Quarterly Report (10-q)

Date : 11/14/2019 @ 4:29PM
Source : Edgar (US Regulatory)
Stock : Security National Financial Corp (SNFCA)
Quote : 5.6454  0.1854 (3.40%) @ 8:59PM

Quarterly Report (10-q)


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 quarterly period ended September 30, 2019
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 offices)
(Zip Code)
   
 (801) 264-1060
(Registrant’s telephone number, including area code)

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes [X] No [  ]

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

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

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

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

As of November 14, 2019, the registrant had 15,327,298 shares of Class A Common Stock, $2.00 par value, outstanding and 2,254,168 shares of Class C Common Stock, $2.00 par value, outstanding.


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2019

Table of Contents


   
Page No.
 
Part I  - Financial Information
 
     
Item 1.
Financial Statements
 
     
 
Condensed Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018
3-4
     
 
Condensed Consolidated Statements of Earnings for the three and nine months ended September 30, 2019 and 2018 (unaudited)
5
     
 
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018 (unaudited)
6
     
 
Condensed Consolidated Statements of Stockholders' Equity as of September 30, 2019 and September 30, 2018 (unaudited)
7-8
     
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited)
9-10
     
 
Notes to Condensed Consolidated Financial Statements (unaudited)
11
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
48
     
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
54
     
Item 4.
Controls and Procedures
54
     
 
Part II - Other Information
 
     
Item 1.
Legal Proceedings
54
     
Item 1A.
Risk Factors
54
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
55
     
Item 3.
Defaults Upon Senior Securities
55
     
Item 4.
Mine Safety Disclosures
55
     
Item 5.
Other Information
55
     
Item 6.
Exhibits
56
     
 
Signature Page
59

2

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

Part I - Financial Information

Item 1.   Financial Statements.

Assets
 
September 30
2019
(Unaudited)
   
December 31
2018
 
Investments:
           
Fixed maturity securities, held to maturity, at amortized cost
 
$
239,749,797
   
$
232,078,723
 
Equity securities at estimated fair value
   
8,109,778
     
5,558,611
 
Mortgage loans held for investment (net of allowances for loan losses of $1,301,476 and $1,347,972 for 2019 and 2018)
   
196,508,903
     
186,465,069
 
Real estate held for investment (net of accumulated depreciation of $17,784,514 and $16,739,578 for 2019 and 2018)
   
117,055,398
     
121,558,222
 
Other investments and policy loans (net of allowances for doubtful accounts of $1,495,268 and $1,092,528 for 2019 and 2018)
   
46,448,120
     
46,617,655
 
Accrued investment income
   
4,046,143
     
3,566,146
 
Total investments
   
611,918,139
     
595,844,426
 
Cash and cash equivalents
   
123,178,762
     
142,199,942
 
Loans held for sale at estimated fair value
   
233,713,098
     
136,210,853
 
Receivables (net of allowances for doubtful accounts of $1,597,186 and $1,519,842 for 2019 and 2018)
   
8,611,105
     
8,935,343
 
Restricted assets (including $1,145,917 and $744,673 for 2019 and 2018 at estimated fair value)
   
13,555,294
     
10,981,562
 
Cemetery perpetual care trust investments (including $908,493 and $483,353 for 2019 and 2018 at estimated fair value)
   
4,188,476
     
4,335,869
 
Receivable from reinsurers
   
10,819,898
     
10,820,102
 
Cemetery land and improvements
   
9,777,156
     
9,878,427
 
Deferred policy and pre-need contract acquisition costs
   
93,596,603
     
89,362,096
 
Mortgage servicing rights, net
   
16,951,124
     
20,016,822
 
Property and equipment, net
   
9,363,971
     
7,010,778
 
Value of business acquired
   
5,227,790
     
5,765,190
 
Goodwill
   
3,519,588
     
2,765,570
 
Other
   
18,228,380
     
6,684,143
 
                 
Total Assets
 
$
1,162,649,384
   
$
1,050,811,123
 

See accompanying notes to condensed consolidated financial statements (unaudited).
3

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

   
September 30
2019
(Unaudited)
   
December 31
2018
 
Liabilities and Stockholders' Equity
           
Liabilities
           
Future policy benefits and unpaid claims
 
$
631,759,294
   
$
620,399,714
 
Unearned premium reserve
   
3,707,062
     
3,920,473
 
Bank and other loans payable
   
261,034,322
     
187,521,188
 
Deferred pre-need cemetery and mortuary contract revenues
   
12,901,226
     
12,508,625
 
Cemetery perpetual care obligation
   
3,907,519
     
3,821,979
 
Accounts payable
   
4,670,615
     
2,883,349
 
Other liabilities and accrued expenses
   
48,035,927
     
31,821,624
 
Income taxes
   
15,561,029
     
16,122,998
 
Total liabilities
   
981,576,994
     
878,999,950
 
                 
Stockholders' Equity
               
Preferred Stock - non-voting - $1.00 par value; 5,000,000 shares authorized; none issued or outstanding
   
-
     
-
 
Class A: common stock - $2.00 par value; 20,000,000 shares authorized; issued 15,327,298 shares in 2019 and 15,304,798 shares in 2018
   
30,654,596
     
30,609,596
 
Class B: non-voting common stock - $1.00 par value; 5,000,000 shares authorized; none issued or outstanding
   
