SEC Filing | Security National Financial Corporation

View:

Download DOC

Download PDF

Download XLS

Download XBRL

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 June 30, 2023

☐ 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 Ascension Way, 6^thFloor, 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 August 9, 2023, the registrant had 19,947,531 shares of Class A Common Stock, $2.00 par value, outstanding and 2,971,854 shares of Class C Common Stock, $2.00 par value, outstanding.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q

QUARTER ENDED JUNE 30, 2023

Table of Contents

		Page No.
	Part I - Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022	3-4
	Condensed Consolidated Statements of Earnings for the three and six month periods ended June 30, 2023 and 2022 (unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income (loss) for the three and six month periods ended June 30, 2023 and 2022 (unaudited)	6
	Condensed Consolidated Statements of Stockholders’ Equity as of June 30, 2023 and June 30, 2022 (unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2023 and 2022 (unaudited)	8-9
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	58
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	64
Item 4.	Controls and Procedures	65
	Part II - Other Information
Item 1.	Legal Proceedings	65
Item 1A.	Risk Factors	65
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3.	Defaults Upon Senior Securities	66
Item 4.	Mine Safety Disclosures	66
Item 5.	Other Information	66
Item 6.	Exhibits	67
	Signatures	68

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Part I - Financial Information

Item 1. Financial Statements.

	June 30, 2023 (Unaudited)		December 31, 2022
Assets
Investments:
Fixed maturity securities, available for sale, at estimated fair value (amortized cost of $371,731,265 and $362,750,511 for 2023 and 2022, respectively; allowance for credit losses of $224,005 and nil for 2023 and 2022, respectively)	$	354,789,812	$	345,858,492
Equity securities at estimated fair value (cost of $10,416,580 and $9,942,265 for 2023 and 2022, respectively)		12,801,925		11,682,526
Mortgage loans held for investment (net of allowance for credit losses of $2,663,560 and $1,970,311 for 2023 and 2022, respectively)		271,049,585		308,123,927
Real estate held for investment (net of accumulated depreciation of $26,941,328 and $23,793,204 for 2023 and 2022, respectively)		180,962,902		191,328,616
Real estate held for sale		1,827,474		11,161,582
Other investments and policy loans (net of allowance for credit losses of $1,690,693 and $1,609,951 for 2023 and 2022, respectively)		64,554,148		70,508,156
Accrued investment income		10,188,551		10,299,826
Total investments		896,174,397		948,963,125
Cash and cash equivalents		110,285,941		120,919,805
Loans held for sale at estimated fair value		161,310,060		141,179,620
Receivables (net of allowance for credit losses of $1,492,934 and $2,229,791 for 2023 and 2022, respectively)		11,675,595		28,573,092
Restricted assets (including $7,780,162 and $6,565,552 for 2023 and 2022 respectively, at estimated fair value; allowance for credit losses of $2,760 and nil for 2023 and 2022, respectively)		19,434,263		18,935,055
Cemetery perpetual care trust investments (including $4,315,932 and $3,859,893 for 2023 and 2022 respectively, at estimated fair value; allowance for credit losses of $1,453 and nil for 2023 and 2022, respectively)		7,666,221		7,276,210
Receivable from reinsurers		14,839,279		15,033,938
Cemetery land and improvements		9,033,600		9,101,474
Deferred policy and pre-need contract acquisition costs		111,733,330		108,655,128
Mortgage servicing rights, net		3,442,352		3,039,765
Property and equipment, net		19,932,664		20,579,649
Value of business acquired		9,393,595		9,803,736
Goodwill		5,253,783		5,253,783
Other		23,431,668		23,798,512

Total Assets	$	1,403,606,748	$	1,461,112,892

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

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

	June 30, 2023 (Unaudited)			December 31, 2022
Liabilities and Stockholders’ Equity
Liabilities
Future policy benefits and unpaid claims	$	901,792,172		$	889,327,303
Unearned premium reserve		2,658,492			2,773,616
Bank and other loans payable		103,301,721			161,712,804
Deferred pre-need cemetery and mortuary contract revenues		17,155,722			16,226,836
Cemetery perpetual care obligation		5,207,198			5,099,542
Accounts payable		3,215,659			5,361,449
Other liabilities and accrued expenses		56,073,488			57,113,888
Income taxes		15,439,539			30,710,527
Total liabilities		1,104,843,991			1,168,325,965

