What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-31 compared with 2021-03-31 · 2138 added, 1469 removed, 1088 unchanged (77% of the section changed)

1 unchanged sentence

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Statements:

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets, December 31, 2021 and 2020

4 unchanged sentences

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Security National Financial Corporation:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Security National Financial Corporation and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years then ended, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Stockholders and the Board of Directors of Security National Financial Corporation:

on the Financial Statements

have audited the accompanying consolidated balance sheets of Security National Financial Corporation and subsidiaries (the “Company”)

as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity, and

cash flows for each of the years then ended, and the related notes and the schedules listed in the Index at Item 15 (collectively referred

to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the

financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of

the years then ended, in conformity with accounting principles generally accepted in the United States of America.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s

financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board

(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities

laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits,

we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Future Policy Benefits and Amortization of Deferred Policy Acquisition Costs for Insurance Contracts and Value of Business Acquired - Refer to Notes 1 and 22 to the financial statements

Critical Audit Matter Description

The Company’s management sets assumptions in (1) recording a liability for policy benefit payments that will be made in the future (future policy benefits) and (2) determining amortization of deferred policy acquisition costs for insurance contracts and value of business acquired.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error

or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding

the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant

estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits

provide a reasonable basis for our opinion.

critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated

or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial

statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters

does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit

matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Policy Benefits and Amortization of Deferred Policy Acquisition Costs for Insurance Contracts and Value of Business Acquired - Refer

to Notes 1 and 22 to the financial statements

Audit Matter Description

Company’s management sets assumptions in (1) estimating a liability for policy benefit payments that will be made in the future

(future policy benefits) and (2) determining amortization of deferred policy acquisition costs for insurance contracts and value of business

The most significant assumptions include mortality, lapse, and projected investment yield.

Assumptions are determined based upon published studies and analysis of Company specific experience, adjusted for changes in exposure and other relevant factors.

Given the inherent uncertainty of these significant assumptions, auditing the development of such assumptions involved especially subjective judgment.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s judgments regarding the assumptions used in the development of future policy benefits and the amortization of deferred policy acquisition costs for insurance contracts and value of business acquired, included the following, among others:

• We tested the design and implementation of controls over the assumption development process, the valuation of future policy benefits, and the amortization of deferred policy acquisition costs for insurance contracts and value of business acquired.

Assumptions are determined based

upon analysis of Company specific experience, industry standards, adjusted for changes in exposure and other relevant factors.

the inherent uncertainty of these significant assumptions, auditing the development of such assumptions involved especially subjective

the Critical Audit Matter Was Addressed in the Audit

audit procedures related to management’s judgments regarding the assumptions used in the development of future policy benefits

and the amortization of deferred policy acquisition costs for insurance contracts and value of business acquired, included the following,

among others:

We tested the design and implementation of controls over the assumption development process, the valuation of future policy benefits,

and the amortization of deferred policy acquisition costs for insurance contracts and value of business acquired.

With the assistance of our actuarial specialists, we:

• evaluated management’s selected actuarial assumptions, including testing the accuracy and completeness of the supporting experience studies,

• evaluated management’s judgments regarding the assumptions used in the development of future policy benefits and the amortization of deferred policy acquisition costs and value of business acquired,

• evaluated the results of the Company’s annual premium deficiency tests.

/s/ Deloitte & Touche LLP

Salt Lake City, UT

March 31, 2021

We have served as the Company's auditor since 2017.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

management’s selected actuarial assumptions, including testing the accuracy and completeness of the supporting experience studies,

management’s judgments regarding the assumptions used in the development of future policy benefits and the amortization of

deferred policy acquisition costs and value of business acquired,

the results of the Company’s annual premium deficiency tests.

Deloitte & Touche LLP

Lake City, UT

have served as the Company’s auditor since 2017.

NATIONAL FINANCIAL CORPORATION

BALANCE SHEETS

Fixed maturity securities, available for sale, at estimated fair value (amortized cost of $ 236,303,310 and $ 265,150,484 for 2021 and 2020)

$ 259,287,603

$ 294,656,679

Equity securities at estimated fair value

Equity securities at estimated fair value (cost of $ 8,275,772 and $ 9,698,490 for 2021 and 2020)

Mortgage loans held for investment (net of allowances for loan losses of $ 1,699,902 and $ 2,005,127 for 2021 and 2020)

17 unchanged sentences

$ 1,548,940,478

See accompanying notes to consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

accompanying notes to consolidated financial statements.

NATIONAL FINANCIAL CORPORATION

BALANCE SHEETS (Continued)

Liabilities and Stockholders’ Equity

26 unchanged sentences

issued 2,866,565 shares in 2021 and 2,679,603 shares in 2020

Common stock, value

Additional paid-in capital

3 unchanged sentences

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

( 1,845,624 )

( 1,833,272 )

Total stockholders’ equity

2 unchanged sentences

$ 1,548,940,478

See accompanying notes to consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

accompanying notes to consolidated financial statements.

NATIONAL FINANCIAL CORPORATION

Statements of Earnings

Years Ended December 31

23 unchanged sentences

Income tax expense

Net earnings per Class A equivalent common share (1)

( 12,281,785 )

( 15,853,514 )

Net earnings per Class A equivalent common share (1)

assuming dilution (1)

Weighted average Class A equivalent common shares

outstanding (1)

Weighted average Class A equivalent common shares

outstanding-assuming dilution (1)

(1) Earnings per share amounts have been adjusted retroactively for the effect of annual stock dividends.

The weighted-average shares outstanding includes the weighted-average Class A common shares and the weighted-average Class C common shares determined on an equivalent Class A common stock basis.

Net earnings per Class A equivalent common share - assuming

Weighted average Class A equivalent common shares outstanding (1)

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

(1) Earnings per share

amounts have been adjusted retroactively for the effect of annual stock dividends.

The weighted-average shares outstanding includes the

weighted-average Class A common shares and the weighted-average Class C common shares determined on an equivalent Class A common stock

Net earnings per common share represent net earnings per equivalent Class A common share.

See accompanying notes to consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

accompanying notes to consolidated financial statements.

NATIONAL FINANCIAL CORPORATION

Statements of comprehensive income

Years Ended December 31

Other comprehensive income:

Unrealized gains on fixed maturity securities available for sale

Unrealized gains on restricted assets

Unrealized gains (losses) on cemetery perpetual care trust investments

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

( 6,517,731 )

Unrealized gains (losses) on restricted assets

Unrealized losses on cemetery perpetual care trust investments

Foreign currency translation adjustments

Other comprehensive income, before income tax

Income tax expense

Other comprehensive income, net of income tax

Other comprehensive income (loss), before income tax

( 6,549,260 )

Income tax benefit (expense)

( 2,531,435 )

Other comprehensive income (loss), net of income tax

( 5,172,685 )

Comprehensive income

See accompanying notes to consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

accompanying notes to consolidated financial statements.

NATIONAL FINANCIAL CORPORATION

Statements of Stockholders’ Equity

Class A Common Stock

5 unchanged sentences

Balance at December 31, 2019

( 1,580,582 )

Other comprehensive income

3 unchanged sentences

Purchase of treasury stock

( 2,967,761 )

Stock dividends

( 3,113,675 )

Conversion Class C to Class A

Balance at December 31, 2020

Other comprehensive income

( 1,833,272 )

Other comprehensive loss

( 5,172,685 )

Other comprehensive income (loss)

( 5,172,685 )

Stock based compensation expense

2 unchanged sentences

Purchase of treasury stock

( 5,769,735 )

Stock dividends

( 8,720,668 )

Conversion Class C to Class A

Balance at December 31, 2021

See accompanying notes to consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31

Cash flows from operating activities:

Adjustments to reconcile net earnings to net cash used in operating activities:

Gains on investments and other assets

Other than temporary impairments on investments

Provision for loan losses and doubtful accounts

Net amortization of deferred fees and costs, premiums and discounts

Provision for deferred income taxes

Policy and pre-need acquisition costs deferred

Policy and pre-need acquisition costs amortized

Value of business acquired amortized

Mortgage servicing rights, additions

Amortization of mortgage servicing rights

Stock based compensation expense

Benefit plans funded with treasury stock

Net change in fair value of loans held for sale

Originations of loans held for sale

$ 184,537,489

$ ( 1,845,624 )

Proceeds from sales of loans held for sale

$ 299,766,834

accompanying notes to consolidated financial statements.

NATIONAL FINANCIAL CORPORATION

Statements of Cash Flows

Ended December 31

Cash flows from operating

to reconcile net earnings to net cash used in operating activities:

investments and other assets

( 6,265,134 )

Net gains on sales of loans held for sale

( 1,925,850 )

Change in assets and liabilities:

Land and improvements held for sale

Future policy benefits and unpaid claims

Other operating assets and liabilities

Net cash used in operating activities

temporary impairments on investments

for loan losses and doubtful accounts

Net amortization

of deferred fees and costs, premiums and discounts

( 1,154,604 )

Cash flows from investing activities:

Purchases of fixed maturity securities

( 1,227,773 )

Sales, calls and maturities of fixed maturity securities

Purchase of equity securities

Sales of equity securities

Net changes in restricted assets

Net changes in cemetery perpetual care trust investments

Mortgage loans held for investment, other investments and policy loans made

for deferred income taxes

pre-need acquisition costs deferred

( 19,985,257 )

( 18,909,921 )

Payments received for mortgage loans held for investment, other investments and policy loans

Purchases of property and equipment

Sales of property and equipment

Purchases of real estate

Sales of real estate

Cash received for reinsurance assumed

Cash paid for purchase of subsidiaries, net of cash acquired

Net cash provided by investing activities

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

pre-need acquisition costs amortized

Value of business acquired

servicing rights, additions

( 32,701,819 )

( 29,896,465 )

of mortgage servicing rights

compensation expense

plans funded with treasury stock

in fair value of loans held for sale

( 10,413,492 )

of loans held for sale

( 5,611,189,587 )

( 5,627,013,749 )

from sales of loans held for sale

5,900,076,766

5,600,045,285

on sales of loans held for sale

( 177,876,915 )

( 188,893,379 )

assets and liabilities:

improvements held for sale

Future policy

benefits and unpaid claims

operating assets and liabilities

( 32,088,511 )

cash provided by (used in) operating activities

( 129,627,207 )

Cash flows from investing

of fixed maturity securities

( 18,857,131 )

( 58,493,147 )

and maturities of fixed maturity securities

of equity securities

( 1,950,554 )

( 6,991,832 )

equity securities

in restricted assets

( 1,954,437 )

in cemetery perpetual care trust investments

( 2,755,856 )

loans held for investment, other investments and policy loans made

( 838,524,150 )

( 682,170,126 )

received for mortgage loans held for investment, other investments and policy loans

of property and equipment

( 5,219,928 )

( 1,630,734 )

property and equipment

of real estate

( 92,403,534 )

( 40,190,471 )

paid for purchase of subsidiaries, net of cash acquired

( 12,625,142 )

cash provided by (used in) investing activities

( 63,613,606 )

NATIONAL FINANCIAL CORPORATION

Statements of Cash Flows (Continued)

Years Ended December 31

2 unchanged sentences

Investment contract withdrawals

( 15,244,629 )

( 18,235,107 )

Proceeds from stock options exercised

Purchase of treasury stock

( 5,769,735 )

( 2,967,761 )

Repayment of bank loans

3 unchanged sentences

Net change in warehouse line borrowings for loans held for sale

Net cash provided by financing activities

( 84,576,055 )

Net cash provided by (used in) financing activities

( 55,075,440 )

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

( 22,270,587 )

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year

6 unchanged sentences

Non Cash Investing and Financing Activities:

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

Accrued real estate construction costs and retainage

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

Accrued real estate construction costs and retainage

Transfer of property and equipment to real estate held for investment

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

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

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

Transfer of real estate held for investment to property and equipment

Transfer of property and equipment to real estate held for investment

Mortgage loans held for investment foreclosed into receivables

See Note 20 regarding non cash transactions included in the acquisitions of Probst Family Funerals and Cremations and Heber Valley Funeral Home and Kilpatrick Life Insurance Company

Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents as shown in the consolidated statements of cash flows is presented in the table below:

See Note 20 regarding non cash transactions included in the acquisitions of Rivera Funerals, Cremations and Memorial Gardens and Holbrook Mortuary

Reconciliation

of cash, cash equivalents, restricted cash and restricted cash equivalents as shown in the consolidated statements of cash flows is presented

in the table below:

Years Ended December 31

7 unchanged sentences

$ 115,465,086

See accompanying notes to consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of year

$ 141,414,282

$ 115,465,086

accompanying notes to consolidated financial statements.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Significant Accounting Policies

General Overview of Business

Security National Financial Corporation and its wholly owned subsidiaries (the “Company”) operate in three reportable business segments:

Overview of Business

National Financial Corporation and its wholly owned subsidiaries (the “Company”) operate in three reportable business segments:

life insurance, cemetery and mortuary, and mortgages.

The life insurance segment is engaged in the business of selling and servicing selected lines of life insurance, annuity products and accident and health insurance marketed primarily in the Intermountain West, California and eleven southern states.

The cemetery and mortuary segment of the Company consists of eight mortuaries and five cemeteries in Utah and one cemetery in California.

The mortgage segment is an approved government and conventional lender that originates and underwrites residential and commercial loans for new construction, existing homes and real estate projects primarily in Florida, Nevada, Texas, and Utah.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP).

Principles of Consolidation

These consolidated financial statements include the financial statements of the Company and its majority owned subsidiaries.

All intercompany transactions and accounts have been eliminated in consolidation.

Use of Estimates

Management of the Company has made a number of estimates and assumptions related to the reported amounts of assets and liabilities, reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with GAAP.

The life insurance segment is engaged in the business of selling and servicing

selected lines of life insurance, annuity products and accident and health insurance marketed primarily in the states located in western,

mid-western and southern regions of the United States.

The cemetery and mortuary segment of the Company consists of eleven mortuaries

and five cemeteries in Utah, one cemetery in California, and four mortuaries and one cemetery in New Mexico.

