What changed in this filing

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Item 1. Financial Statements

2021-05-17 compared with 2020-11-13 · 334 added, 535 removed, 1174 unchanged (43% of the section changed)

1 unchanged sentence

Fixed maturity securities, available for sale, at estimated fair value

(amortized cost of $256,894,421 and $265,150,484 for 2021 and 2020)

$ 279,550,528

$ 294,656,679

Equity securities at estimated fair value

Equity securities at estimated fair value (cost of $8,913,275 and $9,698,490 for 2021 and 2020)

Mortgage loans held for investment (net of allowances for loan losses of $1,897,155 and $2,005,127 for 2021 and 2020)

51 unchanged sentences

Retained earnings

Treasury stock at cost - 189,390 Class A shares in 2020 and 490,823 Class A shares in 2019

Treasury stock at cost - 77,825 Class A shares and 56,276 Class C shares in 2021;

and 227,852 Class A shares and 10,985 Class C shares in 2020

Total stockholders' equity

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

Three Months Ended September 30

Nine Months Ended September 30

Three Months Ended March 31

Mortgage fee income

Insurance premiums and other considerations

2 unchanged sentences

Gains (losses) on investments and other assets

Mortgage fee income

Total revenues

15 unchanged sentences

Net earnings per Class A Equivalent common share-assuming dilution (1)

Weighted-average Class A equivalent common share outstanding (1)

Weighted-average Class A equivalent common shares outstanding (1)

Weighted-average Class A equivalent common shares outstanding-assuming dilution (1)

(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).

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended September 30

Nine Months Ended September 30

Three Months Ended March 31

Other comprehensive income:

Unrealized gains on fixed maturity securities available for sale

Unrealized gains on restricted assets

Unrealized losses on cemetery perpetual care trust investments

Unrealized gains (losses) on fixed maturity securities available for sale

$ (6,805,903)

Unrealized gains (losses) on restricted assets

Unrealized gains (losses) on cemetery perpetual care trust investments

Foreign currency translation adjustments

Other comprehensive income, before income tax

Other comprehensive income (loss), before income tax

Income tax benefit (expense)

Other comprehensive income, net of income tax

Comprehensive income

Other comprehensive income (loss), net of income tax

Comprehensive income (loss)

$ (7,427,864)

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Class A Common Stock

13 unchanged sentences

Purchase of treasury stock

Stock dividends

Conversion Class C to Class A

3 unchanged sentences

$ 271,867,841

Other comprehensive income

Stock-based compensation expense

Exercise of stock options

Sale of treasury stock

Purchase of treasury stock

Stock dividends

Conversion Class C to Class A

June 30, 2020

$ 120,126,524

$ (1,542,276)

$ 222,614,226

Other comprehensive income

Stock-based compensation expense

Sale of treasury stock

Purchase of treasury stock

Stock dividends

Conversion Class C to Class A

September 30, 2020

$ 149,428,819

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited) (Continued)

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

Class A Common Stock

5 unchanged sentences

January 1, 2020

Other comprehensive income

$ 101,256,229

$ (1,580,582)

$ 196,710,605

Other comprehensive loss

Stock-based compensation expense

6 unchanged sentences

$ 102,677,084

Other comprehensive income

Stock-based compensation expense

Exercise of stock options

Sale of treasury stock

Purchase of treasury stock

Conversion Class C to Class A

June 30, 2019

$ (1,446,109)

Other comprehensive loss

Stock-based compensation expense

Exercise of stock options

Sale of treasury stock

Purchase of treasury stock

Conversion Class C to Class A

September 30, 2019

$ 189,712,263

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

SECURITY NATIONAL FINANCIAL CORPORATION

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30

Three Months Ended March 31

Cash flows from operating activities:

Net cash used in operating activities

Net cash provided by (used in) operating activities

$ 100,975,851

12 unchanged sentences

Purchases of property and equipment

Sales of property and equipment

Purchases of real estate

Sales of real estate

Cash paid for purchase of subsidiaries, net of cash acquired

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

3 unchanged sentences

Purchases of treasury stock

Repayment of bank and other loans

(251,041,466)

(139,046,605)

Proceeds from bank borrowings

Repayment of bank loans

Proceeds from bank loans

Net change in warehouse line borrowings for loans held for sale

Net cash provided by financing activities

Net cash provided by (used in) financing activities

Net change in cash, cash equivalents, restricted cash and restricted cash equivalents

7 unchanged sentences

Non Cash Operating, Investing and Financing Activities:

Transfer of loans held for sale to mortgage loans held for investment

Right-of-use assets obtained in exchange for operating lease liabilities

Accrued real estate construction costs and retainage

Benefit plans funded with treasury stock

Right-of-use assets obtained in exchange for operating lease liabilities

Mortgage loans held for investment foreclosed into real estate held for investment

Accrued real estate construction costs and retainage

Transfer of loans held for sale to mortgage loans held for investment

Right-of-use assets obtained in exchange for finance lease liabilities

Mortgage loans held for investment foreclosed into receivables

See Note 15 regarding non cash transactions included in the acquisition of Probst Family Funeral and Cremations and Heber Valley Funeral Home.

SECURITY NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

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

Three Months Ended March 31

Cash and cash equivalents

9 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

1) Basis of Presentation

3 unchanged sentences

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Operating results for the three months ended March 31, 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.

The novel coronavirus (“COVID-19”) spread rapidly across the world in the first, second and third quarters of 2020 and was declared a pandemic (the “COVID-19 Pandemic”) by the World Health Organization.

The government and private sector responses to contain its spread began to affect the Company’s operations in March, have continued to affect the Company’s operations and will likely continue to affect nearly all of the Company’s operations, although such effects may vary significantly.

The duration and extent of the effects over longer terms cannot be reasonably estimated at this time.

The risks and uncertainties resulting from the pandemic that may affect the Company’s future earnings, cash flows, and financial condition include the nature and duration of the curtailment or closure of the Company’s various facilities and the long-term effect on the demand for the Company’s products and services.

Accordingly, significant estimates used in the preparation of the Company’s financial statements may be subject to significant adjustments in future periods.

10 unchanged sentences

Although some variability is inherent in these estimates, management believes the amounts provided are fairly stated in all material respects.

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 poses 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 COVID-19 pandemic and assessing its impact on the Company’s business.

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, which include the implementation of travel bans, self-imposed quarantine periods, and social distancing.

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, such as business travel restrictions and 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

March 31, 2021 (Unaudited)

2) Recent Accounting Pronouncements

7 unchanged sentences

See Note 8 for the Company’s fair value disclosures.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

2) Recent Accounting Pronouncements (Continued)

Accounting Standards Adopted in 2019

“Leases (Topic 842)” - Issued in February 2016, ASU 2016-02 supersedes the requirements in Accounting Standards Codification (“ASC”) Topic 840, “Leases”, and was issued to increase transparency and comparability among organizations.

The new standard sets forth the principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors.

ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record on the balance sheet right-of-use assets and lease liabilities, equal to the present value of the remaining lease payments.

The lease classification will determine whether the lease expense is recognized based on an effective interest rate met hod or a straight-line basis over the term of the leases.

The FASB further clarified ASU 2016-02 and provided targeted improvements by issuing ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20.

The Company adopted this standard on January 1, 2019 using the modified retrospective transition method with no cumulative-effect adjustment to the opening balance of retained earnings.

Under this transition method, the application date was the beginning of the reporting period, January 1, 2019, in which the Company first applied the standard.

Under this transition option, the Company will apply the legacy guidance in ASC 840, “Leases”, including its disclosure requirements, in the comparative periods presented in the year of adoption.

The Company has made an accounting policy election not to apply the recognition requirements to short-term leases, which are leases that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying assets that the lessee is reasonably certain to exercise.

The new authoritative guidance allows for certain practical expedients to be utilized to assist with the implementation of the new standard.

The Company has elected the transition package of practical expedients which allows the Company to not reassess whether any expired or existing contracts are or contain leases, to not reassess the lease classification for any expired or existing leases and to not reassess initial direct costs for any existing leases.

The Company implemented a third-party lease accounting system to assist with the measurement of the lease liabilities and the related right-of-use assets.

The Company compiled an inventory of its leases, determined the appropriate discount rates and has determined the impact of this standard which is not material to the Company’s results of operations, but has an effect on the balance sheet presentation for leased assets and obligations.

The Company recognized a right-of-use asset and related lease liability for approximately $12,076,000 on January 1, 2019.

This standard did not impact the Company’s accounting for leases where the Company is the lessor.

Accounting Standards Issued But Not Yet Adopted

4 unchanged sentences

however, Topic 326 will require that credit losses be presented as an allowance rather than as a write-down.