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; 40,000,000 shares authorized; 19,893,700 shares issued and outstanding as of June 30, 2023 and 18,758,031 shares issued and outstanding as of December 31, 2022		39,787,400			37,516,062
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; 6,000,000 shares authorized; 2,973,552 shares issued and outstanding as of June 30, 2023 and 2,889,859 shares issued and outstanding as of December 31, 2022		5,947,104			5,779,718
Common Stock , Value		5,947,104			5,779,718
Additional paid-in capital		71,685,665			64,767,769
Accumulated other comprehensive loss, net of taxes		(12,894,771	)		(13,070,277	)
Retained earnings		200,078,709			202,160,306
Treasury stock at cost - 849,005 Class A shares and 35,717 Class C shares as of June 30, 2023; and 525,870 Class A shares and 34,016 Class C shares as of December 31, 2022		(5,841,350	)		(4,366,651	)

Total stockholders’ equity		298,762,757			292,786,927

Total Liabilities and Stockholders’ Equity	$	1,403,606,748		$	1,461,112,892

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

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

	2023			2022			2023			2022
	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenues:
Mortgage fee income	$	26,078,753		$	42,030,898		$	52,067,759		$	90,375,343
Insurance premiums and other considerations		28,813,299			25,911,995			56,780,591			52,253,947
Net investment income		20,171,974			15,971,288			37,946,857			31,165,594
Net mortuary and cemetery sales		7,168,714			7,250,503			13,640,143			14,456,224
Gains (losses) on investments and other assets		816,584			(914,395	)		927,738			(742,420	)
Other		796,835			5,316,365			1,983,805			10,483,873
Total revenues		83,846,159			95,566,654			163,346,893			197,992,561

Benefits and expenses:
Death benefits		15,455,305			14,839,044			32,133,671			31,723,750
Surrenders and other policy benefits		950,657			1,153,767			2,083,350			2,476,935
Increase in future policy benefits		8,499,804			6,600,443			16,554,743			13,371,544
Amortization of deferred policy and pre-need acquisition costs and value of business acquired		4,251,321			4,053,109			9,134,902			8,449,522
Selling, general and administrative expenses:
Commissions		10,736,126			18,397,337			20,409,436			38,299,539
Personnel		20,508,415			25,504,950			42,470,927			52,379,714
Advertising		965,753			1,595,738			1,869,164			3,307,533
Rent and rent related		1,831,011			1,702,262			3,607,791			3,361,532
Depreciation on property and equipment		587,213			628,305			1,175,629			1,243,849
Costs related to funding mortgage loans		1,841,367			2,044,637			3,683,709			4,884,100
Other		7,403,409			11,174,128			15,183,944			23,265,764
Interest expense		1,414,802			1,900,249			2,868,135			3,627,564
Cost of goods and services sold-mortuaries and cemeteries		1,251,643			1,242,839			2,437,271			2,427,853
Total benefits and expenses		75,696,826			90,836,808			153,612,672			188,819,199
Earnings before income taxes		8,149,333			4,729,846			9,734,221			9,173,362
Income tax expense		(1,796,627	)		(1,155,397	)		(2,141,343	)		(2,370,195	)

Net earnings	$	6,352,706		$	3,574,449		$	7,592,878		$	6,803,167

Net earnings per Class A Equivalent common share (1)	$	0.29		$	0.16		$	0.34		$	0.30

Net earnings per Class A Equivalent common share-assuming dilution (1)	$	0.28		$	0.15		$	0.34		$	0.29

Weighted-average Class A equivalent common shares outstanding (1)		22,005,332			22,233,852			22,066,991			22,331,911

Weighted-average Class A equivalent common shares outstanding-assuming dilution (1)		22,568,633			23,108,651			22,617,888			23,225,600

(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 (LOSS)

(Unaudited)