The mortgage segment is

an approved government and conventional lender that originates and underwrites residential and commercial loans for new construction,

existing homes and real estate projects primarily in Florida, Nevada, Texas, and Utah.

of Presentation

accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the

United States of America (GAAP).

of Consolidation

consolidated financial statements include the financial statements of the Company and its majority owned subsidiaries.

All intercompany

transactions and accounts have been eliminated in consolidation.

of the Company has made a number of estimates and assumptions related to the reported amounts of assets and liabilities, reported amounts

of revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity

Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant changes in the near term are those used in determining the value of derivative assets and liabilities;

estimates that are particularly susceptible to significant changes in the near term are those used in determining the value of derivative

assets and liabilities;

those used in determining deferred acquisition costs and the value of business acquired;

those used in determining the value of mortgage loans foreclosed to real estate held for investment;

those used in determining the liability for future policy benefits;

those used in determining

the value of mortgage loans foreclosed to real estate held for investment;

those used in determining the liability for future policy

those used in determining the value of mortgage servicing rights;

those used in determining allowances for loan losses for mortgage loans held for investment;

those used in determining allowances for loan losses for

mortgage loans held for investment;

those used in determining loan loss reserve;

and those used in determining deferred tax assets and liabilities.

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

The Company’s management determines the appropriate classifications of investments in fixed maturity securities and equity securities at the acquisition date and re-evaluates the classifications at each balance sheet date.

Fixed maturity securities available for sale are carried at estimated fair value.

Changes in fair values are reported as unrealized gains or losses and are recorded in accumulated other comprehensive income.

On December 31, 2019, the Company changed the classification of its bond and preferred stock investments to available for sale from held to maturity.

As a result, securities available for sale are carried at estimated fair value.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

and those used in determining deferred tax assets and

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

all material respects.

Company’s management determines the appropriate classifications of investments in fixed maturity securities and equity securities

at the acquisition date and re-evaluates the classifications at each balance sheet date.

maturity securities available for sale are carried at estimated fair value.

Changes in fair values are reported as unrealized gains

or losses and are recorded in accumulated other comprehensive income.

securities are carried at estimated fair value.

Changes in fair values are reported as unrealized gains or losses and are recorded

through net earnings as a component of gains on investments and other assets.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Significant Accounting Policies (Continued)

Equity securities are carried at estimated fair value.

Changes in fair values are reported as unrealized gains or losses and are recorded through net earnings.

Mortgage loans held for investment are carried at their unpaid principal balances adjusted for net deferred fees, net discounts, charge-offs and the related allowance for loan losses.

Interest income is included in net investment income on the consolidated statements of earnings and is recognized when earned.

The Company defers related material loan origination fees, net of related direct loan origination costs, and amortizes the net fees over the term of the loans.

loans held for investment are carried at their unpaid principal balances adjusted for net deferred fees, net discounts, charge-offs

and the related allowance for loan losses.

Interest income is included in net investment income on the consolidated statements of earnings

and is recognized when earned.

The Company defers related loan origination fees, net of related direct loan origination costs, and amortizes

the net fees over the term of the loans.

Origination fees are included in net investment income on the consolidated statements of earnings.

Mortgage loans are secured by the underlying property and require an appraisal at the time of underwriting and funding.

Generally, the Company will fund a loan not to exceed 80% of the loan’s collateral fair market value.

Amounts over 80% will require additional collateral or mortgage insurance by an approved third-party insurer.

Real estate held for investment is carried at cost, less accumulated depreciation provided on a straight-line basis over the estimated useful lives of the properties, or is adjusted to a new basis for impairment in value, if any.

Included are foreclosed properties which the Company intends to hold for investment purposes.

Generally, the

Company will fund a loan not to exceed 80% of the loan’s collateral fair market value.

Amounts over 80% will require additional

collateral or mortgage insurance by an approved third-party insurer.

estate held for investment is carried at cost, less accumulated depreciation provided on a straight-line basis over the estimated

useful lives of the properties, or is adjusted to a new basis for impairment in value, if any.

Included are foreclosed properties which

the Company intends to hold for investment purposes.

These properties are recorded at the lower of cost or fair value upon foreclosure.

Also, included are residential subdivision land developments which are carried at cost.

Real estate held for sale is carried at lower of cost or fair value.

Depreciation is not recognized on real estate classified as held for sale.

Other investments and policy loans are carried at the aggregate unpaid balances, less allowances for losses.

Gains and losses on investments (except for equity securities carried at fair value through net earnings) arise when investments are sold (as determined on a specific identification basis) or are other than temporarily impaired.

If in management’s judgment a decline in the value of an investment below cost is other than temporary, the cost of the investment is written down to fair value with a corresponding charge to earnings.

estate held for sale is carried at lower of cost or fair value.

Depreciation is not recognized on real estate classified as held

investments and policy loans are carried at the aggregate unpaid balances, less allowances for losses.

investment income refers to earned income from investments that has not yet been received by the Company.

and losses on investments (except for equity securities carried at fair value through net earnings) arise when investments are sold

(as determined on a specific identification basis) or are other than temporarily impaired.

If in management’s judgment a decline

in the value of an investment below cost is other than temporary, the cost of the investment is written down to fair value with a corresponding

charge to earnings.

Factors considered in judging whether an impairment is other than temporary include:

the financial condition, business prospects and credit worthiness of the issuer, the length of time that fair value has been less than cost, the relative amount of the decline, and the Company’s ability and intent to hold the investment until the fair value recovers, which is not assured.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.

The Company maintains its cash in bank deposit accounts, which at times exceed federally insured limits.

The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Loans Held for Sale

Accounting Standards Codification (“ASC”) No.

825, “Financial Instruments”, allows for the option to report certain financial assets and liabilities at fair value initially and at subsequent measurement dates with changes in fair value included in earnings.

The option may be applied instrument by instrument, but it is irrevocable.

the financial condition, business

prospects and credit worthiness of the issuer, the length of time that fair value has been less than cost, the relative amount of the

decline, and the Company’s ability and intent to hold the investment until the fair value recovers, which is not assured.

and Cash Equivalents

Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.

Company maintains its cash in bank deposit accounts, which at times exceed federally insured limits.

The Company has not experienced

any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Held for Sale

Standards Codification (“ASC”) No.

825, “Financial Instruments”, allows for the option to report certain financial

assets and liabilities at fair value initially and at subsequent measurement dates with changes in fair value included in earnings.

option may be applied instrument by instrument, but it is irrevocable.

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

The Company believes the fair value option most closely aligns the timing of the recognition of gains and costs.

These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans.

Electing fair value also reduces certain timing differences and better matches changes in the fair value of these assets with changes in the fair value of the related derivatives used for these assets.

See Note 3 and Note 17 to Consolidated Financial Statements for additional disclosures regarding loans held for sale.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

These loans are intended

for sale and the Company believes that the fair value is the best indicator of the resolution of these loans.

Electing fair value also

reduces certain timing differences and better matches changes in the fair value of these assets with changes in the fair value of the

related derivatives used for these assets.

See Note 3 and Note 17 to Consolidated Financial Statements for additional disclosures regarding

loans held for sale.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Significant Accounting Policies (Continued)

Mortgage Fee Income

Mortgage fee income consists of origination fees, processing fees, interest income and certain other income related to the origination of mortgage loans held for sale.

All revenues and costs are recognized when the mortgage loan is funded and any changes in fair value are shown as a component of mortgage fee income.

See Note 3 and Note 17 to Consolidated Financial Statements for additional disclosures regarding loans held for sale.

The Company, through its mortgage subsidiaries, sells mortgage loans to third-party investors without recourse unless defects are identified in the representations and warranties made at loan sale.

It may be required, however, to repurchase a loan or pay a fee instead of repurchase under certain events, which include the following:

· Failure to deliver original documents specified by the investor,

· The existence of misrepresentation or fraud in the origination of the loan,

· The loan becomes delinquent due to nonpayment during the first several months after it is sold,

· Early pay-off of a loan, as defined by the agreements,

· Excessive time to settle a loan,

· Investor declines purchase, and

· Discontinued product and expired commitment.

Loan purchase commitments generally specify a date 30 to 45 days after delivery upon which the underlying loans should be settled.

Depending on market conditions, these commitment settlement dates can be extended at a cost to the Company.

It is the Company's policy to cure any documentation problems regarding such loans at a minimal cost for up to a six-month time period and to pursue efforts to enforce loan purchase commitments from third-party investors concerning the loans.

The Company believes that six months allows adequate time to remedy any documentation issues, to enforce purchase commitments, and to exhaust other alternatives.

fee income consists of origination fees, processing fees, interest income and certain other income related to the origination of mortgage

loans held for sale.

All revenues and costs are recognized when the mortgage loan is funded and any changes in fair value are shown as

a component of mortgage fee income.

See Note 3 and Note 17 to Consolidated Financial Statements for additional disclosures regarding

loans held for sale.

Company, through its mortgage subsidiaries, sells mortgage loans to third-party investors without recourse unless defects are identified

in the representations and warranties made at loan sale.

It may be required, however, to repurchase a loan or pay a fee instead of repurchase

under certain events, which include the following:

to deliver original documents specified by the investor,

existence of misrepresentation or fraud in the origination of the loan,

loan becomes delinquent due to nonpayment during the first several months after it is sold,

pay-off of a loan, as defined by the agreements,

time to settle a loan,

declines purchase, and

product and expired commitment.

purchase commitments generally specify a date 30 to 45 days after delivery upon which the underlying loans should be settled.

on market conditions, these commitment settlement dates can be extended at a cost to the Company.

is the Company’s policy to cure any documentation problems regarding such loans at a minimal cost for up to a six-month time period

and to pursue efforts to enforce loan purchase commitments from third-party investors concerning the loans.

The Company believes that

six months allows adequate time to remedy any documentation issues, to enforce purchase commitments, and to exhaust other alternatives.

Remedial methods include the following:

· Research reasons for rejection,

· Provide additional documents,

· Request investor exceptions,

· Appeal rejection decision to purchase committee, and

· Commit to secondary investors.

Once purchase commitments have expired and other alternatives to remedy are exhausted, which could be earlier than the six-month time period, the loans are repurchased and transferred to the long-term investment portfolio at the lower of cost or fair value and previously recorded mortgage fee income that was to be received from a third-party investor is written off against the loan loss reserve.

Determining Lower of Cost or Fair Value

Cost for loans held for sale is equal to the amount paid to the warehouse bank and the amount originally funded by the Company.

Fair value is often difficult to determine, but is based on the following:

· For loans that are committed, the Company uses the commitment price.

· For loans that are non-committed that have an active market, the Company uses the market price.

· For loans that are non-committed where there is no market but there is a similar product, the Company uses the market value for the similar product.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

reasons for rejection,

additional documents,

investor exceptions,

rejection decision to purchase committee, and

to secondary investors.

purchase commitments have expired and other alternatives to remedy are exhausted, which could be earlier than the six-month time period,

the loans are repurchased and transferred to the long-term investment portfolio at the lower of cost or fair value and previously recorded

mortgage fee income that was to be received from a third-party investor is written off against the loan loss reserve.

for loans held for sale is equal to the amount paid to the warehouse bank and the amount originally funded by the Company.

is often difficult to determine and may contain significant unobservable inputs, but is based on the following:

loans that are committed, the Company uses the commitment price.

loans that are non-committed that have an active market, the Company uses the market price.

loans that are non-committed where there is no market but there is a similar product, the Company uses the market value for the similar

loans that are non-committed where no active market exists, the Company determines that the unpaid principal balance best approximates

the market value, after considering the fair value of the underlying real estate collateral, estimated future cash flows, and the

loan interest rate.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

1) Significant Accounting Policies (Continued)

· For loans that are non-committed where no active market exists, the Company determines that the unpaid principal balance best approximates the market value, after considering the fair value of the underlying real estate collateral, estimated future cash flows, and the loan interest rate.

The appraised value of the real estate underlying the original mortgage loan adds support to the Company’s determination of fair value because if the loan becomes delinquent, the Company has sufficient value to collect the unpaid principal balance or the carrying value of the loan, thus minimizing credit losses.

The majority of loans originated are sold to third-party investors.

The amounts expected to be sold to investors are shown on the consolidated balance sheets as loans held for sale.

Loan Loss Reserve

The loan loss reserve is an estimate of probable losses at the balance sheet date that the Company will realize in the future on loans sold.

The Company may be required to reimburse third-party investors for costs associated with early payoff of loans within six months of origination of such loans and to repurchase loans where there is a default in any of the first four monthly payments to the investors or, in lieu of repurchase, to pay a negotiated fee to the investors.

The Company’s estimates are based upon historical loss experience and the best estimate of the probable loan loss liabilities.

Upon completion of a transfer that satisfies the conditions to be accounted for as a sale, the Company initially measures at fair value liabilities incurred in a sale relating to any guarantee or recourse provisions.

The Company accrues a monthly allowance for indemnification losses to investors based on total production.

This estimate is based on the Company’s historical experience and is included as a component of mortgage fee income.

Subsequent updates to the recorded liability from changes in assumptions are recorded in selling, general and administrative expenses as a component of provision for loan loss reserve.

The estimated liability for indemnification losses is included in other liabilities and accrued expenses.

The loan loss reserve analysis involves mortgage loans that have been sold to third-party investors, which were believed to have met investor underwriting guidelines at the time of sale, where the Company has received a demand from the investor.

There are generally three types of demands:

appraised value of the real estate underlying the original mortgage loan adds support to the Company’s determination of fair value

because if the loan becomes delinquent, the Company has sufficient value to collect the unpaid principal balance or the carrying value

of the loan, thus minimizing credit losses.

majority of loans originated are sold to third-party investors.

The amounts expected to be sold to investors are shown on the consolidated

balance sheets as loans held for sale.

loan loss reserve is an estimate of probable losses at the balance sheet date that the Company will realize in the future on loans sold.