In November 2019, the FASB issued an update to ASU No.

2016-13 that made the ASU effective for the Company on January 1, 2023.

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.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

2) Recent Accounting Pronouncements (Continued)

“Financial Services – Insurance (Topic 944):

7 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

3) Investments

The Company’s investments as of September 30, 2020 are summarized as follows:

The Company’s investments as of March 31, 2021 are summarized as follows:

Amortized Cost

2 unchanged sentences

Estimated Fair Value

September 30, 2020 :

March 31, 2021 :

Fixed maturity securities, available for sale, at estimated fair value:

8 unchanged sentences

$ 279,550,528

$ 344,917,387

Equity securities at estimated fair value:

1 unchanged sentence

Industrial, miscellaneous and all other

$ (1,934,161)

Total equity securities at estimated fair value

$ (1,934,161)

Mortgage loans held for investment at amortized cost:

22 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

3) Investments (Continued)

8 unchanged sentences

Government agencies

$ 142,740,641

$ 143,347,611

Obligations of states and political subdivisions

10 unchanged sentences

Mortgage loans held for investment at amortized cost:

$ 113,043,965

Residential construction

21 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 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, 2020 and December 31, 2019.

The following tables summarize unrealized losses on fixed maturity securities available for sale, which were carried at estimated fair value, at March 31, 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

Unrealized Losses for More than Twelve Months

Total Unrealized Loss

At September 30, 2020

At March 31, 2021

Obligations of States and Political Subdivisions

1 unchanged sentence

Mortgage and other asset-backed securities

Redeemable preferred stock

Total unrealized losses

At December 31, 2020

Treasury Securities and Obligations

Government Agencies

Obligations of States and Political Subdivisions

2 unchanged sentences

Total unrealized losses

There were 113 securities with fair value of 93.5% of amortized cost at September 30, 2020.

There were 79 securities with fair value of 97.3% of amortized cost at March 31, 2021.

There were 63 securities with fair value of 94.7% of amortized cost at December 31, 2020.

No credit losses have been recognized for the three and nine months ended September 30, 2020 and 2019.

No credit losses have been recognized for the three months ended March 31, 2021 and 2020.

On a quarterly basis, the Company evaluates its fixed maturity securities available for sale.

6 unchanged sentences

If it is unlikely that the security will meet contractual obligations, the loss is considered to be other than temporary, the security is written down to the new anticipated market value and an impairment loss is recognized.

Impairment losses are treated as credit losses as the Company holds fixed maturity securities to maturity unless the underlying conditions have changed in the financial instrument to require an impairment.

The fair values of fixed maturity securities are based on quoted market prices, when available.

2 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

3) Investments (Continued)

The amortized cost and estimated fair value of fixed maturity securities available for sale, at September 30, 2020, by contractual maturity, are shown below.

The following table presents a rollforward of the Company's cumulative other than temporary credit impairments (“OTTI”) recognized in earnings on fixed maturity securities available for sale for the three months ended March 31:

Balance of credit-related OTTI at January 1

Additions for credit impairments recognized on:

Securities not previously impaired

Securities previously impaired

Reductions for credit impairments previously recognized on:

Securities that matured or were sold during the period (realized)

Securities due to an increase in expected cash flows

Balance of credit-related OTTI at March 31

The amortized cost and estimated fair value of fixed maturity securities available for sale at March 31, 2021, by contractual maturity, are shown below.

Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

9 unchanged sentences

The Company is a member of the Federal Home Loan Bank of Des Moines and Dallas (“FHLB”).

The Company pledged a total of $90,000,000, par value, of United States Treasury fixed maturity securities with the FHLB at September 30, 2020.

The Company pledged a total of $40,000,000, par value, of United States Treasury fixed maturity securities with the FHLB at March 31, 2021.

These securities are used as collateral on any cash borrowings from the FHLB.

As of September 30, 2020, the Company owed $88,000,000 to the FHLB and its estimated remaining maximum borrowing capacity was $384,000.

As of March 31, 2021, the Company did not have any amounts outstanding with the FHLB and its estimated remaining maximum borrowing capacity was $38,559,265.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2021 (Unaudited)

3) Investments (Continued)

Investment Related Earnings

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

Three Months Ended September 30

Nine Months Ended September 30

Three Months Ended March 31

Fixed maturity securities:

7 unchanged sentences

Gross realized losses

$ (3,212,247)

The net realized gains and losses on the sale of securities are recorded on the trade date, and the cost of the securities sold is determined using the specific identification method.

On December 31, 2019, the Company changed the classification of its bond and preferred stock investments from held to maturity to available for sale based on the Company’s need to be able to respond proactively to market risks in managing its portfolio.

Proceeds received from the sale of fixed maturity available for sale securities for the nine months ended September 30, 2020, were $2,967,531, and resulted in gross realized gains and gross realized losses of $149,641 and $1,043, respectively.

The carrying amount of held to maturity securities sold for the nine months ended September 30, 2019 was $2,724,199 and the net realized loss related to these sales was $12,394.

Information regarding sales of fixed maturity securities available for sale is summarized as follows:

Three Months Ended March 31

Proceeds from sales

Gross realized gains

Gross realized losses

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

3) Investments (Continued)

Major categories of net investment income are as follows:

Three Months Ended September 30

Nine Months Ended September 30

Three Months Ended March 31

Fixed maturity securities

1 unchanged sentence

Mortgage loans held for investment

Real estate held for investment

Insurance assignments

4 unchanged sentences

Net investment income

Net investment income includes income earned by the restricted assets cemeteries and mortuaries of $129,347 and $102,888 for the three months ended September 30, 2020 and 2019, respectively, and $380,079 and $323,404 for the nine months ended September 30, 2020 and 2019, respectively.

Net investment income includes income earned by the restricted assets cemeteries and mortuaries of $161,211 and $110,639 for the three months ended March 31, 2021 and 2020, respectively.

Net investment income on real estate consists primarily of rental revenue.

Investment expenses consist primarily of depreciation, property taxes, operating expenses of real estate and an estimated portion of administrative expenses relating to investment activities.

Securities on deposit with regulatory authorities as required by law amounted to $9,735,147 at September 30, 2020 and $9,633,818 at December 31, 2019.

Securities on deposit with regulatory authorities as required by law amounted to $9,864,903 at March 31, 2021 and $9,684,409 at December 31, 2020.

These restricted securities are included in various assets under investments on the accompanying condensed consolidated balance sheets.

There were no investments, aggregated by issuer, in excess of 10% of shareholders’ equity (before net unrealized gains and losses on equity securities and fixed maturity securities) at September 30, 2020, other than investments issued or guaranteed by the United States Government.

There were no investments, aggregated by issuer, in excess of 10% of shareholders’ equity (before net unrealized gains and losses on equity securities and fixed maturity securities) at March 31, 2021, other than investments issued or guaranteed by the United States Government.

Real Estate Held for Investment and Held for Sale

The Company continues to strategically deploy resources into real estate to match the income and yield durations of its primary obligations.

The Company strategically deploys resources into real estate to match the income and yield durations of its primary obligations.

The sources for these real estate assets come through its various business units in the form of acquisition, development and mortgage foreclosures.

7 unchanged sentences

The Company generally looks to acquire assets in regions that are high growth regions for employment and population and in assets that provide operational efficiencies.

The Company currently owns and operates 12 commercial properties in 5 states.

These properties include office buildings, an assisted living facility, a funeral home, flex office space, and includes the redevelopment and expansion of its corporate campus (“Center53”) in Salt Lake City, Utah.

The Company also holds undeveloped land that may be

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

3) Investments (Continued)

used for future commercial developments.

The Company currently owns and operates 11 commercial properties in 5 states.

These properties include office buildings, a funeral home, flex office space, and includes the redevelopment and expansion of its corporate campus (“Center53”) in Salt Lake City, Utah.

The Company also holds undeveloped land that may be used for future commercial developments.

The Company uses bank debt in strategic cases to leverage established yields or to acquire a higher quality or different class of asset.

The aggregated net ending balance of commercial real estate that serves as collateral for bank borrowings was approximately $70,054,000 and $87,815,000 as of September 30, 2020 and December 31, 2019, respectively.

The associated bank loan carrying values totaled approximately $46,681,000 and $54,917,000 as of September 30, 2020 and December 31, 2019, respectively.

During the three months ended September 30, 2020 and 2019, the Company recorded impairment losses on commercial real estate held for sale of $800,000 and $790,827, respectively.

During the nine months ended September 30, 2020 and 2019, the Company recorded impairment losses on commercial real estate held for sale of $846,980 and $2,658,024, respectively.

