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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ 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.)
433 West Ascension Way, 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 each 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 ☒ 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 ☒ 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 ☒
		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 ☒

As of November 1, 2021, the registrant had 17,596,665 shares of Class A Common Stock, $2.00 par value, outstanding and 2,761,909 shares of Class C Common Stock, $2.00 par value, outstanding.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2021

Table of Contents

		Page No.
	Part I - Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020	3 - 4
	Condensed Consolidated Statements of Earnings for the three and nine months ended September 30, 2021 and 2020 (unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 (unaudited)	6
	Condensed Consolidated Statements of Stockholders’ Equity as of September 30, 2021 and September 30, 2020 (unaudited)	7-8
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (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	51
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	56
Item 4.	Controls and Procedures	56
	Part II - Other Information
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	57
Item 4.	Mine Safety Disclosures	57
Item 5.	Other Information	57
Item 6.	Exhibits	58
	Signature Page	59

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Part I - Financial Information

Item 1. Financial Statements


	September 30
	2021 (Unaudited)		December 31 2020
Assets
Investments:
Fixed maturity securities, available for sale, at estimated fair value (amortized cost of $238,809,528 and $265,150,484 for 2021 and 2020)	$	264,844,942	$	294,656,679
Equity securities at estimated fair value (cost of $8,198,282 and $9,698,490 for 2021 and 2020)		10,729,744		11,324,239
Mortgage loans held for investment (net of allowances for loan losses of $1,753,853 and $2,005,127 for 2021 and 2020)		307,390,481		249,343,936
Real estate held for investment (net of accumulated depreciation of $18,908,623 and $13,800,973 for 2021 and 2020)		189,610,360		131,684,453
Real estate held for sale		6,081,155		7,878,807
Other investments and policy loans (net of allowances for doubtful accounts of $1,795,037 and $1,645,475 for 2021 and 2020)		73,615,628		73,696,661
Accrued investment income		5,386,756		5,360,523
Total investments		857,659,066		773,945,298
Cash and cash equivalents		111,498,676		106,219,429
Loans held for sale at estimated fair value		312,655,843		422,772,418
Receivables (net of allowances for doubtful accounts of $1,664,747 and $1,685,382 for 2021 and 2020)		17,158,481		10,899,207
Restricted assets (including $4,596,169 and $3,989,415 for 2021 and 2020 at estimated fair value)		17,448,402		16,150,036
Cemetery perpetual care trust investments (including $3,173,658 and $2,810,070 for 2021 and 2020 at estimated fair value)		6,762,211		6,413,167
Receivable from reinsurers		15,938,343		15,569,156
Cemetery land and improvements		8,432,437		8,761,436
Deferred policy and pre-need contract acquisition costs		104,251,952		100,075,276
Mortgage servicing rights, net		50,360,805		35,210,516
Property and equipment, net		15,200,052		12,473,345
Value of business acquired		9,034,414		8,955,249
Goodwill		3,519,588		3,519,588
Other		28,405,710		27,976,357

Total Assets	$	1,558,325,980	$	1,548,940,478

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

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

	September 30
	2021 (Unaudited)			December 31 2020
Liabilities and Stockholders’ Equity
Liabilities
Future policy benefits and unpaid claims	$	860,871,187		$	844,790,087
Unearned premium reserve		3,126,372			3,328,623
Bank and other loans payable		263,186,923			297,824,368
Deferred pre-need cemetery and mortuary contract revenues		14,184,328			13,080,179
Cemetery perpetual care obligation		4,248,379			4,087,704
Accounts payable		13,921,187			8,932,683
Other liabilities and accrued expenses		69,236,255			87,650,981
Income taxes		32,835,181			25,258,800
Total liabilities		1,261,609,812			1,284,953,425

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 17,594,048 shares in 2021 and 16,595,783 shares in 2020		35,188,096			33,191,566
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 2,761,909 shares in 2021 and 2,679,603 shares in 2020		5,523,818			5,359,206
Common Stock, Value
Additional paid-in capital		57,462,981			50,287,253
Accumulated other comprehensive income, net of taxes		20,473,292			23,243,133
Retained earnings		179,195,423			153,739,167
Treasury stock at cost – 44,145 Class A shares and 95,356 Class C shares in 2021; and 227,852 Class A shares and 10,985 Class C shares in 2020		(1,127,442	)		(1,833,272	)