The Company may be required to reimburse third-party investors for costs associated with early payoff of loans within six months of origination

of such loans and to repurchase loans where there is a default in any of the first four monthly payments to the investors or, in lieu

of repurchase, to pay a negotiated fee to the investors.

The Company’s estimates are based upon historical loss experience and

the best estimate of the probable loan loss liabilities.

completion of a transfer that satisfies the conditions to be accounted for as a sale, the Company initially measures at fair value liabilities

incurred in a sale relating to any guarantee or recourse provisions.

The Company accrues a monthly allowance for indemnification losses

to investors based on total production.

This estimate is based on the Company’s historical experience and is included as a component

of mortgage fee income.

Subsequent updates to the recorded liability from changes in assumptions are recorded in selling, general and

administrative expenses as a component of provision for loan loss reserve.

The estimated liability for indemnification losses is included

in other liabilities and accrued expenses.

loan loss reserve analysis involves mortgage loans that have been sold to third-party investors, which were believed to have met investor

underwriting guidelines at the time of sale, where the Company has received a demand from the investor.

There are generally three types

make whole, repurchase, or indemnification.

These types of demands are further described as follows:

Make whole demand – A make whole demand occurs when an investor forecloses on a property and then sells the property.

The make whole amount is calculated as the difference between the original unpaid principal balance, payments received, accrued interest and fees, less the sale proceeds.

Repurchase demand – A repurchase demand usually occurs when there is a significant payment default, error in underwriting or detected loan fraud.

Indemnification demand – On certain loans the Company has negotiated a set fee that is to be paid in lieu of repurchase.

The fee varies by investor and by loan product type.

The Company believes the allowance for loan losses and the loan loss reserve represent probable loan losses incurred as of the balance sheet date.

Additional information related to the Loan Loss Reserve is included in Note 3.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

whole demand — A make whole demand occurs when an investor forecloses on a property and then sells the property.

The make whole

amount is calculated as the difference between the original unpaid principal balance, payments received, accrued interest and fees, less

the sale proceeds.

demand — A repurchase demand usually occurs when there is a significant payment default, error in underwriting or detected

Indemnification

demand — On certain loans the Company has negotiated a set fee that is to be paid in lieu of repurchase.

The fee varies by

investor and by loan product type.

Company believes the allowance for loan losses and the loan loss reserve represent probable loan losses incurred as of the balance sheet

information related to the Loan Loss Reserve is included in Note 3.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Significant Accounting Policies (Continued)

Restricted Assets

Restricted assets are assets held in a trust account for future mortuary services and merchandise and consist of cash and cash equivalents;

participations in mortgage loans held for investment with Security National Life Insurance Company (“Security National Life”);

mutual funds carried at estimated fair value;

assets are assets held in a trust account for future mortuary services and merchandise and consist of cash and cash equivalents;

participations

in mortgage loans held for investment with Security National Life Insurance Company (“Security National Life”);

carried at estimated fair value;

equity securities carried at estimated fair value;

and a surplus note with Security National Life (which is eliminated in consolidation).

Restricted assets also represents escrows held for borrowers and investors under servicing and appraisal agreements relating to mortgage loans, funds held by warehouse banks in accordance with loan purchase agreements and funds held in escrow for certain real estate construction development projects.

Additionally, the Company funded its medical benefit safe-harbor limit based on the qualified direct costs, and has included this amount as a component of restricted cash.

Cemetery Perpetual Care Trust Investments

Cemetery endowment care trusts have been set up for four of the six cemeteries owned by the Company.

Under endowment care arrangements a portion of the price for each lot sold is withheld and invested in a portfolio of investments similar to those described in the prior paragraph.

and a surplus note with Security National Life (which

is eliminated in consolidation).

Restricted assets also include escrows held for borrowers and investors under servicing and appraisal

agreements relating to mortgage loans, funds held by warehouse banks in accordance with loan purchase agreements and funds held in escrow

for certain real estate construction development projects.

Additionally, the Company funded its medical benefit safe-harbor limit based

on the qualified direct costs, and has included this amount as a component of restricted cash.

Perpetual Care Trust Investments

endowment care trusts have been set up for five of the seven cemeteries owned by the Company.

Under endowment care arrangements a portion

of the price for each lot sold is withheld and invested in a portfolio of investments similar to those described in the prior paragraph.

The earnings stream from the investments is designed to fund future maintenance and upkeep of the cemetery.

Cemetery Land and Improvements

The development of a cemetery involves not only the initial acquisition of raw land but also the installation of roads, water lines, landscaping and other costs to establish a marketable cemetery lot.

Land and Improvements

development of a cemetery involves not only the initial acquisition of raw land but also the installation of roads, water lines, landscaping

and other costs to establish a marketable cemetery lot.

The costs of developing the cemetery are shown as an asset on the balance sheet.

The amount on the balance sheet is reduced by the total cost assigned to the development of a particular lot when the criterion for recognizing a sale of that lot is met.

Deferred Policy Acquisition Costs and Value of Business Acquired

Commissions and other costs, net of commission and expense allowances for reinsurance ceded, that vary with and are primarily related to the production of new insurance business have been deferred.

Deferred policy acquisition costs (“DAC”) for traditional life insurance are amortized over the premium paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves.

For interest-sensitive insurance products, deferred policy acquisition costs are amortized generally in proportion to the present value of expected gross profits from surrender charges, investment, mortality and expense margins.

This amortization is adjusted when estimates of current or future gross profits to be realized from a group of products are reevaluated.

Deferred acquisition costs are written off when policies lapse or are surrendered.

When accounting for DAC, the Company considers internal replacements of insurance and investment contracts.

An internal replacement is a modification in product benefits, features, rights or coverage that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to contract, or by the election of a feature or coverage within a contract.

Modifications that result in a replacement contract that is substantially changed from the replaced contract are accounted for as an extinguishment of the replaced contract.

Unamortized DAC, unearned revenue liabilities and deferred sales inducements from the replaced contract are written-off.

Modifications that result in a contract that is substantially unchanged from the replaced contract are accounted for as a continuation of the replaced contract.

Value of business acquired is the present value of estimated future profits of the acquired business and is amortized similar to deferred policy acquisition costs.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

The amount on the balance sheet is reduced by the total cost assigned to the development of a particular lot when the criterion for recognizing

a sale of that lot is met.

Policy Acquisition Costs and Value of Business Acquired

and other costs, net of commission and expense allowances for reinsurance ceded, that vary with and are primarily related to the production

of new insurance business have been deferred.

Deferred policy acquisition costs (“DAC”) for traditional life insurance are

amortized over the premium paying period of the related policies using assumptions consistent with those used in computing policy benefit

For interest-sensitive insurance products, deferred policy acquisition costs are amortized generally in proportion to the present

value of expected gross profits from surrender charges, investment, mortality and expense margins.

This amortization is adjusted when

estimates of current or future gross profits to be realized from a group of products are reevaluated.

Deferred acquisition costs are

written off when policies lapse or are surrendered.

accounting for DAC, the Company considers internal replacements of insurance and investment contracts.

An internal replacement is a modification

in product benefits, features, rights or coverage that occurs by the exchange of a contract for a new contract, or by amendment, endorsement,

or rider to contract, or by the election of a feature or coverage within a contract.

Modifications that result in a replacement contract

that is substantially changed from the replaced contract are accounted for as an extinguishment of the replaced contract.

DAC, unearned revenue liabilities and deferred sales inducements from the replaced contract are written-off.

Modifications that result

in a contract that is substantially unchanged from the replaced contract are accounted for as a continuation of the replaced contract.

of business acquired (“VOBA”) is the present value of estimated future profits of the acquired business and is amortized

similar to deferred policy acquisition costs.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Significant Accounting Policies (Continued)

Mortgage Servicing Rights

Mortgage Servicing Rights (“MSR”) arise from contractual agreements between the Company and third-party investors (or their agents) when mortgage loans are sold.

Under these contracts, the Company is obligated to retain and provide loan servicing functions on loans sold, in exchange for fees and other remuneration.

The servicing functions typically performed include, among other responsibilities, collecting and remitting loan payments;

Deficiency and Loss Recognition Testing

least annually, the Company tests the adequacy of the net benefit reserves (liability for future policy benefits, net of DAC and VOBA)

recorded for life insurance and annuity products.

The Company tests for recoverability by using the Company’s current best-estimate

assumptions as to policyholder mortality, persistency, maintenance expenses and invested asset returns.

These tests evaluate whether

the present value of future contract-related cash flows will support the capitalized DAC and VOBA assets.

These cash flows consist primarily

of premium income, less benefits and expenses.

If the current contract liabilities plus the present value of future premiums is greater

than the sum of the present values of future policy benefits, commissions, and expenses plus the current DAC and VOBA less unearned premium

reserve balances, then the capitalized assets are deemed recoverable.

The present values are calculated using the best estimate of the

after tax net investment earned rate.

Servicing Rights

Servicing Rights (“MSR”) arise from contractual agreements between the Company and third-party investors (or their agents)

when mortgage loans are sold.

Under these contracts, the Company is obligated to retain and provide loan servicing functions on loans

sold, in exchange for fees and other remuneration.

The servicing functions typically performed include, among other responsibilities,

collecting and remitting loan payments;

responding to borrower inquiries;

accounting for principal and interest, holding custodial (impound) funds for payment of property taxes and insurance premiums;

accounting for principal and interest, holding custodial (impound)

funds for payment of property taxes and insurance premiums;

counseling delinquent mortgagors;

and supervising the acquisition of real estate owned and property dispositions.

The total residential mortgage loans serviced for others consist primarily of agency conforming fixed-rate mortgage loans.

The value of MSRs is derived from the net cash flows associated with the servicing contracts.

The Company receives a servicing fee of generally about 0.250% annually on the remaining outstanding principal balances of the loans.

Based on the result of the cash flow analysis, an asset or liability is recorded for mortgage servicing rights.

and supervising the acquisition of real

estate owned and property dispositions.

total residential mortgage loans serviced for others consist primarily of agency conforming fixed-rate mortgage loans.

The value of MSRs

is derived from the net cash flows associated with the servicing contracts.

The Company receives a servicing fee of generally about 0.250 %

annually on the remaining outstanding principal balances of the loans.

Based on the result of the cash flow analysis, an asset or liability

is recorded for mortgage servicing rights.

The servicing fees are collected from the monthly payments made by the mortgagors.

The Company generally receives other remuneration including rights to various mortgagor-contracted fees such as late charges, and collateral reconveyance charges and the Company is generally entitled to retain the interest earned on funds held pending remittance of mortgagor principal, interest, tax and insurance payments.

Contractual servicing fees and late fees are included in other revenues on the consolidated statements of earnings.

The Company’s subsequent accounting for MSRs is based on the class of MSRs.

generally receives other remuneration including rights to various mortgagor-contracted fees such as late charges, and collateral reconveyance

charges and the Company is generally entitled to retain the interest earned on funds held pending remittance of mortgagor principal,

interest, tax and insurance payments.

Contractual servicing fees and late fees are included in other revenues on the consolidated statements

Company’s subsequent accounting for MSRs is based on the class of MSRs.

The Company has identified two classes of MSRs:

MSRs backed by mortgage loans with initial term of 30 years and MSRs backed by mortgage loans with initial term of 15 years.

The Company distinguishes between these classes of MSRs due to their differing sensitivities to change in value as the result of changes in market.

After being initially recorded at fair value, MSRs backed by mortgage loans are accounted for using the amortization method.

Amortization expense is included in other expenses on the consolidated statements of earnings.

MSR amortization is determined by amortizing the MSR balance in proportion to, and over the period of the estimated future net servicing income of the underlying financial assets.

Interest rate risk, prepayment risk, and default risk are inherent risks in MSR valuation.

by mortgage loans with initial term of 30 years and MSRs backed by mortgage loans with initial term of 15 years.

The Company distinguishes

between these classes of MSRs due to their differing sensitivities to change in value as the result of changes in market.

initially recorded at fair value, MSRs backed by mortgage loans are accounted for using the amortization method.

Amortization expense

is included in other expenses on the consolidated statements of earnings.

MSR amortization is determined by amortizing the MSR balance

in proportion to, and over the period of the estimated future net servicing income of the underlying financial assets.

rate risk, prepayment risk, and default risk are inherent risks in MSR valuation.

Interest rate changes largely drive prepayment rates.

Refinance activity generally increases as rates decline.

A significant decrease in rates beyond expectation could cause a decline in the value of the MSR.

On the contrary, if rates increase borrowers are less likely to refinance or prepay their mortgage, which extends the duration of the loan and MSR values are likely to rise.

Because of these risks, discount rates and prepayment speeds are used to estimate the fair value.

The Company periodically assesses MSRs for impairment.

Impairment occurs when the current fair value of the MSR falls below the asset’s carrying value (carrying value is the amortized cost reduced by any related valuation allowance).

If MSRs are impaired, the impairment is recognized in current period earnings and the carrying value of the MSRs is adjusted through a valuation allowance.

Management periodically reviews the various loan strata to determine whether the value of the MSRs in a given stratum is impaired and likely to recover.

When management deems recovery of the value to be unlikely in the foreseeable future, a write-down of the cost of the MSRs for that stratum to its estimated recoverable value is charged to the valuation allowance.

Property and Equipment

Property and equipment are recorded at cost.

Depreciation is calculated principally on the straight-line method over the estimated useful lives of the assets which range from three to forty years.

Leasehold improvements paid for by the Company as a lessee are amortized over the lesser of the useful life or remaining lease terms.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

A significant decrease in rates beyond expectation could cause a decline in

the value of the MSR.

On the contrary, if rates increase borrowers are less likely to refinance or prepay their mortgage, which extends

the duration of the loan and MSR values are likely to rise.

Because of these risks, discount rates and prepayment speeds are used to

estimate the fair value.

Company periodically assesses MSRs for impairment.

Impairment occurs when the current fair value of the MSR falls below the asset’s

carrying value (carrying value is the amortized cost reduced by any related valuation allowance).