The aggregated net ending balance of commercial real estate that serves as collateral for bank loans was $99,547,615 and $71,517,902 as of March 31, 2021 and December 31, 2020, respectively.

The associated bank loan carrying values totaled $55,831,600 and $46,153,283 as of March 31, 2021 and December 31, 2020, respectively.

During the three months ended March 31, 2021 and 2020, the Company recorded impairment losses on commercial real estate held for sale of $-0- and $31,429, respectively.

These impairment losses relate to an office building held by the life insurance segment.

3 unchanged sentences

Total Square Footage

December 31 2019

(1) Includes Center53 phase 1 completed in July 2017 and phase 2 which is under construction

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

3) Investments (Continued)

$ 111,008,057

$ 100,927,528

$ 117,288,006

$ 106,840,710

(1) Includes Center53 phase 1 and phase 2 which is under construction.

The following is a summary of the Company’s commercial real estate held for sale for the periods presented:

1 unchanged sentence

Total Square Footage

December 31 2019

(1) Undeveloped land

(1) Improved commercial pad

2 unchanged sentences

Residential Real Estate Held for Investment and Held for Sale

The Company owns a portfolio of residential homes primarily as a result of loan foreclosures.

The strategy has been to lease these homes to produce cash flow and allow time for the economic fundamentals to return to the various markets.

As an orderly and active market for these homes returns, the Company has the option to dispose or to continue and hold them for cash flow and acceptable returns.

The Company also invests in residential subdivision developments.

The Company established Security National Real Estate Services (“SNRE”) to manage the residential portfolio.

SNRE cultivates and maintains the preferred vendor relationships necessary to manage costs and quality of work performed on the portfolio of homes across the country.

As of September 30, 2020, SNRE manages 19 residential properties in 5 states across the United States.

The net ending balance of foreclosed residential real estate included in residential real estate held for investment and sale is $6,256,000 and $12,434,000 as of September 30, 2020 and December 31, 2019, respectively.

During the three months ended September 30, 2020 and 2019 the Company recorded impairment losses on residential real estate held for investment of $-0- and $125,980, respectively, and during the nine months ended September 30, 2020 and 2019 the Company recorded impairment losses on residential real estate held for investment of $43,394 and $125,980, respectively.

Impairment losses, if any, are included in gains (losses) on investment and other assets on the condensed consolidated statements of earnings.

The Company owns a small portfolio of residential homes primarily as a result of loan foreclosures.

The Company has the option to sell them or to continue to hold them for cash flow and acceptable returns.

The Company also invests in residential subdivision land developments.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

3) Investments (Continued)

The Company established Security National Real Estate Services (“SNRE”) to manage the residential portfolio.

SNRE cultivates and maintains the preferred vendor relationships necessary to manage costs and quality of work performed on the portfolio of homes across the country.

As of March 31, 2021, SNRE manages 5 residential properties in 4 states across the United States.

The net ending balance of foreclosed residential real estate included in residential real estate held for investment and sale is $1,657,285 and $4,327,079 as of March 31, 2021 and December 31, 2020, respectively.

During the three months ended March 31, 2021 and 2020 the Company did not record any impairment losses on residential real estate held for investment or held for sale.

Impairment losses, if any, are included in gains (losses) on investment and other assets on the condensed consolidated statements of earnings.

The following is a summary of the Company’s residential real estate held for investment for the periods presented:

1 unchanged sentence

December 31 2020

Washington (2)

(1) Includes subdivision land developments

(2) Improved residential lots

Additional information regarding the Company’s subdivision land developments in Utah is summarized as follows:

December 31 2020

Lots available for sale

Lots to be developed

Ending Balance (1)

(1) The estimated remaining cost to complete the undeveloped lots is $15,613,000 and $17,354,000 as of March 31, 2021 and December 31, 2020, respectively.

The following is a summary of the Company’s residential real estate held for sale for the periods presented:

1 unchanged sentence

December 31 2020

These properties are all actively being marketed with the assistance of residential real estate brokers in the markets where the properties are located.

The Company expects these properties to sell within the coming 12 months.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

3) Investments (Continued)

These properties are all actively being marketed with the assistance of residential real estate brokers in the markets where the properties are located.

The Company expects these properties to sell within the coming 12 months.

Real Estate Owned and Occupied by the Company

The primary business units of the Company occupy a portion of the real estate owned by the Company.

As of September 30, 2020, real estate owned and occupied by the Company is summarized as follows:

As of March 31, 2021, real estate owned and occupied by the Company is summarized as follows:

Business Segment

17 unchanged sentences

(1) Included in property and equipment on the condensed consolidated balance sheets

(2) See Note 15 regarding the acquisition of Kilpatrick Life Insurance Company

Mortgage Loans Held for Investment

3 unchanged sentences

Although the Company has a diversified mortgage loan portfolio consisting of residential mortgages, commercial loans and residential construction loans and requires collateral on all real estate exposures, a substantial portion of its debtors’ ability to honor obligations is reliant on the economic stability of the geographic region in which the debtors do business.

At September 30, 2020, the Company had 62%, 11%, 8%, 3%, 5% and 3% of its mortgage loans from borrowers located in the states of Utah, Florida, Texas, California, Nevada, and Arizona, respectively.

At March 31, 2021, the Company had 54%, 14%, 9%, 3%, 3% and 3% of its mortgage loans from borrowers located in the states of Utah, Florida, Texas, California, Nevada, and Arizona, respectively.

At December 31, 2020, the Company had 57%, 13%, 9%, 4%, 3% and 3% of its mortgage loans from borrowers located in the states of Utah, Florida, Texas, California, Nevada and Arizona, respectively.

10 unchanged sentences

The second component is based upon individual evaluation of loans that are determined to be impaired.

Upon determining impairment, the Company establishes an individual impairment allowance based upon an assessment of the fair value of the underlying collateral.

In addition, when a mortgage loan is past due more than 90

Upon determining impairment, the Company establishes an individual impairment allowance based upon an

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

3) Investments (Continued)

days, the Company does not accrue any interest income.

assessment of the fair value of the underlying collateral.

In addition, when a mortgage loan is past due more than 90 days, the Company does not accrue any interest income.

When a loan becomes delinquent, the Company proceeds to foreclose on the real estate and all expenses for foreclosure are expensed as incurred.

19 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

3) Investments (Continued)

2 unchanged sentences

Residential Construction

September 30, 2020

March 31, 2021

Allowance for credit losses:

Beginning balance - January 1, 2021

Ending balance - September 30, 2020

Ending balance - March 31, 2021

Ending balance:

14 unchanged sentences

Allowance for credit losses:

Beginning balance - January 1, 2019

Ending balance - December 31, 2019

Beginning balance

Ending balance

Ending balance:

individually evaluated for impairment

13 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

3) Investments (Continued)

The following is a summary of the aging of mortgage loans held for investment for the periods presented:

March 31, 2021

30-59 Days Past Due

60-89 Days Past Due

Greater Than 90 Days (1)

In Process of Foreclosure (1)

Mortgage Loans

Allowance for

Total Past Due

Total Mortgage Loans

Allowance for Loan Losses

Unamortized deferred loan fees, net

Unamortized discounts, net

September 30, 2020

$ 230,640,153

$ 249,729,688

$ (2,066,481)

Net Mortgage Loans

$ 105,251,376

1 unchanged sentence

December 31, 2020

$ 215,729,433

$ 241,192,422

$ (1,453,037)

30-59 Days Past Due

60-89 Days Past Due

Greater Than 90 Days (1)

In Process of Foreclosure (1)

Total Past Due

Total Mortgage Loans

Allowance for Loan Losses

Unamortized deferred loan fees, net

Unamortized discounts, net

Net Mortgage Loans

$ 110,849,864

3 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

3) Investments (Continued)

7 unchanged sentences

Interest Income Recognized

September 30, 2020

March 31, 2021

With no related allowance recorded:

11 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

3) Investments (Continued)

19 unchanged sentences

Accrual of interest resumes if a loan is brought current.

Interest not accrued on these loans totals approximately $397,000 and $203,000 as of September 30, 2020 and December 31, 2019, respectively.

Interest not accrued on these loans totals approximately $321,000 and $491,000 as of March 31, 2021 and December 31, 2020, respectively.

The following is a summary of mortgage loans held for investment on a non-accrual status for the periods presented.

As of September 30

As of March 31

As of December 31

Residential construction

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2021 (Unaudited)

4) Loans Held for Sale

2 unchanged sentences

Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on mortgage loans held for investment and is included in mortgage fee income on the condensed consolidated statement of earnings.

There is one loan with an unpaid principal balance of $190,560 that is 90 or more days past due and on a nonaccrual status as of September 30, 2020.