Total stockholders’ equity		296,716,168			263,987,053

Total Liabilities and Stockholders’ Equity	$	1,558,325,980		$	1,548,940,478

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

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)


	Three Months Ended September 30						Nine Months Ended September 30
	2021			2020			2021			2020
Revenues:
Mortgage fee income	$	66,257,851		$	98,559,624		$	204,414,276		$	212,209,718
Insurance premiums and other considerations		26,445,618			23,766,576			74,754,856			68,982,561
Net investment income		15,092,962			14,709,142			43,564,167			41,072,386
Net mortuary and cemetery sales		5,967,675			5,371,715			18,228,199			14,530,584
Gains (losses) on investments and other assets		976,900			800,507			4,414,217			(173,461	)
Other		4,768,125			2,997,001			13,542,337			7,853,468
Total revenues		119,509,131			146,204,565			358,918,052			344,475,256

Benefits and expenses:
Death benefits		15,474,512			16,026,897			48,630,585			43,021,247
Surrenders and other policy benefits		977,190			1,056,318			2,725,791			2,964,984
Increase in future policy benefits		7,485,565			4,892,972			19,140,939			18,534,848
Amortization of deferred policy and pre- need acquisition costs and value of business acquired		4,709,979			4,239,935			11,940,905			10,781,658
Selling, general and administrative expenses:
Commissions		28,769,191			37,761,992			91,392,436			81,555,823
Personnel		25,122,254			21,700,446			73,822,449			60,959,099
Advertising		1,691,236			1,607,138			5,089,301			3,842,296
Rent and rent related		1,853,960			1,797,161			5,594,206			5,074,755
Depreciation on property and equipment		412,152			516,243			1,387,275			1,550,526
Costs related to funding mortgage loans		2,379,085			3,057,276			8,055,810			7,392,373
Other		13,775,139			11,701,986			37,754,717			33,080,916
Interest expense		1,807,461			2,363,169			5,327,072			6,063,218
Cost of goods and services sold-mortuaries and cemeteries		908,014			899,101			2,880,766			2,401,592
Total benefits and expenses		105,365,738			107,620,634			313,742,252			277,223,335

Earnings before income taxes		14,143,393			38,583,931			45,175,800			67,251,921
Income tax expense		(3,352,663	)		(9,279,162	)		(10,998,876	)		(15,965,656	)

Net earnings	$	10,790,730		$	29,304,769		$	34,176,924		$	51,286,265

Net earnings per Class A Equivalent common share (1)	$	0.54		$	1.48		$	1.70		$	2.60
Net earnings per Class A Equivalent common share-assuming dilution (1)	$	0.51		$	1.44		$	1.63		$	2.55
Weighted-average Class A equivalent common shares outstanding (1)		20,160,912			19,830,879			20,117,257			19,717,877
Weighted-average Class A equivalent common shares outstanding-assuming dilution (1)		20,980,881			20,418,599			20,927,695			20,142,083

(1)

Net earnings per share amounts have been adjusted retroactively for the effect of annual stock dividends. The weighted-average shares outstanding includes the weighted-average Class A common shares and the weighted-average Class C common shares determined on an equivalent Class A common stock basis. Net earnings per common share represent net earnings per equivalent Class A common share.

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

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30						Nine Months Ended September 30
	2021			2020			2021			2020
Net earnings	$	10,790,730		$	29,304,769		$	34,176,924		$	51,286,265
Other comprehensive income:
Unrealized gains (losses) on fixed maturity securities available for sale	$	(1,406,615	)		3,810,906			(3,477,826	)		7,810,537
Unrealized gains (losses) on restricted assets		(13,951	)		23,323			(21,682	)		28,309
Unrealized losses on cemetery perpetual care trust investments		(4,669	)		(16,883	)		(10,927	)		(11,114	)
Foreign currency translation adjustments		—			84			2,835			(196	)
Other comprehensive income (loss), before income tax		(1,425,235	)		3,817,430			(3,507,600	)		7,827,536
Income tax benefit (expense)		300,029			(801,915	)		737,759			(1,644,446	)
Other comprehensive income (loss), net of income tax		(1,125,206	)		3,015,515			(2,769,841	)		6,183,090
Comprehensive income	$	9,665,524		$	32,320,284		$	31,407,083		$	57,469,355

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

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Class A Common Stock		Class C Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income			Retained Earnings			Treasury Stock			Total
	Nine Months Ended September 30, 2021
	Class A Common Stock		Class C Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income			Retained Earnings			Treasury Stock			Total

January 1, 2021	$	33,191,566	$	5,359,206		$	50,287,253		$	23,243,133		$	153,739,167		$	(1,833,272	)	$	263,987,053

Net earnings		—		—			—			—			12,128,715			—			12,128,715
Other comprehensive loss		—		—			—			(5,388,522	)		—			—			(5,388,522	)
Stock-based compensation expense		—		—			39,153			—			—			—			39,153
Exercise of stock options		55,852		—			33,401			—			—			—			89,253
Sale of treasury stock		—		—			290,381			—			—			1,632,041			1,922,422
Purchase of treasury stock		—		—			—			—			—			(910,233	)		(910,233	)
Stock dividends
Conversion Class C to Class A		97,054		(97,054	)		—			—			—			—			—
March 31, 2021	$	33,344,472	$	5,262,152		$	50,650,188		$	17,854,611		$	165,867,882		$	(1,111,464	)	$	271,867,841

Net earnings		—		—			—			—			11,257,479			—			11,257,479
Other comprehensive income		—		—			—			3,743,887			—			—			3,743,887
Exercise of stock options		106,044		—			7,655			—			—			—			113,699
Sale of treasury stock		—		—			(38,048	)		—			—			1,499,862			1,461,814
Purchase of treasury stock		—		—			—			—			—			(2,596,006	)		(2,596,006	)
Stock dividends		1,672,526		263,108			6,774,719			—			(8,710,354	)		—			(1	)
June 30, 2021	$	35,123,042	$	5,525,260		$	57,394,514		$	21,598,498		$	168,415,007		$	(2,207,608	)	$	285,848,713

Net earnings		—		—			—			—			10,790,730			—			10,790,730
Other comprehensive loss		—		—			—			(1,125,206	)		—			—			(1,125,206	)
Exercise of stock options		61,320		—			24,182			—			—			—			85,502
Sale of treasury stock		—		—			(6,274	)		—			—			1,338,621			1,332,347
Purchase of treasury stock		—		—			42,537			—			—			(258,455	)		(215,918	)
Conversion Class C to Class A		1,440		(1,440	)		—			—			—			—			—
Stock dividends		2,294		(2	)		8,022			—			(10,314	)		—			—
September 30, 2021	$	35,188,096	$	5,523,818		$	57,462,981		$	20,473,292		$	179,195,423		$	(1,127,442	)	$	296,716,168

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited) (Continued)

	Nine Months Ended September 30, 2020
	Class A Common Stock		Class C Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income			Retained Earnings			Treasury Stock			Total

January 1, 2020	$	32,215,558	$	5,001,774		$	46,091,112		$	13,726,514		$	101,256,229		$	(1,580,582	)	$	196,710,605

Net earnings		—		—			—			—			1,424,449			—			1,424,449
Other comprehensive loss		—		—			—			(8,852,313	)		—			—			(8,852,313	)
Stock-based compensation expense		—		—			65,877			—			—			—			65,877
Exercise of stock options		44,822		—			(33,930	)		—			—			—			10,892
Sale of treasury stock		—		—			218,280			—			—			264,081			482,361
Purchase of treasury stock		—		—			—			—			—			(129,608	)		(129,608	)
Stock dividends		2,322		(1,020	)		2,292			—			(3,594	)		—			—
Conversion Class C to Class A		22,324		(22,324	)		—			—			—			—			—
March 31, 2020	$	32,285,026	$	4,978,430		$	46,343,631		$	4,874,201		$	102,677,084		$	(1,446,109	)	$	189,712,263

Net earnings		—		—			—			—			20,557,047			—			20,557,047
Other comprehensive income		—		—			—			12,019,888			—			—			12,019,888
Stock-based compensation expense		—		—			101,520			—			—			—			101,520
Exercise of stock options		22,726		—			(22,726	)		—			—			—			—
Sale of treasury stock		—		—			319,676			—			—			664,546			984,222
Purchase of treasury stock		—		—			—			—			—			(760,713	)		(760,713	)
Stock dividends		807,356		124,460			2,175,790			—			(3,107,607	)		—			(1	)
June 30, 2020	$	33,115,108	$	5,102,890		$	48,917,891		$	16,894,089		$	120,126,524		$	(1,542,276	)	$	222,614,226
Beginning balance, value	$	33,115,108	$	5,102,890		$	48,917,891		$	16,894,089		$	120,126,524		$	(1,542,276	)	$	222,614,226

Net earnings		—		—			—			—			29,304,769			—			29,304,769
Other comprehensive income		—		—			—			3,015,515			—			—			3,015,515
Stock-based compensation expense		—		—			104,562			—			—			—			104,562
Sale of treasury stock		—		—			330,939			—			—			886,452			1,217,391
Purchase of treasury stock		—		—			—			—			—			(210,506	)		(210,506	)
Stock dividends		742		—			1,732			—			(2,474	)		—			—
Conversion Class C to Class A		4,124		(4,124	)		—			—			—			—			—
September 30, 2020	$	33,119,974	$	5,098,766		$	49,355,124		$	19,909,604		$	149,428,819		$	(866,330	)	$	256,045,957
Ending balance, value	$	33,119,974	$	5,098,766		$	49,355,124		$	19,909,604		$	149,428,819		$	(866,330	)	$	256,045,957

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30
	2021			2020
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	128,890,897		$	(164,589,158	)

Cash flows from investing activities:
Purchases of fixed maturity securities		(14,359,481	)		(56,899,073	)
Sales, calls and maturities of fixed maturity securities		40,856,383			75,523,084
Purchases of equity securities		(1,382,227	)		(6,492,243	)
Sales of equity securities		3,334,697			2,011,568
Net changes in restricted assets		28,770			(2,650,188	)
Net changes in perpetual care trusts		1,065,459			(870,485	)
Mortgage loans held for investment, other investments and policy loans made		(635,682,683	)		(486,189,616	)
Payments received for mortgage loans held for investment, other investments and policy loans		577,555,622			478,445,833
Purchases of property and equipment		(4,187,580	)		(1,111,360	)
Sales of property and equipment		45,168			—
Purchases of real estate		(70,404,325	)		(27,528,643	)
Sales of real estate		22,974,490			13,052,416
Net cash used in investing activities		(80,155,707	)		(12,708,707	)

Cash flows from financing activities:
Investment contract receipts		8,743,867			8,656,037
Investment contract withdrawals		(11,776,818	)		(12,759,734	)
Proceeds from stock options exercised		288,454			10,892
Purchases of treasury stock		(3,722,157	)		(1,100,827	)
Repayment of bank loans		(54,454,529	)		(251,041,466	)
Proceeds from bank loans		97,119,014			329,672,821
Net change in warehouse line borrowings for loans held for sale		(77,374,340	)		128,600,308
Net cash provided by (used in) financing activities		(41,176,509	)		201,038,031

Net change in cash, cash equivalents, restricted cash and restricted cash equivalents		7,558,681			23,740,166

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period		115,465,086			137,735,673

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	123,023,767		$	161,475,839

Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest	$	5,464,423		$	5,917,344
Income taxes (net of refunds)		2,684,737			4,995,073

Non Cash Operating, Investing and Financing Activities:
Accrued real estate construction costs and retainage	$	8,321,415		$	347,826
Benefit plans funded with treasury stock		4,716,583			2,683,974
Right-of-use assets obtained in exchange for operating lease liabilities		2,435,831			4,796,580
Mortgage loans held for investment foreclosed into real estate held for investment		931,079			686,124
Transfer of loans held for sale to mortgage loans held for investment		201,951			9,170,610
Right-of-use assets obtained in exchange for finance lease liabilities		—			8,494

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (Continued)

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
	2021		2020
Cash and cash equivalents	$	111,498,676	$	151,686,960
Restricted assets		10,004,204		8,468,191
Cemetery perpetual care trust investments		1,520,887		1,320,688

Total cash, cash equivalents, restricted cash and restricted cash equivalents	$	123,023,767	$	161,475,839

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

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (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, 2020, included in the Company’s Annual Report on Form 10-K (File Number 000-09341). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to adopt policies and make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. In applying these policies and estimates, the Company makes judgments that frequently require assumptions about matters that are inherently uncertain. Accordingly, significant estimates used in the preparation of the Company’s financial statements may be subject to significant adjustments in future periods. 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 or sale; those used in determining the liability for future policy benefits; those used in estimating other than temporary impairments on available for sale securities; 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.

COVID-19. During 2020, the outbreak of COVID-19 had spread worldwide and was declared a global pandemic by the World Health Organization on March 11, 2020. COVID-19, and its variants, pose a threat to the health and economic well-being of the Company’s employees, customers, and vendors. The Company is closely monitoring developments relating to the ongoing COVID-19 pandemic and assessing its impact on the Company’s business. The continued uncertainty surrounding the COVID-19 pandemic has had and continues to have a major impact on the global economy and financial markets. Governments and businesses have taken numerous measures to try to contain the virus and its variants, which include the implementation of travel bans, self-imposed quarantine periods, social distancing, and various mask and vaccine mandates. These measures have disrupted and will continue to disrupt businesses globally. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize the economic conditions.

Like most businesses, COVID-19 has impacted the Company. However, the Company cannot, with any certainty predict the severity or duration with which COVID-19 will impact the Company’s business, financial condition, results of operations, and cash flows. To the extent the COVID-19 pandemic adversely affects the Company’s business, financial condition, and results of operations, it may also have the effect of heightening many of the other risks described in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. These uncertainties have the potential to negatively affect the risk of credit default for the issuers of the Company’s fixed maturity debt securities and individual borrowers with mortgage loans held by the Company.

The Company has implemented risk management, business continuity plans and has taken preventive measures and other precautions, including some remote work arrangements. Such measures and precautions have enabled the Company to continue to conduct business.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (Unaudited)

2) Recent Accounting Pronouncements

Accounting Standards Adopted in 2020

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. The Company adopted this standard on January 1, 2020. The adoption of this standard did not materially impact the Company’s financial statements. See Note 8 for the Company’s fair value disclosures.

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 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 mortgage loans held for investment.

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 November 2020, the FASB issued an update to ASU No. 2018-12 that made the ASU effective for the Company on January 1, 2025. The Company has engaged an industry software expert and is in the process of implementing this software and other changes to its systems. The Company anticipates that it will be ready by the effective date.

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.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (Unaudited)

3) Investments

The Company’s investments as of September 30, 2021 are summarized as follows:

Schedule of Investments

	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
September 30, 2021:
Fixed maturity securities, available for sale, at estimated fair value:
U.S. Treasury securities and obligations of U.S. Government agencies	$	22,284,283		$	794,130	$	—		$	23,078,413

Obligations of states and political subdivisions		5,077,822			229,814		(5,226	)		5,302,410

Corporate securities including public utilities		174,862,169			24,331,635		(291,388	)		198,902,416

Mortgage-backed securities		36,316,313			1,148,676		(185,752	)		37,279,237

Redeemable preferred stock		268,941			13,525		—			282,466

Total fixed maturity securities available for sale	$	238,809,528		$	26,517,780	$	(482,366	)	$	264,844,942

Equity securities at estimated fair value:

Common stock:

Industrial, miscellaneous and all other	$	8,198,282		$	2,885,061	$	(353,599	)	$	10,729,744

Total equity securities at estimated fair value	$	8,198,282		$	2,885,061	$	(353,599	)	$	10,729,744

