SEC Filing | Security National Financial Corporation

View:

Download DOC

Download PDF

Download XLS

securitynational10q033108.htm

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 March 31, 2008, 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: 0-9341

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 office)		(Zip Code)

Registrant’s telephone number, including area code:		(801) 264-1060

Securities registered pursuant to Section 12(b) of the Act: None

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

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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one)

Large accelerate filer

[ ]

Accelerated filer

[ ]

Non-accelerated filer

[X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934):Yes __ No [X]

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

Class A Common Stock, $2.00 par value		7,889,280
Title of Class		Number of Shares Outstanding as of April 30, 2008

Class C Common Stock, $.20 par value		8,492,392
Title of Class		Number of Shares Outstanding as of April 30, 2008

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q

QUARTER ENDED MARCH 31, 2008

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1	Financial Statements	Page No.

	Condensed Consolidated Balance Sheets – March 31, 2008 and December 31, 2007, (unaudited)	3-4

	Condensed Consolidated Statements of Earnings for the Three Months Ended March 31, 2008 and 2007 (unaudited)	5-6

	Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2008 and 2007 (unaudited)	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	8-17

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17-24

Item 3	Quantitative and Qualitative Disclosures about Market Risk	24

Item 4	Controls and Procedures	24


PART II - OTHER INFORMATION

	Other Information	24-30

	Signature Page	31

	Certifications	32-34

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,		December 31,
Assets	2008		2007
Investments:
Fixed maturity securities, held to maturity, at amortized cost	$	106,703,814	$	116,896,016
Fixed maturity securities, available for sale, at estimated fair value		2,291,599		2,880,920
Equity securities, available for sale, at estimated fair value		5,405,055		5,900,292
Mortgage loans on real estate and construction loans, net of allowances for losses		104,163,863		92,884,055
Real estate, net of accumulated depreciation		8,928,517		7,946,304
Policy, student and other loans net, of allowances for doubtful accounts		18,393,319		16,860,874
Short-term investments		5,455,591		5,337,367
Accrued investment income		3,104,847		3,032,285
Total investments		254,446,605		251,738,113
Cash and cash equivalents		10,753,823		5,203,060
Mortgage loans sold to investors		53,626,541		66,700,694
Receivables, net		13,702,885		13,743,682
Restricted assets of cemeteries and mortuaries		5,790,136		5,711,054
Cemetery perpetual care trust investments		1,599,883		1,604,600
Receivable from reinsurers		754,718		746,336
Cemetery land and improvements		9,923,733		9,760,041
Deferred policy and pre-need contract acquisition costs		31,602,869		30,786,229
Property and equipment, net		14,538,822		14,828,699
Value of business acquired		11,487,591		11,686,080
Goodwill		1,028,026		1,075,039
Other		8,041,189		4,579,018
Total assets	$	417,296,821	$	418,162,645

See accompanying notes to condensed consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

(Unaudited)

	March 31,			December 31,
	2008			2007
Liabilities and Stockholder's Equity
Liabilities
Future life, annuity, and other benefits	$	297,100,042		$	296,068,767
Unearned premium reserve		5,147,723			4,995,664
Bank loans payable		5,449,951			12,552,666
Notes and contracts payable		685,357			818,810
Deferred pre-need cemetery and mortuary contract revenues		12,863,377			12,643,199
Accounts payable		1,977,407			1,833,188
Other liabilities and accrued expenses		15,277,074			14,812,845
Income taxes		17,664,492			16,179,596
Total liabilities		356,165,423			359,904,735

Non-Controlling Interest in Perpetual Care Trusts		2,517,958			2,473,758

Stockholders' Equity
Common Stock:
Class A: Common Stock - $2.00 par value, 20,000,000 shares authorized; issued 7,889,268 shares in 2008 and 7,885,268 shares in 2007		15,778,536			15,770,458
Class B: non-voting common stock - $1.00 par value; 5,000,000 shares authorized; none issued or outstanding		-			-
Class C: convertible common stock - $0.20 par value; 15,000,000 shares authorized; issued 8,492,510 shares in 2008 and 8,530,699 in 2007		1,698,502			1,706,140
Additional paid-in capital		17,757,676			17,737,172
Accumulated other comprehensive income and other items, net of taxes		3,013,041			1,596,791
Retained earnings		22,478,787			21,104,156
Treasury stock at cost - 1,099,590 Class A shares in 2008 and 1,104,484 Class A shares in 2007		(2,113,102	)		(2,130,565	)
Total stockholders' equity		58,613,440			55,748,152
Total Liability and Stockholder's Equity	$	417,296,821		$	418,162,645

See accompanying notes to condensed consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

	Three Months Ended March 31,
	2008			2007
Revenues:
Insurance premiums and other considerations	$	8,735,598		$	7,962,275
Net investment income		7,204,250			7,943,458
Net mortuary and cemetery sales		3,589,995			3,510,937
Realized gains (losses) on investments and other assets		22,917			(21,531	)
Mortgage fee income		33,489,290			29,521,887
Other		179,450			129,126
Total revenues		53,221,500			49,046,152