	2023			2022			2023			2022
	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Net earnings	$	6,352,706		$	3,574,449		$	7,592,878		$	6,803,167
Other comprehensive income:
Unrealized gains (losses) on fixed maturity securities available for sale	$	(4,993,177	)		(12,995,132	)		224,852			(28,322,034	)
Unrealized losses on restricted assets (1)		(6,189	)		(43,169	)		(2,056	)		(115,118	)
Unrealized losses on cemetery perpetual care trust investments (1)		(3,738	)		(15,868	)		(812	)		(53,225	)
Other comprehensive income (loss), before income tax		(5,003,104	)		(13,054,169	)		221,984			(28,490,377	)
Income tax (expense) benefit		1,051,052			2,743,684			(46,478	)		5,989,562
Other comprehensive income (loss), net of income tax		(3,952,052	)		(10,310,485	)		175,506			(22,500,815	)
Comprehensive income (loss)	$	2,400,654		$	(6,736,036	)	$	7,768,384		$	(15,697,648	)

(1)

Fixed maturity securities available for sale

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 (Loss)			Retained Earnings			Treasury Stock			Total
	Six Months Ended June 30, 2023
	Class A Common Stock		Class C Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total

January 1, 2023	$	37,516,062	$	5,779,718		$	64,767,769		$	(13,070,277	)	$	202,160,306		$	(4,366,651	)	$	292,786,927
Cumulative effect adjustment upon adoption of new accounting standard (ASU 2016-13)		-		-			-			-			(671,506	)		-			(671,506	)
Net earnings		-		-			-			-			1,240,172			-			1,240,172
Other comprehensive gain		-		-			-			4,127,558			-			-			4,127,558
Stock-based compensation expense		-		-			143,671			-			-			-			143,671
Exercise of stock options		96,092		-			(62,073	)		-			-			-			34,019
Sale of treasury stock		-		-			(43,493	)		-			-			620,651			577,158
Purchase of treasury stock		-		-			-			-			-			(1,204,357	)		(1,204,357	)
Conversion Class C to Class A		1,872		(1,872	)		-			-			-			-			-
March 31, 2023	$	37,614,026	$	5,777,846		$	64,805,874		$	(8,942,719	)	$	202,728,972		$	(4,950,357	)	$	297,033,642

Net earnings		-		-			-			-			6,352,706			-			6,352,706
Other comprehensive loss		-		-			-			(3,952,052	)		-			-			(3,952,052	)
Stock-based compensation expense		-		-			141,954			-			-			-			141,954
Exercise of stock options		159,284		-			(154,424	)		-			-			-			4,860
Vesting of restricted stock units		810		-			(810	)		-			-			-			-
Sale of treasury stock		-		-			(54,350	)		-			-			623,056			568,706
Purchase of treasury stock		-		-			126,990			-			-			(1,514,049	)		(1,387,059	)
Conversion Class C to Class A		113,930		(113,930	)		-			-			-			-			-
Stock dividends		1,899,350		283,188			6,820,431			-			(9,002,969	)		-			-
June 30, 2023	$	39,787,400	$	5,947,104		$	71,685,665		$	(12,894,771	)	$	200,078,709		$	(5,841,350	)	$	298,762,757

	Six Months Ended June 30, 2022
	Class A Common Stock		Class C Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total

January 1, 2022	$	35,285,444	$	5,733,130		$	57,985,947		$	18,070,448		$	184,537,489		$	(1,845,624	)	$	299,766,834
Net earnings		-		-			-			-			3,228,718			-			3,228,718
Other comprehensive loss		-		-			-			(12,190,330	)		-			-			(12,190,330	)
Stock-based compensation expense		-		-			271,747			-			-			-			271,747
Exercise of stock options		100,446		-			(8,487	)		-			-			-			91,959
Sale of treasury stock		-		-			24,055			-			-			1,880,125			1,904,180
Purchase of treasury stock		-		-			106,176			-			-			(878,417	)		(772,241	)
Conversion Class C to Class A		414		(414	)		-			-			-			-			-
March 31, 2022	$	35,386,304	$	5,732,716		$	58,379,438		$	5,880,118		$	187,766,207		$	(843,916	)	$	292,300,867

Net earnings		-		-			-			-			3,574,449			-			3,574,449
Other comprehensive loss		-		-			-			(10,310,485	)		-			-			(10,310,485	)
Other comprehensive gain (loss)		-		-			-			(10,310,485	)		-			-			(10,310,485	)
Stock-based compensation expense		-		-			220,175			-			-			-			220,175
Exercise of stock options		37,746		-			(2,440	)		-			-			-			35,306
Sale of treasury stock		-		-			50,401			-			-			1,119,392			1,169,793
Purchase of treasury stock		-		-			-			-			-			(6,505,050	)		(6,505,050	)
Conversion Class C to Class A		154,218		(154,218	)		-			-			-			-			-
Stock dividends		1,779,108		278,924			6,009,453			-			(8,067,485	)		-			-
June 30, 2022	$	37,357,376	$	5,857,422		$	64,657,027		$	(4,430,367	)	$	183,273,171		$	(6,229,574	)	$	280,485,055