If MSRs are impaired, the impairment

is recognized in current period earnings and the carrying value of the MSRs is adjusted through a valuation allowance.

periodically reviews the various loan strata to determine whether the value of the MSRs in a given stratum is impaired and likely to

When management deems recovery of the value to be unlikely in the foreseeable future, a write-down of the cost of the MSRs for

that stratum to its estimated recoverable value is charged to the valuation allowance.

and Equipment

and equipment are recorded at cost.

Depreciation is calculated principally on the straight-line method over the estimated useful lives

of the assets which range from three to forty years .

Leasehold improvements paid for by the Company as a lessee are amortized over the

lesser of the useful life or remaining lease terms.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Significant Accounting Policies (Continued)

Long-lived Assets

Long-lived assets to be held and used, including property and equipment and real estate held for investment, are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable.

When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset, and long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

No impairment of long-lived assets has been recognized in the accompanying financial statements except for certain impairments of real estate held for investment as disclosed in Note 2.

Derivative Instruments

Mortgage Banking Derivatives

Loan Commitments

The Company is exposed to price risk due to the potential impact of changes in interest rates on the values of loan commitments from the time a loan commitment is made to an applicant to the time the loan that would result from the exercise of that loan commitment is funded.

Managing price risk is complicated by the fact that the ultimate percentage of loan commitments that will be exercised (i.e., the number of loans that will be funded) fluctuates.

The probability that a loan will not be funded or the loan application is denied or withdrawn within the terms of the commitment is driven by a number of factors, particularly the change, if any, in mortgage rates following the issuance of the loan commitment.

In general, the probability of funding increases if mortgage rates rise and decreases if mortgage rates fall.

This is due primarily to the relative attractiveness of current mortgage rates compared to the applicant’s committed rate.

The probability that a loan will not be funded within the terms of the mortgage loan commitment also is influenced by the source of the applications (retail, broker or correspondent channels), proximity to rate lock expiration, purpose for the loan (purchase or refinance), product type and the application approval status.

The Company has developed fallout estimates using historical data that take into account all of the variables, as well as renegotiations of rate and point commitments that tend to occur when mortgage rates fall.

These fallout estimates are used to estimate the number of loans that the Company expects to be funded within the terms of the loan commitments and are updated periodically to reflect the most current data.

The Company estimates the fair value of a loan commitment based on the change in estimated fair value of the underlying mortgage loan, quoted mortgage-backed securities (“MBS”) prices, estimates of the fair value of mortgage servicing rights, and an estimate of the probability that the mortgage loan will fund within the terms of the commitment.

The change in fair value of the underlying mortgage loan is measured from the date the loan commitment is issued and is shown net of expenses.

Following issuance, the value of a loan commitment can be either positive or negative depending upon the change in value of the underlying mortgage loans.

Forward Sale Commitments

The Company utilizes forward commitments to economically hedge the price risk associated with its outstanding mortgage loan commitments.

assets to be held and used, including property and equipment and real estate held for investment, are reviewed for impairment whenever

events or changes in circumstances indicate that the related carrying amount may not be recoverable.

When required, impairment losses

on assets to be held and used are recognized based on the fair value of the asset, and long-lived assets to be disposed of are reported

at the lower of carrying amount or fair value less costs to sell.

No impairment of long-lived assets has been recognized in the accompanying

financial statements except for certain impairments of real estate held for investment as disclosed in Note 2.

Banking Derivatives

Company is exposed to price risk due to the potential impact of changes in interest rates on the values of loan commitments from the

time a loan commitment is made to an applicant to the time the loan that would result from the exercise of that loan commitment is funded.

Managing price risk is complicated by the fact that the ultimate percentage of loan commitments that will be exercised (i.e., the number

of loans that will be funded) fluctuates.

The probability that a loan will not be funded or the loan application is denied or withdrawn

within the terms of the commitment is driven by a number of factors, particularly the change, if any, in mortgage rates following the

issuance of the loan commitment.

general, the probability of funding increases if mortgage rates rise and decreases if mortgage rates fall.

This is due primarily to the

relative attractiveness of current mortgage rates compared to the applicant’s committed rate.

The probability that a loan will

not be funded within the terms of the mortgage loan commitment also is influenced by the source of the applications (retail, broker or

correspondent channels), proximity to rate lock expiration, purpose for the loan (purchase or refinance), product type and the application

approval status.

The Company has developed fallout estimates using historical data that take into account all of the variables, as well

as renegotiations of rate and point commitments that tend to occur when mortgage rates fall.

These fallout estimates are used to estimate

the number of loans that the Company expects to be funded within the terms of the loan commitments and are updated periodically to reflect

the most current data.

Company estimates the fair value of a loan commitment based on the change in estimated fair value of the underlying mortgage loan, quoted

mortgage-backed securities (“MBS”) prices, estimates of the fair value of mortgage servicing rights, and an estimate of the

probability that the mortgage loan will fund within the terms of the commitment.

The change in fair value of the underlying mortgage

loan is measured from the date the loan commitment is issued and is shown net of expenses.

Following issuance, the value of a loan commitment

can be either positive or negative depending upon the change in value of the underlying mortgage loans.

Sale Commitments

Company utilizes forward commitments to economically hedge the price risk associated with its outstanding mortgage loan commitments.

A forward commitment protects the Company from losses on sales of the loans arising from exercise of the loan commitments.

Management expects these types of commitments will experience changes in fair value opposite to changes in fair value of the loan commitments, thereby reducing earnings volatility related to the recognition in earnings of changes in the values of the commitments.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

expects these types of commitments will experience changes in fair value opposite to changes in fair value of the loan commitments, thereby

reducing earnings volatility related to the recognition in earnings of changes in the values of the commitments.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Significant Accounting Policies (Continued)

The net changes in fair value of loan commitments and forward sale commitments are shown in current earnings as a component of mortgage fee income on the consolidated statements of earnings.

Mortgage banking derivatives are shown in other assets and other liabilities and accrued expenses on the consolidated balance sheets.

Call and Put Option Derivatives

The Company uses a strategy of selling “out of the money” call options on its equity securities as a source of revenue.

The options give the purchaser the right to buy from the Company specified equity securities at a set price up to a pre-determined date in the future.

The Company uses the strategy of selling put options as a means of generating cash or purchasing equity securities at lower than current market prices.

The Company receives an immediate payment of cash for the value of the option and establishes a liability for the fair value of the option.

net changes in fair value of loan commitments and forward sale commitments are shown in current earnings as a component of mortgage fee

income on the consolidated statements of earnings.

Mortgage banking derivatives are shown in other assets and other liabilities and accrued

expenses on the consolidated balance sheets.

and Put Option Derivatives

Company uses a strategy of selling “out of the money” call options on its equity securities as a source of revenue.

give the purchaser the right to buy from the Company specified equity securities at a set price up to a pre-determined date in the future.

The Company uses the strategy of selling put options as a means of generating cash or purchasing equity securities at lower than current

market prices.

The Company receives an immediate payment of cash for the value of the option and establishes a liability for the fair

value of the option.

The liability for options is adjusted to fair value at each reporting date.

In the event a call option is exercised, the Company sells the equity security at a favorable price enhanced by the value of the option that was sold.

If the option expires unexercised, the Company recognizes a gain from the expired option.

In the event a put option is exercised, the Company acquires an equity security at the strike price of the option reduced by the value received from the sale of the put option.

The equity security is then treated as a normal equity security in the Company’s portfolio.

The net changes in the fair value of call and put options are shown in current earnings as a component of realized gains (losses) on investments and other assets.

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

Allowance for Doubtful Accounts and Loan Losses and Impaired Loans

The Company records an allowance and recognizes an expense for potential losses from mortgage loans held for investment, other investments and receivables in accordance with GAAP.

Receivables are the result of cemetery and mortuary operations, mortgage loan operations and life insurance operations.

The allowance is based upon the Company’s historical experience for collectively evaluated impairment.

Other allowances are based upon receivables individually evaluated for impairment.

In the event a call option is exercised,

the Company sells the equity security at a favorable price enhanced by the value of the option that was sold.

If the option expires unexercised,

the Company recognizes a gain from the expired option.

In the event a put option is exercised, the Company acquires an equity security

at the strike price of the option reduced by the value received from the sale of the put option.

The equity security is then treated

as a normal equity security in the Company’s portfolio.

The net changes in the fair value of call and put options are shown in

current earnings as a component of gains (losses) on investments and other assets.

Call and put options are shown in other liabilities

and accrued expenses on the consolidated balance sheets.

for Doubtful Accounts and Loan Losses and Impaired Loans

Company records an allowance and recognizes an expense for potential losses from mortgage loans held for investment, other investments

and receivables in accordance with GAAP.

are the result of cemetery and mortuary operations, mortgage loan operations and life insurance operations.

The allowance is based upon

the Company’s historical experience for collectively evaluated impairment.

Other allowances are based upon receivables individually

evaluated for impairment.

Collectability of the cemetery and mortuary receivables is significantly influenced by current economic conditions.

The critical issues that impact recovery of mortgage loan operations are interest rate risk, loan underwriting, new regulations and the overall economy.

The Company provides for losses on its mortgage loans held for investment through an allowance for loan losses (a contra-asset account).

The critical issues that impact recovery of mortgage loan operations are interest rate risk, loan underwriting, new regulations and the

overall economy.

Company provides for losses on its mortgage loans held for investment through an allowance for loan losses (a contra-asset account).

The allowance is comprised of two components.

The first component is an allowance for collectively evaluated impairment that is based upon the Company’s historical experience in collecting similar receivables.

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.

See the schedules in Note 2 for additional information.

The first component is an allowance for collectively evaluated impairment that is based

upon the Company’s historical experience in collecting similar receivables.

The second component is based upon individual evaluation

of loans that are determined to be impaired.

As a practical expedient, upon determining impairment, the Company establishes an individual

impairment allowance based upon an assessment of the fair value of the underlying collateral.

See the schedules in Note 2 for additional

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.

Once foreclosed, an adjustment for the lower of cost or fair value is made, if necessary, and the amount is classified as real estate held for investment.

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

Once foreclosed, an adjustment for the lower of cost or fair value is made, if necessary, and the amount is classified as real estate

held for investment.

The Company will rent the properties until it is deemed desirable to sell them.

The allowance for losses on mortgage loans held for investment could change based on changes in the value of the underlying collateral, the performance status of the loans, or the Company’s actual collection experience.

The actual losses could change, in the near term, from the established allowance, based upon the occurrence or non-occurrence of these events.

For purposes of determining the allowance for losses, the Company has segmented its mortgage loans held for investment by loan type.

The Company’s loan types are commercial, residential, and residential construction.

The inherent risks within the portfolio vary depending upon the loan type as follows:

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

allowance for losses on mortgage loans held for investment could change based on changes in the value of the underlying collateral, the

performance status of the loans, or the Company’s actual collection experience.

The actual losses could change, in the near term,

from the established allowance, based upon the occurrence or non-occurrence of these events.

purposes of determining the allowance for losses, the Company has segmented its mortgage loans held for investment by loan type.

Company’s loan types are commercial, residential, and residential construction.

The inherent risks within the portfolio vary depending

upon the loan type as follows:

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Significant Accounting Policies (Continued)

Commercial - Underwritten in accordance with the Company’s policies to determine the borrower’s ability to repay the obligation as agreed.

— Underwritten in accordance with the Company’s policies to determine the borrower’s ability to repay the obligation

Commercial loans are made primarily based on the underlying collateral supporting the loan.

Accordingly, the repayment of a commercial loan depends primarily on the collateral and its ability to generate income and secondary on the borrower’s (or guarantors) ability to repay.

Residential – Secured by family dwelling units.

Accordingly, the repayment of

a commercial loan depends primarily on the collateral and its ability to generate income and secondary on the borrower’s (or guarantors)

ability to repay.

— Secured by family dwelling units.

These loans are secured by first and second mortgages on the unit.

The borrower’s ability to repay is sensitive to the life events and general economic condition of the region.

Where loan to values exceed 80%, the loan is generally guaranteed by private mortgage insurance, FHA or VA.

Residential construction (including land acquisition and development) – Underwritten in accordance with the Company’s underwriting policies which include a financial analysis of the builders, borrowers (guarantors), construction cost estimates, and independent appraisal valuations.

The borrower’s

ability to repay is sensitive to the life events and general economic condition of the region.

Where loan to values exceed 80%, the loan

is generally guaranteed by private mortgage insurance, FHA or VA.

construction (including land acquisition and development) — Underwritten in accordance with the Company’s underwriting

policies which include a financial analysis of the builders, borrowers (guarantors), construction cost estimates, and independent appraisal

These loans will rely on the value associated with the project upon completion.

These cost and valuation estimates may be inaccurate.

Construction loans generally involve the disbursement of substantial funds over a short period of time with repayment substantially dependent upon the success of the completed project and the ability of the borrower to secure long-term financing.

Additionally, land is underwritten according to the Company’s policies, which include independent appraisal valuations as well as the estimated value associated with the land upon completion of development into finished lots.

These cost and valuation estimates may be

Construction loans generally involve the disbursement of substantial funds over a short period of time with repayment substantially

dependent upon the success of the completed project and the ability of the borrower to secure long-term financing.

Additionally, land

is underwritten according to the Company’s policies, which include independent appraisal valuations as well as the estimated value

associated with the land upon completion of development into finished lots.

These cost and valuation estimates may be inaccurate.

These loans are considered to be of a higher risk than other mortgage loans due to their ultimate repayment being sensitive to general economic conditions, availability of long-term or construction financing, and interest rate sensitivity.

Future Policy Benefits and Unpaid Claims

Future policy benefit reserves for traditional life insurance are computed using a net level method, including assumptions as to investment yields, mortality, morbidity, withdrawals, and other assumptions based on the life insurance subsidiaries’ experience, modified as necessary to give effect to anticipated trends and to include provisions for possible unfavorable deviations.

Such liabilities are, for some plans, graded to equal statutory values or cash values at or prior to maturity, which are deemed a reasonable equivalent for GAAP.

loans are considered to be of a higher risk than other mortgage loans due to their ultimate repayment being sensitive to general economic

conditions, availability of long-term or construction financing, and interest rate sensitivity.