Benefits and expenses
Death benefits		4,796,863			4,092,279
Surrenders and other policy benefits		621,271			608,622
Increase in future policy benefits		3,076,857			2,743,468
Amortization of deferred policy and pre-need acquisition costs and value of business acquired		1,148,371			1,360,840
Selling general and administrative expenses:
Commissions		22,736,386			22,439,724
Salaries		6,265,829			5,784,898
Other		9,762,690			7,207,882
Interest expense		2,191,485			3,099,321
Cost of goods and services sold - mortuaries and cemeteries		676,813			651,740
Total benefits and expenses		51,276,565			47,988,774

Earning before income taxes		1,944,935			1,057,378
Income tax expense		(569,479	)		(312,837	)
Net earnings	$	1,375,456		$	744,541

Net earnings per Class A Equivalent common share (1)	$	0.18		$	0.10

Net earnings per Class A equivalent common share-assuming dilution (1)	$	0.18		$	0.10


Weighted-average Class A equivalent common share outstanding (1)	7,636,372	7,459,970

Weighted-average Class A equivalent common shares outstanding assuming-dilution (1)	7,731,996	7,731,546

See accompanying notes to condensed financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Continued)

(Unaudited)

(1) 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. Net earnings per Class C common share is equal to one-tenth (1/10) of such amount.

See accompanying notes to condensed consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2008			2007
Cash flows from operating activities:
Net cash provided by operating activities	$	19,338,399		$	10,321,204

Cash flows from investing activities:
Securities held to maturity:
Purchase-fixed maturity securities		-			(1,501,387	)
Calls and maturities - fixed maturity securities		10,249,116			1,056,489
Securities available for sale:
Purchase-fixed maturity securities		(7,364	)		-
Sales-equity securities		603,222			-
Purchase of short-term investments		(12,241,316	)		(3,773,896	)
Sales of short-term investments		12,123,092			5,463,354
Purchase of restricted assets		(41,310	)		(150,702	)
Changes in assets for perpetual care trusts		44,200			31,029
Amount received for perpetual care trusts		(106,378	)		(32,471	)
Mortgage, policy, and other loans made		(25,130,252	)		(18,046,138	)
Payments received for mortgage, policy and other loans		11,925,761			18,056,810
Purchase of property and equipment		(211,481	)		(941,364	)
Disposal of property and equipment		-			-
Purchase of real estate		(1,104,757	)		(607,420	)
Sale of real estate		15,000			451,633
Net cash provided by (used in) investing activities		(3,882,467	)		5,937


Cash flows from financing activities:
Annuity contract receipts		1,896,861			1,454,087
Annuity contract withdrawals		(4,483,827	)		(3,116,326	)
Sale of treasury stock		17,463			-
Repayment of bank loans on notes and contracts		(9,883,726	)		(364,817	)
Proceeds from borrowing on bank loans		2,548,060			-
Net cash used in financing activities		(9,905,169	)		(2,027,056	)

Net cash in cash and cash equivalents		5,550,763			8,300,085

Cash and cash equivalents at beginning of period		5,203,060			10,376,585

Cash and cash equivalents at end of period	$	10,753,823		$	18,676,670

See accompanying notes to condensed consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2008 (Unaudited)

1. Basis of Presentation

The accompanying unaudited 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 Article 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, 2007, included in the Company’s Annual Report on Form 10-K (file number 0-9341). 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 months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

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.

The estimates susceptible to significant change are those used in determining the liability for future policy benefits and claims, those used in determining valuation allowances for mortgage loans on real estate, and those used in determining the estimated future costs for pre-need sales. Although some variability is inherent in these estimates, management believes the amounts provided are fairly stated in all material respects.

Certain 2007 amounts have been reclassified to bring them into conformity with the 2008 presentation.

2. Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 was effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position (FSP FIN) No. 157-2 which extended the effective date for certain nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008. The adoption of SFAS No. 157 did not have a material effect on the Company’s consolidated financial statements. (See note 7)

In February 2007 the FASB issued SFAS No 159, The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No 115 (“SFAS 159”) SFAS 159 allows measurement at fair value of eligible financial assets and liabilities that are not otherwise measured at fair value. If the fair value option for an eligible item is elected, unrealized gains and losses for that item shall be reported in current earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements designed to draw comparison between the different measurement attributes the Company elects for similar types of assets and liabilities. This statement is effective for fiscal years beginning after November 15, 2007. The Company did not apply the fair value option to any existing financial assets or liabilities as of January 1, 2008. Consequently, the initial adoption of SFAS No. 159 had no impact on the Company’s consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2008 (Unaudited)

2. Recent Accounting Pronouncements (Continued)

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements. SFAS No. 141(R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquire at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SAFS No. 160 clarifies that a non-controlling interest in a subsidiary should be reported as equity in the consolidated financial statements, consolidated net income shall be adjusted to include the net income attributed to the non-controlling interest and consolidated comprehensive income shall be adjusted to include the comprehensive income attributed to the non-controlling interest. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS No. 141(R) and SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. The Company has not yet determined the effect on our consolidated financial statements upon adoption of SFAS No. 141(R) or SFAS No. 160.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. SFAS No. 161 amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities to require enhanced disclosures concerning the manner in which an entity uses derivatives (and the reasons it uses them), the manner in which derivatives and related hedged items are accounted for under SFAS No. 133 and interpretations thereof, and the effects that derivatives and related hedged items have on an entity's financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements of fiscal years and interim periods beginning after November 15, 2008. The Company has not yet determined the effects on its consolidated financial statements, if any, that may result upon the adoption of SFAS 161.

