (unaudited)
3-4
     
 
Condensed Consolidated Statements of Earnings for the
 
 
Three and Nine Months Ended September 30, 2011 and 2010 (unaudited)
5
     
 
Condensed Consolidated Statements of Cash Flows for the
 
 
Three and Nine months Ended September 30, 2011 and 2010 (unaudited)
6
     
 
Notes to Condensed Consolidated Financial Statements (unaudited)
7
     
Item 2.
Management’s Discussion and Analysis of Financial Condition
 
 
and Results of Operations
40
     
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
50
     
Item 4.
Controls and Procedures
50
     
     
PART II - OTHER INFORMATION
     
 
Other Information
51
     
 
Signature Page
54
     
 
Certifications
55



 
2

 

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)



Assets
 
September 30,
2011
   
December 31,
2010
 
Investments:
           
Fixed maturity securities, held to maturity, at amortized cost
  $ 134,985,093     $ 98,048,016  
Equity securities, available for sale, at estimated fair value
    5,907,916       6,784,643  
Mortgage loans on real estate and construction loans, held for investment net of allowances for losses of $6,606,457 and $7,070,442 for 2011 and 2010
    112,172,464       96,154,107  
Real estate held for investment, net of accumulated depreciation of $4,104,577 and $3,849,695 for 2011 and 2010
    3,871,845       3,996,777  
Other real estate owned held for investment, net of accumulateddepreciation of $1,567,703 and $1,090,532 for 2011 and 2010
    46,226,585       44,422,829  
Other real estate owned held for sale
    5,793,900       5,086,400  
Policy and other loans, net of allowances for doubtful accountsof $420,539 and $380,506 for 2011 and 2010
    16,718,099       17,044,897  
Short-term investments
    4,040,671       2,618,349  
Accrued investment income
    2,526,028       1,726,854  
Total investments
    332,242,601       275,882,872  
Cash and cash equivalents
    23,002,677       39,556,503  
Mortgage loans sold to investors
    58,952,210       63,226,686  
Receivables, net
    9,566,157       7,827,114  
Restricted assets of cemeteries and mortuaries
    3,247,717       3,066,379  
Cemetery perpetual care trust investments
    1,679,442       1,454,694  
Receivable from reinsurers
    6,226,915       4,476,237  
Cemetery land and improvements
    11,045,625       11,096,129  
Deferred policy and pre-need contract acquisition costs
    36,020,407       35,767,101  
Property and equipment, net
    9,365,186       11,111,059  
Value of business acquired
    9,984,343       9,017,696  
Goodwill
    677,039       1,075,039  
Other
    4,073,050       2,077,396  
                 
Total Assets
  $ 506,083,369     $ 465,634,905  

See accompanying notes to condensed consolidated financial statements.

 
3

 

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)


   
September 30,
2011
   
December 31,
2010
 
Liabilities and Stockholders' Equity
           
Liabilities
           
Future life, annuity, and other benefits
  $ 375,707,318     $ 344,972,099  
Unearned premium reserve
    5,078,751       5,213,948  
Bank loans payable
    17,002,480       6,866,438  
Notes and contracts payable
    961       199,537  
Deferred pre-need cemetery and mortuary contract revenues
    12,986,739       13,192,499  
Cemetery perpetual care obligation
    2,926,190       2,853,727  
Accounts payable
    2,518,196       2,472,996  
Other liabilities and accrued expenses
    14,758,395       14,579,008  
Income taxes
    14,606,204       15,356,185  
Total liabilities
    445,585,234       405,706,437  
                 
Stockholders' Equity
               
Common Stock:
               
Class A: common stock - $2.00 par value; 20,000,000 shares authorized; issued 9,179,739 shares in 2011 and 9,178,945 shares in 2010
    18,359,478       18,357,890  
Class B: non-voting common stock - $1.00 par value; 5,000,000 shares authorized; none issued or outstanding
    -       -  
Class C: convertible common stock - $0.20 par value; 15,000,000 shares authorized; issued 9,653,311 shares in 2011 and 9,660,152 in 2010
    1,930,662       1,932,031  
Additional paid-in capital
    19,837,694       19,689,993  
Accumulated other comprehensive income, net of taxes
    898,250       1,188,246  
Retained earnings
    22,364,104       21,907,579  
Treasury stock at cost - 1,198,057 Class A shares in 2011 and 1,322,074 Class A shares in 2010
    (2,892,053 )     (3,147,271 )
                 
Total stockholders' equity
    60,498,135       59,928,468  
                 
Total Liabilities and Stockholders' Equity
  $ 506,083,369     $ 465,634,905  

See accompanying notes to condensed consolidated financial statements.