Policy Benefits and Unpaid Claims

policy benefit reserves for traditional life insurance are computed using a net level method, including assumptions as to investment

yields, mortality, morbidity, withdrawals, and other assumptions based on the life insurance subsidiaries’ experience, modified

as necessary to give effect to anticipated trends and to include provisions for possible unfavorable deviations.

Such liabilities are,

for some plans, graded to equal statutory values or cash values at or prior to maturity, which are deemed a reasonable equivalent for

The range of assumed interest rates for all traditional life insurance policy reserves was 4 % to 10 %.

Benefit reserves for traditional limited-payment life insurance policies include the deferred portion of the premiums received during the premium-paying period.

Deferred premiums are recognized as income over the life of the policies.

Policy benefit claims are charged to expense in the period the claims are incurred.

Benefit reserves for traditional

limited-payment life insurance policies include the deferred portion of the premiums received during the premium-paying period.

premiums are recognized as income over the life of the policies.

Policy benefit claims are charged to expense in the period the claims

are incurred.

Increases in future policy benefits are charged to expense.

Future policy benefit reserves for interest-sensitive insurance products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges.

Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances.

Interest crediting rates for interest-sensitive insurance products ranged from 3% to 6.5%.

The Company records an unpaid claims liability for claims in the course of settlement equal to the death benefit amount less any reinsurance recoverable amount for claims reported.

policy benefit reserves for interest-sensitive insurance products are computed under a retrospective deposit method and represent policy

account balances before applicable surrender charges.

Policy benefits and claims that are charged to expense include benefit claims incurred

in the period in excess of related policy account balances.

Interest crediting rates for interest-sensitive insurance products ranged

from 3 % to 6.5 %.

Company records an unpaid claims liability for claims in the course of settlement equal to the death benefit amount less any reinsurance

recoverable amount for claims reported.

There is also an unpaid claims liability for claims incurred but not reported.

This liability is based on the historical experience of the net amount of claims that were reported in reporting periods subsequent to the reporting period when claims were incurred.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

This liability

is based on the historical experience of the net amount of claims that were reported in reporting periods subsequent to the reporting

period when claims were incurred.

Participating

business constituted 2 % of insurance in force for the years ended 2021 and 2020.

The provision for policyholders’ dividends included

in policyholder obligations is based on dividend scales anticipated by management.

Amounts to be paid are determined by the Board of

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

1) Significant Accounting Policies (Continued)

Participating Insurance

Participating business constituted 2% of insurance in force for the years ended 2020 and 2019.

The provision for policyholders’ dividends included in policyholder obligations is based on dividend scales anticipated by management.

Amounts to be paid are determined by the Board of Directors.

Recognition of Insurance Premiums and Other Considerations

Premiums and other consideration for traditional life insurance products (which include those products with fixed and guaranteed premiums and benefits and consist principally of whole life insurance policies, limited payment life insurance policies, and certain annuities with life contingencies) are recognized as revenues when due from policyholders.

Premiums and other consideration for interest-sensitive insurance policies (which include universal life policies, interest-sensitive life policies, deferred annuities, and annuities without life contingencies) are recognized when earned and consist of amounts assessed against policyholder account balances during the period for policy administration charges and surrender charges.

The Company follows the procedure of reinsuring risks in excess of $100,000 to provide for greater diversification of business to allow management to control exposure to potential losses arising from large risks, and provide additional capacity for growth.

The Company remains liable for amounts ceded in the event the reinsurers are unable to meet their obligations.

The Company entered into coinsurance agreements with unaffiliated insurance companies under which the Company assumed 100% of the risk for certain life insurance policies and certain other policy-related liabilities of the insurance company.

Reinsurance premiums, commissions, expense reimbursements, and reserves related to reinsured business are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts.

Expense allowances received in connection with reinsurance ceded are accounted for as a reduction of the related policy acquisition costs and are deferred and amortized accordingly.

Pre-need Sales and Costs

Pre-need contract sales of funeral services and caskets - revenue and costs associated with the sales of pre-need funeral services and caskets are deferred until the performance obligations are fulfilled (services are performed or the caskets are delivered).

Sales of cemetery interment rights (cemetery burial property) - revenue and costs associated with the sale of cemetery interment rights are recognized in accordance with the retail land sales provisions based on GAAP.

Under GAAP, recognition of revenue and associated costs from constructed cemetery property must be deferred until 10% of the sales price has been collected.

Pre-need contract sales of cemetery merchandise (primarily markers and vaults) - revenue and costs associated with the sale of pre-need cemetery merchandise is deferred until the merchandise is delivered.

Pre-need contract sales of cemetery services (primarily merchandise delivery, installation fees and burial opening and closing fees) - revenue and costs associated with the sales of pre-need cemetery services are deferred until the services are performed.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

of Insurance Premiums and Other Considerations

and other consideration for traditional life insurance products (which include those products with fixed and guaranteed premiums and

benefits and consist principally of whole life insurance policies, limited payment life insurance policies, and certain annuities with

life contingencies) are recognized as revenues when due from policyholders.

Premiums and other consideration for interest-sensitive insurance

policies (which include universal life policies, interest-sensitive life policies, deferred annuities, and annuities without life contingencies)

are recognized when earned and consist of amounts assessed against policyholder account balances during the period for policy administration

charges and surrender charges.

Company follows the procedure of reinsuring risks in excess of $ 100,000 to provide for greater diversification of business to allow management

to control exposure to potential losses arising from large risks, and provide additional capacity for growth.

The Company remains liable

for amounts ceded in the event the reinsurers are unable to meet their obligations.

Company entered into coinsurance agreements with unaffiliated insurance companies under which the Company assumed 100 % of the risk for

certain life insurance policies and certain other policy-related liabilities of the insurance company.

premiums, commissions, expense reimbursements, and reserves related to reinsured business are accounted for on a basis consistent with

those used in accounting for the original policies issued and the terms of the reinsurance contracts.

Expense allowances received in

connection with reinsurance ceded are accounted for as a reduction of the related policy acquisition costs and are deferred and amortized

Sales and Costs

contract sales of funeral services and caskets - revenue and costs associated with the sales of pre-need funeral services and caskets

are deferred until the performance obligations are fulfilled (services are performed or the caskets are delivered).

of cemetery interment rights (cemetery burial property) - revenue and costs associated with the sale of cemetery interment rights

are deferred until 10% of the sales price has been collected.

contract sales of cemetery merchandise (primarily markers and vaults) - revenue and costs associated with the sale of pre-need cemetery

merchandise is deferred until the merchandise is delivered to the Company.

contract sales of cemetery services (primarily merchandise delivery, installation fees and burial opening and closing fees) - revenue

and costs associated with the sales of pre-need cemetery services are deferred until the services are performed.

funeral and pre-need cemetery customer acquisition costs - costs incurred related to obtaining new pre-need contract cemetery and

prearranged funeral services, which include only costs that vary with and are primarily related to the acquisition of new pre-need cemetery

and prearranged funeral services, are deferred until the merchandise is delivered or services are performed.

and costs for at-need sales are recorded when a valid contract exists, the services are performed, collection is reasonably assured and

there are no significant performance obligations remaining.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Significant Accounting Policies (Continued)

Prearranged funeral and pre-need cemetery customer acquisition costs - costs incurred related to obtaining new pre-need contract cemetery and prearranged funeral services are accounted for under the guidance of the provisions based on GAAP.

Obtaining costs, which include only costs that vary with and are primarily related to the acquisition of new pre-need cemetery and prearranged funeral services, are deferred until the merchandise is delivered or services are performed.

Revenues and costs for at-need sales are recorded when a valid contract exists, the services are performed, collection is reasonably assured and there are no significant obligations remaining.

The Company, through its cemetery and mortuary operations, provides guaranteed funeral arrangements wherein a prospective customer can receive future goods and services at guaranteed prices.

To accomplish this, the Company, through its life insurance operations, sells to the customer an increasing benefit life insurance policy that is assigned to the mortuaries.

If, at the time of need, the policyholder/potential mortuary customer utilizes one of the Company’s facilities, the guaranteed funeral arrangement contract that has been assigned will provide the funeral goods and services at the contracted price.

The increasing life insurance policy will cover the difference between the original contract prices and current prices.

Company, through its cemetery and mortuary operations, provides guaranteed funeral arrangements wherein a prospective customer can receive

future goods and services at guaranteed prices.

To accomplish this, the Company, through its life insurance operations, sells to the

customer an increasing benefit life insurance policy that is assigned to the mortuaries.

If, at the time of need, the policyholder/potential

mortuary customer utilizes one of the Company’s facilities, the guaranteed funeral arrangement contract that has been assigned

will provide the funeral goods and services at the contracted price.

The increasing life insurance policy will cover the difference between

the original contract prices and current prices.

Risks may arise if the difference cannot be fully met by the life insurance policy.

However, management believes that given current inflation rates and related price increases of goods and services, the risk of exposure is minimal.

Previous acquisitions have been accounted for as purchases under which assets acquired and liabilities assumed were recorded at their fair values with the excess purchase price recognized as goodwill.

The Company evaluates annually or when changes in circumstances warrant the recoverability of goodwill and if there is a decrease in value, the related impairment is recognized as a charge against income.

No impairment of goodwill has been recognized in the accompanying financial statements.

Other Intangibles (trade name and customer lists)

Other intangibles are recognized apart from goodwill whenever an acquired intangible asset arises from contractual or other legal rights, or whenever it is capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented, or exchanged, either individually or in combination with a related contract, asset, or liability.

The Company engaged a valuation firm to analyze the value of the Kilpatrick Life name in conjunction with its acquisition.

The value of the trade name is included in Other Assets and was determined using the income approach, relying on a relief from the royalty method.

Income taxes include taxes currently payable plus deferred taxes.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the temporary differences in the financial reporting basis and tax basis of assets and liabilities and operating loss carry-forwards.

Deferred tax assets are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled.

Liabilities are established for uncertain tax positions expected to be taken in income tax returns when such positions are judged to meet the “more-likely-than-not” threshold based on the technical merits of the positions.

Estimated interest and penalties related to uncertain tax penalties are included as a component of other expenses.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

1) Significant Accounting Policies (Continued)

Earnings Per Common Share

The Company computes earnings per share which requires presentation of basic and diluted earnings per share.

Basic earnings per equivalent Class A common share are computed by dividing net earnings by the weighted-average number of Class A common shares outstanding during each year presented, after the effect of the assumed conversion of Class C common stock to Class A common stock.

Diluted earnings per share is computed by dividing net earnings by the weighted-average number of common shares outstanding during the year used to compute basic earnings per share plus dilutive potential incremental shares.

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

Stock Based Compensation

The cost of employee services received in exchange for an award of equity instruments is recognized in the financial statements and is measured based on the fair value on the grant date of the award.

The fair value of stock options is calculated using the Black Scholes Option Pricing Model.

Stock option compensation expense is recognized over the period during which an employee is required to provide service in exchange for the award and is included in personnel expenses on the consolidated statements of earnings.

Concentration of Credit Risk

For a description of the geographic concentration risk regarding mortgage loans held for investment and real estate held for investment, refer to Note 2 of the Notes to Consolidated Financial Statements.

The Company expenses advertising costs as incurred.

Recent Accounting Pronouncements

Accounting Standards Adopted in 2020

“Fair Value Measurement (Topic 820):

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement” – Issued in August 2018, ASU 2018-13 modifies the disclosure requirements of Topic 820 by removing, modifying or adding certain disclosures.

Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

ASU 2018-13 does not change the fair value measurements already required or permitted by existing standards.

The Company adopted this standard on January 1, 2020.

The adoption of this standard did not materially impact the Company’s financial statements.

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

Accounting Standards 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 method or a straight-line basis over the term of the leases.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

However, management believes that given current inflation rates and related price increases of goods and services, the risk of exposure

acquisitions have been accounted for as purchases under which assets acquired and liabilities assumed were recorded at their fair values

with the excess purchase price recognized as goodwill.

The Company evaluates annually or when changes in circumstances warrant the recoverability

of goodwill and if there is a decrease in value, the related impairment is recognized as a charge against income.

No impairment of goodwill

has been recognized in the accompanying financial statements.

intangibles are recognized apart from goodwill whenever an acquired intangible asset arises from contractual or other legal rights, or

whenever it is capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented, or exchanged,

either individually or in combination with a related contract, asset, or liability.

The Company engages a third-party valuation firm

to analyze the value of the intangible assets that result from significant acquisitions.

The value of the intangible assets that result

from these acquisitions are included in Other Assets and are determined using the income approach, relying on a relief from the royalty

taxes include taxes currently payable plus deferred taxes.

Deferred tax assets and liabilities are recognized for the future tax consequences

attributable to the temporary differences in the financial reporting basis and tax basis of assets and liabilities and operating loss

carry-forwards.

Deferred tax assets are measured using enacted tax rates expected to apply to taxable income in the years in which these

temporary differences are expected to be recovered or settled.

are established for uncertain tax positions expected to be taken in income tax returns when such positions are judged to meet the “more-likely-than-not”

threshold based on the technical merits of the positions.

Estimated interest and penalties related to uncertain tax penalties are included

as a component of income tax expense.

Per Common Share

Company computes earnings per share which requires presentation of basic and diluted earnings per share.

Basic earnings per equivalent

Class A common share are computed by dividing net earnings by the weighted-average number of Class A common shares outstanding during

each year presented, after the effect of the assumed conversion of Class C common stock to Class A common stock.

Diluted earnings per

share is computed by dividing net earnings by the weighted-average number of common shares outstanding during the year used to compute

basic earnings per share plus dilutive potential incremental shares.

Basic and diluted earnings per share amounts have been adjusted

retroactively for the effect of annual stock dividends.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

1) Significant Accounting Policies (Continued)

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

“Financial Instruments – Credit Losses (Topic 326)” – Issued in September 2016, ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis (such as mortgage loans and held to maturity debt securities) and available for sale debt securities.

For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected.