3. Comprehensive Income

For the three months ended March 31, 2008 and 2007, total comprehensive income amounted to $2,791,706 and $1,306,059, respectively. This increase of $1,485,647 was primarily the result of a increase in net income of $630,915, an increase in derivatives of $2,469,362, and a decrease in unrealized gains and losses in securities available for sale of $1,614,630.

4. Stock-Based Compensation

The Company has four fixed option plans (the “1993 Plan,” the “2000 Plan”, the “2003 Plan” and the “2006 Plan”). Compensation cost of $-0- has been recognized for these plans for the quarters ended March 31, 2007 and 2008.

Options to purchase 211,000 shares of the Company’s common stock were granted March 31, 2008. The fair value relating to stock-based compensation is $453,650 and will be expensed as options become available to exercise at the rate of 25% at the end of each quarter over the next twelve months.

The weighted-average fair value of each option granted during the quarter ended March 31, 2008 under the 2003 Plan and 2006 Plan is estimated at $2.15 per share as of the grant date using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield of 5%, volatility of 40%, risk-free interest of 3.4%, and an expected life of ten years.

The weighted-average fair value of each option granted in 2007 under the 2006 Plan is estimated at $2.35 per share as of the grant date using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield of 5%, volatility of 47%, risk-free interest rate of 3.4%, and an expected life of ten years. For the year ended December 31, 2007, the Company calculated compensation expense of $12,440 related to stock options.

The weighted-average fair value of each option granted in 2006 under the 2006 Plan is estimated at $3.11 as of the grant date using the Black Scholes Option Pricing Model with the following assumptions: dividend yield of 5%, volatility of 42%, risk-free interest rate of 3.4%, and an expected life of ten years. For the year ended December 31, 2006, the Company calculated compensation expense of $7,680 related to stock options.

The Company generally estimates the expected life of the options based upon the contractual term of the options. Future volatility is estimated based upon the historical volatility of the Company’s Class A common stock over a period equal to the estimated life of the options. Common stock issued upon exercise of stock options are generally new share issuances rather than from treasury shares.

The Company's Board of Directors granted stock options in 2004 to Scott M. Quist, the Company's President and Chief Operating Officer, to purchase up to 1,000,000 shares of Class C common stock at exercise prices of $.323 and $.36 per share. On May 31, 2007, Mr. Quist made a cashless exercise of such options to purchase a total of 1,157,625 shares of Class C common stock that he was entitled to receive, after adjustments for 5% stock dividends issued in 2005, 2006 and 2007.

In connection with the exercise of such options on a cashless basis, Mr. Quist delivered and the Company indirectly repurchased a total of 58,376 shares of Class A common stock from Mr. Quist in exchange for all the Class C shares he would be entitled to receive for exercising the options. Inasmuch as there were 6,966,849 shares of Class C common stock outstanding as of May 31, 2007 out of a total of 7,500,000 authorized shares of Class C common stock, the Company could legally issue only 533,151 shares of Class C common stock to Mr. Quist, leaving a balance of 624,474 Class C common shares owing to him.

On September 21, 2007 the stockholders approved the amendment to the Articles of Incorporation at the special stockholders meeting that increased the number of Class C common shares to 15,000,000 shares, and, as a result, the Company was able to issue Mr. Quist the additional 624,474 shares of Class C common stock that were owed pursuant to his exercise of stock options.

5. Earnings Per Share

The basic and diluted earnings per share amounts were calculated as follows:

	Three Months Ended March 31,
	2008		2007
Numerator:
Net earnings	$	1,375,456	$	744,541
Denominator:
Basic weighted-average shares outstanding		7,636,372		7,459,970
Effect of dilutive securities:
Employee stock options		95,624		269,822
Stock appreciation rights		-		1,754
Dilutive potential common shares		95,624		271,576
Diluted weighted-average shares outstanding		7,731,996		7,731,546

Basic earnings per share	$	0.18	$	0.10

Diluted earnings per share	$	0.18	$	0.10

Earnings per share amounts have been adjusted for the effect of annual stock dividends.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2008 (Unaudited)

6. Business Segment

			Cemetery/				Reconciling
	Life Insurance		Mortuary		Mortgage		Items			Consolidated
For the Three Months Ended
March 31, 2008
Revenues from external customers	$	12,829,392	$	3,867,872	$	36,524,236	$	-		$	53,221,500

Intersegment revenues		1,627,829		23,001		97,990		(1,748,820	)		-

Segment profit (loss) Before income taxes		415,222		379,407		1,150,306		-			1,944,935

Identifiable Assets		391,121,312		62,370,578		29,215,409		(65,410,478	)		417,296,821

For the Three Months Ended
March 31, 2007
Revenues from external customers	$	11,799,182	$	3,779,216	$	33,467,754	$	-		$	49,046,152

Intersegment revenues		1,337,357		23,001		120,160		(1,480,518	)		-

Segment profit (loss) Before income taxes		605,645		430,577		21,156		-			1,057,378

Identifiable Assets		355,402,102		56,375,977		24,214,000		(53,850,000	)		382,142,073

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2008, (Unaudited)

7. Fair Value of Financial Assets and Financial Liabilities

Financial Accounting Standards Board (“FASB”) Statement No. 157, Fair Value Measurements (“SFAS No. 157”) is effective for fiscal years beginning after November 15, 2007. The Company adopted the provisions of SFAS No. 157 as of January 1, 2008 for financial assets and financial liabilities that are measured at fair value. SFAS No. 157:

Defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and establishes a framework for measuring fair value;

Establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation as of the measurement date;

Expands disclosures about financial instruments measured at fair value.