See Note 8 to the condensed consolidated financial statements for additional disclosures regarding loans held for sale.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

4) Loans Held for Sale (Continued)

The following is a summary of the aggregate fair value and the aggregate unpaid principal balance of loans held for sale for the periods presented:

As of September 30

As of March 31

As of December 31

7 unchanged sentences

Major categories of mortgage fee income for loans held for sale are as follows:

Three Months Ended September 30

Nine Months Ended September 30

Three Months Ended March 31

Interest income

4 unchanged sentences

Mortgage fee income

$ 212,209,718

Loan Loss Reserve

6 unchanged sentences

In many instances, the Company is able to resolve the issues relating to the repurchase demand by the third-party investor without having to make any payments to the investor.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2021 (Unaudited)

4) Loans Held for Sale (Continued)

The following is a summary of the loan loss reserve that is included in other liabilities and accrued expenses:

As of September 30

As of March 31

As of December 31

1 unchanged sentence

Provision on current loan originations (1)

Additional provision for loan loss reserve

Charge-offs, net of recaptured amounts

1 unchanged sentence

(1) Included in mortgage fee income

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

4) Loans Held for Sale (Continued)

The Company maintains reserves for estimated losses on current production volumes.

For the nine months ended September 30, 2020, $3,489,982 in reserves were added at a rate of 8.9 basis points per loan, the equivalent of $890 per $1,000,000 in loans originated.

This is an increase over the nine months ended September 30, 2019, when reserves were added at a rate of 2.5 basis points per loan originated, the equivalent of $250 per $1,000,000 in loans originated.

For the three months ended March 31, 2021, $660,663 in reserves were added at a rate of 4.5 basis points per loan, the equivalent of $450 per $1,000,000 in loans originated.

This is an increase over the three months ended March 31, 2020, when reserves were added at a rate of 2.5 basis points per loan originated, the equivalent of $250 per $1,000,000 in loans originated.

The Company also increased its loan loss reserve for the year ended December 31, 2020 by an additional $16,506,030 to account for changes in estimates specific to settlements of loan losses.

See Note 11 for additional information regarding mortgage loan loss settlements.

The economic impact of COVID-19 and subsequent government action has increased the potential for losses due to early payoff penalties and potential for losses due to increased delinquency.

The unique nature of these current events creates significant difficulty for forecasting potential future losses.

Based on the Company’s best estimate for potential loan losses and considering published industry data, a loss reserve of 8 basis points per loan originated will be used in the fourth quarter 2020.

The Company will continue to monitor data and economic conditions in order to maintain adequate loss reserves on current production.

During the third quarter 2020, the loan loss reserve decreased significantly primarily due to a $3,000,000 settlement that was paid to an investor for loans originated between 2004 and 2007.

No additional loss reserves are being held for loans originated between 2004 and 2007.

Thus, the Company believes that the final loan loss reserve as of September 30, 2020, represents its best estimate for adequate loss reserves on loans sold.

Thus, the Company believes that the final loan loss reserve as of March 31, 2021, represents its best estimate for adequate loss reserves on loans sold.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

5) Stock Compensation Plans

The Company has two fixed option plans (the “2013 Plan” and the “2014 Director Plan”).

Compensation expense for options issued of $104,562 and $65,746 has been recognized for these plans for the three months ended September 30, 2020 and 2019, respectively, and $271,959 and $195,487 has been recognized for these plans for the nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020, the total unrecognized compensation expense related to the options issued was $126,071, which is expected to be recognized over the vesting period of one year.

Compensation expense for options issued of $39,153 and $65,877 has been recognized for these plans for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, the total unrecognized compensation expense related to the options issued was $-0-.

The fair value of each option granted is estimated on the date of grant using the Black Scholes Option Pricing Model.

2 unchanged sentences

The risk-free interest rate for the expected life of the options is based upon the Federal Reserve Board’s daily interest rates in effect at the time of the grant.

A summary of the status of the Company’s stock compensation plans as of September 30, 2020, and the changes during the nine months ended September 30, 2020, are presented below:

A summary of the status of the Company’s stock compensation plans as of March 31, 2021, and the changes during the three months ended March 31, 2021, are presented below:

Class A Shares

4 unchanged sentences

Adjustment for effect of stock dividends

Outstanding at September 30, 2020

As of September 30, 2020:

Outstanding at March 31, 2021

As of March 31, 2021:

Options exercisable

As of September 30, 2020:

As of March 31, 2021:

Available options for future grant

Weighted average contractual term of options

outstanding at September 30, 2020

outstanding at March 31, 2021

Weighted average contractual term of options

exercisable at September 30, 2020

exercisable at March 31, 2021

Aggregated intrinsic value of options

outstanding at September 30, 2020 (1)

outstanding at March 31, 2021 (1)

Aggregated intrinsic value of options

exercisable at September 30, 2020 (1)

(1) The Company used a stock price of $6.40 as of September 30, 2020 to derive intrinsic value.

exercisable at March 31, 2021 (1)

(1) The Company used a stock price of $9.35 as of March 31, 2021 to derive intrinsic value.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

5) Stock Compensation Plans (Continued)

A summary of the status of the Company’s stock compensation plans as of September 30, 2019, and the changes during the nine months ended September 30, 2019, are presented below:

A summary of the status of the Company’s stock compensation plans as of March 31, 2020, and the changes during the three months ended March 31, 2020, are presented below:

Class A Shares

3 unchanged sentences

Outstanding at January 1, 2020

Outstanding at September 30, 2019

As of September 30, 2019:

Adjustment for effect of stock dividends

Outstanding at March 31, 2020

As of March 31, 2020:

Options exercisable

As of September 30, 2019:

As of March 31, 2020:

Available options for future grant

Weighted average contractual term of options

outstanding at September 30, 2019

outstanding at March 31, 2020

Weighted average contractual term of options

exercisable at September 30, 2019

exercisable at March 31, 2020

Aggregated intrinsic value of options

outstanding at September 30, 2019 (1)

outstanding at March 31, 2020 (1)

Aggregated intrinsic value of options

exercisable at September 30, 2019 (1)

(1) The Company used a stock price of $4.90 as of September 30, 2019 to derive intrinsic value.

The total intrinsic value (which is the amount by which the fair value of the underlying stock exceeds the exercise price of an option on the exercise date) of stock options exercised during the nine months September 30, 2020 and 2019 was $191,309 and $112,340, respectively.

exercisable at March 31, 2020 (1)

(1) The Company used a stock price of $4.27 as of March 31, 2020 to derive intrinsic value.

The total intrinsic value (which is the amount by which the fair value of the underlying stock exceeds the exercise price of an option on the exercise date) of stock options exercised during the three months March 31, 2021 and 2020 was $139,035 and $73,072, respectively.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

6) Earnings Per Share

1 unchanged sentence

Three Months Ended

Nine Months Ended

Basic weighted-average shares outstanding

5 unchanged sentences

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

For the nine months September 30, 2020 and 2019, there were -0- and 864,915 of anti-dilutive employee stock option shares, respectively, that were not included in the computation of diluted net earnings per common share as their effect would be anti-dilutive.

For the three months March 31, 2021 and 2020, there were -0- and 1,316,506 of anti-dilutive employee stock option shares, respectively, that were not included in the computation of diluted net earnings per common share as their effect would be anti-dilutive.

Basic and diluted earnings per share amounts are the same for each class of common stock.

The following table summarizes the activity in shares of capital stock for the periods presented:

Outstanding shares at December 31, 2019

Exercise of stock options

Stock dividends

Conversion of Class C to Class A

Outstanding shares at March 31, 2020

Outstanding shares at December 31, 2020

Exercise of stock options

Stock dividends

Conversion of Class C to Class A

Outstanding shares at March 31, 2021

7) Business Segment Information

5 unchanged sentences

The Company’s mortgage segment consists of fee income and expenses from the originations of residential mortgage loans and interest earned and interest expenses from warehousing loans held for sale.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2021 (Unaudited)

7) Business Segment Information (Continued)

Measurement of Segment Profit or Loss and Segment Assets

4 unchanged sentences

The Company regularly reviews the quantitative thresholds and other criteria to determine when other business segments may need to be reported.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

7) Business Segment Information (Continued)

Life Insurance

Intercompany Eliminations

For the Three Months Ended

September 30, 2020

Revenues from external customers

$ 101,447,531

$ 146,204,565

Intersegment revenues

Segment profit before income taxes

For the Three Months Ended

September 30, 2019

Revenues from external customers

Intersegment revenues

Segment profit before income taxes

For the Nine Months Ended

September 30, 2020

March 31, 2021

Revenues from external customers

$ 122,658,606

$ 219,403,866

$ 344,475,256

Intersegment revenues

5 unchanged sentences

1,488,227,526

For the Nine Months Ended

September 30, 2019

For the Three Months Ended

March 31, 2020

Revenues from external customers

$ 103,908,855

$ 205,318,676

Intersegment revenues

5 unchanged sentences

1,127,009,710

(109,493,359)

1,376,160,837

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

8) Fair Value of Financial Instruments

18 unchanged sentences

The fair values for equity securities are based on quoted market prices.