For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP;

Based Compensation

cost of employee services received in exchange for an award of equity instruments is recognized in the financial statements and is measured

based on the fair value on the grant date of the award.

The fair value of stock options is calculated using the Black Scholes Option

Pricing Model.

Stock option compensation expense is recognized over the period during which an employee is required to provide service

in exchange for the award and is included in personnel expenses on the consolidated statements of earnings.

Concentration

of Credit Risk

a description of the concentration risk regarding available for sale debt securities, mortgage loans held for investment and real

estate held for investment, refer to Note 2 of the Notes to Consolidated Financial Statements.

Company expenses advertising costs as incurred.

Accounting Pronouncements

Standards Issued But Not Yet Adopted

“Financial Instruments – Credit Losses (Topic 326)” — Issued in September 2016, ASU 2016-13

amends guidance on reporting credit losses for assets held at amortized cost basis (such as mortgage loans and held to maturity debt

securities) and available for sale debt securities.

For assets held at amortized cost basis, Topic 326 eliminates the probable initial

recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present

the net amount expected to be collected.

For available for sale debt securities, credit losses should be measured in a manner similar

to current GAAP;

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

In October 2019, the FASB proposed an update to ASU No.

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.

is in the process of evaluating the potential impact of this standard.

“Financial Services – Insurance (Topic 944):

Targeted Improvements to the Accounting for Long-Duration Contracts” – Issued in August 2018, ASU 2018-12 is intended to improve the timeliness of recognizing changes in the liability for future policy benefits on traditional long-duration contracts by requiring that assumptions be updated after contract inception and by modifying the rate used to discount future cash flows.

The ASU will simplify and improve the accounting for certain market-based options or guarantees associated with deposit or account balance contracts, simplify amortization of deferred acquisition costs while improving and expanding required disclosures.

Targeted Improvements to the Accounting for Long-Duration Contracts”

— Issued in August 2018, ASU 2018-12 is intended to improve the timeliness of recognizing changes in the liability for future

policy benefits on traditional long-duration contracts by requiring that assumptions be updated after contract inception and by modifying

the rate used to discount future cash flows.

The ASU will improve the accounting for certain market-based options or guarantees associated

with deposit or account balance contracts, simplify amortization of deferred acquisition costs while improving and expanding required

In November 2020, the FASB issued an update to ASU No.

2018-12 that made the ASU effective for the Company on January 1,

The Company is in the process of evaluating the potential impact of this standard.

The Company has reviewed other recent accounting pronouncements and has determined that they will not significantly impact the Company’s results of operations or financial position.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

2) Investments

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

The Company has made progress in the implementation of the new standard, including the involvement of actuaries, accountants, and

systems specialists.

However, the Company has not yet estimated the impact the new guidance will have on the consolidated financial statements.

Company has reviewed other recent accounting pronouncements and has determined that they will not significantly impact the Company’s

results of operations or financial position.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

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

of Investments

Amortized Cost

13 unchanged sentences

$ ( 516,989 )

$ 259,287,603

Equity securities at estimated fair value:

1 unchanged sentence

Industrial, miscellaneous and all other

$ ( 305,802 )

Total equity securities at estimated fair value

$ ( 305,802 )

Mortgage loans held for investment at amortized cost:

2 unchanged sentences

Allowance for loan losses

( 1,699,902 )

Net discounts

11 unchanged sentences

Allowance for doubtful accounts

( 1,686,218 )

Total policy loans and other investments

2 unchanged sentences

$ 823,555,327

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

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

Includes $ 905,700 of Membership stock and $ 1,641,400

of Activity stock due to short-term advances and letters of credit.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

2) Investments (Continued)

The Company’s investments as of December 31, 2019 are summarized as follows:

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

Amortized Cost

6 unchanged sentences

Government agencies

$ 142,740,641

$ 143,347,611

Obligations of states and political subdivisions

5 unchanged sentences

$ ( 949,845 )

$ 294,656,679

Equity securities at estimated fair value:

1 unchanged sentence

Industrial, miscellaneous and all other

$ ( 750,407 )

Total equity securities at estimated fair value

Mortgage loans held for investment at amortized cost:

$ ( 750,407 )

Mortgage loans held for investment at amortized cost:

Residential construction

Unamortized deferred loan fees, net

( 1,161,132 )

Allowance for loan losses

( 2,005,127 )

Net discounts

( 1,260,896 )

Total mortgage loans held for investment

10 unchanged sentences

Allowance for doubtful accounts

( 1,645,475 )

Total policy loans and other investments

2 unchanged sentences

$ 773,945,298

(1) Includes $894,300 of Membership stock and $-0- of Activity stock due to short-term borrowings.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

Includes $ 866,900 of Membership stock and $ 1,639,700 of Activity

stock due to short-term advances and letters of credit.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

2) Investments (Continued)

Fixed Maturity Securities

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.

Such investments are carried at fair value with any unrealized gains and losses reported as a component of other accumulated comprehensive income or loss.

At the date of the transfer, the carrying value of the Company’s held to maturity securities was $338,629,810, and net unrealized gains of $17,315,770 were recognized in accumulated other comprehensive income.

The following tables summarize unrealized losses on fixed maturities securities that were carried at estimated fair value at December 31, 2020 and at December 31, 2019.

The unrealized losses were primarily related to interest rate fluctuations and uncertainties relating to COVID-19.

Maturity Securities

following tables summarize unrealized losses on fixed maturities securities that were carried at estimated fair value at December 31,

2021 and at December 31, 2020.

The unrealized losses were primarily related to interest rate fluctuations and uncertainties relating

The tables set forth unrealized losses by duration with the fair value of the related fixed maturity securities:

of Fair Value of Fixed Maturity Securities

Unrealized Losses for Less than Twelve Months

7 unchanged sentences

At December 31, 2020

Treasury Securities and Obligations

Government Agencies

Obligations of States and Political Subdivisions

2 unchanged sentences

Total unrealized losses

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

There were 93 securities with fair value of 98.9% of amortized cost at December 31, 2019.

Credit losses of $370,975 and $-0- have been recognized for the years ended December 31, 2020 and 2019, respectively.

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

This evaluation includes a review of current ratings by the National Association of Insurance Commissions (“NAIC”).

Securities with a rating of 1 or 2 are considered investment grade and are not reviewed for impairment.

were 55 securities with fair value of 97.3 % of amortized cost at December 31, 2021.

There were 63 securities with fair value of 94.7 %

of amortized cost at December 31, 2020.

Credit losses of $ 39,502 and $ 370,975 have been recognized for the years ended December 31, 2021

and 2020, respectively.

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

This evaluation includes a review

of current ratings by the National Association of Insurance Commissions (“NAIC”).

Securities with a rating of 1 or 2 are

considered investment grade and are not reviewed for impairment, unless current market or recent company news could lead to a credit

Securities with ratings of 3 to 5 are evaluated for impairment.

Securities with a rating of 6 are automatically determined to be impaired and are written down.

The evaluation involves an analysis of the securities in relation to historical values, interest payment history, projected earnings and revenue growth rates as well as a review of the reason for a downgrade in the NAIC rating.

Based on the analysis of a security that is rated 3 to 5, a determination is made whether the security will likely make interest and principal payments in accordance with the terms of the financial instrument.

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.

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

For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services, or in the case of private placements, are estimated by discounting expected future cash flows using a current market value applicable to the coupon rate, credit and maturity of the investments.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

Securities with a rating of 6 are automatically determined

to be impaired and are written down.

The evaluation involves an analysis of the securities in relation to historical values, interest

payment history, projected earnings and revenue growth rates as well as a review of the reason for a downgrade in the NAIC rating.

on the analysis of a security that is rated 3 to 5, a determination is made whether the security will likely make interest and principal

payments in accordance with the terms of the financial instrument.

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.

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

For fixed maturity securities not actively

traded, fair values are estimated using values obtained from independent pricing services, or in the case of private placements, are

estimated by discounting expected future cash flows using a current market value applicable to the coupon rate, credit and maturity of

the investments.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Investments (Continued)

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 years ended December 31:

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.

of Earnings on Fixed Maturity Securities

Balance of credit-related OTTI at January 1

6 unchanged sentences

Balance of credit-related OTTI at December 31

The amortized cost and estimated fair value of fixed maturity securities available for sale at December 31, 2020, 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.

following table presents the amortized cost and estimated fair value of fixed maturity securities available for sale at December 31,

2021, by contractual maturity.

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.

of Investments Classified by Contractual Maturity Date

Estimated Fair

7 unchanged sentences

$ 259,287,603

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

The Company pledged a total of $40,000,000, par value, of United States Treasury fixed maturity securities with the FHLB at December 31, 2020.

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

As of December 31, 2020, the Company did not have any outstanding amounts owed to the FHLB and its estimated maximum borrowing capacity was $39,102,336.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

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

The Company pledged a total of $ 28,993,126 ,

at estimated fair value, of fixed maturity securities with the FHLB at December 31, 2021.

These securities are used as collateral on

any cash borrowings from the FHLB.

As of December 31, 2021, the Company owed $- 0 - to the FHLB and its estimated maximum borrowing capacity

was $ 27,054,347 .

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

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 from investments and other assets for the years ended December 31 are summarized as follows:

Related Earnings

following tables presents the net realized gains and losses from sales, calls, and maturities, unrealized gains and losses on equity

securities, and other than temporary impairments from investments and other assets.

of Gain (Loss) on Investments

Years Ended December 31

Fixed maturity securities available for sale:

4 unchanged sentences

Gains on securities sold

Unrealized gains on securities held at the

end of the period

Unrealized gains on securities held at the end of the period

Other assets:

1 unchanged sentence

Gross realized losses

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.

Proceeds received from the sale of fixed maturity securities available for sale securities for the year ended December 31, 2020, were $5,477,438, and resulted in gross realized gains and gross realized losses of $358,236 and $21,137, respectively.

The carrying amount of held to maturity securities sold for the year ended December 31, 2019 was $4,950,041 and the net realized gain related to these sales was $43,039.

Major categories of net investment income for the years ended December 31, were as follows:

( 2,489,140 )

( 1,984,911 )

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.

regarding sales of fixed maturity securities available for sale is presented as follows.

Schedule of Major

Categories of Net Investment Income

Years Ended December 31

Proceeds from sales

Gross realized gains

Gross realized losses

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Investments (Continued)

categories of net investment income were as follows:

Years Ended December 31

Fixed maturity securities available for sale

7 unchanged sentences

Investment expenses

( 14,414,793 )

( 13,579,564 )

Net investment income

Net investment income includes income earned by the restricted assets of the cemeteries and mortuaries of $676,313 and $448,754 for the years ended December 31, 2020 and 2019, 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.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

2) Investments (Continued)

Securities on deposit for regulatory authorities as required by law amounted to $9,684,409 and $9,633,818 at December 31, 2020 and 2019, respectively.

investment income includes income earned by the restricted assets of the cemeteries and mortuaries of $ 1,472,295 and $ 676,313 for the

years ended December 31, 2021 and 2020, respectively.

investment income on real estate consists primarily of rental revenue.

expenses consist primarily of depreciation, property taxes, operating expenses of real estate and an estimated portion of administrative

expenses relating to investment activities.

on deposit for regulatory authorities as required by law amounted to $ 101,681,853 and $ 9,684,409 at December 31, 2021 and 2020, respectively.

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

There were no investments, aggregated by issuer, in excess of 10% of shareholders’ equity (before net unrealized gains and losses) at December 31, 2020, other than investments issued or guaranteed by the United States Government.

were no investments, aggregated by issuer, in excess of 10% of shareholders’ equity (before net unrealized gains and losses) at

December 31, 2021, other than investments issued or guaranteed by the United States Government.

Estate Held for Investment and Held for Sale

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

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

The Company reports real estate held for investment and held for sale pursuant to the accounting policy discussed in Note 1 of the Notes

to Consolidated Financial Statements.

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

The Company reports real estate held for investment and held for sale pursuant to the accounting policy discussed in Note 1 of the Notes to Consolidated Financial Statements.

Commercial Real Estate Held for Investment and Held for Sale

The Company owns and manages commercial real estate assets as a means of generating investment income.

These assets are acquired in accordance with the Company’s goals and objectives for risk-adjusted returns.

Due diligence is conducted on each asset using internal and third-party reports.

Geographic locations and asset classes of the investment activity is determined by senior management under the direction of the Board of Directors.

The Company employs full-time employees to attend to the day-to-day operations of those assets within the greater Salt Lake area and close surrounding markets.

The Company utilizes third-party property managers when the geographic boundary does not warrant full-time staff or through strategic lease-up periods.

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

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 does use debt in strategic cases to leverage established yields or to acquire a higher quality or different class of asset.

See Note 20 regarding commercial real estate held for investment in Louisiana acquired with the acquisition of Kilpatrick Life Insurance Company.

The aggregated net ending balance of commercial real estate that serves as collateral for bank loans was $71,517,902 and $87,814,860 as of December 31, 2020 and 2019, respectively.

The associated bank loan carrying values totaled $46,153,283 and $54,917,279 as of December 31, 2020 and 2019, respectively.

During the years ended December 31, 2020 and 2019, the Company recorded impairment losses on commercial real estate held for sale of $897,980 and $2,768,979, respectively.

Impairment losses of $846,980 and of $2,768,979 for the years ended December 31, 2020 and 2019, respectively, relate to an office building located in Kansas held by the life insurance segment.

An impairment loss of $51,000 for the year ended December 31, 2020 relates to the improved commercial pad located in Texas held by the life insurance segment.

Impairment loss are included in gains (losses) on investments and other assets on the consolidated statements of earnings.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

Company owns and manages commercial real estate assets as a means of generating investment income.

These assets are acquired in accordance

with the Company’s goals and objectives for risk-adjusted returns.

Due diligence is conducted on each asset using internal and

third-party reports.

Geographic locations and asset classes of the investment activity is determined by senior management under the direction

of the Board of Directors.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Investments (Continued)

The Company’s commercial real estate held for investment for the years ended December 31, is summarized as follows:

Company employs full-time employees to attend to the day-to-day operations of those assets within the greater Salt Lake area and close

surrounding markets.

