Note 2: Investments

12 Months Ended

Dec. 31, 2012

Notes

Note 2: Investments

2)   Investments

The Company’s investments in fixed maturity securities held to maturity and equity securities available for sale as of December 31, 2012 are summarized as follows:

				Gross		Gross		Estimated
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
December 31, 2012:
Fixed maturity securities held to maturity
carried at amortized cost:
Bonds:
U.S. Treasury securities
and obligations of U.S
Government agencies	$	2,602,589	$	514,572	$	-	$	3,117,161
Obligations of states and
political subdivisions		2,040,277		285,241		(3,982)		2,321,536
Corporate securities including
public utilities		118,285,147		16,230,468		(607,322)		133,908,293
Mortgage-backed securities		5,010,519		327,871		(76,056)		5,262,334
Redeemable preferred stock		1,510,878		98,087		(1,200)		1,607,765
Total fixed maturity
securities held to maturity	$	129,449,410	$	17,456,239	$	(688,560)	$	146,217,089

				Gross		Gross		Estimated
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
December 31, 2012:
Equity securities available for sale
at estimated fair value:
Non-redeemable preferred stock	$	20,281	$	-	$	(1,486)	$	18,795
Common stock:
Industrial, miscellaneous and all other		6,047,474		309,752		(970,909)		5,386,317
Total equity securities available for sale
at estimated fair value	$	6,067,755	$	309,752	$	(972,395)	$	5,405,112
Total securities available for sale
carried at estimated fair value	$	6,067,755	$	309,752	$	(972,395)	$	5,405,112
Mortgage loans on real estate and    construction loans held for investment    at amortized cost:
Residential	$	50,584,923
Residential construction		3,161,112
Commercial		34,956,031
Less: Allowance for loan losses		(4,239,861)
Total mortgage loans on real estate and
construction loans held for investment	$	84,462,205
Real estate held for investment - net of depreciation	$	3,543,751
Other real estate owned held for investment - net of
depreciation		55,027,669
Other real estate owned held for sale		5,682,610
Total real estate	$	64,254,030
Policy, student and other loans at
amortized cost - net of allowance for doubtful accounts	$	20,188,516
Short-term investments at amortized cost	$	40,925,390

The Company’s investments in fixed maturity securities held to maturity and equity securities available for sale as of December 31, 2011 are summarized as follows:

				Gross		Gross		Estimated
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
December 31, 2011:
Fixed maturity securities held to maturity
carried at amortized cost:
Bonds:
U.S. Treasury securities
and obligations of U.S
Government agencies	$	2,820,159	$	551,740	$	-	$	3,371,899
Obligations of states and
political subdivisions		3,024,425		309,986		(13,156)		3,321,255
Corporate securities including
public utilities		113,648,447		10,075,071		(2,268,146)		121,455,372
Mortgage-backed securities		6,575,178		354,286		(356,899)		6,572,565
Redeemable preferred stock		1,510,878		72,639		(129,200)		1,454,317
Total fixed maturity
securities held to maturity	$	127,579,087	$	11,363,722	$	(2,767,401)	$	136,175,408

				Gross		Gross		Estimated
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
December 31, 2011:
Equity securities available for sale
at estimated fair value:
Non-redeemable preferred stock	$	20,281	$	-	$	(1,843)	$	18,438
Common stock:
Industrial, miscellaneous and all other		7,250,991		363,387		(1,333,424)		6,280,954
Total equity securities available for sale
at estimated fair value	$	7,271,272	$	363,387	$	(1,335,267)	$	6,299,392
Total securities available for sale
carried at estimated fair value	$	7,271,272	$	363,387	$	(1,335,267)	$	6,299,392
Mortgage loans on real estate and    construction loans held for investment    at amortized cost:
Residential	$	54,344,327
Residential construction		17,259,666
Commercial		48,433,147
Less: Allowance for loan losses		(4,881,173)
Total mortgage loans on real estate and
construction loans held for investment	$	115,155,967
Real estate held for investment - net of depreciation	$	3,786,780
Other real estate owned held for investment - net of
depreciation		46,398,095
Other real estate owned held for sale		5,793,900
Total real estate	$	55,978,775
Policy, student and other loans at
amortized cost - net of allowance for doubtful accounts	$	18,463,277
Short-term investments at amortized cost	$	6,932,023