Loans Held for Sale :

The Company elected the fair value option for loans held for sale.

The fair value is based on quoted market prices, when available.

When a quoted market price is not readily available, the Company uses the market price from its last sale of similar assets.

Restricted Assets :

2 unchanged sentences

The carrying amounts reported in the accompanying condensed consolidated balance sheets for these financial instruments approximate their fair values due to their short-term nature.

Cemetery Endowment Care Trust Investments :

Cemetery Perpetual Care Trust Investments :

A portion of these assets include equity securities and fixed maturity securities that have quoted market prices that are used to determine fair value.

5 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

8) Fair Value of Financial Instruments (Continued)

The items shown under Level 3 are valued as follows:

Loans Held for Sale :

The Company elected the fair value option for loans held for sale.

The fair value is based on quoted market prices, when available.

When a quoted market price is not readily available, the Company uses the market price from its last sale of similar assets.

Loan Commitments and Forward Sale Commitments :

12 unchanged sentences

For residential construction loans, the collateral is typically incomplete, so fair value is estimated as the replacement cost using data from a provider of building cost information to the real estate construction.

Real Estate Held for Investment :

Impaired Real Estate Held for Investment :

The Company believes that in an orderly market, fair value will approximate the replacement cost of a home and the rental income provides a cash flow stream for investment analysis.

7 unchanged sentences

The Company initially recognizes Mortgage Servicing Rights (“MSRs”) at their estimated fair values derived from the net cash flows associated with the servicing contracts, where the Company assumes the obligation to service the loan in the sale transaction.

See Note 12 for more information regarding MSRs.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

8) Fair Value of Financial Instruments (Continued)

The following tables summarize Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a recurring basis by their classification in the condensed consolidated balance sheet at September 30, 2020.

Quoted Prices in Active Markets for Identical Assets

1 unchanged sentence

Significant Unobservable Inputs

Assets accounted for at fair value on a

recurring basis

Assets accounted for at fair value on a recurring basis

Fixed maturity securities available for sale

8 unchanged sentences

Derivatives - loan commitments (3)

Total assets accounted for at fair value on a

recurring basis

Total assets accounted for at fair value on a recurring basis

$ 612,514,856

1 unchanged sentence

$ 316,893,088

Liabilities accounted for at fair value on a

recurring basis

Liabilities accounted for at fair value on a recurring basis

Derivatives - call options (4)

Derivatives - loan commitments (4)

Total liabilities accounted for at fair value

on a recurring basis

$ (3,126,002)

$ (2,999,809)

Total liabilities accounted for at fair value on a recurring basis

(1) Fixed maturity securities available for sale

4 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

8) Fair Value of Financial Instruments (Continued)

3 unchanged sentences

Significant Unobservable Inputs

Assets accounted for at fair value on a

recurring basis

Assets accounted for at fair value on a recurring basis

Fixed maturity securities available for sale

8 unchanged sentences

Derivatives - loan commitments (3)

Total assets accounted for at fair value on a

recurring basis

Total assets accounted for at fair value on a recurring basis

$ 748,145,493

1 unchanged sentence

$ 437,566,265

Liabilities accounted for at fair value on a

recurring basis

Liabilities accounted for at fair value on a recurring basis

Derivatives - call options (4)

Derivatives - put options (4)

Derivatives - loan commitments (4)

Total liabilities accounted for at fair value

on a recurring basis

Total liabilities accounted for at fair value on a recurring basis

$ (2,507,159)

$ (2,464,062)

(1) Fixed maturity securities available for sale

(2) Mutual funds and equity securities

(3) Included in other assets on the condensed consolidated balance sheets

(4) Included in other liabilities and accrued expenses on the condensed consolidated balance sheets

(2) Equity securities

(3) Included in other assets on the consolidated balance sheets

(4) Included in other liabilities and accrued expenses on the consolidated balance sheets

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

8) Fair Value of Financial Instruments (Continued)

For Level 3 assets and liabilities measured at fair value on a recurring basis as of September 30, 2020, the significant unobservable inputs used in the fair value measurements were as follows:

For Level 3 assets and liabilities measured at fair value on a recurring basis as of March 31, 2021, the significant unobservable inputs used in the fair value measurements were as follows:

Range of Inputs

6 unchanged sentences

Market approach

Fall-out factor

Pull-through rate

Initial-Value

11 unchanged sentences

Market approach

Fall-out factor

Pull-through rate

Initial-Value

4 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

8) Fair Value of Financial Instruments (Continued)

13 unchanged sentences

Included in other comprehensive income

Balance - September 30, 2020

Balance - March 31, 2021

$ 304,030,372

2 unchanged sentences

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

Net Derivatives Loan Commitments

Net Loan Commitments

Loans Held for Sale

2 unchanged sentences

$ 213,457,632

Originations/purchases

2,606,839,175

Originations and purchases

Sales, maturities and paydowns

(739,130,456)

Transfer to mortgage loans held for investment

Transfer from fixed maturity securities held to maturity

Total gains (losses):

Included in earnings

Balance - December 31, 2019

Included in other comprehensive income

Balance - March 31, 2020

$ 281,052,576

(1) As a component of Mortgage fee income on the condensed consolidated statements of earnings

(2) As a component of Net investment income on the condensed consolidated statements of earnings

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

8) Fair Value of Financial Instruments (Continued)

The following tables summarize Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a nonrecurring basis by their classification in the condensed consolidated balance sheet at September 30, 2020.

Quoted Prices in Active Markets for Identical Assets

3 unchanged sentences

Impaired mortgage loans held for investment

Impaired real estate held for sale

Total assets accounted for at fair value on a nonrecurring basis

3 unchanged sentences

Significant Unobservable Inputs

Assets accounted for at fair value on a

nonrecurring basis

Assets accounted for at fair value on a nonrecurring basis

Impaired mortgage loans held for investment

Impaired real estate held for investment

Total assets accounted for at fair value on

a nonrecurring basis

Impaired real estate held for sale

Total assets accounted for at fair value on a nonrecurring basis

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

8) Fair Value of Financial Instruments (Continued)

3 unchanged sentences

however, there are inherent limitations in any estimation technique.

Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at September 30, 2020 and December 31, 2019.

The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows as of September 30, 2020:

The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows as of March 31, 2021:

Carrying Value

8 unchanged sentences

Restricted assets (2)

Cemetery perpetual care trust investments (2)

Mortgage servicing rights, net

13 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

8) Fair Value of Financial Instruments (Continued)

5 unchanged sentences

$ 100,384,283

$ 115,320,638

Residential construction

16 unchanged sentences

(112,354,186)

(1) Included in other investments and policy loans on the condensed consolidated balance sheets

(1) Included in other investments and policy loans on the consolidated balance sheets

(2) Mortgage loans held for investment

(3) Included in future policy benefits and unpaid claims on the condensed consolidated balance sheets

(3) Included in future policy benefits and unpaid claims on the consolidated balance sheets

The methods, assumptions and significant valuation techniques and inputs used to estimate the fair value of these financial instruments are summarized as follows:

14 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

8) Fair Value of Financial Instruments (Continued)

28 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

10) Derivative Instruments (Continued)

20 unchanged sentences

Call and put options are shown in other liabilities and accrued expenses on the condensed consolidated balance sheets.

The following table shows the notional amount and fair value of derivatives as of September 30, 2020 and December 31, 2019.

The following table shows the notional amount and fair value of derivatives as of March 31, 2021 and December 31, 2020.

Fair Values and Notional Values of Derivative Instruments

September 30, 2020

March 31, 2021

December 31, 2020

9 unchanged sentences

Other assets and Other liabilities

Other liabilities

$ 817,802,853

$ 659,245,038

Other liabilities

$ 819,845,353

$ 661,118,238

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

10) Derivative Instruments (Continued)

1 unchanged sentence

Net Amount Gain (Loss)

Three Months Ended September 30

Nine Months Ended September 30

Three Months Ended March 31

Classification

9 unchanged sentences

Future loan losses can be extremely difficult to estimate.

However, management believes that the Company’s reserve methodology and its current practice of property preservation allow it to estimate its potential losses on loans sold.