The Company utilizes third-party property managers when the geographic boundary does not warrant full-time staff

or through strategic lease-up periods.

The Company generally looks to acquire assets in regions that are high growth regions for employment

and population and assets that provide operational efficiencies.

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

These properties include office buildings, flex office space,

and includes the redevelopment and expansion of its corporate campus (“Center53”) in Salt Lake City, Utah.

The Company does

use debt in strategic cases to leverage established yields or to acquire a higher quality or different class of asset.

aggregated net ending balance of commercial real estate that serves as collateral for bank loans was $ 134,251,205 and $ 71,517,902 as

of December 31, 2021 and 2020, respectively.

The associated bank loan carrying values totaled $ 85,663,148 and $ 46,153,283 as of December

31, 2021 and 2020, respectively.

the years ended December 31, 2021 and 2020, the Company recorded impairment losses on commercial real estate held for sale of $ 2,028,378

and $ 897,980 , respectively.

These impairment losses relate to a funeral home and an office building held by the life insurance segment.

The funeral home was subsequently sold.

Impairment losses are included in gains (losses) on investments and other assets on the consolidated

statements of earnings.

Company’s commercial real estate held for investment is summarized as follows:

of Commercial Real Estate Investment

Net Ending Balance

1 unchanged sentence

$ 150,105,948

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

The Company’s commercial real estate held for sale for the years ended December 31, is summarized as follows:

$ 100,927,528

$ 155,393,335

$ 106,840,710

Includes Center53 phase 1 and phase 2

Company’s commercial real estate held for sale is summarized as follows:

Net Ending Balance

Total Square Footage

(1) Undeveloped land

Mississippi (1)

Approximately 93 acres of undeveloped land, in 2021, the existing

building was removed

Improved commercial pad

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

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Investments (Continued)

properties are all actively being marketed with the assistance of commercial real estate brokers in the markets where the properties

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

Residential Real Estate Held for Investment and Held for Sale

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.

Real Estate Held for Investment and Held for Sale

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.

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 December 31, 2020, SNRE manages 11 residential properties in 5 states across the United States.

During the years ended December 31, 2020 and 2019, the Company recorded impairment losses on residential real estate held for sale of $43,394 and $700,134, respectively.

These impairment losses are included in gains (losses) on investments and other assets on the consolidated statements of earnings.

The net ending balance of foreclosed residential real estate included in residential real estate held for investment or sale is $4,327,079 and $12,433,986 as of December 31, 2020 and 2019, respectively.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

2) Investments (Continued)

The Company’s residential real estate held for investment for the years ended December 31, is summarized as follows:

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 years ended December 31, 2021 and 2020, the Company recorded impairment losses on residential real estate held for sale of $- 0 - and

$ 43,394 , respectively.

These impairment losses are included in gains (losses) on investments and other assets on the consolidated statements

net ending balance of foreclosed residential real estate included in residential real estate held for investment or sale is $ 1,190,602

and $ 4,327,079 as of December 31, 2021 and 2020, respectively.

Company’s residential real estate held for investment is summarized as follows:

of Residential Real Estate Investment

Net Ending Balance

Washington (2)

(1) Including subdivision land developments

(2) Improved residential lots

Additional information regarding the Company’s subdivision land developments in Utah for the years ended December 31, is summarized as follows:

Residential Real Estate

(1) Including subdivision

land developments

(2) Improved residential

following table presents additional information regarding the Company’s subdivision land developments in Utah.

Lots available for sale

1 unchanged sentence

Ending Balance

(1) The estimated remaining cost to complete the undeveloped lots is $17,354,000 and $1,900,000 as of December 31, 2020 and 2019, respectively.

The Company’s residential real estate held for sale for the years ended December 31, is summarized as follows:

Residential Real Estate Investment

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Investments (Continued)

Company’s residential real estate held for sale is summarized as follows:

Net Ending Balance

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

Real Estate held for

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

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

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

2) Investments (Continued)

Real Estate Owned and Occupied by the Company

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

As of December 31, 2020, real estate owned and occupied by the Company is summarized as follows:

Estate Owned and Occupied by the Company

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

As of December 31, 2021, real

estate owned and occupied by the Company is summarized as follows:

of Real Estate Owned and Occupied by the Company

Business Segment

1 unchanged sentence

Square Footage Occupied by the Company

Election Rd., Draper, UT

Corporate Offices, Life Insurance and Cemetery/Mortuary Operations

5201 Green Street, Salt Lake City, UT (1)

Life Insurance and Mortgage Operations

433 West Ascension Way, Salt Lake City, UT - Center53 Phase 2

Corporate Offices, Life Insurance, Cemetery/Mortuary Operations, and Mortgage Operations and Sales

1044 River Oaks Dr., Flowood, MS

8 unchanged sentences

Life Insurance Sales

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

(2) See Note 20 regarding the acquisition of Kilpatrick Life Insurance Company

Mortgage Loans Held for Investment

The Company reports mortgage loans held for investment pursuant to the accounting policy discussed in Note 1 of the Notes to Consolidated Financial Statements.

Mortgage loans consist of first and second mortgages.

The mortgage loans bear interest at rates ranging from 2.0 % to 10.5%, maturity dates range from nine months to 30 years and are secured by real estate.

Concentrations of credit risk arise when a number of mortgage loan debtors have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions.

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 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.

At December 31, 2019, the Company had 48%, 16%, 10%, 6%, 6% and 5% of its mortgage loans from borrowers located in the states of Utah, Florida, Texas, California, Nevada and Arizona, respectively.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

(1) Included in property

and equipment on the consolidated balance sheets

Loans Held for Investment

Company reports mortgage loans held for investment pursuant to the accounting policy discussed in Note 1 of the Notes to Consolidated

Financial Statements.

loans consist of first and second mortgages.

The mortgage loans bear interest at rates ranging from 2.0 % to 10.5 %, maturity dates range

from nine months to 30 years and are secured by real estate.

Concentrations of credit risk arise when a number of mortgage loan debtors

have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes

in economic conditions.

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.

31, 2021, the Company had 70 %, 7 %, 5 %, 4 %, 4 % and 2 % of its mortgage loans from borrowers located in the states of Utah, Florida, California,

Texas, 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.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Investments (Continued)

The Company establishes a valuation allowance for credit losses in its portfolio.

The following is a summary of the allowance for loan losses as a contra-asset account for the periods presented:

Allowance for Credit Losses and Recorded Investment in Mortgage Loans Held for Investment

Years Ended December 31

Company establishes a valuation allowance for credit losses in its mortgage loans held for investment portfolio.

The following table

presents the valuation allowance for loan losses as a contra-asset account.

of Allowance for Loan Losses as Contra- Asset Account

Residential Construction

December 31, 2021

Allowance for credit losses:

15 unchanged sentences

$ 2,760,162,489

December 31, 2020

Allowance for credit losses:

15 unchanged sentences

$ 243,488,621

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Investments (Continued)

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

Age Analysis of Past Due Mortgage Loans Held for Investment

Years Ended December 31

following table presents the aging of mortgage loans held for investment.

Schedule of Aging of Mortgage Loans

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

Residential Construction

$ 234,400,797

Than 90 Days (1)

Process of Foreclosure (1)

Mortgage Loans

for Loan Losses

( 1,469,571 )

( 1,699,902 )

deferred loan fees, net

discounts, net

Mortgage Loans

$ 174,691,408

$ 277,306,046

Days Past Due

Than 90 Days (1)

Process of Foreclosure (1)

Mortgage Loans

for Loan Losses

( 1,774,796 )

Residential Construction

( 2,005,127 )

deferred loan fees, net

( 1,161,132 )

discounts, net

( 1,260,896 )

Mortgage Loans

$ 110,849,864

$ 249,343,936

(1) There was not any interest income recognized on loans past due greater than 90 days or in foreclosure.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

(1) Interest income

is not recognized on loans past due greater than 90 days or in foreclosure.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Investments (Continued)

Impaired Mortgage Loans Held for Investment

Impaired mortgage loans held for investment include loans with a related specific valuation allowance or loans whose carrying amount has been reduced to the expected collectible amount because the impairment has been considered other than temporary.

The recorded investment in and unpaid principal balance of impaired loans along with the related loan specific allowance for losses, if any, for each reporting period and the average recorded investment and interest income recognized during the time the loans were impaired were as follows:

Impaired Loans

Years Ended December 31

Mortgage Loans Held for Investment

mortgage loans held for investment include loans with a related specific valuation allowance or loans whose carrying amount has been

reduced to the expected collectible amount because the impairment has been considered other than temporary.

The recorded investment in

and unpaid principal balance of impaired loans along with the related loan specific allowance for losses, if any, for each reporting

period and the average recorded investment and interest income recognized during the time the loans were impaired are summarized as follows:

Schedule of Impaired Mortgage Loans

Recorded Investment

3 unchanged sentences

Interest Income Recognized

December 31, 2021

With no related allowance recorded:

3 unchanged sentences

Residential construction

December 31, 2020

With no related allowance recorded:

3 unchanged sentences

Residential construction

Credit Risk Profile Based on Performance Status

The Company’s mortgage loan held for investment portfolio is monitored based on performance of the loans.

Monitoring a mortgage loan increases when the loan is delinquent or earlier if there is an indication of impairment.

The Company defines non-performing mortgage loans as loans 90 days or greater delinquent or on non-accrual status.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

Risk Profile Based on Performance Status

Company’s mortgage loan held for investment portfolio is monitored based on performance of the loans.

Monitoring a mortgage loan

increases when the loan is delinquent or earlier if there is an indication of impairment.

The Company defines non-performing mortgage

loans as loans 90 days or greater delinquent or on non-accrual status.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Investments (Continued)

The Company’s performing and non-performing mortgage loans held for investment were as follows:

Mortgage Loans Held for Investment Credit Exposure

Credit Risk Profile Based on Payment Activity

Years Ended December 31

Company’s performing and non-performing mortgage loans held for investment are summarized as follows:

Schedule of Credit Risk of Mortgage Loans Based on Performance Status

Residential Construction

2 unchanged sentences

$ 276,062,489

$ 243,488,621

Non-performing

2 unchanged sentences

$ 280,334,517

Non-Accrual Mortgage Loans Held for Investment

Once a loan is past due 90 days, it is the policy of the Company to end the accrual of interest income on the loan and write off any income that had been accrued.

$ 253,771,091

Mortgage Loans Held for Investment

a loan is past due 90 days, it is the policy of the Company to end the accrual of interest income on the loan and write off any income

that had been accrued.

Payments received for loans on a non-accrual status are recognized on a cash basis.

Interest income recognized from any payments received for loans on a non-accrual status was immaterial.

Interest income recognized

from any payments received for loans on a non-accrual status was immaterial.

Accrual of interest resumes if a loan is brought current.

Interest not accrued on these loans totals approximately $ 236,000 and $ 491,000 as of December 31, 2021 and 2020, respectively.

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

Mortgage Loans on Non-accrual Status

Years Ended December 31

Residential construction

Principal Amounts Due

The amortized cost and contractual payments on mortgage loans held for investment by category as of December 31, 2020 are shown below.

Expected principal payments may differ from contractual obligations because certain borrowers may elect to pay off mortgage obligations with or without early payment penalties.

following table presents the amortized cost and contractual payments on mortgage loans held for investment by category as of December

Expected principal payments may differ from contractual obligations because certain borrowers may elect to pay off mortgage

obligations with or without early payment penalties.

of Mortgage loans Held for Investment

Residential Construction

1 unchanged sentence

$ 170,169,796

$ 141,705,268

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Loans Held for Sale

The Company has elected the fair value option for loans held for sale as disclosed in Note 1.

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 consolidated statement of earnings.

There are three loans with an aggregate unpaid principal balance of $208,636 that are 90 or more days past due and on a nonaccrual status as of December 31, 2020.

See Note 17 of the Notes to Consolidated Financial Statements for additional disclosures regarding loans held for sale.

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 December 31 2020

As of December 31 2019

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

Changes in the fair value of the loans are included in mortgage fee income.

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 consolidated statement of earnings.

See Note 17 of the Notes

to Consolidated Financial Statements for additional disclosures regarding loans held for sale.

following table presents the aggregate fair value and the aggregate unpaid principal balance of loans held for sale.

of Aggregate Fair Value - Loans Held for Sale

Aggregate fair value

3 unchanged sentences

Unrealized gain

Mortgage Fee Income

Mortgage fee income consists of origination fees, processing fees, interest income and certain other income related to the origination and sale of mortgage loans held for sale.

Major categories of mortgage fee income for loans held for sale for the years ended December 31, were as follows:

fee income consists of origination fees, processing fees, interest income and certain other income related to the origination and sale

of mortgage loans held for sale.

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

Schedule of Mortgage Fee Income for Loans Held for Sale

Years Ended December 31

Interest income

1 unchanged sentence

Change in fair value of loan commitments

( 3,113,095 )

Change in fair value of loans held for sale

( 8,783,376 )

Provision for loan loss reserve

( 2,211,230 )

( 4,938,214 )

Mortgage fee income

1 unchanged sentence

$ 298,933,110

Loan Loss Reserve

When a repurchase demand corresponding to a mortgage loan previously held for sale and sold to a third-party investor is received from a third-party investor, the relevant data is reviewed and captured so that an estimated future loss can be calculated.

The key factors that are used in the estimated loss calculation are as follows:

(i) lien position, (ii) payment status, (iii) claim type, (iv) unpaid principal balance, (v) interest rate, and (vi) validity of the demand.

a repurchase demand corresponding to a mortgage loan previously held for sale and sold to a third-party investor is received from a third-party

investor, the relevant data is reviewed and captured so that an estimated future loss can be calculated.

The key factors that are used

in the estimated loss calculation are as follows:

(i) lien position, (ii) payment status, (iii) claim type, (iv) unpaid principal balance,

(v) interest rate, and (vi) validity of the demand.

Other data is captured and is useful for management purposes;

the actual estimated loss is generally based on these key factors.

the actual estimated

loss is generally based on these key factors.