 
4

 

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)


   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenues:
                       
Insurance premiums and other considerations
  $ 11,823,557     $ 9,249,421     $ 36,409,158     $ 28,902,805  
Net investment income
    5,107,590       4,389,710       14,095,396       13,684,196  
Net mortuary and cemetery sales
    2,442,221       2,973,291       8,146,824       8,996,452  
Realized gains on investments and other assets
    226,480       748,446       1,829,136       1,432,363  
Other than temporary impairments on investments
    (30,000 )     (30,000 )     (95,129 )     (60,000 )
Mortgage fee income
    21,517,970       28,457,343       50,615,851       72,734,208  
Other
    236,869       186,487       962,049       1,300,789  
Total revenues
    41,324,687       45,974,698       111,963,285       126,990,813  
                                 
Benefits and expenses:
                               
Death benefits
    5,303,622       4,587,639       16,588,193       14,451,976  
Surrenders and other policy benefits
    398,556       461,203       1,425,175       1,103,834  
Increase in future policy benefits
    5,153,073       3,664,300       14,680,267       11,753,649  
Amortization of deferred policy and pre-need acquisition costs and value of business acquired
    1,863,959       1,623,542       5,819,497       4,339,167  
Selling, general and administrative expenses:
                               
Commissions
    13,268,027       16,917,406       30,417,508       44,929,148  
Salaries
    5,690,438       6,435,647       17,593,130       19,882,778  
Provision for loan losses and loss reserve
    466,025       1,640,840       1,573,360       3,741,354  
Costs related to funding mortgage loans
    1,219,729       1,627,146       3,065,563       4,674,409  
Other
    6,191,082       6,763,353       18,491,242       19,037,156  
Interest expense
    497,714       842,549       1,191,356       2,152,755  
Cost of goods and services sold-mortuaries and cemeteries
    437,972       597,886       1,464,908       1,699,533  
Total benefits and expenses
    40,490,197       45,161,511       112,310,199       127,765,759  
                                 
Earnings (loss) before income taxes
    834,490       813,187       (346,914 )     (774,946 )
Income tax (provision) benefit
    (64,168 )     (309,757 )     803,630       746,562  
                                 
Net earnings (loss)
  $ 770,322     $ 503,430     $ 456,716     $ (28,384 )
                                 
Net earnings (loss) per Class A Equivalent common share (1)
  $ 0.09     $ 0.06     $ 0.05     $ (0.00 )
                                 
Net earnings (loss) per Class A Equivalent common share-assuming dilution (1)
  $ 0.09     $ 0.06     $ 0.05     $ (0.00 )
                                 
Weighted-average Class A equivalent common share outstanding (1)
    8,938,593       8,733,298       8,806,716       8,687,546  
                                 
Weighted-average Class A equivalent common shares outstanding-assuming dilution (1)
    8,955,951       8,821,121       8,832,259       8,687,546  
 
(1) 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 share basis. Net earnings (loss) per common share represent net earnings (loss) per equivalent Class A common share. Net earnings (loss) per Class C common share is equal to one-tenth (1/10) of such amount.

See accompanying notes to condensed consolidated financial statements.

 
5

 

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


   
Nine Months Ended September 30,
 
   
2011
   
2010
 
Cash flows from operating activities:
           
     Net cash provided by (used in) operating activities
  $ 18,747,200     $ (46,765,822 )
                 
Cash flows from investing activities:
               
Securities held to maturity:
               
        Purchase-fixed maturity securities
    (46,815,511 )     (7,637,611 )
        Calls and maturities - fixed maturity securities
    10,003,703       24,507,847  
Securities available for sale:
               