The estimated liability for indemnification losses is included in other liabilities and accrued expenses and, as of September 30, 2020 and December 31, 2019, the balances were $3,009,000 and $4,046,000, respectively.

During the third quarter 2020, the loan loss reserve decreased significantly primarily due to a $3,000,000 settlement that was paid to an investor for loans originated between 2004 and 2007.

No additional loss reserves are being held for loans originated between 2004 and 2007.

Thus, the Company believes that the final loan loss reserve as of September 30, 2020, represents its best estimate for adequate loss reserves on loans sold.

However, the Company believes that the Company’s reserve methodology and its current practice of property preservation allow it to estimate its potential losses on loans sold.

The estimated liability for indemnification losses is included in other liabilities and accrued expenses and, as of March 31, 2021 and December 31, 2020, the balances were $2,204,983 and $20,583,618, respectively.

The Company believes that the final loan loss reserve as of March 31, 2021, represents its best estimate for adequate loss reserves on loans sold.

Mortgage Loan Loss Litigation

Lehman Brothers Holdings Litigation – Delaware and New York

In January 2014, Lehman Brothers Holdings Inc.

(“Lehman Holdings”) entered into a settlement with the Federal National Mortgage Association (Fannie Mae) concerning the mortgage loan claims that Fannie Mae had asserted against Lehman Holdings, which were based on alleged breaches of certain representations and warranties by Lehman Holdings in the mortgage loans it had sold to Fannie Mae.

Lehman Holdings had acquired these loans from Aurora Bank, FSB, formerly known as Lehman Brothers Bank, FSB, which in turn purchased the loans from residential mortgage loan originators, including SecurityNational Mortgage Company (“SecurityNational Mortgage”).

A settlement based on similar circumstances was entered into between Lehman Holdings and the Federal Home Loan Mortgage Corporation (Freddie Mac) in February 2014.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

11) Reinsurance, Commitments and Contingencies (Continued)

Lehman Holdings filed a motion in May 2014 with the U.S.

Bankruptcy Court of the Southern District of New York to require the mortgage loan originators, including SecurityNational Mortgage, to engage in non-binding mediations of the alleged indemnification claims against the mortgage loan originators relative to the Fannie Mae and Freddie Mac settlements with Lehman Holdings.

The mediation was not successful in resolving any issues between SecurityNational Mortgage and Lehman Holdings.

On January 26, 2016, SecurityNational Mortgage filed a declaratory judgment action against Lehman Holdings in the Superior Court for the State of Delaware.

In the Delaware action, SecurityNational Mortgage asserted its right to obtain a declaration of rights in that there are allegedly millions of dollars in dispute with Lehman Holdings pertaining to approximately 136 mortgage loans.

SecurityNational Mortgage sought a declaratory judgment as to its rights as it contends that it has no liability to Lehman Holdings as a result of Lehman Holdings’ settlements with Fannie Mae and Freddie Mac.

Lehman Holdings filed a motion in the Delaware court seeking to stay or dismiss the declaratory judgment action.

On August 24, 2016, the Court ruled that it would exercise its discretion to decline jurisdiction over the action and granted Lehman Holdings’ motion to dismiss.

On February 3, 2016, Lehman Holdings filed an adversary proceeding against approximately 150 mortgage loan originators, including SecurityNational Mortgage, in the U.S.

Bankruptcy Court of the Southern District of New York seeking a declaration of rights similar in nature to the declaration that SecurityNational Mortgage sought in its Delaware lawsuit, and for damages relating to the alleged obligations of the defendants under indemnification provisions of the alleged agreements, in amounts to be determined at trial, including interest, attorneys’ fees and costs incurred by Lehman Holdings in enforcing the obligations of the defendants.

No response was required to be filed relative to the Complaint or the Amended Complaint dated March 7, 2016.

A Case Management Order was entered on November 1, 2016.

On December 27, 2016, pursuant to the Case Management Order, Lehman Holdings filed a Second Amended Complaint against SecurityNational Mortgage, which eliminates the declaratory judgment claim but retains a similar claim for damages as in the Complaint.

Many of the defendants, including SecurityNational Mortgage, filed a joint motion in the case asserting that the Bankruptcy Court does not have subject matter jurisdiction concerning the matter and that venue is improper.

Lehman Holdings’ response memorandum was filed on May 31, 2017 and a reply memorandum of the defendants filing the motion was filed on July 14, 2017.

A hearing on the motion was held on June 12, 2018.

On August 13, 2018, the Court issued its Memorandum Decision and Order (“Decision”) denying the motion.

On August 27, 2018, a number of the defendants, including SecurityNational Mortgage, filed a joint motion with the United States District Court (Case No.

18-mc-00392(VEC)) requesting that the Bankruptcy Court’s Decision be treated as findings of fact and conclusions of law, and for the District Court to review the Decision de novo as to jurisdiction.

Included with the motion were proposed objections to the Bankruptcy Court’s Decision.

On September 18, 2018, Lehman Holdings filed its response to the joint motion, and defendants’ reply was filed on October 2, 2018.

On September 17, 2018, certain defendants, including SecurityNational Mortgage, also filed a notice of appeal, and thereafter a motion for leave to file an interlocutory appeal as to the Bankruptcy Court’s Decision pertaining to jurisdiction and improper venue as a “protective” appeal should the District Court decide not to treat the Decision as findings of fact and conclusions of law.

Separately, certain other defendants also filed a notice of appeal and motion for leave to file an interlocutory appeal with respect to the Bankruptcy Court’s Decision concerning improper venue.

Lehman Holdings filed its response on October 22, 2018, and defendants filed a joint reply to Lehman Holdings’ response on November 26, 2018.

The motions to file appeals were consolidated before Valerie Caproni, U.S.

District Court Judge, Case No.

18-cv-08986 (VEC).

18-mc-00392 (VEC) was also before Judge Caproni.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

11) Reinsurance, Commitments and Contingencies (Continued)

On May 8, 2019, Judge Caproni issued her Opinion and Order denying the motion for an interlocutory appeal of the bankruptcy court’s ruling relative to jurisdiction and venue.

Further, the judge denied the motion for immediate de novo review of the bankruptcy court’s ruling indicating that de novo review can be left for the future.

On October 1, 2018, Lehman Holdings filed a motion for leave to file Third Amended Complaints against numerous defendants including SecurityNational Mortgage.

In addition to the Fannie Mae and Freddie Mac related loans, the amendments and supplements include additional mortgage loans sold to Lehman Holdings that were packaged for securitization (“RMBS loans”).

The RMBS loans had allegedly been sold by defendants to Lehman Bank that, in turn, sold them to Lehman Holdings.

The allegations pertaining to the RMBS loans include, e.g., purported breaches of representations and warranties made to the securitization trusts by Lehman Holdings.

Lehman Holdings asserts that it made representations and warranties purportedly based in part by representations and warranties made to Lehman Bank by loan originators, including SecurityNational Mortgage.

The alleged RMBS loans in dispute with SecurityNational Mortgage allegedly involve millions of dollars pertaining to approximately 577 mortgage loans in addition to the Fannie Mae and Freddie Mac related loans.

Lehman Holdings also moved the Court to simultaneously allow alternative dispute resolution procedures to take place including potential mediation.

Over objections, at a hearing on October 29, 2018, the Court granted Lehman Holdings’ motion to amend or supplement its complaints adding the RMBS loans, and also to mandate alternative dispute resolution procedures affecting many defendants including SecurityNational Mortgage.

Instead of filing a Third Amended Complaint to include the RMBS loans referenced above, Lehman Holdings filed the matter against SecurityNational Mortgage as a new complaint ("RMBS Complaint") (United States Bankruptcy Court, Southern District of New York, Adversary Proceeding 18-01819) pertaining to the approximately 577 RMBS loans, in addition to the Second Amended Complaint already on file.

The RMBS Complaint seeks alleged damages relating to obligations under alleged contractual indemnification provisions in an amount to be determined at trial, interest, costs and expenses incurred by LBHI in enforcing alleged obligations, including attorneys' fees and costs and any expert witness fees incurred in litigation;

and such other relief as the Court deems just and proper.

In response to a Court order, certain defendants referenced in the Second Amended Complaint and the RMBS Complaints negotiated with Lehman Holdings concerning an amended case management order pertaining to certain case procedures and management for both lawsuits including, but not limited to, timing for filing motions and answering the complaints, and provisions concerning discovery such as a document production, taking depositions, and use of experts.

At a hearing held on March 7, 2019, the Court considered differences of the parties as to the content of an amended case management order, and thereafter signed an amended case management order dated March 13, 2019.

SecurityNational Mortgage filed an answer and amended answer in the Fannie Mae and Freddie Mac case, and in the RMBS case.

Discovery is in process.