Financial assets and financial liabilities recorded on the Condensed Consolidated Balance Sheet at fair value are categorized based on the reliability of inputs to the valuation techniques as follows:

Level 1: Financial assets and financial liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we can access.

Level 2: Financial assets and financial liabilities whose values are based on the following:

Quoted prices for similar assets or liabilities in active markets;

Quoted prices for identical or similar assets or liabilities in non-active markets; or

Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability

Level 3: Financial assets and financial liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs may reflect our estimates of the assumptions that market participants would use in valuing the financial assets and financial liabilities.

We utilize a combination of third party valuation service providers, brokers, and internal valuation models to determine fair value.

The following tables summarize Level 1, 2 and 3 financial assets and financial liabilities by their classification in the Condensed Consolidated Statement of Balance Sheet at March 31, 2008.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2008 (Unaudited)

7. Fair Value of Financial Assets and Financial Liabilities (Continued)

								Valued at cost,		Balance as of
								amortized		March 31,
		Level 1		Level 2		Level 3		cost		2008
Financial Assets
Fixed maturity securities	$	2,291,599	$	-	$	-	$	106,703,814	$	108,995,413
Equity securities		5,405,055		-		-		-		5,405,055
Mortgage loans		-		-		6,117,099		98,046,764		104,163,863
Short-term investments		5,455,591		-		-		-		5,455,591
Total Investments		13,152,245		-		6,117,099		204,750,578		224,019,922
Mortgage loans sold to investors		-		-		53,626,541		-		53,626,541
Other assets		-		0		3,381,864		4,659,325		8,041,189
Total Financial Assets	$	13,152,245	$	-	$	63,125,504	$	209,409,903	$	285,687,652

Financial Liabilities
Other liabilities	$	-	$	-	$	(2,266,472)	$	(13,010,602)	$	(15,277,074)

Total Financial Liabilities	$	-	$	-	$	(2,266,472)	$	(13,010,602)	$	(15,277,074)

Following is a summary of changes in the condensed consolidated balance sheet line items measured using level 3 inputs:

				Mortgage
				Loans
	Mortgage			Sold to			Other		Other
	Loans			Investors			Assets		Liabilities

Balance - December 31, 2007	$	4,152,985		$	66,700,694		$	1,319,703	$	(2,155,216	)

Total Gains (Losses):		-			-			-		-

Included in earnings		(362,360	)		-			-		-

Included in other comprehensive income		-			-			2,062,161		(111,256	)

Purchases, issuances, and settlements		2,326,474			(13,074,153	)		-		-

Transfers		-			-			-		-

Balance - March 31, 2008	$	6,117,099		$	53,626,541		$	3,381,864	$	(2,266,472	)

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2008 (Unaudited)

7. Fair Value of Financial Assets and Financial Liabilities (Continued)

The items shown under level three are valued as follows:

Mortgage loans. Mortgage loans have been adjusted to the realizable market value based upon appraisals from third party appraisers.

Mortgage loans sold to investors. Through the Company’s Mortgage Banking operations loans have been sold to third party investors. The value shown is the amount due from these investors based upon the market values at the time of the sale.

Other assets and other liabilities, derivative loan commitments. During 2005, the Company’s mortgage banking activities implemented new practices relating to mortgage loan commitments, including interest rate lock commitments and forward commitments to sell loans to third-party investors. The Company also implemented a hedging strategy for these transactions. A mortgage loan commitment binds the Company to lend funds to a qualified borrower at a specified interest rate and within a specified period of time, generally up to 30 days after inception of the rate lock. Mortgage loan commitments are derivatives under Statement of Financial Accounting Standards No. 133 (“SFAS 133”), Accounting for Derivative Instruments and Hedging Activities, as amended by Statement of Financial Accounting Standards No. 149 (“SFAS 149”), Amendment of Statement 133 on Derivative Instruments and Hedging Activities and must be recognized at fair value on the consolidated balance sheet with changes in their fair values recorded as part of other comprehensive income from mortgage banking operations.

The Company is exposed to price risk due to the potential impact of changes in interest rates on the values of mortgage loan commitments from the time a derivative loan commitment is made to an applicant to the time the loan that would result from the exercise of that loan commitment is funded. Managing price risk is complicated by the fact that the ultimate percentage of derivative loan commitments that will be exercised (i.e., the number of loan commitments that will be funded) fluctuates. The probability that a loan will not be funded within the terms of the commitment is driven by a number of factors, particularly the change, if any, in mortgage rates following the inception of the interest rate lock. However, many borrowers continue to exercise derivative loan commitments even when interest rates have fallen.

In general, the probability of funding increases if mortgage rates rise and decreases if mortgage rates fall. This is due primarily to the relative attractiveness of current mortgage rates compared to the applicant’s committed rate. The probability that a loan will not be funded within the terms of the mortgage loan commitment also is influenced by the source of the applications (retail, broker or correspondent channels), proximity to rate lock expiration, purpose for the loan (purchase or refinance) product type and the application approval status. The Company has developed fallout estimates using historical observed data that take into account all of the variables, as well as renegotiations of rate and point commitments that tend to occur when mortgage rates fall. These fallout estimates are used to estimate the number of loans that the Company expects to be funded within the terms of the mortgage loan commitments and are updated periodically to reflect the most current data. Once a loan is closed, it is classified as a loan receivable-sold to investors.