-
     
-
 
Class C: convertible common stock - $2.00 par value; 3,000,000 shares authorized; issued 2,254,168 shares in 2019 and 2,193,643 shares in 2018
   
4,508,336
     
4,387,286
 
Additional paid-in capital
   
42,626,015
     
41,821,778
 
Accumulated other comprehensive income, net of taxes
   
(1,542
)
   
(2,823
)
Retained earnings
   
104,228,749
     
95,201,732
 
Treasury stock at cost - 358,325 Class A shares in 2019 and 302,541 Class A shares in 2018
   
(943,764
)
   
(206,396
)
                 
Total stockholders' equity
   
181,072,390
     
171,811,173
 
                 
Total Liabilities and Stockholders' Equity
 
$
1,162,649,384
   
$
1,050,811,123
 

See accompanying notes to condensed consolidated financial statements (unaudited).
4

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

   
Three Months Ended
September 30
   
Nine Months Ended
September 30
 
   
2019
   
2018
   
2019
   
2018
 
Revenues:
                       
Insurance premiums and other considerations
 
$
19,832,492
   
$
18,639,401
   
$
58,504,712
   
$
56,640,590
 
Net investment income
   
10,478,566
     
9,641,496
     
31,061,069
     
29,457,892
 
Net mortuary and cemetery sales
   
3,526,416
     
3,646,290
     
11,205,774
     
10,430,128
 
Gains (losses) on investments and other assets
   
(519,673
)
   
1,022,427
     
261,095
     
25,371,595
 
Mortgage fee income
   
39,735,752
     
31,664,704
     
97,161,190
     
88,833,944
 
Other
   
2,326,106
     
2,608,775
     
7,124,836
     
7,430,179
 
Total revenues
   
75,379,659
     
67,223,093
     
205,318,676
     
218,164,328
 
                                 
Benefits and expenses:
                               
Death benefits
   
9,937,711
     
8,616,285
     
29,264,410
     
27,579,540
 
Surrenders and other policy benefits
   
636,366
     
692,445
     
2,266,275
     
2,198,479
 
Increase in future policy benefits
   
5,980,721
     
6,686,536
     
17,407,962
     
18,420,499
 
Amortization of deferred policy and pre-need acquisition costs and value of business acquired
   
3,477,160
     
2,746,288
     
9,678,912
     
7,967,003
 
Selling, general and administrative expenses:
                               
Commissions
   
16,714,061
     
13,619,192
     
40,243,042
     
39,361,315
 
Personnel
   
16,287,957
     
17,075,236
     
47,018,553
     
50,547,638
 
Advertising
   
1,361,745
     
1,423,933
     
3,566,823
     
3,647,610
 
Rent and rent related
   
1,749,402
     
1,913,813
     
5,377,869
     
5,806,296
 
Depreciation on property and equipment
   
421,970
     
457,430
     
1,294,576
     
1,426,087
 
Costs related to funding mortgage loans
   
1,917,390
     
1,732,617
     
4,831,604
     
5,147,557
 
Other
   
9,355,218
     
7,616,264
     
25,154,712
     
21,562,432
 
Interest expense
   
2,078,733
     
1,855,548
     
5,353,177
     
5,297,066
 
Cost of goods and services sold-mortuaries and cemeteries
   
701,403
     
575,708
     
2,044,937
     
1,641,596
 
Total benefits and expenses
   
70,619,837
     
65,011,295
     
193,502,852
     
190,603,118
 
                                 
Earnings before income taxes
   
4,759,822
     
2,211,798
     
11,815,824
     
27,561,210
 
Income tax expense
   
(1,142,408
)
   
(198,052
)
   
(2,788,038
)
   
(5,383,324
)
                                 
Net earnings
 
$
3,617,414
   
$
2,013,746
   
$
9,027,786
   
$
22,177,886
 
                                 
Net earnings per Class A Equivalent common share (1)
 
$
0.21
   
$
0.12
   
$
0.52
   
$
1.30
 
                                 
Net earnings per Class A Equivalent common share-assuming dilution (1)
 
$
0.21
   
$
0.12
   
$
0.52
   
$
1.28
 
                                 
Weighted-average Class A equivalent common share outstanding (1)
   
17,230,987
     
17,152,656
     
17,240,745
     
17,072,531
 
                                 
Weighted-average Class A equivalent common shares outstanding-assuming dilution (1)
   
17,420,731
     
17,387,326
     
17,434,755
     
17,295,302
 

(1) Net earnings per share amounts have been adjusted retroactively for the effect of annual stock dividends.