Lehman Holdings sent an Indemnification Alternative Dispute Resolution Notice to SecurityNational Mortgage dated August 1, 2019.

SecurityNational Mortgage sent its Statement of Position to Lehman Brothers Holdings dated September 3, 2019 in response to the notice.

Thereafter, Lehman Holdings sent its Reply dated October 2, 2019 to SecurityNational Mortgage.

On January 9, 2020, SecurityNational Mortgage submitted further information to the mediator.

Mediation was set to take place on January 23, 2020 in New York.

In view of a motion of SecurityNational Mortgage dated January 15, 2020, Lehman Holdings requested that the mediation be continued.

On January 15, 2020, SecurityNational Mortgage filed a motion to dismiss Lehman Holdings’ RMBS action in the Bankruptcy Court for lack of subject matter jurisdiction and standing.

It was not filed in the Bankruptcy Court but in the United States District Court for the Southern District of New York.

The District Court referred the matter to a magistrate judge for general pretrial, which “includes scheduling, discovery, non-dispositive pretrial motions, and settlement,” as well as for “a Report and Recommendation” as to the pending motion.

The final disposition of the motion will be with the District Court judge.

Lehman Holdings asked the District Court to transfer the case to one of two other judges allegedly due to related matters.

No action has been taken by the District Court to transfer the case.

Settlement Agreement and Mutual Release with Lehman Brothers Holdings Inc.

From 2004 to early 2008, SecurityNational Mortgage Company (“SecurityNational Mortgage”), a wholly owned subsidiary of the Company, originated “limited documentation” or “reduced documentation” loans which were sold to certain affiliates of Lehman Brothers Holdings Inc.

(“Lehman Holdings”).

Certain of these loans became the subject of disputes between SecurityNational Mortgage and Lehman Holdings and certain Lehman Holdings affiliates.

Lehman Holdings filed a Petition for Relief under Chapter 11 of the United States Bankruptcy Code in 2008.

In May of 2011, SecurityNational Mortgage filed a complaint in U.S.

District Court against certain Lehman Holdings affiliates.

In June of 2011, Lehman Holdings filed a complaint in Federal District Court against SecurityNational Mortgage, both of which were later resolved.

In 2016, certain other pending loan disputes between SecurityNational Mortgage and Lehman Holdings became the subject of an unsuccessful, non-binding alternate dispute resolution mediation proceeding.

Thereafter, in 2016, Lehman Holdings filed an adversary proceeding complaint against approximately 150 mortgage loan originators, including SecurityNational Mortgage, in the U.S.

Bankruptcy Court of the Southern District of New York, which included seeking damages relating to the alleged obligations of the defendants under indemnification provisions of alleged agreements, in amounts to be determined at trial, including interest, attorneys’ fees and costs incurred by Lehman Holdings in enforcing the obligations of the defendants.

The complaint was later amended with the latest amended complaint filed against SecurityNational Mortgage on December 27, 2016, seeking damages to be determined at trial, including interest, attorneys’ fees and costs.

This complaint involved approximately 135 mortgage loans, there being millions of dollars allegedly in dispute.

These claims against SecurityNational Mortgage were asserted as a result of Lehman Holdings’ earlier settlements with the FederalNational Mortgage Association (“Fannie Mae”) and the Federal Home Loan Corporation (“Freddie Mac”).

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

11) Reinsurance, Commitments and Contingencies (Continued)

However, Lehman Holdings filed its response brief to the motion and SecurityNational Mortgage filed its reply.

On July 10, 2020, the Magistrate Judge filed a report and recommendation with the District Court judge recommending that SecurityNational Mortgage’s motion to dismiss be denied on the procedural basis that the motion should not be in the District Court, but the Bankruptcy Court.

SecurityNational Mortgage filed an objection to the report and recommendation to which Lehman Holdings responded.

The District Court entered an order on August 10, 2020 adopting the Magistrate Judge’s recommendation that SecurityNational Mortgage’s motion be denied on the procedural basis that the matter should not be in the District Court at present, and that the Bankruptcy Court may recommend on an interlocutory basis whether there is subject matter jurisdiction and standing, and that later in the proceedings the District Court could then review the recommendation as to subject matter jurisdiction and standing.

On September 15, 2020, SecurityNational Mortgage filed a Petition for a Writ of Mandamus with the Second Circuit Court of Appeals asking that the District Court be ordered to presently resolve SecurityNational Mortgage’s motion as its motion is filed in the proper court.

No action has yet to be taken by the Second Circuit.

Earlier, on March 17, 2020, Lehman Holdings filed a motion for partial summary judgment against dozens of defendants asserting that sufficient notice was given defendants concerning the settlement of the RMBS claims so that Lehman Holdings, as an indemnitee, would not have to prove that it (Lehman Holdings) had liability to the RMBS Trustees, but only that its settlement was reasonable and in good faith.

Defendants involved filed a response brief that for various reasons Lehman Holdings cannot establish sufficient notice as required by law.

Certain defendants, excluding SecurityNational Mortgage, also filed a cross motion to seek an affirmative ruling on the issue of Lehman Holdings’ motion.

Thereafter, Lehman Holdings filed a reply brief in support of its motion, and also a response brief to certain defendants’ cross motion.

Defendants that filed a cross motion filed a reply brief in support of the cross motion.

The motions are now under advisement with the Bankruptcy Court.

Even if Lehman Holdings were to prevail on its motion, it does not absolve Lehman Holdings of its burden to prove indemnity liability to the defendants.

SecurityNational Mortgage denies any liability to Lehman Holdings and intends to vigorously protect and defend its position.

In 2018, Lehman Holdings filed a separate adversary proceeding complaint against SecurityNational Mortgage.

This adversary proceeding allegedly involved approximately 577 mortgage loans relative to private securitization trusts (“RMBS Loans”) and millions of dollars in damages.

Thereafter, Lehman Holdings made a filing that effectively reduced the number of RMBS Loans to 248.

This proceeding was in addition to the above-referenced proceeding involving the Fannie Mae and Freddie Mac mortgage loans.

As with the above-referenced proceeding, damages were sought including interest, costs, and attorneys’ fees.

SecurityNational Mortgage, as well as other defendants, have been involved in written discovery, and production of documents relative to the cases, and the filing of motions.

The deposition phase of the cases was yet to begin, as well as the later expert witness phase.

Those phases would require substantial expenditures of legal fees and costs.

On February 1, 2021, SecurityNational Mortgage executed a settlement agreement with Lehman Holdings in relation to these two adversary proceedings wherein all mortgage loan related claims were resolved, thereby ending all liabilities asserted by Lehman Holdings and conclusively ending all proceedings between SecurityNational Mortgage and Lehman Holdings.

In accordance with GAAP, the full amount of SecurityNational Mortgage’s settlement payment was accounted for in the Company’s loan loss reserve as of December 31, 2020 and was paid during the first quarter 2021.

Debt Covenants for Mortgage Warehouse Lines of Credit

2 unchanged sentences

SecurityNational Mortgage is required to comply with covenants for adjusted tangible net worth, unrestricted cash balance, the ratio of indebtedness to adjusted tangible net worth, and the liquidity overhead coverage ratio, and a quarterly gross profit of at least $1.00.

The Company, through its subsidiary SecurityNational Mortgage, also uses a line of credit with Texas Capital Bank N.A.

The Company, through its subsidiary SecurityNational Mortgage, has a line of credit with Texas Capital Bank N.A.

This agreement with the bank allows SecurityNational Mortgage to borrow up to $175,000,000 for the sole purpose of funding mortgage loans.

1 unchanged sentence

The Company is required to comply with covenants for adjusted tangible net worth, unrestricted cash balance, and minimum combined pre-tax income (excluding any changes in the fair value of mortgage servicing rights) of at least $1.00 on a rolling four-quarter basis.

The Company through its subsidiary SecurityNational Mortgage, also uses a line of credit with Comerica Bank.

The Company through its subsidiary SecurityNational Mortgage, has a line of credit with Comerica Bank.

This agreement with the bank allows SecurityNational Mortgage to borrow up to $90,000,000 for the sole purpose of funding mortgage loans.

1 unchanged sentence

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

11) Reinsurance, Commitments and Contingencies (Continued)

The Company, through its subsidiary EverLEND Mortgage, also uses a line of credit with Texas Capital Bank N.A.

The Company, through its subsidiary EverLEND Mortgage, has a line of credit with Texas Capital Bank N.A.

This agreement with the bank allows EverLEND Mortgage to borrow up to $5,000,000 for the sole purpose of funding mortgage loans.

2 unchanged sentences

The agreements for warehouse lines include cross default provisions in that a covenant violation under one agreement constitutes a covenant violation under the other agreement.