       Purchase - equity securities
    (4,531,858 )     (4,358,860 )
       Sales - equity securities
    3,961,997       3,509,569  
Purchase of short-term investments
    (47,770,901 )     (6,220,779 )
Sales of short-term investments
    46,348,579       12,308,413  
Purchase of restricted assets
    (214,064 )     (382,899 )
Changes in assets for perpetual care trusts
    (198,090 )     (217,757 )
Amount received for perpetual care trusts
    72,463       93,362  
Mortgage, policy, and other loans made
    (98,585,760 )     (78,542,784 )
Payments received for mortgage, policy and other loans
    78,249,928       74,413,760  
Purchase of property and equipment
    (474,301 )     (664,417 )
Disposal of property and equipment
    2,295,329       -  
Purchase of real estate
    (416,580 )     (1,362,865 )
Sale of real estate
    4,255,993       4,640,479  
Reinsurance with North America Life
    12,990,444       -  
      Net cash provided by (used in) investing activities
    (40,828,629 )     20,085,458  
                 
Cash flows from financing activities:
               
Annuity contract receipts
    6,096,392       6,445,453  
Annuity contract withdrawals
    (10,603,426 )     (10,725,043 )
Repayment of bank loans on notes and contracts
    (1,580,448 )     (1,247,182 )
Proceeds from borrowing on bank loans
    3,615,085       -  
Change in line of credit borrowings
    8,000,000       19,275,000  
      Net cash provided by financing activities
    5,527,603       13,748,228  
                 
Net change in cash and cash equivalents
    (16,553,826 )     (12,932,136 )
                 
Cash and cash equivalents at beginning of period
    39,556,503       39,463,803  
                 
Cash and cash equivalents at end of period
  $ 23,002,677     $ 26,531,667  
                 
Non Cash Investing and Financing Activities
               
Mortgage loans foreclosed into real estate
  $ 7,680,063     $ 12,146,777  

See accompanying notes to condensed consolidated financial statements.
 

 
6

 
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2011 (Unaudited)

1)         Basis of Presentation

The accompanying unaudited 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, 2010, 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, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

The estimates susceptible to significant change are those used in determining the liability for future policy benefits and claims, those used in determining valuation allowances for mortgage loans on real estate and construction loans held for investment, those used in determining loan loss reserve, and those used in determining the estimated future costs for pre-need sales. Although some variability is inherent in these estimates, management believes the amounts provided are fairly stated in all material respects.

Certain 2010 amounts have been reclassified to bring them into conformity with the 2011 presentation.

2)       Recent Accounting Pronouncements

Goodwill Impairment Test - In September 2011, the FASB issued guidance that amends how goodwill is tested for impairment. The amendments provide an option to perform a qualitative assessment to determine whether it is necessary to perform the annual two-step quantitative goodwill impairment test. This guidance will be effective for annual and interim goodwill impairment tests for fiscal years beginning after December 15, 2011. The adoption of this guidance is not expected to have a material impact on the Company’s results of operations or financial position.

Comprehensive Income – In June 2011, the Financial Accounting Standards Board (FASB) issued guidance regarding the presentation of comprehensive income.  This guidance provides companies with the option to present the total of comprehensive income, components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The objective of the standard is to increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and International Financial Reporting Standards (IFRS). The standard eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The guidance is effective for fiscal years and interim periods beginning after December 15, 2011 and should be applied retrospectively.  Early adoption is permitted.  The Company has not yet determined the effect, if any, the adoption this guidance will have on its consolidated financial statements.

Fair Value Measurements – In May 2011, the FASB issued new guidance regarding fair value measurements.  This guidance establishes common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRS.  It also clarifies the FASB’s intent on the application of existing fair value measurement requirements. The guidance is effective for fiscal years and interim periods beginning after December 15, 2011 and should be applied prospectively.  The Company has not yet determined the effect, if any, the adoption this guidance will have on its consolidated financial statements.

 
7

 
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2011 (Unaudited)

2)         Recent Accounting Pronouncements (Continued)

A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring – In April 2011, the FASB issued guidance to assist creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring.  Under this guidance, in evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist: 1) the restructuring constitutes a concession; and 2) the debtor is experiencing financial difficulties. A creditor may determine that a debtor is experiencing financial difficulties, even though the debtor is not currently in default, if the creditor determines it is probable that the debtor would default on its payments for any of its debts in the foreseeable future without the loan modification. This guidance is effective for the first interim or annual period beginning on or after June 15, 2011, and must be applied retrospectively.  Early adoption is permitted.  The adoption of this guidance did not have a material impact on the Company’s results of operations or financial position.

