Investments

3 Months Ended

Mar. 31, 2024

Investments, Debt and Equity Securities [Abstract]

Investments

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.

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.

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.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

3) Investments (Continued)

Evaluation of Allowance for Credit Losses

See Note 2 regarding the adoption of ASU 2016-13.

On a quarterly basis, the Company evaluates its fixed maturity securities classified as available for sale to identify any potential credit losses. This evaluation includes a review of current ratings by the National Association of Insurance Commissions (“NAIC”) and other industry rating agencies. Securities with a rating of 1 or 2 are considered investment grade and are not reviewed for credit loss unless current market data or recent company news could lead to a credit downgrade. Securities with ratings of 3 to 5 are evaluated for credit loss. The evaluation involves assessing all facts and circumstances surrounding each security including, but not limited to, historical values, interest payment history, projected earnings, and revenue growth rates as well as a review of the reason for a downgrade in the NAIC rating. Based on the analysis of a security that is rated 3 to 5, a determination is made whether the security will likely make interest and principal payments in accordance with the terms of the financial instrument. Securities with a rating of 6 are automatically determined to be impaired and a credit loss is recognized in earnings.

Where the decline in fair value of fixed maturity securities is attributable to changes in market interest rates or to factors such as market volatility, liquidity and spread widening, and the Company anticipates recovery of all contractual or expected cash flows, the Company does not consider these securities to have credit loss because the Company does not intend to sell these securities and it is not more likely than not the Company will be required to sell these securities before a recovery of amortized cost, which may be at maturity.

If the Company intends to sell a fixed maturity security or if it is more likely than not that the Company will be required to sell a security before recovery of its amortized cost basis, a credit loss has occurred and the difference between the amortized cost and the fair value that relates to the expected credit loss is recognized as a loss in earnings, included in gains (losses) on investments and other assets on the condensed consolidated statements of earnings.

If the Company does not intend to sell a debt security and it is less likely than not that the Company will be required to sell the debt security but the Company also does not expect to recover the entire amortized cost basis of the security, a credit loss is recognized in earnings for the amount of the expected credit loss with a corresponding allowance for credit losses as a contra-asset account. The credit loss is included in gains (losses) on investments and other assets on the condensed consolidated statements of earnings. The recognized credit loss is limited to the total unrealized loss on the security due to a change in credit.

Amounts on available for sale fixed maturities that are deemed to be uncollectible are written off and removed from the allowance for credit loss. A write-off may also occur if the Company intends to sell a security or when it is more likely than not that the Company will be required to sell the security before the recovery of its amortized cost.

The Company does not measure a credit loss allowance on accrued interest receivable, included in accrued investment income on the condensed consolidated balance sheets, as the Company writes off any accrued interest receivable balance to net investment income in a timely manner (after 90 days) when the Company has concerns regarding collectability.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

3) Investments (Continued)

Credit Quality Indicators

The NAIC assigns designations to fixed maturity securities. These designations range from Class 1 (highest quality) to Class 6 (lowest quality). The NAIC designations are utilized by insurers in preparing their annual statutory statements. NAIC Class 1 and 2 are considered investment grade while the NAIC Class 3 through 6 designations are considered non-investment grade. Based on the NAIC designations, the Company had 98.1% 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		1,078,897		1,053,757		982,290		948,478
5		239,704		49,375		236,648		51,875
6		1,209		1		1,233		-
Total	$	386,155,977	$	375,573,407	$	390,634,441	$	381,275,986

The following tables present a roll forward of the Company’s allowance for credit losses on fixed maturity securities available for sale:

	Three Months Ended March 31, 2024
	U.S. Treasury securities and obligations of U.S. Government agencies		Obligations of states and political subdivisions		Corporate securities including public utilities		Mortgage-backed securities		Total
Beginning balance - January 1, 2024	$	-	$	-	$	308,500	$	6,049	$	314,549
Additions for credit losses not previously recorded		-		-		30,000		-		30,000
Change in allowance on securities with previous allowance		-		-		60,000		6,000		66,000
Reductions for securities sold during the period		-		-		-		-		-
Reductions for securities with credit losses due to intent to sell		-		-		-		-		-
Write-offs charged against the allowance		-		-		-		-		-
Recoveries of amounts previously written off		-		-		-		-		-
Ending Balance - March 31, 2024	$	-	$	-	$	398,500	$	12,049	$	410,549