As of September 30, 2020, the Company believes that it was in compliance with all debt covenants.

As of March 31, 2021, the Company believes that it was in compliance with all debt covenants.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2021 (Unaudited)

11) Reinsurance, Commitments and Contingencies (Continued)

Other Contingencies and Commitments

The Company has entered into commitments to fund construction and land development loans and has also provided financing for land acquisition and development.

As of September 30, 2020, the Company’s commitments were approximately $187,305,000 for these loans, of which $124,409,000 had been funded.

As of March 31, 2021, the Company’s commitments were approximately $194,792,000 for these loans, of which $109,977,951 had been funded.

The Company will advance funds once the work has been completed and an independent inspection is made.

14 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

12) Mortgage Servicing Rights

9 unchanged sentences

The following is a summary of the MSR activity for the periods presented.

As of September 30

As of March 31

As of December 31

3 unchanged sentences

Amortization (1)

Application of valuation allowance to write down MSRs

with other than temporary impairment

Application of valuation allowance to write down MSRs with other than temporary impairment

Balance before valuation allowance at end of period

1 unchanged sentence

Balance at beginning of year

Application of valuation allowance to write down MSRs

with other than temporary impairment

Application of valuation allowance to write down MSRs with other than temporary impairment

Balance at end of period

4 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

12) Mortgage Servicing Rights (Continued)

3 unchanged sentences

Three Months Ended

Nine Months Ended

Contractual servicing fees

The following is a summary of the unpaid principal balances (“UPB”) of the servicing portfolio for the periods presented:

As of September 30

As of March 31

As of December 31 2020

3 unchanged sentences

The following key assumptions were used in determining MSR value:

September 30, 2020

March 31, 2021

December 31, 2020

13) Income Taxes

The Company’s overall effective tax rate for the three months ended September 30, 2020 and 2019 was 24.0% and 24.0%, respectively, which resulted in a provision for income taxes of $9,279,162 and $1,142,408, respectively.

The Company’s overall effective tax rate for the nine months ended September 30, 2020 and 2019 was 23.7% and 23.6%, respectively, which resulted in a provision for income taxes of $15,965,656 and $2,788,038, respectively.

The Company’s overall effective tax rate for the three months ended March 31, 2021 and 2020 was 25.8% and 3.4%, respectively, which resulted in a provision for income taxes of $4,226,340 and $49,785, respectively.

The Company's effective tax rates differ from the U.S.

federal statutory rate of 21% partially due to its provision for state income taxes.

The effective tax rate increased when compared to the prior year period partly due the Company’s provision for state income taxes.

The effective tax rate in the current period increased when compared to the prior year period partly due the Coronavirus Aid Relief and Economic Security (“CARES”) Act.

Interim income taxes are based on an estimated annualized effective tax rate applied to the respective quarterly periods, adjusted for discrete tax items in the period in which they occur.

Although the Company believes its tax estimates are reasonable, the Company can make no assurance that the final tax outcome of these matters will not be different from that which it has reflected in its historical income tax provisions and accruals.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2020 (Unaudited)

14) Revenues from Contracts with Customers

39 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

March 31, 2021 (Unaudited)

14) Revenues from Contracts with Customers (Continued)

The amount of revenue recognized and included in the opening contract liability balance for the three months ended September 30, 2020 and 2019 was $1,427,418 and $884,180, respectively, and for the nine months ended September 30, 2020 and 2019 was $3,258,824 and $2,515,278, respectively.

The amount of revenue recognized and included in the opening contract liability balance for the three months ended March 31, 2021 and 2020 was $1,135,001 and $950,772, respectively.

The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment.

2 unchanged sentences

Three Months Ended

Ended September 30

Major goods/service lines

4 unchanged sentences

Three Months Ended

Nine Months Ended

Net mortuary and cemetery sales

3 unchanged sentences

Revenues from external customers

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

15) Acquisitions

Probst Family Funerals and Cremations and Heber Valley Funeral Home

On February 15, 2019, the Company, through its wholly-owned subsidiary, Memorial Mortuary Inc., completed an asset purchase transaction with Probst Family Funerals and Cremations, LLC.

(“Probst Family Funerals”) and Heber Valley Funeral Home, Inc.

(“Heber Valley Funeral Home”).

These funeral homes are both located in Heber Valley, a community situated about 45 miles southeast of Salt Lake City.

Under the terms of the transaction, as set forth in the Asset Purchase Agreement, dated February 15, 2019, Memorial Mortuary Inc.

paid a net purchase price of $3,315,647 for the business and assets of Probst Family Funerals and Heber Valley Funeral Home, subject to a $150,000 holdback.

In August 2019, this escrow account was settled and $137,550 was paid to the prior owners.

The estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition were as follows:

Property and equipment

Total assets acquired

Bank and other loans payable

Total liabilities assumed

Fair value of net assets acquired/consideration paid

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

15) Acquisitions (Continued)

Kilpatrick Life Insurance Company

On December 13, 2019, the Company, through its wholly owned subsidiary, Security National Life Insurance Company (“Security National Life”) completed a stock purchase transaction with Kilpatrick Life Insurance Company, a Louisiana domiciled life insurance company (“Kilpatrick Life”) and its shareholders, which resulted in the purchase of all the outstanding shares of common stock of Kilpatrick Life.

The closing of the transaction was subject to approval by the Louisiana Department of Insurance of the change of control of Kilpatrick Life, which was received on December 12, 2019.

Under the terms of the transaction, the total Purchase Price that Security National Life paid for all the shares held by the Kilpatrick shareholders was $23,779,940 subject to a $1,400,000 holdback, as agreed with the shareholders.

Kilpatrick Life has been in operation since 1932 and provides life insurance products and services through insurance plans such as permanent and term life insurance, asset protection plans, graded whole life insurance, and annuities.

Additionally, it provides insurance services for emergencies and pre‐arranged funeral services.

Kilpatrick Life is based in Shreveport, Louisiana with additional offices in Jena, Alexandria, Minden, and Arcadia, Louisiana.

Kilpatrick Life employs a staff of almost 120 associates in four offices in Louisiana and is licensed to operate in Louisiana, Texas, Arkansas, Oklahoma, and Mississippi with the home office located in Shreveport, LA.

It is the mission of Kilpatrick Life to continue providing the utmost service and protection for its policyholders for generations to come.

Prior to the stock purchase transaction, Security National life and Kilpatrick Life entered into a coinsurance agreement, effective October 1, 2019.

After the effective date, Security National Life, as coinsurer, agreed to be responsible for and was obligated with respect to 100% of the contractual liabilities under the Kilpatrick Life’s life insurance policies in accordance with the terms and conditions of the policies and applicable law.

Unless otherwise directed by Security National Life, as coinsurer, Kilpatrick Life continued to administer the policies on behalf of Security National Life, as coinsurer, for the duration of the coinsurance agreement.

As part of the coinsurance agreement, effective October 1, 2019, Security National Life acquired the following assets and assumed the following contractual liabilities.

Other investments and policy loans

Real estate held for investment

Mortgage loans held for investment

Total assets acquired

Future policy benefits and unpaid claims

(165,404,970)

Other liabilities and accrued expenses

Total liabilities assumed

(170,664,311)

Cash received for reinsurance assumed

$ 158,358,594

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2020 (Unaudited)

15) Acquisitions (Continued)

Contemporaneous with the stock purchase transaction, both Kilpatrick Life and Security National Life, as coinsurer, agreed to terminate the coinsurance agreement, to require the recapture of the life insurance policies by Kilpatrick Life and provided notification to the Louisiana Department of Insurance.

The final settlement and transfer of the coinsurance trust assets from Security National Life back to Kilpatrick Life occurred shortly thereafter.

The estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition, on December 13, 2019, are shown in the following table.

At the time of acquisition some of these assets and liabilities became intercompany items, and the Company has eliminated them for consolidation.

Fixed maturity securities, available for sale

Fixed maturity securities, held to maturity

Mortgage loans held for investment

Real estate held for investment

Other investments

Accrued investment income

Total investments

Cash and cash equivalents

Receivables, net

Receivables from reinsurers

Property and equipment, net

Value of business acquired

Deferred taxes

Total assets acquired

Future policy benefits and unpaid claims

(189,071,407)

Accounts payable

Other liabilities and accrued expenses

Total liabilities assumed

(198,107,612)

Fair value of net assets acquired/consideration paid

Fair value of net assets acquired/consideration paid, net of cash acquired

(1) Receivable from reinsurers of $162,907,008 and receivables, net of $5,000,000 were settled with the recapture of the coinsurance agreement by Kilpatrick Life from Security National Life.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements