Security National Financial Corp. has a market cap of $31.4 million; its shares were traded at around $1.75 with and P/S ratio of 0.14. Security National Financial Corp. had an annual average earning growth of 19.2% over the past 10 years.
Highlight of Business Operations:Over fifty percent of revenues and expenses of the Company are through its wholly owned subsidiary SecurityNational Mortgage. SecurityNational Mortgage is a mortgage lender incorporated under the laws of the State of Utah. SecurityNational Mortgage is approved and regulated by the Federal Housing Administration (FHA), a department of the U.S. Department of Housing and Urban Development (HUD), to originate mortgage loans that qualify for government insurance in the event of default by the borrower. SecurityNational Mortgage obtains loans primarily from its retail offices and independent brokers. SecurityNational Mortgage funds the loans from internal cash flows and loan purchase agreements with unaffiliated financial institutions. SecurityNational Mortgage receives fees from the borrowers and other secondary fees from third party investors that purchase its loans. SecurityNational Mortgage sells its loans to third party investors and does not retain servicing of these loans. SecurityNational Mortgage pays the brokers and retail loan officers a commission for loans that are brokered through SecurityNational Mortgage. For the nine months ended September 30, 2010 and 2009, SecurityNational Mortgage originated and sold 8,230 loans ($1,525,535,267 total volume), and 13,629 loans ($2,497,423,000 total volume), respectively. For the three months ended September 30, 2010 and 2009, SecurityNational Mortgage originated and sold 2,771 loans ($558,294,356 total volume), and 3,848 loans ($672,799,749 total volume), respectively.
As of September 30, 2010, the Company s long term mortgage loan portfolio contained mortgage loans of $15,215,069 in unpaid principal with delinquencies more than 90 days. Of this amount, $10,617,000 in mortgage loans were in foreclosure proceedings. The Company has not received nor recognized any interest income on the $15,215,069 in mortgage loans with delinquencies more than 90 days. During the three and nine months ended September 30, 2010, the Company has increased its allowance for mortgage losses by $298,000 and $469,000, respectively. This allowance was charged to loan loss expense and included in other selling, general and administrative expenses for the period. The allowance for mortgage loan losses as of September 30, 2010 and December 31, 2009 was $7,093,550 and $6,809,000, respectively.
The amount accrued for the three and nine months ended September 30, 2010 was $1,520,934 and $4,421,255, respectively. The amount accrued for the three and nine months ended September 30, 2009 was $3,501,940 and $14,617,599, respectively. The estimated liability for indemnification losses is included in other liabilities and accrued expenses and, as of September 30, 2010 and September 30, 2009, the balance was $10,678,015 and $8,972,737, respectively.
During 2007 and 2008, SecurityNational Mortgage made $1,730,000 in total payments to Aurora Loan Services pursuant to the Indemnification Agreement. During the year ended 2009 and the nine months ended September 30, 2010, SecurityNational Mortgage made payments to Aurora Loan Services of $1,174,082 and $750,000, respectively. When SecurityNational Mortgage entered into the Indemnification Agreement, it anticipated using basis point holdbacks from loan production credits toward satisfying the $125,000 monthly obligations. Because Aurora Loan Services discontinued purchasing mortgage loans from SecurityNational Mortgage shortly after the Indemnification Agreement was executed, SecurityNational Mortgage has not had the benefit of using the basis point holdbacks toward payment of the $125,000 monthly obligations.
During 2008 and 2009, funds were paid out of the reserve account to indemnify $2,732,000 in losses from 34 mortgage loans that were among the 54 mortgage loans with alleged breaches which were listed on the attachment to the Indemnification Agreement. For the three months ended September 30, 2010, an additional $375,000 was paid out of the reserve account on four additional mortgage loans. The estimated potential losses from the remaining 18 mortgage loans listed on the attachment, which would require indemnification by SecurityNational Mortgage for such losses, is $2,260,000. During 2008 and 2009, and the nine months ended September 30, 2010, the Company recognized losses related to this matter of $1,636,000, $1,032,000, and $1,162,223, respectively; however, management cannot fully determine the total losses, if any, nor the rights that the Company may have as a result of Lehman Brothers and Aurora Loan Services refusal to purchase subsequent loans under the Indemnification Agreement. The Company has estimated and accrued $1,020,887 for losses under the Indemnification Agreement as of September 30, 2010.
Included in other revenue is rental income from residential and commercial properties purchased from Security National Life. Memorial Estates purchased these properties from financing provided by Security National Life. The rental income is offset by property insurance, taxes, maintenance expenses and interest payments made to Security National Life. Memorial Estates has recorded depreciation on these properties of $208,000 and $616,000 for the three and nine months ended September 30, 2010, respectively, and $139,000 and $292,000 for the three and nine months ended September 30, 2009, respectively, Due to the economy, leasing activity for these properties is down and Memorial Estates has incurred operating losses of $231,000 and $169,000 for the three months ended September 30, 2010 and 2009, respectively, and $668,000 and $246,000 for the nine months ended September 30, 2010 and 2009, respectively.
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