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

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	2023			2022
	Six Months Ended June 30,
	2023			2022
Cash flows from operating activities:
Net cash provided by operating activities	$	2,181,039		$	97,638,887

Cash flows from investing activities:
Purchases of fixed maturity securities		(28,549,767	)		(49,382,284	)
Sales, calls and maturities of fixed maturity securities		19,851,603			9,286,436
Purchases of equity securities		(5,949,902	)		(3,166,256	)
Sales of equity securities		5,430,156			1,918,057
Net changes in restricted assets		-			(635,844	)
Purchases of restricted assets		(1,148,199	)		-
Sales, calls and maturities of restricted assets		64,746			-
Net changes in cemetery perpetual care trust investments		-			330,999
Purchases of cemetery perpetual care trust investments		(355,152	)		-
Sales, calls and maturities of perpetual care trust investments		91,504			-
Mortgage loans held for investment, other investments and policy loans made		(326,286,179	)		(382,449,025	)
Payments received for mortgage loans held for investment, other investments and policy loans		369,206,657			386,898,902
Purchases of property and equipment		(527,285	)		(706,058	)
Sales of property and equipment		10,973			64,579
Purchases of real estate		(3,971,593	)		(11,853,775	)
Sales of real estate		20,684,319			13,549,696
Net cash provided by (used in) investing activities		48,551,881			(36,144,573	)

Cash flows from financing activities:
Investment contract receipts		6,103,142			5,770,353
Investment contract withdrawals		(7,663,735	)		(8,160,796	)
Proceeds from stock options exercised		38,879			127,265
Purchases of treasury stock		(2,591,416	)		(7,277,291	)
Repayment of bank loans		(68,658,021	)		(45,217,295	)
Proceeds from bank loans		66,000,000			59,618,052
Net change in warehouse line borrowings for loans held for sale		(55,805,126	)		(65,362,776	)
Net cash used in financing activities		(62,576,277	)		(60,502,488	)

Net change in cash, cash equivalents, restricted cash and restricted cash equivalents		(11,843,357	)		991,826

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period		133,483,817			141,414,282

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	121,640,460		$	142,406,108

Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest	$	3,056,099		$	3,568,862
Income taxes (net of refunds)		17,458,807			407,958

Non Cash Operating, Investing and Financing Activities:
Transfer from mortgage loans held for investment to restricted assets	$	1,625,961		$	-
Transfer from mortgage loans held for investment to cemetery perpetual care trust investments		1,611,550			-
Transfer from loans held for sale to mortgage loans held for investment		1,150,074			-
Benefit plans funded with treasury stock		1,145,864			3,073,973
Right-of-use assets obtained in exchange for operating lease liabilities		139,095			732,005
Right-of-use assets obtained in exchange for finance lease liabilities		12,332			-
Accrued real estate construction costs and retainage		-			1,782,556

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:

	Six Months Ended June 30,
	2023		2022
Cash and cash equivalents	$	110,285,941	$	131,296,538
Restricted assets		10,276,918		9,654,673
Cemetery perpetual care trust investments		1,077,601		1,454,897

Total cash, cash equivalents, restricted cash and restricted cash equivalents	$	121,640,460	$	142,406,108
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	121,640,460	$	142,406,108

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

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2023 (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, 2022, 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 six month periods ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

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 and unearned revenue; those used in determining the estimated future costs for pre-need sales; those used in determining the value of mortgage servicing rights; those used in determining allowances for credit losses; 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.

Banking Environment.

On March 10, 2023 and March 12, 2023, Silicon Valley Bank and Signature Bank were placed in receivership with the Federal Deposit Insurance Corporation (“FDIC”). Normal banking activities resumed shortly thereafter. On May 1, 2023, First Republic bank was placed in receivership with the FDIC and was immediately purchased by a national bank.

The Company does not maintain any deposit or other accounts or credit facilities with Silicon Valley Bank, Signature Bank or First Republic Bank. The Company may periodically transfer funds to these banks to pay for services rendered by third party vendors that continue to maintain banking relationships with these banks. The Company continues to monitor the banking industry and its relationships with regional and community banks.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2023 (Unaudited)

2) Recent Accounting Pronouncements

Accounting Standards Adopted in 2023

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 held for investment 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 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 Topic 326 requires that credit losses be presented as an allowance rather than as a write-down. The Company adopted this standard on January 1, 2023, and after a review of the affected assets, decreased the opening balance of retained earnings in stockholders’ equity by $671,506 on January 1, 2023. The allowances for credit losses increased (decreased) by the following amounts.

	Amount
Mortgage loans held for investment:
Residential	$	(192,607	)
Residential construction		301,830
Commercial		555,807
Total		665,030

Restriced assets - mortgage loans held for investment:
Residential construction		3,463

Cemetery perpetual care trust investments - mortgage loans held for investment:
Residential construction		3,013

Grand Total		671,506

Accounting Standards Issued But Not Yet Adopted

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 standard is aimed at improving 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 requires the standard to be adopted by the Company commencing on January 1, 2025. The Company has made progress in the implementation of the new standard, including the involvement of actuaries, accountants, and systems specialists. However, the Company has not yet estimated the impact the new guidance will have on the consolidated financial statements.

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

June 30, 2023 (Unaudited)

3) Investments

The Company’s investments as of June 30, 2023 are summarized as follows:

Schedule of Investments

	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses (1)			Allowance for Credit Losses			Estimated Fair Value
June 30, 2023:
Fixed maturity securities, available for sale, at estimated fair value:
U.S. Treasury securities and obligations of U.S. Government agencies	$	99,323,377		$	50,602	$	(2,554,426	)	$	-		$	96,819,553

Obligations of states and political subdivisions		6,757,087			403		(378,987	)		-			6,378,503

Corporate securities including public utilities		232,127,146			2,177,346		(11,487,153	)		(224,005	)		222,593,334

Mortgage-backed securities		33,273,655			169,558		(4,704,791	)		-			28,738,422

Redeemable preferred stock		250,000			10,000		-			-			260,000

Total fixed maturity securities available for sale	$	371,731,265		$	2,407,909	$	(19,125,357	)	$	(224,005	)	$	354,789,812

Equity securities at estimated fair value:

Common stock:

Industrial, miscellaneous and all other	$	10,416,580		$	2,976,949	$	(591,604	)				$	12,801,925

Total equity securities at estimated fair value	$	10,416,580		$	2,976,949	$	(591,604	)				$	12,801,925

Mortgage loans held for investment at amortized cost:
Residential	$	95,208,040
Residential construction		121,322,532
Commercial		59,205,487
Less: Unamortized deferred loan fees, net		(1,689,405	)
Less: Allowance for credit losses		(2,663,560	)
Less: Net discounts		(333,509	)

Total mortgage loans held for investment	$	271,049,585

Real estate held for investment - net of accumulated depreciation:
Residential	$	30,680,836
Commercial		150,282,066

Total real estate held for investment	$	180,962,902

Real estate held for sale:
Residential	$	1,675,921
Commercial		151,553

Total real estate held for sale	$	1,827,474

Other investments and policy loans at amortized cost:
Policy loans	$	13,020,654
Insurance assignments		41,157,301
Federal Home Loan Bank stock (2)		2,677,100
Other investments		9,389,786
Less: Allowance for credit losses for insurance assignments		(1,690,693	)

Total other investments and policy loans	$	64,554,148

Accrued investment income	$	10,188,551

Total investments	$	896,174,397

(1)

Gross unrealized losses are net of allowance for credit losses

(2)

Includes $84,800 of Membership stock and $2,592,300 of Activity stock attributable to short-term borrowings and letters of credit.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2023 (Unaudited)

3) Investments (Continued)

The Company’s investments as of December 31, 2022 are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
December 31, 2022:
Fixed maturity securities, available for sale, at estimated fair value:
U.S. Treasury securities and obligations of U.S. Government agencies	$	93,182,210	$	180,643	$	(2,685,277	)	$	90,677,576

Obligations of states and political subdivisions		6,675,071		13,869		(458,137	)		6,230,803

Corporate securities including public utilities		229,141,544		1,909,630		(11,930,773	)		219,120,401

Mortgage-backed securities		33,501,686