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

3) Investments (Continued)

	Three Months Ended March 31, 2023
	U.S. Treasury securities and obligations of U.S. Government agencies		Obligations of states and political subdivisions		Corporate securities including public utilities		Mortgage-backed securities		Total
Beginning balance - January 1, 2023	$	-	$	-	$	-	$	-	$	-
Additions for credit losses not previously recorded		-		-		179,500		-		179,500
Change in allowance on securities with previous allowance		-		-		-		-		-
Reductions for securities sold during the period		-		-		-		-		-
Reductions for securities with credit losses due to intent to sell		-		-		-		-		-
Write-offs charged against the allowance		-		-		-		-		-
Recoveries of amounts previously written off		-		-		-		-		-
Ending Balance - March 31, 2023	$	-	$	-	$	179,500	$	-	$	179,500

The table below presents the amortized cost and the estimated fair value of fixed maturity securities available for sale as of March 31, 2024, by contractual maturity. Actual or expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Estimated Fair Value
Due in 1 year	$	72,470,984	$	72,077,712
Due in 2-5 years		123,253,754		120,601,532
Due in 5-10 years		85,540,964		84,576,263
Due in more than 10 years		65,101,877		62,578,557
Mortgage-backed securities		39,788,398		35,739,343
Redeemable preferred stock		250,000		260,000
Total	$	386,405,977	$	375,833,407

Information regarding sales of fixed maturity securities available for sale is presented as follows.

	Three Months Ended March 31,
	2024			2023
Proceeds from sales	$	179,989		$	1,209,844
Gross realized gains		303			15,490
Gross realized losses		(854	)		(54,104	)

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

3) Investments (Continued)

Assets on Deposit, Held in Trust, and Pledged as Collateral

Assets on deposit with life insurance regulatory authorities as required by law were as follows:

	As of March 31, 2024		As of December 31, 2023
Fixed maturity securities available for sale at estimated fair value	$	6,068,973	$	6,206,650
Other investments		400,000		400,000
Cash and cash equivalents		1,982,298		1,909,215
Total assets on deposit	$	8,451,271	$	8,515,865

Assets held in trust related to third-party reinsurance agreements were as follows:

	As of March 31, 2024		As of December 31, 2023
Fixed maturity securities available for sale at estimated fair value	$	27,718,677	$	27,903,952
Cash and cash equivalents		2,469,301		2,101,052
Total assets on deposit	$	30,187,978	$	30,005,004

The Company is a member of the Federal Home Loan Bank of Des Moines and Dallas (“FHLB”). Assets pledged as collateral with the FHLB are presented below. These pledged securities are used as collateral for any FHLB cash advances.

	As of March 31, 2024		As of December 31, 2023
Fixed maturity securities available for sale at estimated fair value	$	94,098,666	$	93,903,089
Total assets pledged as collateral	$	94,098,666	$	93,903,089

Real Estate Held for Investment and Held for Sale

The Company strategically deploys resources into real estate assets to match the income and yield durations of its primary obligations. The sources for these real estate assets come through its various business units in the form of acquisition, development, and mortgage foreclosures.

Commercial Real Estate Held for Investment and Held for Sale

The Company owns and manages commercial real estate assets as a means of generating investment income. These assets are acquired in accordance with the Company’s goals and objectives for risk-adjusted returns. Due diligence is conducted on each asset using internal and third-party resources. The geographic locations and asset classes of investments are determined by senior management under the direction of the Board of Directors.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

3) Investments (Continued)

The Company employs full-time employees to attend to the day-to-day operations of those assets within the greater Salt Lake area and close surrounding markets. The Company utilizes third party property managers where the geographic location does not warrant full-time staff or through strategic lease-up periods. The Company generally looks to acquire assets that are in regions expected to have high growth in employment and population and that provide operational efficiencies.

The Company currently owns and operates seven commercial properties in two states. These properties include office buildings, flex office space, and the redevelopment and expansion of its corporate campus (“Center53”) in Salt Lake City, Utah. The Company uses bank debt in strategic cases, primarily where it is anticipated to improve yields, or facilitate the acquisition of higher quality assets or asset class diversification.

The aggregated net book value of commercial real estate serving as collateral for bank loans was $123,079,008 and $124,381,467 as of March 31, 2024 and December 31, 2023, respectively. The associated bank loan carrying values totaled $97,359,494 and $97,807,614 as of March 31, 2024 and December 31, 2023, respectively.

During the three month periods ended March 31, 2024 and 2023, the Company did not record any impairment losses on commercial real estate held for investment or held for sale. Impairment losses, if any, are included in gains (losses) on investment and other assets on the condensed consolidated statements of earnings.

During the three month periods ended March 31, 2024 and 2023, the Company recorded depreciation expense on commercial real estate held for investment of $1,527,793 and $1,565,927, respectively. Commercial real estate held for investment is stated at cost and is depreciated over the estimated useful life, primarily using the straight-line method. Depreciation is included in net investment income on the consolidated statements of earnings.

The Company’s commercial real estate held for investment is summarized as follows as of the respective dates indicated:

	Net Book Value				Total Square Footage
	March 31, 2024		December 31, 2023		March 31, 2024		December 31, 2023
Utah (1)	$	128,904,262	$	142,475,177		546,941		625,920
Louisiana		19,084		19,250		1,622		1,622
	$	128,923,346	$	142,494,427		548,563		627,542

(1) Includes Center53

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

3) Investments (Continued)

The Company’s commercial real estate held for sale is summarized as follows as of the respective dates indicated:

	Net Book Value				Total Square Footage
	March 31, 2024		December 31, 2023		March 31, 2024		December 31, 2023
Mississippi (1)	$	151,553	$	3,028,973		-		19,694
Utah (2)		12,111,772		-		78,979		-
	$	12,263,325	$	3,028,973		78,979		19,694

(1) Consists of approximately 93 acres of undeveloped land for $151,553 for 2024 and 2023. The remaining property for $2,877,420 was sold in February 2024 for a gain of approximately $250,000.

(2) Sold in April 2024 for a gain of approximately $3,000

The property is being marketed with the assistance of commercial real estate brokers in Mississippi.

Residential Real Estate Held for Investment and Held for Sale

The Company occasionally acquires a small portfolio of residential homes primarily because of loan foreclosures. The Company has the option to sell these properties or to continue to hold them for expected cash flow and price appreciation. The Company also invests in residential subdivision development.

The Company established Security National Real Estate Services (“SNRE”) to manage its residential property portfolio. SNRE cultivates and maintains the preferred vendor relationships necessary to manage costs and quality of work performed on the Company’s entire residential property portfolio.

During the three month periods ended March 31, 2024 and 2023 the Company did not record any impairment losses on residential real estate held for sale or held for investment. Impairment losses, if any, are included in gains (losses) on investment and other assets on the condensed consolidated statements of earnings.

During the three month periods ended March 31, 2024 and 2023, the Company recorded depreciation expense on residential real estate held for investment of $2,653 and $2,648, respectively. Residential real estate held for investment is stated at cost and is depreciated over the estimated useful life, primarily using the straight-line method. Depreciation is included in net investment income on the consolidated statements of earnings.

The Company’s residential real estate held for investment is summarized as follows as of the respective dates indicated:

	Net Book Value
	March 31, 2024		December 31, 2023
Utah (1)	$	54,638,976	$	40,924,865
	$	54,638,976	$	40,924,865

(1) Includes multiple residential subdivision development projects

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

3) Investments (Continued)

The following table presents additional information regarding the Company’s residential subdivision development in Utah:

	March 31, 2024		December 31, 2023
Lots developed		64		42
Lots to be developed		1,269		1,145
Book Value	$	54,449,234	$	40,739,201

The Company’s residential real estate held for sale is summarized as follows as of the respective dates indicated:

	Net Book Value
	March 31, 2024		December 31, 2023
Utah	$	859,599	$	-
	$	859,599	$	-

The net book value of foreclosed residential real estate included in residential real estate held for sale was $859,599 and nil as of March 31, 2024 and December 31, 2023, respectively.

Real Estate Owned and Occupied by the Company

The primary business units of the Company occupy a portion of the real estate owned by the Company. As of March 31, 2024, real estate owned and occupied by the Company is summarized as follows:

Location	Business Segment	Approximate Square Footage		Square Footage Occupied by the Company
433 Ascension Way, Floors 4, 5 and 6, Salt Lake City, UT - Center53 Building 2 (1)	Corporate Offices, Life Insurance, Cemetery/Mortuary Operations, and Mortgage Operations and Sales		221,000		50	%
1818 Marshall Street, Shreveport, LA (2)	Life Insurance Operations		12,274		100	%
909 Foisy Street, Alexandria, LA (2) (3)	Life Insurance Sales		8,059		100	%
812 Sheppard Street, Minden, LA (2) (4)	Life Insurance Sales		1,560		100	%

(1) Included in real estate held for investment on the condensed consolidated balance sheets

(2) Included in property and equipment on the condensed consolidated balance sheets

(3) Sold in April 2024 for a loss of approximately $39,000

(4) Listed for sale

Mortgage Loans Held for Investment

Mortgage loans held for investment consist of first and second mortgages. The mortgage loans bear interest at rates ranging from 2.0% to 10.5%, maturity dates range from nine months to 30 years and the loans are secured by real estate.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

3) Investments (Continued)

Concentrations of credit risk arise when a number of mortgage loan debtors have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. Although the Company has a diversified mortgage loan portfolio consisting of residential mortgages, commercial loans and residential construction loans and requires collateral on all real estate exposures, a substantial portion of the relevant debtors’ ability to honor obligations is dependent upon the economic stability of the geographic region in which the debtors do business or are employed. As of March 31, 2024, the Company had 43%, 11%, 8%, 8% and 7%, of its mortgage loans from borrowers located in the states of Utah, Florida, California, Texas, and Arizona, respectively. As of December 31, 2023, the Company had 44%, 11%, 10%, 7% and 6% of its mortgage loans from borrowers located in the states of Utah, Florida, California, Texas, and Arizona respectively.

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

Mortgage loans are secured by the underlying property and require an appraisal at the time of underwriting and funding. Generally, the Company requires that loans not exceed 80% of the fair market value of the respective loan collateral. For loans of more than 80% of the fair market value of the respective loan collateral, additional collateral or mortgage insurance by an approved third-party insurer is required.

Evaluation of Allowance for Credit Losses

See Note 2 regarding the adoption of ASU 2016-13.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the Company’s mortgage loans held for investment to present the net amount expected to be collected. The Company reports in net earnings, as a credit loss expense, the amount necessary to adjust the allowance for credit losses for the Company’s current estimate of expected credit losses on mortgage loans held for investment. This credit loss expense is included in other expenses on the condensed consolidated statements of earnings.

Once a mortgage loan is past due 90 days, it is the policy of the Company to end the accrual of interest income on the loan and reverse any interest income that had been accrued. Given this policy, the Company does not measure a credit loss allowance on accrued interest receivable. Accrued interest receivable is included in accrued investment income on the condensed consolidated balance sheets. Payments received for mortgage loans on a non-accrual status are recognized when received. The interest income recognized from payments received for mortgage loans on a non-accrual status was immaterial. Accrual of interest resumes if a mortgage loan is brought current. Interest not accrued on these loans totaled approximately $328,000 and $237,000 as of March 31, 2024 and December 31, 2023, respectively.

The Company measures expected credit losses based on the fair value of the collateral when the Company determines that foreclosure is probable. When a mortgage loan becomes delinquent, the Company proceeds to foreclose and all expenses for foreclosure are expensed as incurred. Once foreclosed, the property is classified as real estate held for investment or held for sale.

To determine the allowance for credit losses, the Company has segmented its mortgage loans held for investment by loan type. The Company’s loan types are commercial, residential, and residential construction. The inherent risks within the portfolio vary depending upon the loan type as follows:

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

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

3) Investments (Continued)

Commercial loans are evaluated for credit loss by analyzing common metrics that are predictors for future credit losses such as debt service coverage ratio (“DSCR”), loan to value (“LTV”), local market conditions, borrower quality, and underlying collateral. The fair value of the underlying collateral is based on a third-party appraisal of the property at origination of the loan. The fair value is assessed if the loan becomes 90 days delinquent. The Company uses these metrics to pool similar loans. The allowance for credit losses is based on estimates, historical experience, probability of loss, value of the underlying collateral, and other factors that affect the collectability of the loan. The Company applies a future loss factor to the outstanding balance of each group to arrive at the allowance for credit losses.

Residential — These loans are secured by first and second mortgages on single-family dwellings. The borrower’s ability to repay is sensitive to the life events and the general economic condition of the region. Where loan to value exceeds 80%, the loan is generally guaranteed by private mortgage insurance, the FHA, or VA.

Residential loans are evaluated for credit loss by using relevant available information from both internal and external sources. Among other things, the Company uses its historical delinquency information and considers current and forecasted economic conditions. External sources include a monthly analysis of its residential portfolio by a third party. The third party uses the Company’s current loan data and runs it through various models to project cash flows and provide a projected life of loan loss. The models consider loan features such as loan type, loan to value, payment status, age, and current property values. Analyzing the information from the various sources allows the Company to arrive at the allowance for credit losses.

Residential construction (including land acquisition and development) – These loans are underwritten in accordance with the Company’s underwriting policies, which include a financial analysis of the builders, borrowers (guarantors), construction cost estimates, and independent appraisal valuations, and factor in estimates of the value of construction projects upon completion. Construction loans generally involve the disbursement of substantial funds over a short period of time with repayment substantially dependent upon the success of the completed project and the ability of the borrower to secure long-term financing.

Additionally, land acquisition and development loans are underwritten in accordance with the Company’s underwriting policies, which include independent appraisal valuations as well as the estimated value associated with the land upon completion of development into finished lots. These loans are of a higher risk than other mortgage loans due to their ultimate repayment being sensitive to general economic conditions, availability of long-term or construction financing, and interest rate sensitivity.

Residential construction mortgage loans are evaluated for credit loss by considering historical activity and current housing market trends to arrive at a per loan basis point allowance that is recognized at loan origination and for subsequent draws. The per loan basis point is reviewed at least annually or as loan losses or market trends require.

The following table presents a roll forward of the allowance for credit losses as of the dates indicated:

	Three Months Ended
	Commercial			Residential			Residential Construction			Total
Beginning balance - January 1, 2024	$	1,219,653		$	2,390,894		$	208,106		$	3,818,653
Change in provision for credit losses		(360,031	)		(528,399	)		(8,609	)		(897,039	)
Charge-offs		-			-			-			-
Ending balance - March 31, 2024	$	859,622		$	1,862,495		$	199,497		$	2,921,614
Beginning balance - January 1, 2023	$	187,129		$	1,739,980		$	43,202		$	1,970,311
Adoption of ASU 2016-13 (1)		555,807			(192,607	)		301,830			665,030
Change in provision for credit losses (2)		15,195			137,727			(52,844	)		100,078
Charge-offs		-			-			-			-
Ending balance - March 31, 2023	$	758,131		$	1,685,100		$	292,188		$	2,735,419

(1) See Note 2 of the notes to the condensed consolidated financial statements

(2) Included in other expenses on the condensed consolidated statements of earnings

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

3) Investments (Continued)

The following table presents the aging of mortgage loans held for investment by loan type as of the dates indicated:

	Commercial			Residential			Residential  Construction			Total
March 31, 2024
30-59 days past due	$	5,056,753		$	3,868,858		$	-		$	8,925,611
60-89 days past due		-			2,018,961			-			2,018,961
Over 90 days past due (1)		405,000			3,001,826			-			3,406,826
In process of foreclosure (1)		191,508			1,694,997			-			1,886,505
Total past due		5,653,261			10,584,642			-			16,237,903
Current		61,422,824			96,179,990			99,748,408			257,351,222
Total mortgage loans		67,076,085			106,764,632			99,748,408			273,589,125
Allowance for credit losses		(859,622	)		(1,862,495	)		(199,497	)		(2,921,614	)
Unamortized deferred loan fees, net		(144,981	)		(1,168,387	)		(398,123	)		(1,711,491	)
Unamortized discounts, net		(159,979	)		(159,257	)		-			(319,236	)
Net mortgage loans held for investment	$	65,911,503		$	103,574,493		$	99,150,788		$	268,636,784

December 31, 2023
30-59 days past due	$	-		$	3,387,673		$	-		$	3,387,673
60-89 days past due		-			3,472,760			-			3,472,760
Over 90 days past due (1)		405,000			3,480,931			-			3,885,931
In process of foreclosure (1)		1,241,508			1,021,790			-			2,263,298
Total past due		1,646,508			11,363,154			-			13,009,662
Current		72,530,030			91,790,433			104,052,748			268,373,211
Total mortgage loans		74,176,538			103,153,587			104,052,748			281,382,873
Allowance for credit losses		(1,219,653	)		(2,390,894	)		(208,106	)		(3,818,653	)
Unamortized deferred loan fees, net		(172,989	)		(1,135,491	)		(314,746	)		(1,623,226	)
Unamortized discounts, net		(216,705	)		(107,452	)		-			(324,157	)
Net mortgage loans held for investment	$	72,567,191		$	99,519,750		$	103,529,896		$	275,616,837

(1) Interest income is not recognized on loans which are more than 90 days past due or in foreclosure.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

3) Investments (Continued)

Credit Quality Indicators

The Company evaluates and monitors the credit quality of its commercial loans by analyzing loan to value (“LTV”) and debt service coverage ratios (“DSCR”). Monitoring a commercial mortgage loan increases when the loan is delinquent or earlier if there is an indication of impairment.

The aggregate unpaid principal balance of commercial mortgage loans by credit quality indicator and origination year was as follows as of March 31, 2024:

Credit Quality Indicator LTV:	2024		2023		2022		2021		2020		Prior		Total		% of Total
Less than 65%	$	4,221,500	$	34,304,450	$	3,335,678	$	3,755,796	$	-	$	9,410,047	$	55,027,471		82.04	%
65% to 80%		432,978		1,523,926		4,773,397		-		-		-		6,730,301		10.03	%
Greater than 80%		-		-		-		405,000		4,913,313		-		5,318,313		7.93	%
Total	$	4,654,478	$	35,828,376	$	8,109,075	$	4,160,796	$	4,913,313	$	9,410,047	$	67,076,085		100.00	%
DSCR
>1.20x	$	4,221,500	$	20,990,000	$	1,000,000	$	700,000	$	4,913,313	$	5,538,915	$	37,363,728		55.70	%
1.00x - 1.20x		432,978		8,338,376		7,109,075		3,460,796		-		3,856,194		23,197,419		34.58	%
<1.00x		-		6,500,000		-		-		-		14,938		6,514,938		9.71	%
Total	$	4,654,478	$	35,828,376	$	8,109,075	$	4,160,796	$	4,913,313	$	9,410,047	$	67,076,085		100.00	%

The aggregate unpaid principal balance of commercial mortgage loans by credit quality indicator and origination year was as follows as of December 31, 2023:

Credit Quality Indicator LTV:	2023		2022			2021		2020		2019		Prior		Total		% of Total
Less than 65%	$	34,304,954	$	13,555,737		$	3,778,248	$	-	$	2,964,740	$	6,565,389	$	61,169,068		82.46	%
65% to 80%		1,523,926		5,115,231			1,050,000		4,913,313		-		-		12,602,470		16.99	%
Greater than 80%		-		-			405,000		-		-		-		405,000		0.55	%
Total	$	35,828,880	$	18,670,968		$	5,233,248	$	4,913,313	$	2,964,740	$	6,565,389	$	74,176,538		100.00	%
DSCR
>1.20x	$	20,990,000	$	1,000,000		$	700,000	$	4,913,313	$	2,964,740	$	2,612,625	$	33,180,678		44.73	%
1.00x - 1.20x		8,338,880		8,496,127			3,483,248		-		-		3,952,764		24,271,019		32.72	%
<1.00x		6,500,000		9,174,841	(1)		1,050,000		-		-		-		16,724,841		22.55	%
Total	$	35,828,880	$	18,670,968		$	5,233,248	$	4,913,313	$	2,964,740	$	6,565,389	$	74,176,538		100.00	%

(1) Commercial construction loan

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

3) Investments (Continued)

The Company evaluates and monitors the credit quality of its residential mortgage loans by analyzing LTV and loan performance. The Company defines non-performing mortgage loans as loans more than 90 days past due and on a non-accrual status. Monitoring a residential mortgage loan increases when the loan is delinquent or earlier if there is an indication of impairment.

The aggregate unpaid principal balance of residential mortgage loans by credit quality indicator and origination year was as follows as of March 31, 2024:

Credit Quality Indicator	2024		2023		2022		2021		2020		Prior		Total		% of Total
Performance Indicators:
Performing	$	3,547,990	$	16,709,844	$	52,632,220	$	7,046,188	$	7,709,605	$	14,421,963	$	102,067,810		95.60	%
Non-performing (1)		-		398,402		2,198,441		365,061		406,356		1,328,562		4,696,822		4.40	%
Total	$	3,547,990	$	17,108,246	$	54,830,661	$	7,411,249	$	8,115,961	$	15,750,525	$	106,764,632		100.00	%

(1) Includes residential mortgage loans in the process of foreclosure of $1,694,997

LTV:
Less than 65%	$	750,581	$	3,288,230	$	7,025,668	$	2,629,210	$	1,577,667	$	5,951,632	$	21,222,988	19.88	%
65% to 80%		2,797,409		11,187,143		43,201,988		3,309,638		4,000,015		7,368,980		71,865,173	67.31	%
Greater than 80%		-		2,632,873		4,603,005		1,472,401		2,538,279		2,429,913		13,676,471	12.81	%
Total	$	3,547,990	$	17,108,246	$	54,830,661	$	7,411,249	$	8,115,961	$	15,750,525	$	106,764,632	100.00	%

The aggregate unpaid principal balance of residential mortgage loans by credit quality indicator and origination year was as follows as of December 31, 2023:

Credit Quality Indicator	2023		2022		2021		2020		2019		Prior		Total		% of Total
Performance Indicators:
Performing	$	15,337,828	$	53,875,389	$	7,156,934	$	7,453,796	$	2,786,562	$	12,040,357	$	98,650,866		95.63	%
Non-performing (1)		-		2,202,114		365,061		613,101		-		1,322,445		4,502,721		4.37	%
Total	$	15,337,828	$	56,077,503	$	7,521,995	$	8,066,897	$	2,786,562	$	13,362,802	$	103,153,587		100.00	%

(1) Includes residential mortgage loans in the process of foreclosure of $1,021,790

LTV:
Less than 65%	$	3,280,144	$	7,049,522	$	1,843,286	$	1,746,970	$	446,675	$	5,206,095	$	19,572,692	18.97	%
65% to 80%		10,962,770		44,371,320		4,269,894		4,222,170		2,339,887		5,711,440		71,877,481	69.68	%
Greater than 80%		1,094,914		4,656,661		1,408,815		2,097,757		-		2,445,267		11,703,414	11.35	%
Total	$	15,337,828	$	56,077,503	$	7,521,995	$	8,066,897	$	2,786,562	$	13,362,802	$	103,153,587	100.00	%

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

3) Investments (Continued)

The company evaluates and monitors the credit quality of its residential construction loans (including land acquisition and development loans) by analyzing LTV and loan performance. Monitoring a residential construction mortgage loan increases when the loan is delinquent or earlier if there is an indication of impairment.

The aggregate unpaid principal balance of residential construction mortgage loans by credit quality indicator and origination year was as follows as of March 31, 2024:

Credit Quality Indicator	2024		2023		2022		2021		Total		% of Total
Performance Indicators:
Performing	$	17,493,176	$	49,632,301	$	6,844,517	$	25,778,414	$	99,748,408		100.00	%
Non-performing		-		-		-		-		-		0.00	%
Total	$	17,493,176	$	49,632,301	$	6,844,517	$	25,778,414	$	99,748,408		100.00	%
LTV:
Less than 65%	$	17,493,176	$	28,656,715	$	4,459,888	$	25,778,414	$	76,388,193		76.58	%
65% to 80%		-		20,975,586		2,384,629		-		23,360,215		23.42	%
Greater than 80%		-		-		-		-		-		0.00	%
Total	$	17,493,176	$	49,632,301	$	6,844,517	$	25,778,414	$	99,748,408		100.00	%

The aggregate unpaid principal balance of residential construction mortgage loans by credit quality indicator and origination year was as follows as of December 31, 2023:

Credit Quality Indicator	2023		2022		2021		Total		% of Total
Performance Indicators:
Performing	$	60,311,679	$	16,624,182	$	27,116,887	$	104,052,748		100.00	%
Non-performing		-		-		-		-		0.00	%
Total	$	60,311,679	$	16,624,182	$	27,116,887	$	104,052,748		100.00	%
LTV:
Less than 65%	$	40,215,360	$	8,732,500	$	20,442,302	$	69,390,162		66.69	%
65% to 80%		20,096,319		7,891,682		6,674,585		34,662,586		33.31	%
Greater than 80%		-		-		-		-		0.00	%
Total	$	60,311,679	$	16,624,182	$	27,116,887	$	104,052,748		100.00	%

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

3) Investments (Continued)

Insurance Assignments

The following table presents the aging of insurance assignments, included in other investments and policy loans on the condensed consolidated balance sheets:

	As of March 31, 2024			As of December 31, 2023
30-59 days past due	$	10,589,598		$	10,829,629
60-89 days past due		4,534,618			3,709,754
Over 90 days past due		5,260,677			4,329,468
Total past due		20,384,893			18,868,851
Current		26,325,685			26,736,471
Total insurance assignments		46,710,578			45,605,322
Allowance for credit losses		(1,587,525	)		(1,553,836	)
Net insurance assignments	$	45,123,053		$	44,051,486

The Company records an allowance for credit losses when the insurance assignment is funded. Once an insurance assignment moves to 90 days or legal proceedings, it is monitored for write-off and collectability, and any adjustments to the allowance are recorded at that time. See Note 2 regarding the adoption of ASU 2016-13.

The following table presents a roll forward of the allowance for credit losses for insurance assignments as of the dates indicated:

	Three Months Ended
Beginning balance - January 1, 2024	$	1,553,836
Change in provision for credit losses (1)		250,567
Charge-offs		(216,878	)
Ending balance - March 31, 2024	$	1,587,525
Beginning balance - January 1, 2023	$	1,609,951
Change in provision for credit losses (1)		233,113
Charge-offs		(157,163	)
Ending balance - March 31, 2023	$	1,685,901

(1) Included in other expenses on the condensed consolidated statements of earnings

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

3) Investments (Continued)

Investment Related Earnings

The following table presents the realized gains and losses from sales, calls, and maturities, and unrealized gains and losses on equity securities from investments and other assets:

	Three Months Ended March 31,
	2024			2023
Fixed maturity securities:
Gross realized gains	$	303		$	15,491
Gross realized losses		(854	)		(54,891	)
Net credit loss provision		(96,000	)		(179,500	)
Equity securities:
Losses on securities sold		(61,103	)		(52,315	)
Unrealized gains on securities held at the end of the period		1,542,863			331,430
Real estate held for investment and sale:
Gross realized gains		249,960			-
Gross realized losses		-			-
Other assets:
Gross realized gains		35,486			50,939
Gross realized losses		(1,229	)		-
Total	$	1,669,426		$	111,154

The realized gains and losses on the sale of securities are recorded on the trade date, and the cost of the securities sold is determined using the specific identification method.

Net realized gains and losses includes gains and losses by the restricted assets and cemetery perpetual care trust investments of the cemeteries and mortuaries of $582,172 in net gains and $53,931 in net gains for the three month periods ended March 31, 2024 and 2023, respectively.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)

3) Investments (Continued)

Major categories of net investment income were as follows:

	Three Months Ended March 31,
	2024			2023
Fixed maturity securities available for sale	$	4,403,558		$	4,012,732
Equity securities		168,148			140,507
Mortgage loans held for investment		8,814,036			8,487,656
Real estate held for investment and sale		3,515,061			3,364,924
Policy loans		301,267			200,213
Insurance assignments		5,076,549			4,768,203
Other investments		198,959			129,056
Cash and cash equivalents		1,690,957			787,762
Gross investment income		24,168,535			21,891,053
Investment expenses		(4,221,967	)		(4,116,170	)
Net investment income	$	19,946,568		$	17,774,883

Net investment income includes income earned by the restricted assets of the cemeteries and mortuaries of $933,551 and $633,527 for the three month periods ended March 31, 2024 and 2023, respectively.

Net investment income on real estate consists primarily of rental revenue. Investment expenses consist primarily of depreciation, property taxes, operating expenses of real estate and an estimated portion of administrative expenses relating to investment activities.

Accrued Investment Income

Accrued investment income consists of the following:

	As of March 31, 2024		As of December 31, 2023
Fixed maturity securities available for sale	$	4,343,991	$	3,984,695
Equity securities		25,081		20,451
Mortgage loans held for investment		1,163,282		2,661,092
Real estate held for investment		3,411,928		3,486,115
Cash and cash equivalents		16,783		18,437
Total accrued investment income	$	8,961,065	$	10,170,790

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2024 (Unaudited)