Reconsideration of Effective Control for Repurchase Agreements – In April 2011, the FASB issued guidance which amends the Transfers and Servicing topic of the FASB Codification to  remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. Other criteria applicable to the assessment of effective control are not changed by the amendments in this update. Those criteria indicate that the transferor is deemed to have maintained effective control over the financial assets transferred (and thus must account for the transaction as a secured borrowing) for agreements that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity if all of the following conditions are met: (1) the financial assets to be repurchased or redeemed are the same or substantially the same as those transferred; (2) the agreement is to repurchase or redeem them before maturity, at a fixed or determinable price; and (3) the agreement is entered into contemporaneously with, or in contemplation of, the transfer.  This guidance is effective for the first interim or annual period beginning on or after December 15, 2011.  The adoption of this guidance is not expected to have a material impact on the Company’s results of operations or financial position.

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts -  In October 2010, the FASB issued guidance to address the diversity in practice for the accounting for costs associated with acquiring or renewing insurance contracts.  This guidance modifies the definition of acquisition costs to specify that a cost must be directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred.  The guidance is effective for fiscal years and interim periods beginning after December 15, 2011.  The Company has not yet determined the effect, if any; the adoption of this guidance will have on its consolidated financial statements.
 
 

 
8

 
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2011 (Unaudited)

3)           Investments

The Company’s investments in fixed maturity securities held-to-maturity and equity securities available-for-sale as of September 30, 2011 are summarized as follows:
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
 
September 30, 2011:
                       
Fixed maturity securities held to maturity
    carried at amortized cost:
                       
Bonds:
                       
U.S. Treasury securities and obligations
   of U.S. Government agencies
  $ 2,824,482     $ 555,167     $ -     $ 3,379,649  
                                 
Obligations of states and political
   subdivisions
    3,177,033       311,964       (19,720 )     3,469,277  
                                 
Corporate securities including public utilities
    120,813,476       11,054,450       (2,228,137 )     129,639,789  
                                 
Mortgage-backed securities
    6,668,049       369,057       (307,914 )     6,729,192  
                                 
Redeemable preferred stock
    1,502,053       57,136       (122,638 )     1,436,551  
                                 
Total fixed maturity securities held to
   maturity
  $ 134,985,093     $ 12,347,774     $ (2,678,409 )   $ 144,654,458  



 
9

 
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2011 (Unaudited)

3)         Investments (Continued)


   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
 
September 30, 2011:
                       
                         
Equity securities available for sale at estimated fair value:
                       
                         
Non-redeemable preferred stock
  $ 20,281     $ -     $ (2,801 )   $ 17,480  
                                 
Common stock:
                               
                                 
Industrial, miscellaneous and all other
    7,456,982       215,517       (1,782,063 )     5,890,436  
                                 
Total equity securities available for sale at estimated fair value
  $ 7,477,263     $ 215,517     $ (1,784,864 )   $ 5,907,916  
                                 
Mortgage loans on real estate and construction loans held
   for investment at amortized cost:
                               
Residential
  $ 57,244,340                          
Residential construction
    19,980,238                          
Commercial
    41,554,343                          
Less: Allowance for loan losses
    (6,606,457 )                        
Total mortgage loans on real estate and construction loans
   held for investment
  $ 112,172,464                          
                                 
Real estate held for investment - net of depreciation
  $ 3,871,845                          
Other real estate owned held for investment - net of  depreciation
    46,226,585                          
Other real estate owned held for sale
    5,793,900                          
Total real estate
  $ 55,892,330                          
                                 
Policy and other loans at amortized cost - net of allowance
   for doubtful accounts
  $ 16,718,099                          
                                 
Short-term investments at amortized cost
  $ 4,040,671                          


 
10

 
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2011 (Unaudited)

3)         Investments (Continued)

The Company’s investments in fixed maturity securities held-to-maturity and equity securities available-for-sale as of December 31, 2010 are summarized as follows:
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
 
December 31, 2010:
                       
Fixed maturity securities held to maturity
                       
carried at amortized cost:
                       
Bonds:
                       
U.S. Treasury securities
                       
and obligations of U.S
                       
Government agencies
  $ 2,855,303     $ 325,935     $ -     $ 3,181,238  
                                 
Obligations of states and
                               
political subdivisions
    1,773,904       122,565       (18,574 )     1,877,895  
                                 
Corporate securities including
                               
public utilities
    85,354,245       6,626,582       (716,007 )     91,264,820  
                                 
Mortgage-backed securities
    6,469,942       239,719       (654,959 )     6,054,702  
                                 
Redeemable preferred stock
    1,594,622       27,158       (32,171 )     1,589,609  
Total fixed maturity
                               
securities held to maturity
  $ 98,048,016     $ 7,341,959     $ (1,421,711 )   $ 103,968,264  


 
11

 
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2011 (Unaudited)

3)         Investments (Continued)
 
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
 
December 31, 2010:
                       
                         
Equity securities available for sale at estimated fair value:
                       
                         
Non-redeemable preferred stock
  $ 20,282     $ -     $ (4,224 )   $ 16,058  
                                 
Common stock:
                               
                                 
Industrial, miscellaneous and all other
    6,418,151       707,798       (357,364 )     6,768,585  
                                 
Total equity securities available for sale at estimated fair value
  $ 6,438,433     $ 707,798     $ (361,588 )   $ 6,784,643  
                                 
Mortgage loans on real estate and construction loans held for
   investment at amortized cost:
                               
Residential
  $ 60,285,273                          
Residential construction
    18,436,495                          
Commercial
    24,502,781                          
Less: Allowance for loan losses
    (7,070,442 )                        
Total mortgage loans on real estate and construction loans
   held for investment
  $ 96,154,107                          
                                 
Real estate held for investment - net of depreciation
  $ 3,996,777                          
Other real estate owned held for investment - net of depreciation
    44,422,829                          
Other real estate owned held for sale
    5,086,400                          
Total real estate
  $ 53,506,006                          
                                 
Policy and other loans at amortized cost - net of allowance
   for doubtful accounts
  $ 17,044,897                          
                                 
Short-term investments at amortized cost
  $ 2,618,349                          


 
12

 
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2011 (Unaudited)

3)         Investments (Continued)

Fixed Maturity Securities

The following tables summarize unrealized losses on fixed-maturity securities, which are carried at amortized cost, at September 30, 2011 and December 31, 2010. The unrealized losses were primarily related to interest rate fluctuations. The tables set forth unrealized losses by duration and number of investment positions, together with the fair value of the related fixed-maturity securities:
 
   
Unrealized
Losses for
Less than
Twelve
Months
   
No. of
Investment
Positions
   
Unrealized
Losses for
More than
Twelve
Months
   
No. of
Investment
Positions
   
Total
Unrealized
Loss
 
At September 30, 2011
                             
Obligations of states and political subdivisions
  $ -       0     $ 19,720       3     $ 19,720  
Corporate securities including public utilities
    1,613,641       46       614,496       12       2,228,137  
Mortgage-backed securities
    197,721       3       110,193       1       307,914  
Redeemable preferred stock
    1,000       1       121,638       1       122,638  
Total unrealized losses
  $ 1,812,362       50     $ 866,047       17     $ 2,678,409  
Fair Value
  $ 26,496,891             $ 4,141,109             $ 30,638,000  
                                         
At December 31, 2010
                                       
Obligations of states and political subdivisions
  $ -       0     $ 18,574       3     $ 18,574  
Corporate securities including public utilities
    70,934       10       645,073       25       716,007  
Mortgage-backed securities
    8,971       2       645,988       3       654,959  
Redeemable preferred stock
    4,022       4       28,149       1       32,171  
Total unrealized losses
  $ 83,927       16     $ 1,337,784       32     $ 1,421,711  
Fair Value
  $ 4,527,041             $ 10,037,150             $ 14,564,191  

As of September 30, 2011 and December 31, 2010, the average fair value of the related fixed maturities was 92.0% and 91.1%, respectively, of amortized cost. During the nine months ended September 30, 2011 and for the year ended December 31, 2010, an other-than-temporary decline in fair value resulted in the recognition of an impairment loss on fixed maturity securities of $95,129 and $150,059, respectively. On a quarterly basis, the Company reviews its available-for-sale fixed investment securities related to corporate securities and other public utilities, consisting of bonds and preferred stocks that are in a loss position. The review involves an analysis of the securities in relation to historical values, and projected earnings and revenue growth rates. Based on the analysis, a determination is made whether a security will likely recover from the loss position within a reasonable period of time. If it is unlikely that the investment will recover from the loss position, the loss is considered to be other-than-temporary, the security is written down to the impaired value and an impairment loss is recognized. No other-than-temporary impairment loss was considered to exist for these fixed maturity securities as of September 30, 2011 and December 31, 2010.


 
13

 
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2011 (Unaudited)

3)         Investments (Continued)

Equity Securities

The following tables summarize unrealized losses on equity securities that were carried at estimated fair value based on quoted trading prices at September 30, 2011 and December 31, 2010. The unrealized losses were primarily the result of decreases in fair value due to overall equity market declines. The tables set forth unrealized losses by duration and number of investment positions, together with the fair value of the related equity securities available-for-sale in a loss position:


   
Unrealized
Losses for
Less than
Twelve
Months
   
No. of
Investment
Positions
   
Unrealized
Losses for
More than
Twelve Months
   
No. of
Investment
Positions
   
Total
Unrealized
Losses
 
At September 30, 2011
                             
Non-redeemable preferred stock
  $ -       0     $ 2,801       2     $ 2,801  
Industrial, miscellaneous and all other
    1,345,141       101       436,922       14       1,782,063  
Total unrealized losses
  $ 1,345,141       101     $ 439,723       16     $ 1,784,864  
Fair Value
  $ 3,560,006             $ 480,630             $ 4,040,636  
                                         
At December 31, 2010
                                       
Non-redeemable preferred stock
  $ -       -     $ 4,224       2     $ 4,224  
Industrial, miscellaneous and all other
    192,742       42       164,622       13       357,364  
Total unrealized losses
  $ 192,742       42     $ 168,846       15     $ 361,588  
Fair Value
  $ 1,895,632             $ 530,253             $ 2,425,885  

As of September 30, 2011 and December 31, 2010, the average fair value of the equity securities available-for-sale was 69.4% and 87.0%, respectively, of the original investment. The intent of the Company is to retain equity securities for a period of time sufficient to allow for the recovery in fair value. However, the Company may sell equity securities during a period in which the fair value has declined below the amount of the original investment. In certain situations new factors, including changes in the business environment, can change the Company’s previous intent to continue holding a security. During the nine months ended September 30, 2011 and for the year ended December 31, 2010, an other-than-temporary decline in fair value resulted in the recognition of an impairment loss on equity securities of $0 and $23,922, respectively.

On a quarterly basis, the Company reviews its investment in industrial, miscellaneous and all other equity securities that are in a loss position. The review involves an analysis of the securities in relation to historical values, price earnings ratios, projected earnings and revenue growth rates. Based on the analysis a determination is made whether a security will likely recover from the loss position within a reasonable period of time. If it is unlikely that the investment will recover from the loss position, the loss is considered to be other-than-temporary, the security is written down to the impaired value and an impairment loss is recognized. No other-than-temporary impairment loss was considered to exist for these equity securities as of September 30, 2011 and December 31, 2010.

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

The amortized cost and estimated fair value of fixed maturity securities at September 30, 2011, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 
14

 
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2011 (Unaudited)

3)         Investments (Continued)
 
   
Amortized
Cost
   
Estimated Fair
Value
 
Held to Maturity:
           
Due in 2011
  $ 1,050,281     $ 1,057,109  
Due in 2012 through 2015
    16,263,077       17,604,087  
Due in 2016 through 2020
    48,758,651       52,611,810  
Due after 2020
    60,742,982       65,215,709  
Mortgage-backed securities
    6,668,049       6,729,192  
Redeemable preferred stock
    1,502,053       1,436,551  
Total held to maturity
  $ 134,985,093     $ 144,654,458  

The amortized cost and estimated fair value of available-for-sale securities at September 30, 2011, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Equities are valued using the specific identification method.

   
Amortized
Cost
   
Estimated Fair
Value
 
Available for Sale:
           
Due in 2011
  $ -     $ -  
Due in 2012 through 2015
    -       -  
Due in 2016 through 2020
    -       -  
Due after 2020
    -       -  
Non-redeemable preferred stock
    20,281       17,480  
Common stock
    7,456,982       5,890,436  
Total available for sale
  $ 7,477,263     $ 5,907,916  

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


   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Fixed maturity securities held
                       
to maturity:
                       
Gross realized gains
  $ 80,069     $ 862,457     $ 400,026     $ 1,158,469  
Gross realized losses
    (11,086 )     (259,445 )     (142,907 )     (482,369 )
Other than temporary impairments
    (30,000 )     (30,000 )     (95,129 )     (60,000 )
                                 
Securities available for sale:
                               
Gross realized gains
    48,680       64,337       503,804       512,329  
Gross realized losses
    (30 )     (12,323 )     (34,834 )     (55,396 )
Other than temporary impairments
    -       -       -       -  
                                 
Other assets:
                               
Gross realized gains
    146,253       122,796       1,182,905       394,539  
Gross realized losses
    (37,406 )     (29,376 )     (79,858 )     (95,209 )
Other than temporary impairments
    -       -       -       -  
Total
  $ 196,480     $ 718,446     $ 1,734,007     $ 1,372,363  
 
Generally gains and losses from held-to-maturity securities are a result of early calls and related amortization of premiums or discounts. However, credit losses of $30,000 and $30,000 were recognized during the three months ended September 30, 2011 and 2010, respectively from other-than-temporary declines in fair value of held-to-maturity securities. The Company currently holds a collateralized mortgage obligation for which the value carries a significant degree of uncertainty. In order to exercise conservatism related to the carrying value of this collateralized mortgage obligation, the Company is currently recognizing an impairment of $10,000 per month.

 
15

 
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2011 (Unaudited)

3)         Investments (Continued)

The net carrying amount of held-to-maturity securities sold was $4,715,412 and $16,220,943 for the nine months ended September 30, 2011 and the year ended December 31, 2010, respectively.  The net realized gain related to these sales was $68,370 and $346,225 for the nine months ended September 30, 2011 and the year ended December 31, 2010, respectively. Certain circumstances lead to these decisions to sell. Bonds categorized as held-to-maturity and sold in 2010 were liquidated in order to meet an unexpected increase in mortgage funding demand and the non-renewal of an expired loan purchase agreement with a warehouse bank by SecurityNational Mortgage during the latter part of 2010.  The expired loan purchase agreement was renewed in December 2010 for a one year term. This was a rare and unusual event in the history of the Company. In 2011, the Company sold certain held-to-maturity bonds in gain positions to offset the loss incurred by selling some high risk residential mortgage backed securities.
 
There were no investments, aggregated by issuer, in excess of 10% of shareholders’ equity (before net unrealized gains and losses on available-for-sale securities) at September 30, 2011, other than investments issued or guaranteed by the United States Government.
 
Major categories of net investment income are as follows:
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Fixed maturity securities
  $ 2,033,778     $ 1,718,143     $ 5,773,035     $ 5,258,146  
Equity securities
    70,494       61,274       197,480       174,017  
Mortgage loans on real estate
    1,894,780       1,350,728       4,881,213       4,349,326  
Real estate
    484,289       453,281       1,496,912       1,221,181  
Policy and other loans
    195,940       227,785       619,972       673,205  
Short-term investments,  principally gains
   on sale of mortgage loans and other
    1,577,446       2,121,763       4,423,576       5,768,879  
Gross investment income
    6,256,727       5,932,974       17,392,188       17,444,754  
Investment expenses
    (1,149,137 )     (1,543,264 )     (3,296,792 )     (3,760,558 )
Net investment income
  $ 5,107,590     $ 4,389,710     $ 14,095,396     $ 13,684,196  
 
Net investment income includes income earned by the restricted assets of the cemeteries and mortuaries of $240,240 and $249,339 for nine months ended September 30, 2011 and 2010, respectively.
 
Net investment income on real estate consists primarily of rental revenue received under short-term leases.
 
Investment expenses consist primarily of depreciation, property taxes, operating expenses of real estate and an estimated portion of administrative expenses relating to investment activities.
 
Securities on deposit for regulatory authorities as required by law amounted to $9,347,984 at September 30, 2011 and $9,302,578 at December 31, 2010. The restricted securities are included in various assets under investments on the accompanying condensed consolidated balance sheets.
Mortgage Loans

Mortgage loans consist of first and second mortgages. The mortgage loans bear interest at rates ranging from 2.0 % to 10.5% per annum, maturity dates range from three months to 30 years and are secured by real estate. Concentrations of credit risk arise when a number of mortgage loan debtors have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. Although the Company has a diversified mortgage loan portfolio consisting of residential mortgages, commercial loans and residential construction loans and requires collateral on all real estate exposures, a substantial portion of its debtors’ ability to honor obligations is reliant on the economic stability of the geographic region in which the debtors live or do business. At September 30, 2011, the Company had 34%, 13% and 10% of its mortgage loans from borrowers located in the states of Utah, California and Florida, respectively. The mortgage loans on real estate balances on the consolidated balance sheet are reflected net of an allowance for loan losses of $6,606,457 and $7,070,442 at September 30, 2011 and December 31, 2010, respectively.
 
 
16

 
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2011 (Unaudited)

3)         Investments (Continued)

The Company establishes a valuation allowance for credit losses in its portfolio.

The following is a summary of the allowance for loan losses as a contra-asset account for the periods presented.


Allowance for Credit Losses and Recorded Investment in Mortgage Loans
 
                         
   
Commercial
   
Residential
   
Residential
Construction
   
Total
 
September 30, 2011
                       
Allowance for credit losses:
                       
Beginning balance - January 1, 2011
  $ -     $ 6,212,072     $ 858,370     $ 7,070,442  
   Charge-offs
    -       (399,444 )     (321,879 )     (721,323 )
   Provision
    -       257,338       -       257,338  
Ending balance - September 30, 2011
  $ -     $ 6,069,966     $ 536,491     $ 6,606,457  
                                 
Ending balance: individually evaluated for impairment
  $ -     $ 5,234,099     $ 418,121     $ 5,652,220  
                                 
Ending balance: collectively evaluated for impairment
  $ -     $ 835,867     $ 118,370     $ 954,237  
                                 
Ending balance: loans acquired with deteriorated credit quality
  $ -     $ -     $ -     $ -  
                                 
Mortgage loans:
                               
Ending balance
  $ 41,554,343     $ 57,244,340     $ 19,980,238     $ 118,778,921  
                                 
Ending balance: individually evaluated for impairment
  $ -     $ 8,625,864     $ 7,975,046     $ 16,600,910  
                                 
Ending balance: collectively evaluated for impairment
  $ 41,554,343     $ 48,618,476     $ 12,005,192     $ 102,178,011  
                                 
Ending balance: loans acquired with deteriorated credit quality
  $ -     $ -     $ -     $ -  
                                 
December 31, 2010
                               
Allowance for credit losses:
                               
Beginning balance - January 1, 2010
  $ -     $ 5,917,792     $ 891,011     $ 6,808,803  
   Charge-offs
    -       (335,853 )     (32,641 )     (368,494 )
   Provision
    -       630,133       -       630,133  
Ending balance - December 31, 2010
  $ -     $ 6,212,072     $ 858,370     $ 7,070,442  
                                 
Ending balance: individually evaluated for impairment
  $ -     $ 5,131,779     $ 740,000     $ 5,871,779  
                                 
Ending balance: collectively evaluated for impairment
  $ -     $ 1,080,293     $ 118,370     $ 1,198,663  
                                 
Ending balance: loans acquired with deteriorated credit quality
  $ -     $ -     $ -     $ -  
                                 
Mortgage loans:
                               
Ending balance
  $ 24,502,781     $ 60,285,273     $ 18,436,495     $ 103,224,549  
                                 
Ending balance: individually evaluated for impairment
  $ -     $ 7,236,095     $ 2,085,467     $ 9,321,562  
                                 
Ending balance: collectively evaluated for impairment
  $ 24,502,781     $ 53,049,178     $ 16,351,028     $ 93,902,987  
                                 
Ending balance: loans acquired with deteriorated credit quality
  $ -     $ -