Fixed Maturity Securities

The following tables summarize unrealized losses on fixed maturities securities, which are carried at amortized cost, at December 31, 2012 and 2011. 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 December 31, 2012
Redeemable Preferred Stock	$	1,200	1	$	-	-	$	1,200
Obligations of States and
Political Subdivisions		-	-		3,982	2		3,982
Corporate Securities		191,662	16		415,660	9		607,322
Mortgage and other
asset-backed securities		-	-		76,056	3		76,056
Total unrealized losses	$	192,862	17	$	495,698	14	$	688,560
Fair Value	$	4,609,268		$	3,972,091		$	8,581,359
At December 31, 2011
Redeemable Preferred Stock	$	800	1		128,400	1	$	129,200
Obligations of States and
Political Subdivisions		-	-		13,156	2		13,156
Corporate Securities		1,544,224	47		723,922	12		2,268,146
Mortgage and other
asset-backed securities		161,300	3		195,599	1		356,899
Total unrealized losses	$	1,706,324	51	$	1,061,077	16	$	2,767,401
Fair Value	$	24,249,533		$	3,762,892		$	28,012,425

As of December 31, 2012, the average market value of the related fixed maturities was 92.6% of amortized cost and the average market value was 91.0% of amortized cost as of December 31, 2011. During 2012, 2011 and 2010, an other than temporary decline in market value resulted in the recognition of credit losses on fixed maturity securities of $165,000, $125,129 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.

Equity Securities

The following tables summarize unrealized losses on equity securities that were carried at estimated fair value based on quoted trading prices at December 31, 2012 and 2011. The unrealized losses were primarily the result of decreases in market 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 December 31, 2012
Non-redeemable preferred stock	$	686	1	$	800	1	$	1,486
Industrial, miscellaneous and all other		236,293	39		734,616	44		970,909
Total unrealized losses	$	236,979	40	$	735,416	45	$	972,395
Fair Value	$	1,422,436		$	1,493,538		$	2,915,974
At December 31, 2011
Non-redeemable preferred stock	$	-	-	$	1,843	2	$	1,843
Industrial, miscellaneous and all other		955,400	79		378,024	14		1,333,424
Total unrealized losses	$	955,400	79	$	379,868	16	$	1,335,266
Fair Value	$	2,857,082		$	560,529		$	3,417,611

As of December 31, 2012, the average market value of the equity securities available for sale was 75.0% of the original investment and the average market value was 71.9% of the original investment as of December 31, 2011. 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 2012, 2011, and 2010, an other than temporary decline in the market value resulted in the recognition of an impairment loss on equity securities of $247,317, $52,775 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.

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 December 31, 2012, 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.

		Amortized		Estimated Fair
		Cost		Value
Held to Maturity:
Due in 2013	$	1,700,455	$	1,768,905
Due in 2014 through 2017		20,923,480		23,120,438
Due in 2018 through 2022		45,399,136		51,113,794
Due after 2022		54,904,942		63,343,853
Mortgage-backed securities		5,010,519		5,262,334
Redeemable preferred stock		1,510,878		1,607,765
Total held to maturity	$	129,449,410	$	146,217,089

The amortized cost and estimated fair value of available for sale securities at December 31, 2012, 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		Estimated Fair
		Cost		Value
Available for Sale:
Due in 2013	$	-	$	-
Due in 2014 through 2017		-		-
Due in 2018 through 2022		-		-
Due after 2022		-		-
Non-redeemable preferred stock		20,281		18,795
Common stock		6,047,474		5,386,317
Total available for sale	$	6,067,755	$	5,405,112

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

		2012		2011		2010
Fixed maturity securities held
to maturity:
Gross realized gains	$	470,874	$	939,672	$	1,300,187
Gross realized losses		(3,875)		(162,716)		(494,678)
Other than temporary impairments		(165,000)		(125,129)		(150,059)
Securities available for sale:
Gross realized gains		392,033		590,455		686,788
Gross realized losses		(5,705)		(118,417)		(61,530)
Other than temporary impairments		(247,317)		(52,775)		(23,922)
Other assets:
Gross realized gains		794,346		1,295,217		393,943
Gross realized losses		(223,163)		(79,858)		(209,292)
Other than temporary impairments		(795,315)		(662,831)		(500,000)
Total	$	216,878	$	1,623,618	$	941,437

The net carrying amount for sales of securities classified as held to maturity was $2,174,300, $12,341,156 and $16,220,943, for the years ended December 31, 2012, 2011 and 2010, respectively.  The net realized gain related to these sales was $271,364, $530,637 and $346,225, for the years ended December 31, 2012, 2011 and 2010, respectively. Certain circumstances lead to these decisions to sell.  In 2012, 2011 and 2010, the Company sold certain held to maturity bonds in gain positions to reduce its risk in certain industries or companies.

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 December 31, 2012, other than investments issued or guaranteed by the United States Government.

Major categories of net investment income are as follows:

		2012		2011		2010
Fixed maturity securities	$	7,731,051	$	7,762,894	$	6,761,254
Equity securities		264,063		272,011		238,929
Mortgage loans on real estate		6,878,354		6,863,026		6,154,760
Real estate		4,927,128		3,741,263		3,040,864
Policy, student and other loans		830,683		835,312		897,945
Short-term investments, principally gains on    sale of mortgage loans		8,716,257		6,255,581		7,215,927
Gross investment income		29,347,536		25,730,087		24,309,679
Investment expenses		(6,097,382)		(5,719,383)		(5,693,695)
Net investment income	$	23,250,154	$	20,010,704	$	18,615,984

Net investment income includes net investment income earned by the restricted assets of the cemeteries and mortuaries of $643,283, $626,688 and $635,652 for 2012, 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 $9,190,012 at December 31, 2012 and $9,593,318 at December 31, 2011. The restricted securities are included in various assets under investments on the accompanying 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%, 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 do business. At December 31, 2012, the Company has 26%, 19%, 12% and 12% of its mortgage loans from borrowers located in the states of Utah, California, Florida and Texas, respectively. The mortgage loans on real estate balances on the consolidated balance sheet are reflected net of an allowance for loan losses of $4,239,861 and $4,881,173 at December 31, 2012 and 2011, respectively.

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
For the Years Ended December 31, 2012, and 2011
		Commercial		Residential		Residential Construction		Total
2012
Allowance for credit losses:
Beginning balance	$	-	$	4,338,805	$	542,368	$	4,881,173
Charge-offs		-		(560,699)		(514,442)		(1,075,141)
Provision		-		415,568		18,261		433,829
Ending balance	$	-	$	4,193,674	$	46,187	$	4,239,861
Ending balance: individually evaluated for impairment	$	-	$	692,199	$	-	$	692,199
Ending balance: collectively evaluated for impairment	$	-	$	3,501,475	$	46,187	$	3,547,662
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-
Mortgage loans:
Ending balance	$	34,956,031	$	50,584,923	$	3,161,112	$	88,702,066
Ending balance: individually evaluated for impairment	$	-	$	4,692,517	$	1,346,126	$	6,038,643
Ending balance: collectively evaluated for impairment	$	34,956,031	$	45,892,406	$	1,814,986	$	82,663,423
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-
2011
Allowance for credit losses:
Beginning balance	$	-	$	6,212,072	$	858,370	$	7,070,442
Charge-offs		-		(2,994,715)		(430,274)		(3,424,989)
Provision		-		1,121,448		114,272		1,235,720
Ending balance	$	-	$	4,338,805	$	542,368	$	4,881,173
Ending balance: individually evaluated for impairment	$	-	$	738,975	$	250,524	$	989,499
Ending balance: collectively evaluated for impairment	$	-	$	3,599,830	$	291,844	$	3,891,674
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-
Mortgage loans:
Ending balance	$	48,433,147	$	54,344,327	$	17,259,666	$	120,037,140
Ending balance: individually evaluated for impairment	$	2,758,235	$	4,611,995	$	5,645,865	$	13,016,095
Ending balance: collectively evaluated for impairment	$	45,674,912	$	49,732,332	$	11,613,801	$	107,021,045
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-

The following is a summary of the aging of mortgage loans for the periods presented.

Age Analysis of Past Due Mortgage Loans
Years Ended December 31, 2012 and 2011
	30-59 Days Past Due	60-89 Days Past Due	Greater Than 90 Days 1)	In Foreclosure 1)	Total Past Due	Current	Total Mortgage Loans	Allowance for Loan Losses	Net Mortgage Loans
2012
Commercial	$581,984	$0	$143,252	$0	$725,236	$34,230,795	$34,956,031	$0	$34,956,031
Residential	2,963,259	1,345,247	5,208,742	4,692,517	14,209,765	36,375,158	50,584,923	(4,193,674)	46,391,249
Residential   Construction	-	-	288,468	1,346,126	1,634,594	1,526,518	3,161,112	(46,187)	3,114,925
Total	$3,545,243	$1,345,247	$5,640,462	$6,038,643	$16,569,595	$72,132,471	$88,702,066	$(4,239,861)	$84,462,205
2011
Commercial	$0	$0	$1,053,500	$2,758,235	$3,811,735	$44,621,412	$48,433,147	$0	$48,433,147
Residential	2,478,084	2,058,261	5,500,340	4,611,995	14,648,680	39,695,647	54,344,327	(4,338,805)	50,005,522
Residential   Construction	859,651	682,532	309,651	5,645,865	7,497,699	9,761,967	17,259,666	(542,368)	16,717,298
Total	$3,337,735	$2,740,793	$6,863,491	$13,016,095	$25,958,114	$94,079,026	$120,037,140	$(4,881,173)	$115,155,967
1)  There was not any interest income recognized on loans past due greater than 90 days or in foreclosure.

Impaired Mortgage Loans

Impaired mortgage loans include loans with a related specific valuation allowance or loans whose carrying amount has been reduced to the expected collectible amount because the impairment has been considered other than temporary. The recorded investment in and unpaid principal balance of impaired loans along with the related loan specific allowance for losses, if any, for each reporting period and the average recorded investment and interest income recognized during the time the loans were impaired were as follows:

Impaired Loans
For the Years Ended December 31, 2012, and 2011
		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
2012
With no related allowance recorded:
Commercial	$	143,252	$	143,252	$	-	$	143,252	$	-
Residential		5,208,742		5,208,742		-		5,208,742		-
Residential construction		1,634,594		1,634,594		-		1,634,594		-
With an allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Residential		4,692,517		4,692,517		692,199		4,692,517		-
Residential construction		-		-		-		-		-
Total:
Commercial	$	143,252	$	143,252	$	-	$	143,252	$	-
Residential		9,901,259		9,901,259		692,199		9,901,259		-
Residential construction		1,634,594		1,634,594		-		1,634,594		-
2011
With no related allowance recorded:
Commercial	$	3,811,735	$	3,811,735	$	-	$	3,811,735	$	-
Residential		5,500,340		5,500,340		-		5,500,340		-
Residential construction		309,651		309,651		-		309,651		-
With an allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Residential		4,611,995		4,611,995		738,975		4,611,995		-
Residential construction		5,645,865		5,645,865		250,524		5,645,865		-
Total:
Commercial	$	3,811,735	$	3,811,735	$	-	$	3,811,735	$	-
Residential		10,112,335		10,112,335		738,975		10,112,335		-
Residential construction		5,955,516		5,955,516		250,524		5,955,516		-

Credit Risk Profile Based on Performance Status

The Company’s mortgage loan portfolio is monitored based on performance of the loans. Monitoring a mortgage loan increases when the loan is delinquent or earlier if there is an indication of impairment. The Company defines non-performing mortgage loans as loans 90 days or greater delinquent or on non-accrual status.

The Company’s performing and non-performing mortgage loans were as follows:

Mortgage Loan Credit Exposure
Credit Risk Profile Based on Payment Activity
As of December 31, 2012, and 2011
		Commercial				Residential				Residential Construction				Total
		2012		2011		2012		2011		2012		2011		2012		2011
Performing	$	34,812,779	$	44,621,412	$	40,683,664	$	44,231,992	$	1,526,518	$	11,304,150	$	77,022,961	$	100,157,554
Nonperforming		143,252		3,811,735		9,901,259		10,112,335		1,634,594		5,955,516		11,679,105		19,879,586
Total	$	34,956,031	$	48,433,147	$	50,584,923	$	54,344,327	$	3,161,112	$	17,259,666	$	88,702,066	$	120,037,140

Non-Accrual Mortgage Loans

Once a loan is past due 90 days, it is the policy of the Company to end the accrual of interest income on the loan and write off any income that had been accrued. Interest not accrued on these loans totals $1,925,000 and $2,023,000 as of December 31, 2012 and 2011, respectively.

The following is a summary of mortgage loans on a nonaccrual status for the periods presented.

		Mortgage Loans on Nonaccrual Status
		As of December 31, 2012, and 2011
		2012		2011
Commercial	$	143,252	$	3,811,735
Residential		9,901,259		10,112,335
Residential construction		1,634,594		5,955,516
Total	$	11,679,105	$	19,879,586

Principal Amounts Due

The amortized cost and contractual payments on mortgage loans on real estate and construction loans held for investment by category as of December 31, 2012 are shown below. Expected principal payments may differ from contractual obligations because certain borrowers may elect to pay off mortgage obligations with or without early payment penalties.

				Principal		Principal		Principal
				Amounts		Amounts		Amounts
				Due in		Due in		Due
		Total		2013		2014-2017		Thereafter
Residential	$	50,584,923	$	2,247,732	$	6,699,546	$	41,637,645
Residential Construction		3,161,112		3,161,112		-		-
Commercial		34,956,031		22,612,642		7,214,630		5,128,758
Total	$	88,702,066	$	28,021,486	$	13,914,176	$	46,766,403

Loan Loss Reserve

When a repurchase demand is received from a third party investor, the relevant data is reviewed and captured so that an estimated future loss can be calculated. The key factors that are used in the estimated loss calculation are as follows: (i) lien position, (ii) payment status, (iii) claim type, (iv) unpaid principal balance, (v) interest rate, and (vi) validity of the demand. Other data is captured and is useful for management purposes; the actual estimated loss is generally based on these key factors. The Company conducts its own review upon the receipt of a repurchase demand. In many instances, the Company is able to resolve the issues relating to the repurchase demand by the third party investor without having to make any payments to the investor.

The following is a summary of the loan loss reserve which is included in other liabilities and accrued expenses:

		Years Ended December 31
		2012		2011
Balance, beginning of period	$	2,337,875	$	5,899,025
Provisions for losses		4,053,051		1,667,805
Charge-offs		(355,631)		(5,228,955)
Balance, at December 31	$	6,035,295	$	2,337,875

The Company believes the loan loss reserve represents probable loan losses incurred as of the balance sheet date. The loan loss reserve may not be adequate, however, for claims asserted by third party investors. Actual loan loss experience could change, in the near-term, from the established reserve based upon claims asserted by third party investors. If SecurityNational Mortgage is unable to negotiate acceptable terms with the third party investors, legal action may ensue in an effort to obtain amounts that the third party investors claim are allegedly due.  In the event of legal action, if SecurityNational Mortgage is not successful in its defenses against claims asserted by these third party investors to the extent that a substantial judgment is entered against SecurityNational Mortgage which is beyond its capacity to pay, SecurityNational Mortgage may be required to curtail or cease operations.