The Company estimates the fair value of a mortgage loan commitment based on the change in estimated fair value of the underlying mortgage loan and the probability that the mortgage loan will fund within the terms of the commitment. The change in fair value of the underlying mortgage loan is measured from the date the mortgage loan commitment is issued. Therefore, at the time of issuance, the estimated fair value is zero. Following issuance, the value of a mortgage loan commitment can be either positive or negative depending upon the change in value of the underlying mortgage loans. Fallout rates derived from the Company’s recent historical empirical data are used to estimate the quantity of mortgage loans that will fund within the terms of the commitments.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2008 (Unaudited)

7. Fair Value of Financial Assets and Financial Liabilities (Continued)

The Company utilizes various derivative instruments to economically hedge the price risk associated with its outstanding mortgage loan commitments. Management expects these derivatives will experience changes in fair value opposite to changes in fair value of the derivative loan commitments, thereby reducing earnings volatility related to the recognition in earnings of changes in the values of the commitments. A forward loan sales commitment protects the Company from losses on sales of the loans arising from exercise of the loan commitments by securing the ultimate sales price and delivery date of the loans. For mortgage loan commitments not protected by a forward sales commitment, the instruments used to economically hedge the fair value of the mortgage loan commitments include other freestanding derivatives such as mortgage backed securities, options and U.S. Treasury futures. The Company takes into account various factors and strategies in determining the portion of the mortgage loan commitments it wants to hedge economically.

8. Other Business Activity

On December 29, 2006, the Company, through its wholly owned subsidiary, Security National Life, entered into an agreement to sell Southern Security Life to American Network Insurance Company ("American Network"), a Pennsylvania corporation and wholly owned subsidiary of Penn Treaty America Corporation, a Pennsylvania corporation. The transaction was subject to and conditioned upon the subsequent approval of the transaction by the Florida Office of Insurance Regulation, the Florida Department of Financial Services, and the Pennsylvania Department of Insurance by an agreed upon date.

The transaction to sell Southern Security Life was rescinded because the regulatory authorities did not approve the transaction as required. As a result of the rescission of the transaction, Articles of Dissolution of Security National Life were filed with the Florida Division of Corporations on December 24, 2007. The filing of the Articles of Dissolution completed the liquidation of Southern Security Life in accordance with the terms of the Agreement and Plan of Complete Liquidation of Southern Security Life into Security National Life, which had been approved on December 12, 2005.

On March 5, 2007, the Company received a proposed consent order from the Florida Office of Insurance Regulation concerning the New Success Life Program, the higher education product previously being marketed and sold by Southern Security Life and now marketed and sold by Security National Life. The proposed order states that as a result of an investigation the Florida Office of Insurance Regulation has determined that Southern Security Life violated Florida law (i) by knowingly making statements, sales presentations, omissions or comparisons that misrepresented the benefits, advantages, or terms of the New Success Life Program, and (ii) by knowingly making, advertisements, announcements, or statements containing representations that were untrue or misleading.

The proposed order would require Security National Life and Southern Security Life to immediately cease and desist from making any false or misleading representations to Florida consumers suggesting that the New Success Life Program would accumulate enough value to pay for college expenses in full. The proposed order would also require Security National Life and Southern Security Life to agree to no longer market or sell the New Success Life Program in the State of Florida. In addition, Security National Life and Southern Security Life would be required to send a written notice to Florida consumers who purchased the New Success Life Program on or after January 1, 1998 stating that the higher education program is a whole life insurance product, with a term and annuity rider, and not a college trust fund, savings plan, or other program, and it may not necessarily pay college expenses in full from the accumulated value.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2008 (Unaudited)

8. Other Business Activity (Continued)

Moreover, the written notice is to provide an opportunity for the Florida consumers who purchased the New Success Life Program on or after January 1, 1998 to cancel their policy and be given a full refund, including all premiums paid, together with interest at the agreed upon rate in the original contract. If each of the Florida consumers who purchased the New Success Life Program after January 1, 1998 was to cancel his or her policy and receive a refund, the cost to the Company to refund all premiums paid, including interest, would be approximately $8,200,000.

The proposed consent order would also require Security National Life and Southern Security Life to issue refunds including interest to the eleven policyholders whose affidavits were taken in connection with the administrative complaint that the Florida Office of Insurance Regulation had previously filed against Franz Wallace, the former National Sales Director of Southern Security Life. Security National Life and Southern Security Life would additionally be required to issue refunds, including interest, to any Florida policyholder in the New Success Life Program who had filed a complaint with the Florida Department of Financial Services or whose coverage had lapsed. Furthermore, Security National Life and Southern Security Life would be required to notify the state insurance department in each state in which the New Success Life Program is marketed of the order and any complaint that Southern Security Life received relating to the New Success Life Program from policyholders in that state. Finally, Security National Life and Southern Security Life would be required to pay the Florida Office of Insurance Regulation a penalty of $100,000 and administrative costs of $5,000.