See accompanying notes to condensed consolidated financial statements (unaudited).
5

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

   
Three Months Ended
September 30
   
Nine Months Ended
September 30
 
   
2019
   
2018
   
2019
   
2018
 
Net earnings
 
$
3,617,414
   
$
2,013,746
   
$
9,027,786
   
$
22,177,886
 
Other comprehensive income:
                               
Foreign currency translation adjustments
   
(340
)
   
1,013
     
1,707
     
(916
)
Other comprehensive income, before income tax
   
(340
)
   
1,013
     
1,707
     
(916
)
Income tax benefit
   
85
     
(252
)
   
(426
)
   
229
 
Other comprehensive income, net of income tax
   
(255
)
   
761
     
1,281
     
(687
)
Comprehensive income
 
$
3,617,159
   
$
2,014,507
   
$
9,029,067
   
$
22,177,199
 

See accompanying notes to condensed consolidated financial statements (unaudited).
6

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)

   
Nine Months Ended September 30, 2019
 
   
Class A
Common Stock
   
Class C
Common Stock
   
Additional
Paid-in
Capital
   
Accumulated
Other
Comprehensive
Income
   
Retained
Earnings
   
Treasury
Stock
   
Total
 
                                           
January 1, 2019
 
$
30,609,596
   
$
4,387,286
   
$
41,821,778
   
$
(2,823
)
 
$
95,201,732
   
$
(206,396
)
 
$
171,811,173
 
                                                         
Net earnings
   
-
     
-
     
-
     
-
     
1,930,318
     
-
     
1,930,318
 
Other comprehensive gain
   
-
     
-
     
-
     
820
     
-
     
-
     
820
 
Stock-based compensation expense
   
-
     
-
     
64,704
     
-
     
-
     
-
     
64,704
 
Exercise of stock options
   
8,936
     
-
     
8,444
     
-
     
-
     
-
     
17,380
 
Sale of treasury stock
   
-
     
-
     
295,153
     
-
     
-
     
42,343
     
337,496
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
-
     
(112,404
)
   
(112,404
)
Stock dividends
   
282
     
(4
)
   
489
     
-
     
(769
)
   
-
     
(2
)
Conversion Class C to Class A
   
6,560
     
(6,560
)
   
-
     
-
     
-
     
-
     
-
 
March 31, 2019
 
$
30,625,374
   
$
4,380,722
   
$
42,190,568
   
$
(2,003
)
 
$
97,131,281
   
$
(276,457
)
 
$
174,049,485
 
                                                         
Net earnings
   
-
     
-
     
-
     
-
     
3,480,054
     
-
     
3,480,054
 
Other comprehensive loss
   
-
     
-
     
-
     
716
             
-
     
716
 
Stock-based compensation expense
   
-
     
-
     
65,037
     
-
     
-
     
-
     
65,037
 
Exercise of stock options
   
20,274
     
-
     
9,519
     
-
     
-
     
-
     
29,793
 
Sale of treasury stock
   
-
     
-
     
92,605
     
-
     
-
     
25,190
     
117,795
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
-
     
(174,704
)
   
(174,704
)
Conversion Class C to Class A
   
12
     
(14
)
   
2
     
-
     
-
     
-
     
-
 
June 30, 2019
 
$
30,645,660
   
$
4,380,708
   
$
42,357,731
   
$
(1,287
)
 
$
100,611,335
   
$
(425,971
)
 
$
177,568,176
 
                                                         
Net earnings
   
-
     
-
     
-
     
-
     
3,617,414
     
-
     
3,617,414
 
Other comprehensive income
   
-
     
-
     
-
     
(255
)
   
-
     
-
     
(255
)
Stock-based compensation expense
   
-
     
-
     
65,746
     
-
     
-
     
-
     
65,746
 
Exercise of stock options
   
8,936
     
127,628
     
114,376
     
-
     
-
     
-
     
250,940
 
Sale of treasury stock
   
-
     
-
     
88,162
     
-
     
-
     
35,400
     
123,562
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
-
     
(553,193
)
   
(553,193
)
Conversion Class C to Class A
   
-
     
-
     
-
     
-
     
-
     
-
     
-
 
September 30, 2019
 
$
30,654,596
   
$
4,508,336
   
$
42,626,015
   
$
(1,542
)
 
$
104,228,749
   
$
(943,764
)
 
$
181,072,390
 


7

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(Unaudited)

   
Nine Months Ended September 30, 2018
 
   
Class A
Common Stock
   
Class C
Common Stock
   
Additional
Paid-in
Capital
   
Accumulated
Other
Comprehensive
Income
   
Retained
Earnings
   
Treasury
Stock
   
Total
 
                                           
January 1, 2018
 
$
29,071,154
   
$
4,178,748
   
$
38,125,042
   
$
603,170
   
$
77,520,951
   
$
(931,075
)
 
$
148,567,990
 
                                                         
Net earnings
   
-
     
-
     
-
     
-
     
16,925,923
     
-
     
16,925,923
 
Cumulative effect adjustment upon adoption of new accounting standard (ASU 2016-01)
   
-
     
-
     
-
     
(603,170
)
   
603,170
     
-
     
-
 
Stock-based compensation expense
   
-
     
-
     
58,087
     
-
     
-
     
-
     
58,087
 
Sale of treasury stock
   
-
     
-
     
88,964
     
-
     
-
     
222,410
     
311,374
 
Exercise of stock options
   
63,968
     
-
     
(22,115
)
   
-
     
-
     
-
     
41,853
 
Stock dividends
   
3,520
     
(4
)
   
5,362
     
-
     
(8,878
)
   
-
     
-
 
March 31, 2018
 
$
29,138,642
   
$
4,178,744
   
$
38,255,340
   
$
-
   
$
95,041,166
   
$
(708,665
)
 
$
165,905,227
 
                                                         
Net earnings
   
-
     
-
     
-
     
-
     
3,238,217
     
-
     
3,238,217
 
Other comprehensive loss
   
-
     
-
     
-
     
(1,448
)
   