Mortgage loans held for investment at amortized cost:
Residential	$	89,544,581
Residential construction		169,030,287
Commercial		52,087,010
Less: Unamortized deferred loan fees, net		(1,013,925	)
Less: Allowance for loan losses		(1,753,853	)
Less: Net discounts		(503,619	)

Total mortgage loans held for investment	$	307,390,481

Real estate held for investment - net of accumulated depreciation:
Residential	$	46,606,702
Commercial		143,003,658

Total real estate held for investment	$	189,610,360

Real estate held for sale:
Residential	$	1,190,602
Commercial		4,890,553

Total real estate held for sale	$	6,081,155

Other investments and policy loans at amortized cost:
Policy loans	$	13,699,414
Insurance assignments		53,417,350
Federal Home Loan Bank stock (1)		3,105,100
Other investments		5,188,801
Less: Allowance for doubtful accounts		(1,795,037	)

Total policy loans and other investments	$	73,615,628

Accrued investment income	$	5,386,756

Total investments	$	857,659,066

(1)	Includes $905,700 of Membership stock and $2,199,440 of Activity stock due to short-term borrowings.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (Unaudited)

3) Investments (Continued)

The Company’s investments as of December 31, 2020 are summarized as follows:

	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
December 31, 2020:
Fixed maturity securities, available for sale, at estimated fair value:
U.S. Treasury securities and obligations of U.S. Government agencies	$	42,381,805		$	1,358,562	$	—		$	43,740,367

Obligations of states and political subdivisions		5,383,762			312,214		(1,261	)		5,694,715

Corporate securities including public utilities		186,067,912			27,216,496		(681,478	)		212,602,930

Mortgage-backed securities		31,047,791			1,565,377		(267,106	)		32,346,062

Redeemable preferred stock		269,214			3,391		—			272,605

Total fixed maturity securities available for sale	$	265,150,484		$	30,456,040	$	(949,845	)	$	294,656,679

Equity securities at estimated fair value:

Common stock:

Industrial, miscellaneous and all other	$	9,698,490		$	2,376,156	$	(750,407	)	$	11,324,239

Total equity securities at estimated fair value	$	9,698,490		$	2,376,156	$	(750,407	)	$	11,324,239

Mortgage loans held for investment at amortized cost:
Residential	$	95,822,448
Residential construction		111,111,777
Commercial		46,836,866
Less: Unamortized deferred loan fees, net		(1,161,132	)
Less: Allowance for loan losses		(2,005,127	)
Less: Net discounts		(1,260,896	)

Total mortgage loans held for investment	$	249,343,936

Real estate held for investment - net of accumulated depreciation:
Residential	$	24,843,743
Commercial		106,840,710

Total real estate held for investment	$	131,684,453

Real estate held for sale:
Residential	$	3,478,254
Commercial		4,400,553

Total real estate held for sale	$	7,878,807

Other investments and policy loans at amortized cost:
Policy loans	$	14,171,589
Insurance assignments		53,231,131
Federal Home Loan Bank stock (1)		2,506,600
Other investments		5,432,816
Less: Allowance for doubtful accounts		(1,645,475	)

Total policy loans and other investments	$	73,696,661

Accrued investment income	$	5,360,523

Total investments	$	773,945,298

(1)	Includes $866,900 of Membership stock and $1,639,700 of Activity stock due to short-term borrowings.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 (Unaudited)

3) Investments (Continued)

Fixed Maturity Securities

The following tables summarize unrealized losses on fixed maturity securities available for sale, which were carried at estimated fair value, at September 30, 2021 and December 31, 2020. The unrealized losses were primarily related to interest rate fluctuations and uncertainties relating to COVID-19. 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, 2021
Obligations of States and Political Subdivisions	$	5,226	$	756,793	$	—	$	—	$	5,226	$	756,793
Corporate Securities		62,966		3,633,271		228,422		4,226,222		291,388		7,859,493
Mortgage and other asset-backed securities		67,554		7,858,646		118,198		1,759,305		185,752		9,617,951
Total unrealized losses	$	135,746	$	12,248,710	$	346,620	$	5,985,527	$	482,366	$	18,234,237

At December 31, 2020