The Company disputes the terms of the proposed consent order. The Company is not aware of specific concerns that the Florida Office of Insurance Regulation has with the New Success Life Program because it has received no specific administrative complaint from the Florida Office nor is it aware of any recent market conduct examination that the Florida Office has conducted relative to the program. The Company intends to vigorously oppose the proposed consent order. The Company is currently engaged in discussions with the Florida Office of Insurance Regulation in an effort to settle the dispute concerning the proposed order. If the Company is unable to reach a satisfactory resolution with the Florida Office of Insurance Regulation with respect to the terms of the proposed consent order and the Florida Office of Insurance Regulation issues a similar order, the Company intends to take action necessary to protect its rights and interests, including requesting a hearing before an administrative law judge to oppose the order.

In June 2007, the Company completed the sale of the Colonial Funeral Home property to the Utopia Station Development Corp. for $730,242, net of selling costs of $44,758. The Colonial Funeral Home ceased operations in July 2006 and has been inactive since that date. The carrying amount on the Company's financial statements on June 20, 2007 was $148,777. As a result of the sale, including payment of selling expenses, the Company recognized a gain of $581,465. The Company received an initial payment of $15,242, with the remaining amount due of $715,000 to be paid in a lump sum within a year from the date of sale.

On June 12, 2007, Security National Life Insurance Company entered into a revolving line of credit with a financial institution to borrow up to $40,000,000. The revolving line of credit is secured by commercial mortgages and construction loans. The terms of the revolving line of credit are for a one year term and interest is based upon the one year LIBOR rate (6.95% as of March 31, 2008). Accrued Interest is payable on a monthly basis, with the principal, together with any outstanding accrued interest, to be paid in full on June 12, 2008. Security National Life Insurance Company intends to use this financing to provide short term liquidity for its commercial mortgage, construction and warehouse lending operations of its affiliate SecurityNational Mortgage. The amount outstanding as of March 31, 2008 was $0.

Recently, SecurityNational Mortgage renewed its warehouse lines of credit with its non-affiliated warehouse lenders. The total amount available under these lines of credit is $450,000,000. The terms of the lines of credit are for one year, with interest rates ranging from 1.5% to 1.75% over the three month LIBOR (6.42% to 6.67% as of March 31, 2008).

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2008 (Unaudited)

8. Other Business Activity (Continued)

On July 16, 2007, the Company acquired all of the membership interests of C & J Financial, LLC. The results of C & J Financial’s operations have been included in the consolidated financial statements from July 16, 2007.

On December 20, 2007, the Company, through its wholly owned subsidiary, Security National Life, acquired all of the outstanding common stock of Capital Reserve Life Insurance Company, a Missouri domiciled insurance company. The results of Capital Reserve Life’s operations have been included in the consolidated financial statements from December 17, 2007.

The $2,100,000 of funds held in escrow by the Company’s attorney have been included in the accompanying consolidated balance sheet at December 31, 2007 in receivables with the $1,966,760 liability payable to the shareholders included in other liabilities and accrued expenses.

The following unaudited pro forma information has been prepared to present the results of operations of the Company assuming the acquisitions of C & J Financial and Capital Reserve Life had occurred at the beginning of the year ended December 31, 2007. This pro forma information is supplemental and does not necessarily present the operations of the Company that would have occurred had the acquisitions occurred on that date and may not reflect the operations that will occur in the future:

	For the Three Months Ended
(Unaudited)	March 31, 2007
Total revenues	$	50,038,000
Net earnings	$	992,000
Net earnings per Class A equivalent common share	$	0.12
Net earnings per Class A equivalent common share assuming dilution	$	0.11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company’s operations over the last several years generally reflect three trends or events which the Company expects to continue: (i) increased attention to “niche” insurance products, such as the Company’s funeral plan policies and traditional whole-life products; (ii) emphasis on cemetery and mortuary business; and (iii) capitalizing on lower interest rates by originating and refinancing mortgage loans.

Mortgage Operations

During the three months ended March 31, 2008, SecurityNational Mortgage Company (“SecurityNational Mortgage”) experienced an increase in revenues and expenses due to the increase in loan revenue of its mortgage operations. 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 independent brokers and correspondents. SecurityNational Mortgage funds the loans from internal cash flows and lines of credit from 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 to these loans. SecurityNational Mortgage pays the brokers and correspondents a commission for loans that are brokered through SecurityNational Mortgage. SecurityNational Mortgage originated and sold 4,507 loans ($870,395,000 total volume) and 5,082 loans ($932,416,000 total volume), for the three months ended March 31, 2008 and 2007, respectively.

The mortgage industry is currently experiencing substantial change due to higher than expected delinquencies from subprime loans. The market for new subprime loans has been substantially reduced and several mortgage companies whose primary product was subprime mortgage originations have ceased operations. The Company funded $5,505,000 (0.14% of the Company’s production) in subprime loans during the twelve months ending December 31, 2007 and has currently eliminated subprime loans from its product offerings. The Company believes that its potential losses from subprime loans are minimal.

The industry problem with subprime mortgages has created a volatile secondary market for other products, especially alternative documentation (Alt A) loans. Alt A loans are typically offered to qualified borrowers who have relatively high credit scores but are not required to provide full documentation to support personal income and assets owned. Alt A loans can have a loan to value ratio as high as 100%. As a result of these changes, the Company is not offering these loans.