-
     
-
     
(1,448
)
Stock-based compensation expense
   
-
     
-
     
58,053
     
-
     
-
     
-
     
58,053
 
Sale of treasury stock
   
-
     
-
     
163,335
     
-
     
-
     
222,420
     
385,755
 
Conversion Class C to Class A
   
376
     
(376
)
   
-
     
-
     
-
     
-
     
-
 
June 30, 2018
 
$
29,139,018
   
$
4,178,368
   
$
38,476,728
   
$
(1,448
)
 
$
98,279,383
   
$
(486,245
)
 
$
169,585,804
 
Net earnings
   
-
     
-
     
-
     
-
     
2,013,746
     
-
     
2,013,746
 
Other comprehensive income
   
-
     
-
     
-
     
761
     
-
     
-
     
761
 
Stock-based compensation expense
   
-
     
-
     
58,691
     
-
     
-
     
-
     
58,691
 
Exercise of stock options
   
8,298
     
-
     
7,261
     
-
     
-
     
-
     
15,559
 
Sale of treasury stock
   
-
     
-
     
168,500
     
-
     
-
     
242,954
     
411,454
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
-
     
(54,507
)
   
(54,507
)
September 30, 2018
 
$
29,147,316
   
$
4,178,368
   
$
38,711,180
   
$
(687
)
 
$
100,293,129
   
$
(297,798
)
 
$
172,031,508
 

See accompanying notes to condensed consolidated financial statements (unaudited).
8

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

   
Nine Months Ended
September 30
 
   
2019
   
2018
 
Cash flows from operating activities:
           
     Net cash used in operating activities
 
$
(62,865,938
)
 
$
(10,250,549
)
                 
Cash flows from investing activities:
               
Purchases of fixed maturity securities
   
(27,227,180
)
   
(29,074,605
)
Calls and maturities of fixed maturity securities
   
19,444,922
     
26,356,188
 
Purchases of equity securities
   
(3,521,610
)
   
(2,356,207
)
Sales of equity securities
   
1,691,231
     
2,478,051
 
Net changes in restricted assets
   
(514,574
)
   
121,418
 
Net changes in perpetual care trusts
   
(111,076
)
   
1,664,215
 
Mortgage loans, other investments and policy loans made
   
(421,682,247
)
   
(376,549,887
)
Payments received for mortgage loans, other investments and policy loans
   
410,303,611
     
403,724,354
 
Purchase of property and equipment
   
(931,691
)
   
(1,020,257
)
Sale of property and equipment
   
51,104
     
2,014,704
 
Purchase of real estate
   
(6,465,802
)
   
(22,399,516
)
Sale of real estate
   
8,291,147
     
65,457,047
 
Cash paid for purchase of subsidiaries, net of cash acquired
   
(3,261,788
)
   
(3,405,783
)
      Net cash provided by (used in) investing activities
   
(23,933,953
)
   
67,009,722
 
                 
Cash flows from financing activities:
               
Investment contract receipts
   
9,628,472
     
8,833,639
 
Investment contract withdrawals
   
(13,282,143
)
   
(11,667,269
)
Proceeds from stock options exercised
   
298,113
     
57,412
 
Purchase of treasury stock
   
(840,301
)
   
(54,507
)
Repayment of bank and other loans
   
(139,046,605
)
   
(92,873,253
)
Proceeds from borrowing on bank loans
   
149,304,399
     
116,455,289
 
Net change in warehouse line borrowings
   
62,987,462
     
14,131,782
 
Net change in line of credit borrowings
   
-
     
1,250,000
 
      Net cash provided by financing activities
   
69,049,397
     
36,133,093
 
                 
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents
   
(17,750,494
)
   
92,892,266
 
                 
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
   
150,936,673
     
54,501,923
 
                 
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
 
$
133,186,179
   
$
147,394,189
 
                 
Supplemental Disclosure of Cash Flow Information:
               
Cash paid during the year for:
               
Interest
 
$
5,292,868
   
$
5,206,262
 
Income taxes (net of refunds)
   
3,350,434
     
162,327
 
                 
Non Cash Operating, Investing and Financing Activities:
               
Right-of-use assets obtained in exchange for operating lease liabilities
 
$
13,441,537
   
$
-
 
Right-of-use assets obtained in exchange for finance lease liabilities
   
255,147
     
-
 
Accrued real estate construction costs and retainage
   
689,291
     
17,433
 
Mortgage loans held for investment foreclosed into real estate held for investment
   
1,410,499
     
670,601
 
Benefit plans funded with treasury stock
   
578,853
     
1,108,583
 
Mortgage loans held for investment foreclosed into receivables
   
155,347
     
-
 
Transfer of loans held for sale to mortgage loans held for investment
   
-
     
139,464
 
                 
See Note 15 regarding non cash transactions included in the acquisitions of Probst Family Funeral and Cremations and Heber Valley Funeral Home and Beta Capital Corp.
 


9

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

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

   
Nine Months Ended
September 30
 
   
2019
   
2018
 
Cash and cash equivalents
 
$
123,178,762
   
$
137,106,471
 
Restricted assets
   
9,166,838
     
8,717,416
 
Cemetery perpetual care trust investments
   
840,579
     
1,570,302
 
                 
Total cash, cash equivalents, restricted cash and restricted cash equivalents
 
$
133,186,179
   
$
147,394,189
 

See accompanying notes to condensed consolidated financial statements (unaudited).
10

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2019 (Unaudited)

1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10‑Q and Articles 8 and 10 of Regulation S‑X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements of the Company and notes thereto for the year ended December 31, 2018, 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 nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

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.