As of March 31, 2008, the Company was holding a total of $16,649,000 in Alt A loans that had not been settled by investors. This is down from $88,581,000 as of June 30, 2007. The market for the remaining Alt A loans is uncertain and if the Company was unable to sell its Alt A loans it will be required to assume the risk of holding and servicing such loans. If warehousing lines are not available, the Company believes it has adequate liquidity through its life insurance operations to carry such loans until purchased by investors.

Even though market conditions have improved somewhat, the Company expects further significant industry challenges to continue through the remainder of 2008. Under these circumstances it is difficult to predict profitability, if any. Profitability may be impacted by volume reduction, changes in margins, increased borrowing costs, and future loan losses. Management has taken and will continue to take a number of actions in response to the changing market conditions. These include the elimination of high risk products, modification of underwriting guidelines, closing unprofitable branch offices, obtaining new warehousing agreements at lower interest rates, and expense reduction initiatives.

During the three months ending March 31, 2008, the Company experienced loan losses of $753,000. This amount was charged against the provision for loan losses. The balance of the reserve for loan losses at March 31, 2008 was $3,306,000. The provision for loan losses is included in other general and administrative expenses. Because of the market conditions the Company has increased its monthly loan loss to 17.5 basis points of total production. The Company believes the loan loss reserves are sufficient to cover reasonably foreseeable future loan losses and that its formula for determining the provision for such reserves is adequate.

On June 12, 2007, Security National Life Insurance Company entered into a revolving line of credit with a financial institution to borrow up to $40,000,000. The revolving line of credit is secured by commercial mortgages and construction loans. The terms of the revolving line of credit are for a one year term and interest is based upon the one year LIBOR rate (6.95% as of March 31, 2008). Accrued interest is payable on a monthly basis, with the principal, together with any outstanding accrued interest, to be paid in full on June 12, 2008. Security National Life Insurance Company intends to use this financing to provide short term liquidity for its commercial mortgage, construction and warehouse lending operations of its affiliate SecurityNational Mortgage. The amount outstanding as of March 31, 2008 was $0.

Recently, SecurityNational Mortgage renewed its warehouse lines of credit with its non affiliated warehouse lenders. The total amount available under these lines of credit is $450,000,000. The terms of the lines of credit are for one year, with interest rates ranging from 1.5% to 1.75% over the three month LIBOR rate (6.42% to 6.67% as of March 31, 2008).

Results of Operations

Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2008

Total revenues increased by $4,175,000, or 8.5%, to $53,221,000 for the three months ended March 31, 2008, from $49,046,000 for the three months ended March 31, 2007. Contributing to this increase in total revenues was a $3,967,000 increase in mortgage fee income, a $773,000 increase in insurance premiums and other considerations, a $79,000 increase in net mortuary and cemetery sales, a $50,000 increase in other revenues, and a $45,000 increase in realized gains on investments and other assets. These increases were partially offset by a $739,000 decrease in net investment income.

Insurance premiums and other considerations increased by $773,000, or 9.7%, to $8,736,000 for the three months ended March 31, 2008, from $7,963,000 for the comparable period in 2007. This increase was primarily due to the additional premiums realized from new insurance sales and from the acquisition of Capital Reserve Life Insurance Company on December 20, 2007.

Net investment income decreased by $739,000, or 9.3%, to $7,204,000 for the three months ended March 31, 2008, from $7,943,000 for the comparable period in 2007. This reduction was primarily attributable to decreased interest income from mortgage loans on real estate but partially offset by an increase in investment income from the purchase of C&J Financial and Capital Reserve Life.

Net mortuary and cemetery sales increased by $79,000, or 2.3%, to $3,590,000 for the three months ended March 31, 2008, from $3,511,000 for the comparable period in 2007. This increase was due to increased at-need sales in the cemetery and mortuary operations and increased pre-need sales of burial spaces in the cemetery operations.

Realized gains on investments and other assets increased by $45,000, or 204.5% to $23,000 for the three months ended March 31, 2008 from a realized loss of $22,000 for the comparable period in 2007. This was due to various small gains in the investment portfolio.

Mortgage fee income increased by $3,967,000, or 13.4%, to $33,489,000 or the three months ended March 31, 2008, from $29,522,000 for the comparable period in 2007. This increase was primarily attributable to an increase in loan fees during the first quarter of 2008 on loan production at existing mortgage offices.

Other revenues increased by $50,000, or 38.8%, to $179,000, for the three months ended March 31, 2008 from $129,000 for the comparable period in 2007. This increase was due to increases in several small income items throughout the Company's operations.

Total benefits and expenses were $51,277,000, or 96.3% of total revenues, for the three months ended March 31, 2007, as compared to $47,989,000 or 97.8% of total revenues, for the comparable period in 2007. This increase primarily resulted from increase loan costs at SecurityNational Mortgage Company and increases in the loan loss reserve and loan allowances balances.

Death benefits, surrenders and other policy benefits, and increase in future policy benefits increased by an aggregate of $1,051,000, or 14.1%, to $8,495,000 for the three months ended March 31, 2008, from $7,444,000 for the comparable period in 2007. This increase was primarily due to increased insurance business, increased reserves for policyholder benefits and death claims, and from the acquisition of Capital Reserve Life on December 20, 2007.