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

2) Recent Accounting Pronouncements

Accounting Standards Adopted in 2019

ASU No. 2016-02: “Leases (Topic 842)” - Issued in February 2016, ASU 2016-02 supersedes the requirements in Accounting Standards Codification (“ASC”) Topic 840, “Leases”, and was issued to increase transparency and comparability among organizations. The new standard sets forth the principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record on the balance sheet right-of-use assets and lease liabilities, equal to the present value of the remaining lease payments. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or a straight-line basis over the term of the leases. The FASB further clarified ASU 2016-02 and provided targeted improvements by issuing ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20.

The Company adopted this standard on January 1, 2019 using the modified retrospective transition method with no cumulative-effect adjustment to the opening balance of retained earnings. Under this transition method, the application date was the beginning of the reporting period, January 1, 2019, in which the Company first applied the standard. Under this transition option, the Company will apply the legacy guidance in ASC 840, “Leases”, including its disclosure requirements, in the comparative periods presented in the year of adoption. The Company has made an accounting policy election not to apply the recognition requirements to short-term leases, which are leases that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying assets that the lessee is reasonably certain to exercise. The new authoritative guidance allows for certain practical expedients to be utilized to assist with the implementation of the new standard. The Company has elected the transition package of practical expedients which allows the Company to not reassess whether any expired or existing contracts are or contain leases, to not reassess the lease classification for any expired or existing leases and to not reassess initial direct costs for any existing leases.
11

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2019 (Unaudited)

2) Recent Accounting Pronouncements (Continued)

The Company implemented a third-party lease accounting system to assist with the measurement of the lease liabilities and the related right-of-use assets. The Company compiled an inventory of its leases, determined the appropriate discount rates and has determined the impact of this standard which is not material to the Company’s results of operations, but has an effect on the balance sheet presentation for leased assets and obligations. The Company recognized a right-of-use asset and related lease liability for approximately $12,076,000 on January 1, 2019. This standard did not impact the Company’s accounting for leases where the Company is the lessor.

Accounting Standards Issued But Not Yet Adopted

ASU No. 2016-13: “Financial Instruments – Credit Losses (Topic 326)” – Issued in September 2016, ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis (such as mortgage loans and held to maturity debt securities) and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current general accepted accounting principles (“GAAP”) and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP; however, Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. In October 2019, the FASB proposed an update to ASU No. 2016-13 that would make the ASU effective for the Company on January 1, 2023. The Company is in the process of evaluating the potential impact of this standard, especially as it relates to held to maturity debt securities and mortgage loans held for investment.

ASU No. 2018-13: “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement” – Issued in August 2018, ASU 2018-13 modifies the disclosure requirements of Topic 820 by removing, modifying or adding certain disclosures. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 does not change the fair value measurements already required or permitted by existing standards. This new authoritative guidance will be effective for the Company on January 1, 2020. The adoption of this standard will not materially impact the Company’s financial statements.

ASU No. 2018-12: “Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts” – Issued in August 2018, ASU 2018-12 is intended to improve the timeliness of recognizing changes in the liability for future policy benefits on traditional long-duration contracts by requiring that assumptions be updated after contract inception and by modifying the rate used to discount future cash flows. The ASU will simplify and improve the accounting for certain market-based options or guarantees associated with deposit or account balance contracts, simplify amortization of deferred acquisition costs while improving and expanding required disclosures. In October 2019, the FASB proposed an update to ASU No. 2018-12 that would make the ASU effective for the Company on January 1, 2024. The Company is in the process of evaluating the potential impact of this standard.

The Company has reviewed other recent accounting pronouncements and has determined that they will not significantly impact the Company’s results of operations or financial position.
12

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2019 (Unaudited)


3) Investments

The Company’s investments as of September 30, 2019 are summarized as follows:

   

Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
 
September 30, 2019
                       
Fixed maturity securities held to maturity carried at amortized cost:
                       
Bonds:
                       
U.S. Treasury securities and obligations of U.S. Government agencies
 
$
62,267,359
   
$
703,132
   
$
(35,072
)
 
$
62,935,419
 
Obligations of states and political subdivisions
   
5,877,586
     
144,335
     
-
     
6,021,921
 
Corporate securities including public utilities
   
154,480,928
     
16,868,422
     
(696,122
)
   
170,653,228
 
Mortgage-backed securities
   
17,020,727
     
732,042
     
(42,738
)
   
17,710,031
 
Redeemable preferred stock
   
103,197
     
14,039
     
-
     
117,236
 
Total fixed maturity securities held to maturity
 
$
239,749,797
   
$
18,461,970
   
$
(773,932
)
 
$
257,437,835
 
                                 
Equity securities at estimated fair value:
                               
                                 
Common stock:
                               
                                 
Industrial, miscellaneous and all other
 
$
8,126,632
   
$
962,133
   
$
(978,987
)
 
$
8,109,778
 
                                 
Total equity securities at estimated fair value
 
$
8,126,632
   
$
962,133
   
$
(978,987
)
 
$
8,109,778
 
                                 
Mortgage loans held for investment at amortized cost:
                               
Residential
 
$
79,853,121
                         
Residential construction
   
92,602,632
                         
Commercial
   
26,720,812
                         
Less: Unamortized deferred loan fees, net
   
(1,366,186
)
                       
Less: Allowance for loan losses
   
(1,301,476
)
                       
Total mortgage loans held for investment
 
$
196,508,903
                         
                                 
Real estate held for investment net of accumulated depreciation:
                               
Residential
 
$
23,420,598
                         
Commercial
   
93,634,800
                         
Total real estate held for investment
 
$
117,055,398
                         
                                 
Other investments and policy loans at amortized cost:
                               
Policy loans
 
$
6,344,074
                         
Insurance assignments
   
34,404,766
                         
Federal Home Loan Bank stock (1)
   
3,006,500
                         
Other investments
   
4,188,048
                         
Less: Allowance for doubtful accounts
   
(1,495,268
)
                       
                                 
Total other investments and policy loans
 
$
46,448,120
                         
                                 
Accrued investment income
 
$
4,046,143
                         
                                 
Total investments
 
$
611,918,139
                         
                                 
(1) Includes $806,500 of Membership stock and $2,200,000 of Activity stock due to short-term borrowings.
         

13

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2019 (Unaudited)

3) Investments (Continued)

The Company’s investments as of December 31, 2018 are summarized as follows:

   
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair Value
 
December 31, 2018:
                       
                         
Fixed maturity securities held to maturity carried at amortized cost:
                       
Bonds:
                       
U.S. Treasury securities and obligations of U.S. Government agencies
 
$
52,017,683
   
$
264,891
   
$
(727,798
)
 
$
51,554,776
 
Obligations of states and political subdivisions
   
6,959,237
     
32,274
     
(111,271
)
   
6,880,240
 
Corporate securities including public utilities
   
157,639,860
     
7,002,864
     
(3,704,137
)
   
160,938,587
 
Mortgage-backed securities
   
15,358,746
     
227,398
     
(308,864
)
   
15,277,280
 
Redeemable preferred stock
   
103,197
     
1,903
     
(5,125
)
   
99,975
 
Total fixed maturity securities held to maturity
 
$
232,078,723
   
$
7,529,330
   
$
(4,857,195
)
 
$
234,750,858
 
                                 
Equity securities at estimated fair value:
                               
                                 
Common stock:
                               
                                 
Industrial, miscellaneous and all other
 
$
6,312,158
   
$
422,528
   
$
(1,176,075
)
 
$
5,558,611
 
                                 
Total equity securities at estimated fair value
 
$
6,312,158
   
$
422,528
   
$
(1,176,075
)
 
$
5,558,611
 
                                 
Mortgage loans held for investment at amortized cost:
                               
Residential
 
$
89,935,600
                         
Residential construction
   
71,366,544
                         
Commercial
   
27,785,927
                         
Less: Unamortized deferred loan fees, net
   
(1,275,030
)
                       
Less: Allowance for loan losses
   
(1,347,972
)
                       
                                 
Total mortgage loans held for investment
 
$
186,465,069
                         
                                 
Real estate held for investment  net of accumulated depreciation:
                               
Residential
 
$
29,507,431
                         
Commercial
   
92,050,791
                         
Total real estate held for investment
 
$
121,558,222
                         
                                 
Other investments and policy loans at amortized cost:
                               
Policy loans
 
$
6,424,325
                         
Insurance assignments
   
35,239,396
                         
Federal Home Loan Bank stock (1)
   
2,548,700
                         
Other investments
   
3,497,762
                         
Less: Allowance for doubtful accounts
   
(1,092,528
)
                       
                                 
Total other investments and policy loans
 
$
46,617,655
                         
                                 
Accrued investment income
 
$
3,566,146
                         
                                 
Total investments
 
$
595,844,426
                         
                                 
(1) Includes $708,700 of Membership stock and $1,840,000 of Activity stock due to short-term borrowings.
                 

14

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2019 (Unaudited)

3) Investments (Continued)

Fixed Maturity Securities

The following tables summarize unrealized losses on fixed maturity securities held to maturity, which are carried at amortized cost, at September 30, 2019 and December 31, 2018. The unrealized losses were primarily related to interest rate fluctuations. The tables set 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
   
Fair Value
 
At September 30, 2019
                                   
U.S. Treasury securities and obligations of U.S. Government Agencies
 
$
2,966
   
$
658,550
   
$
32,106
   
$
19,885,300
   
$
35,072
   
$
20,543,850
 
Corporate securities
   
191,271
     
5,965,416
     
504,851
     
4,416,332
     
696,122
     
10,381,748
 
Mortgage and other asset-backed securities
   
10,067
     
379,177
     
32,671
     
706,509
     
42,738
     
1,085,686
 
Total unrealized losses
 
$
204,304
   
$
7,003,143
   
$
569,628
   
$
25,008,141
   
$
773,932
   
$
32,011,284
 
                                                 
At December 31, 2018
                                               
U.S. Treasury securities and obligations of U.S. Government Agencies
 
$
10,519
   
$
695,863
   
$
717,279
   
$
39,930,052
   
$
727,798
   
$
40,625,915
 
Obligations of states and political subdivisions
   
6,643
     
1,791,257
     
104,628
     
2,889,517
     
111,271
     
4,680,774
 
Corporate securities
   
2,514,549
     
61,090,431
     
1,189,588
     
11,767,349
     
3,704,137
     
72,857,780
 
Mortgage and other asset-backed securities
   
79,896
     
1,705,296
     
228,968
     
2,690,065
     
308,864
     
4,395,361
 
Redeemable preferred stock
   
5,125
     
90,000
     
-
     
-
     
5,125
     
90,000
 
Total unrealized losses
 
$
2,616,732
   
$
65,372,847
   
$
2,240,463
   
$
57,276,983
   
$
4,857,195
   
$
122,649,830
 

There were 47 securities with fair value of 97.6% of amortized cost at September 30, 2019. There were 361 securities with fair value of 96.2% of amortized cost at December 31, 2018. No credit losses have been recognized for the three and nine months ended September 30, 2019 and 2018.

On a quarterly basis, the Company evaluates its fixed maturity securities held to maturity. This evaluation includes a review of current ratings by the National Association of Insurance Commissions (“NAIC”). Securities with a rating of 1 or 2 are considered investment grade and are not reviewed for impairment. Securities with ratings of 3 to 5 are evaluated for impairment. Securities with a rating of 6 are automatically determined to be impaired and are written down. The evaluation involves an analysis of the securities in relation 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. If it is unlikely that the security will meet contractual obligations, the loss is considered to be other than temporary, the security is written down to the new anticipated market value and an impairment loss is recognized. Impairment losses are treated as credit losses as the Company holds fixed maturity securities to maturity unless the underlying conditions have changed in the financial instrument to require an impairment. 

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.

15

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2019 (Unaudited)

3) Investments (Continued)

The amortized cost and estimated fair value of fixed maturity securities held to maturity, at September 30, 2019, 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
Cost
   
Estimated Fair
Value
 
Held to Maturity:
           
Due in 1 year
 
$
3,135,187
   
$
3,152,560
 
Due in 2-5 years
   
85,443,407
     
87,087,887
 
Due in 5-10 years
   
66,438,645
     
71,147,090
 
Due in more than 10 years
   
67,608,634
     
78,223,031
 
Mortgage-backed securities
   
17,020,727
     
17,710,031
 
Redeemable preferred stock
   
103,197
     
117,236
 
Total held to maturity
 
$
239,749,797
   
$
257,437,835
 

The Company is a member of the Federal Home Loan Bank of Des Moines (“FHLB”). The Company currently has deposited a total of $60,000,000, par value, of United States Treasury fixed maturity securities with FHLB. These securities generate interest income for the Company and are available to use as collateral on any cash borrowings from the FHLB. As of September 30, 2019, the Company owed $55,000,000 to the FHLB. This amount owed was paid in October 2019.

Equity Securities

The fair values for equity securities are based on quoted market prices. The Company recognizes the changes (unrealized gains and losses) in the fair value of these equity securities through earnings as part of gains on investments and other assets on the condensed consolidated statements of earnings instead of other comprehensive income on the condensed consolidated balance sheets.

Investment Related Earnings

The Company’s net realized gains and losses from sales, calls, and maturities, unrealized gains and losses on equity securities, and other than temporary impairments are summarized as follows:

   
Three Months Ended
September 30
   
Nine Months Ended
September 30
   
   
2019
   
2018
   
2019
   
2018
   
Fixed maturity securities held to maturity:
                         
Gross realized gains
 
$
113,849
   
$
109,554
   
$
362,475
   
$
397,190
   
Gross realized losses
   
(16,814
)
   
(31,670
)
   
(121,829
)
   
(601,303
)
 
                                   
Equity securities:
                                 
Gains (losses) on securities sold
   
85,998
     
11,214
     
138,662
     
(13,933
)
 
Unrealized gains and (losses) on securities held at the end of the period
   
(98,635
)
   
284,192
     
676,589
     
71,143
   
     
-
                           
Other assets:
                                 
Gross realized gains
   
472,691
     
814,471
     
2,265,914
     
26,060,598
 
(1)
Gross realized losses
   
(1,076,762
)
   
(165,334
)
   
(3,060,716
)
   
(542,100
)
 
Total
 
$
(519,673
)
 
$
1,022,427
   
$
261,095
   
$
25,371,595
   
                                   
(1) Includes a one-time gain of $22,252,000 from the sale of Dry Creek at East Village Apartments.
   

The net 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.

The carrying amount of held to maturity securities sold was $2,724,199 and $4,998,249 for the nine months ended September 30, 2019 and 2018, respectively.  The net realized loss related to these sales was $12,394 and $243,023 for the nine months ended September 30, 2019 and 2018, respectively. Although the Company has the positive intent and ability to buy and hold a fixed maturity security to maturity, the Company will sell a security prior to maturity if conditions and circumstances have changed within the entity that issued the security to increase the risk of default to an unacceptable level.
16

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2019 (Unaudited)

3) Investments (Continued)

Major categories of net investment income are as follows:
 
   
Three Months Ended
September 30
   
Nine Months Ended
September 30
 
   
2019
   
2018
   
2019
   
2018
 
Fixed maturity securities held to maturity
 
$
2,563,481
   
$
2,481,202
   
$
7,596,035
   
$
7,521,884
 
Equity securities
   
74,629
     
64,214
     
227,280
     
176,126
 
Mortgage loans held for investment
   
4,558,232
     
4,240,624
     
13,187,416
     
14,016,985
 
Real estate held for investment
   
2,259,064
     
2,124,138
     
6,266,286
     
6,423,996
 
Policy loans
   
113,541
     
85,044
     
308,583
     
296,540
 
Insurance assignments
   
3,851,804
     
3,583,964
     
11,970,755
     
10,956,651
 
Other investments
   
-
     
57,050
     
106,678
     
186,594
 
Cash and cash equivalents
   
398,997
     
375,310
     
1,363,873
     
752,339
 
Gross investment income
   
13,819,748
     
13,011,546
     
41,026,906
     
40,331,115
 
Investment expenses
   
(3,341,182
)
   
(3,370,050
)
   
(9,965,837
)
   
(10,873,223
)
Net investment income
 
$
10,478,566
   
$
9,641,496
   
$
31,061,069
   
$
29,457,892
 
 
Net investment income includes income earned by the restricted assets cemeteries and mortuaries of $102,888 and $81,486 for the three months ended September 30, 2019 and 2018, respectively, and $323,404 and $287,545 for the nine months ended September 30, 2019 and 2018, 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.

Securities on deposit with regulatory authorities as required by law amounted to $9,070,694 at September 30, 2019 and $9,220,520 at December 31, 2018. These restricted securities are included in various assets under investments on the accompanying condensed consolidated balance sheets.

There were no investments, aggregated by issuer, in excess of 10% of shareholders’ equity (before net unrealized gains and losses on equity securities) at September 30, 2019, other than investments issued or guaranteed by the United States Government.

Real Estate Held for Investment

 The Company continues to strategically deploy resources into real estate 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
 
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 reports. Geographic locations and asset classes of the investment activity is determined by senior management under the direction of the Board of Directors.
 
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 when the geographic boundary does not warrant full-time staff or through strategic lease-up periods. The Company generally looks to acquire assets in regions that are high growth regions for employment and population and in assets that provide operational efficiencies.
 
The Company currently owns and operates 12 commercial properties in 5 states. These properties include industrial warehouses, office buildings, retail centers, a restaurant, and includes the redevelopment and expansion of its corporate campus (“Center53”) in Salt Lake City, Utah. The Company also holds undeveloped land that may be used for future commercial developments. The Company uses bank debt in strategic cases to leverage established yields or to acquire a higher quality or different class of asset.
17

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2019 (Unaudited)

3) Investments (Continued)
 
The aggregated net ending balance of commercial real estate that serves as collateral for bank borrowings was approximately $87,696,000 and $84,880,000 as of September 30, 2019 and December 31, 2018, respectively. The associated bank loan carrying values totaled approximately $54,037,000 and $52,237,000 as of September 30, 2019 and December 31, 2018, respectively.
 
During the three months ended September 30, 2019 and 2018, the Company recorded impairment losses on commercial real estate held for investment of $790,827 and $-0-, respectively and during the nine months ended September 30, 2019 and 2018, the Company recorded impairment losses on commercial real estate held for investment of $2,658,024 and $-0-, respectively. The impairment loss of $1,867,197 recognized in the second quarter of 2019 relates to an office building held by the life insurance segment for which the Company received an unsolicited bid in May 2019 from a potential buyer that was significantly below the building’s carrying value. Although management did not consider the offer as representative of fair value, the Company evaluated the unsolicited bid as a potential impairment indicator and performed an additional impairment analysis internally, concluding based on management’s best estimates that the fair value of the building was less than its carrying value. During the third quarter of 2019, the Company obtained an independent appraisal from an outside commercial real estate valuation firm. This appraisal indicated an additional impairment of $790,827 which the Company recognized in the third quarter 2019. These impairment losses are included in gains (losses) on investment and other assets on the condensed consolidated statements of earnings.
 
The following is a summary of the Company’s commercial real estate held for investment for the periods presented:

   
Net Ending Balance
     
Total Square Footage
 
   
September 30
     
December 31
     
September 30
   
December 31
 
   
2019
     
2018
     
2019
   
2018
 
Arizona
 
$
4,000
 
(1
)
$
4,000
 
(1
)
 
-
     
-
 
Kansas
   
4,714,777
       
6,861,898
       
222,679
     
222,679
 
Louisiana
   
456,437
       
467,694
       
7,063
     
7,063
 
Mississippi
   
3,288,045
       
3,329,948
       
33,821
     
33,821
 
Nevada
   
655,499
       
-
       
4,800
     
-
 
New Mexico
   
7,000
 
(1
)
 
7,000
 
(1
)
 
-
     
-
 
Texas
   
300,000
 
(2
)
 
300,000
 
(2
)
 
-
     
-
 
Utah
   
84,209,042
       
81,080,251
       
502,129
     
502,129
 
                                     
   
$
93,634,800
     
$
92,050,791
       
770,492
     
765,692
 
                                     
(1) Undeveloped land
                             
(2) Improved commercial pad
                             

Residential Real Estate Held for Investment
 
The Company owns a portfolio of residential homes primarily as a result of loan foreclosures.  The strategy has been to lease these homes to produce cash flow and allow time for the economic fundamentals to return to the various markets. As an orderly and active market for these homes returns, the Company has the option to dispose or to continue and hold them for cash flow and acceptable returns.
 
The Company established Security National Real Estate Servic