Amortization of deferred policy and pre-need acquisition costs and value of business acquired decreased by $212,000, or 15.6%, to $1,148,000 for the three months ended March 31, 2008, from $1,360,000 for the comparable period in 2007. This reduction was primarily due to a decrease in deferred acquisition cost balances associated with interest sensitive products.

General and administrative expenses increased by $3,332,000, or 9.4%, to $38,765,00 for the three months ended March 31, 2008, from $35,433,000 for the comparable period in 2007. This increase primarily resulted from an increase in commission expenses of $297,000, from $22,440,000 in the first quarter of 2007 to $22,737,000 in the first quarter of 2008, due to increased mortgage loan origination costs made by SecurityNational Mortgage and increased life insurance sales during the first quarter of 2008. Salaries increased by $481,000 from $5,785,000 in the first quarter of 2007 to $6,266,000 in the first quarter of 2008, primarily due to merit increases in salaries of existing employees and an increase in the number of employees necessitated by the Company's expanding business operations. Other expenses increased by $2,555,000 from $7,208,000 in the first quarter of 2007 to $9,763,000 in the first quarter of 2008. The increase in other expenses primarily resulted from increased costs at SecurityNational Mortgage and increases in the loan reserves and loan allowances balance.

Interest expense decreased by $908,000, or 29.3%, to $2,191,000 for the three months ended March 31, 2008, from $3,099,000 for the comparable period in 2007. This reduction was primarily due to decreased warehouse lines of credit required for a reduced number of warehoused mortgage loans by SecurityNational Mortgage.

Cost of goods and services sold of the mortuaries and cemeteries increased by $25,000, or 3.8%, to $677,000 for the three months ended March 31, 2008, from $652,000 for the comparable period in 2007. This increase was primarily due to increased at-need cemetery sales.

Liquidity and Capital Resources

The Company’s life insurance subsidiaries and cemetery and mortuary subsidiaries realize cash flow from premiums, contract payments and sales on personal services rendered for cemetery and mortuary business, from interest and dividends on invested assets, and from the proceeds from the maturity of held-to-maturity investments or sale of other investments. The mortgage subsidiary realizes cash flow from fees generated by originating and refinancing mortgage loans and interest earned on mortgages sold to investors. The Company considers these sources of cash flow to be adequate to fund future policyholder and cemetery and mortuary liabilities, which generally are long-term, and adequate to pay current policyholder claims, annuity payments, expenses on the issuance of new policies, the maintenance of existing policies, debt service, and to meet operating expenses.

During the three months ended March 31, 2008, the Company's operations provided cash of $19,338,000, while cash totaling $10,321,000 was provided by operations during the three months ended March 31, 2007. This was due to a decrease of $13,074,000 in the balance of mortgage loans sold to investors, which is attributed to a lower mortgage loan volume for the first three months of 2008 versus mortgage loan volume during the first three months of 2007. The decrease in such balance resulted from a decrease in mortgage loans originated but not yet settled by investors as of March 31, 2008.

On June 12, 2007, Security National Life Insurance Company entered into a revolving line of credit with a financial institution to borrow up to $40,000,000. The revolving line of credit is secured by commercial mortgages and construction loans. The terms of the revolving line of credit are for a one year term and interest is based upon the one year LIBOR rate (6.95% as of March 31, 2008). Accrued interest is payable on a monthly basis, with the principal, together with any outstanding accrued interest, to be paid in full on June 12, 2008. Security National Life Insurance Company intends to use this financing to provide short term liquidity for its commercial mortgage, construction and warehouse lending operations of its affiliate SecurityNational Mortgage. The amount outstanding as of March 31, 2008 was $0.

The Company attempts to match the duration of invested assets with its policyholder and cemetery and mortuary liabilities. The Company may sell investments other than those held-to-maturity in the portfolio to help in this timing; however, to date, that has not been necessary. The Company purchases short-term investments on a temporary basis to meet the expectations of short-term requirements of the Company’s products.

The Company’s investment philosophy is intended to provide a rate of return, which will persist during the expected duration of policyholder and cemetery and mortuary liabilities regardless of future interest rate movements.

The Company’s investment policy is to invest predominantly in fixed maturity securities, mortgage loans, and warehousing of mortgage loans on a short-term basis before selling the loans to investors in accordance with the requirements and laws governing the life insurance subsidiaries. Bonds owned by the insurance subsidiaries amounted to $108,995,000 as of March 31, 2008, compared to $119,777,000 as of December 31, 2007. This represents 42.8% and 47.6% of the total investments as of March 31, 2008, and December 31, 2007, respectively. Generally, all bonds owned by the life insurance subsidiaries are rated by the National Association of Insurance Commissioners. Under this rating system, there are six categories used for rating bonds. At March 31, 2008, 3.4% (or $3,668,000) and at December 31, 2007, 3.1% (or $3,708,000) of the Company’s total bond investments were invested in bonds in rating categories three through six, which are considered non-investment grade.

The Company has classified certain of its fixed income securities, including high-yield securities, in its portfolio as available for sale, with the remainder classified as held to maturity. However, in accordance with Company policy, any such securities purchased in the future will be classified as held to maturity. Business conditions, however, may develop in the future which may indicate a need for a higher level of liquidity in the investment portfolio. In that event the Company believes it could sell short-term investment grade securities before liquidating higher-yielding longer-term securities.