The Company conducts its own review upon the receipt of a repurchase demand.

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 Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

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.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Loans Held for Sale (Continued)

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

loan loss reserve, which is included in other liabilities and accrued expenses, is summarized as follows:

of Loan Loss Reserve Included in Other Liabilities and Accrued Expenses

Balance, beginning of period

2 unchanged sentences

Charge-offs, net of recaptured amounts

( 20,347,709 )

( 4,906,914 )

Balance, at December 31

Included in Mortgage fee income

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

For the year ended December 31, 2020, $4,938,214 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 year ended December 31, 2019, when $643,284 in 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 10 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.

Company maintains reserves for estimated losses on current production volumes.

For the year ended December 31, 2021, $ 2,211,230 in reserves

were added at a rate of 3.9 basis points per loan, the equivalent of $ 390 per $ 1,000,000 in loans originated.

This is a decrease over

the year ended December 31, 2020, when $ 4,938,214 in reserves were added at a rate of 8.9 basis points per loan originated, the equivalent

of $ 890 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 10 for additional information

regarding mortgage loan loss settlements.

The unique nature of COVID-19 creates significant difficulty for forecasting potential future

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

Thus, the Company believes that the final loan loss reserve as of December 31, 2020, represents its best estimate for adequate loss reserves on loans sold.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

4) Receivables

Receivables consist of the following:

Thus, the Company believes that the final loan loss reserve as of December 31, 2021, represents its best estimate for adequate loss reserves

on loans sold.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

consist of the following:

Schedule of Receivables

Trade contracts

2 unchanged sentences

Allowance for doubtful accounts

( 1,800,725 )

( 1,685,382 )

Net receivables

Value of Business Acquired, Intangible Assets and Goodwill

Information with regard to value of business acquired was as follows:

with regard to value of business acquired was as follows:

Schedule of Value of Business Acquired

Balance at beginning of year

2 unchanged sentences

Amortization included in earnings

Shadow amortization included in other

comprehensive income

( 1,728,157 )

( 1,457,390 )

Shadow amortization included in other comprehensive income

Net amortization

( 1,120,657 )

Balance at end of year

(1) See Note 20 regarding the acquisition of Kilpatrick Life Insurance Company

Presuming no additional acquisitions, net amortization charged to income is expected to approximate $1,019,000, $918,000, $854,000, $784,000, and $707,000 for the years 2021 through 2026 .

no additional acquisitions, net amortization charged to income is expected to approximate $ 1,059,000 , $ 972,000 , $ 893,000 , $ 810,000 , and

$ 753,000 for the years 2022 through 2027 .

Actual amortization may vary based on changes in assumptions or experience.

As of December 31, 2020, value of business acquired is being amortized over a weighted average life of 6.9 years.

The carrying value of the Company’s intangible assets were as follows which is included in other assets:

As of December

31, 2021, value of business acquired is being amortized over a weighted average life of 5.9 years.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Value of Business Acquired, Intangible Assets and Goodwill (Continued)

carrying value of the Company’s intangible assets were as follows which is included in other assets:

Schedule of Carrying Value of Intangible Asset

Intangible asset - trade name (1)

Intangible asset - customer lists

Intangible asset - trade name (2)

Intangible assets - other (1)

Less accumulated amortization

Balance at end of year

(1) See Note 20 regarding the acquisition of Kilpatrick Life Insurance Company

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

5) Value of Business Acquired, Intangible Assets and Goodwill (Continued)

Information regarding goodwill by segment was as follows:

See Note 20 regarding the acquisition of Rivera Funerals, Cremations

and Memorial Gardens

Kilpatrick Life

regarding goodwill by segment was as follows:

Schedule of Goodwill by Segment

Life Insurance

Cemetery/Mortuary

Balance at January 1, 2020:

4 unchanged sentences

Total goodwill, net

1,734,195 (1)

Balance at December 31, 2021:

1 unchanged sentence

Total goodwill, net

(1) See Note 20 regarding the acquisition of Probst Family Funerals and Cremations and Heber Valley Funeral Home

Goodwill of $3,519,588 is not amortized but is tested annually for impairment.

See Note 20 regarding the acquisition of Rivera Funerals, Cremations and Memorial Gardens and Holbrook Mortuary

Goodwill is not amortized but is tested annually

for impairment.

The annual impairment tests resulted in no impairment of goodwill for the years ended December 31, 2021 and 2020.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Property and Equipment

The cost of property and equipment is summarized below:

and equipment is summarized below:

Schedule of Property, Plant and Equipment

Land and buildings

Furniture and equipment

Property, Plant and Equipment, Gross

Less accumulated depreciation

Depreciation expense for the years ended December 31, 2020 and 2019 was $2,078,738 and $1,711,369, respectively.

During 2020, the Company demolished a building with a gross building cost of $1,723,000 with its associated accumulated depreciation (net book value of $-0-) and transferred land with a cost of $1,516,700 to real estate held for investment to make way for phase 2 of the redevelopment and expansion of Center53.

During 2019, the Company transferred $3,261,259 from real estate held for investment to property and equipment.

The transfers are shown as a non cash items on the consolidated statements of cash flows.

See Note 20 for additional information regarding property and equipment acquired through acquisitions.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

( 19,814,110 )

( 19,179,139 )

expense for the years ended December 31, 2021 and 2020 was $ 1,935,613 and $ 2,078,738 , respectively.

During 2021, the Company reclassified

a building with a gross building cost of $ 3,640,755 with its associated accumulated depreciation of $ 532,074 from property and equipment

to real estate held for investment.

During 2020, the Company demolished a building with a gross building cost of $ 1,723,000 with its

associated accumulated depreciation (net book value of $- 0 -) and transferred land with a cost of $ 1,516,700 to real estate held for investment

to make way for phase 2 of the redevelopment and expansion of Center53.

See Note 20 for additional information regarding property and

equipment acquired through acquisitions.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Bank and Other Loans Payable

Bank and other loans payable are summarized as follows:

2.25% above the monthly LIBOR rate plus 1/16th of the monthly LIBOR rate note payable in

monthly principal payments of $13,167 plus interest, collateralized by real property, paid in

full November 2020.

4.27% fixed note payable in monthly installments of $53,881 including principal and interest,

collateralized by shares of Security National Life Insurance Company stock, due

December 2021.

and other loans payable are summarized as follows:

Summary of Bank Loans Payable

4.27 % fixed note payable in monthly installments of $ 53,881 including principal and

interest, collateralized by shares of Security National Life Insurance Company stock, paid in full December 2021.

Prime rate note payable in monthly installments of $ 75,108 including principal and interest,

collateralized by shares of Security National Life Insurance Company stock, due

December 2024.

collateralized by shares of Security National Life Insurance Company stock, due December 2024.

4.329 % fixed note payable in monthly installments of $ 9,775 including principal and interest,

collateralized by real property, paid in full April 2020.

collateralized by real property with a book value of approximately $ 3,103,000 , due September 2025.

4.00 % variable with LIBOR at a 1 % floor and a spread at 3 % rate construction loan collateralized by

real property with a book value of approximately $ 64,730,000 , due March 2024.

2.5 % above the monthly LIBOR rate plus 1/16th of the monthly LIBOR rate construction loan payable in

monthly principal payments of $ 113,000 plus interest, collateralized by real property with a book value of approximately

$ 49,118,000 , paid in full March 2021.

3.30 % fixed note payable in monthly installments of $ 179,562 including principal and interest,

collateralized by real property with a book value of approximately $3,174,000, due

September 2025.

2.5% above the monthly LIBOR rate plus 1/16th of the monthly LIBOR rate construction loan

payable in monthly principal payments of $113,000 plus interest, collateralized by real property

with a book value of approximately $50,689,000, due March 2021.

4.7865% fixed interest only note payable in monthly installments, collateralized by real property

with a book value of approximately $17,655,000, due June 2028.

collateralized by real property with a book value of approximately $ 49,118,000 , due April 2051.

4.7865 % fixed interest only note payable in monthly installments, collateralized by real property with

a book value of approximately $ 17,301,000 , due June 2028.

1 month LIBOR rate plus 2.1 % loan purchase agreement with a warehouse line availability of

1 unchanged sentence

1 month LIBOR rate plus 2 % loan purchase agreement with a warehouse line availability of $ 100,000,000 ,

$175,000,000, matures November 2021.

matures August 2022.

1 month LIBOR rate plus 2.15 % loan purchase agreement with a warehouse line availability of

1 unchanged sentence

1 month LIBOR rate plus 2.0 % loan purchase agreement with a warehouse line availability of

$5,000,000, matures August 2021.

$ 100,000,000 , matures June 2022.

1 month LIBOR rate plus 2.5 % loan purchase agreement with a warehouse line availability of $ 5,000,000 ,

matured August 2021.

Other short-term borrowings (1)

5 unchanged sentences

Revolving Line of Credit

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Bank and Other Loans Payable (Continued)

Sources of Liquidity

Federal Home Loan Bank Membership

The Federal Home Loan Banks (“the FHLBs”) are a group of cooperatives that lending institutions use to finance housing and economic development in local communities.

Home Loan Bank Membership

Federal Home Loan Banks (“the FHLBs”) are a group of cooperatives that lending institutions use to finance housing and economic

development in local communities.

The Company is a member of the FHLB based in Des Moines, Iowa and based in Dallas, Texas.

As a member of the FHLB, the Company is required to maintain a minimum investment in capital stock of the FHLB and may pledge collateral to the bank for advances of funds to be used in its operations.

Federal Home Loan Bank of Des Moines

At December 31, 2020, the amount available for borrowings from the FHLB of Des Moines was approximately $39,102,336, compared with $57,727,738 at December 31, 2019.

United States Treasury fixed maturity securities with an estimated fair value of $40,729,400 at December 31, 2020 have been pledged at the FHLB of Des Moines as collateral for current and potential borrowings compared with $59,877,900 at December 31, 2019.

of the FHLB, the Company is required to maintain a minimum investment in capital stock of the FHLB and may pledge collateral to the bank

for advances of funds to be used in its operations.

Home Loan Bank of Des Moines

December 31, 2021, the amount available for borrowings from the FHLB of Des Moines was approximately $ 19,259,722 , compared with $ 39,102,336

at December 31, 2020.

United States Treasury fixed maturity securities with an estimated fair value of $ 20,244,900 at December 31, 2021

have been pledged at the FHLB of Des Moines as collateral for current and potential borrowings compared with $ 40,729,400 at December

At December 31, 2021 and 2020, the Company had no outstanding FHLB borrowings.

At December 31, 2020, the Company’s total investment in FHLB stock was $786,300 compared with $806,500 at December 31, 2019.

The Company’s decreased investment in FHLB stock was a result of its decrease in short-term FHLB borrowings during 2020.

Federal Home Loan Bank of Dallas

The membership of the FHLB of Dallas was acquired with the acquisition of Kilpatrick Life Insurance Company.

See Note 20 regarding this acquisition.

At December 31, 2020, the Company’s total investment in FHLB stock was $1,720,300 compared with $87,800 at December 31, 2019.

The Company does not have any collateral pledged at the FHLB of Dallas or any outstanding borrowings.

Revolving Lines of Credit

The Company has a $2,000,000 revolving line-of-credit with a bank with interest payable at the prime rate minus .75%, secured by the capital stock of Security National Life and maturing September 30, 2021, renewable annually.

At December 31, 2020, the Company was contingently liable under a standby letter of credit aggregating $348,183, to be used as collateral to cover any contingency related to additional risk assessments pertaining to the Company's captive insurance program and was contingently liable under standby letters of credit aggregating $1,585,063, to be used as collateral for residential subdivision land developments.

At December 31, 2021, the Company’s total

investment in FHLB stock was $ 826,800 compared with $ 786,300 at December 31, 2020.

The Company’s increased investment in FHLB stock

was a result of its increase in short-term FHLB borrowings during 2021.

At December 31, 2021, the Company was contingently liable under

a standby letter of credit aggregating $ 443,758 , to be used as collateral to cover any contingency related to additional risk assessments

pertaining to the Company’s captive insurance program.

Home Loan Bank of Dallas

December 31, 2021, the amount available for borrowings from the FHLB of Dallas was approximately $ 7,794,625 , compared with $- 0 - at December

Mortgage-Backed fixed maturity securities with an estimated fair value of $ 8,774,352 at December 31, 2021 have been pledged

at the FHLB of Dallas as collateral for current and potential borrowings compared with $- 0 - at December 31, 2020.

At December 31, 2021

and 2020, the Company had no outstanding FHLB borrowings.

At December 31, 2021, the Company’s total investment in FHLB stock was

$ 1,720,300 compared with $ 1,720,300 at December 31, 2020.

Lines of Credit

Company has a $ 2,000,000 revolving line-of-credit with a bank with interest payable at the prime rate minus .75%, secured by the capital

stock of Security National Life and maturing December 31, 2022 , renewable annually.

At December 31, 2021, the Company was contingently

liable under standby letters of credit aggregating $ 941,711 , to be used as collateral for residential subdivision land developments.

The standby letters of credit will draw on the line of credit if necessary.

The Company does not expect any material losses to result from the issuance of the standby letters of credit.

The Company does not expect any material losses to result

from the issuance of the standby letters of credit.

As of December 31, 2021, there were no amounts outstanding under the revolving line-of-credit.

The Company also has a $2,500,000 revolving line-of-credit with a bank with interest payable at the overnight LIBOR rate plus 2.25% maturing September 30, 2021.

Company also has a $ 2,500,000 revolving line-of-credit with a bank with interest payable at the overnight LIBOR rate plus 2.25 % maturing

December 31, 2022 .

As of December 31, 2021, there was $ 1,250,000 outstanding under the revolving line-of-credit.

Debt Covenants for Mortgage Warehouse Lines of Credit

The Company, through its subsidiary SecurityNational Mortgage, has a $150,000,000 line of credit with Wells Fargo Bank N.A.

The agreement charges interest at the 1-Month LIBOR rate plus 2.1% and matures on June 24, 2021.

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.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

Covenants for Mortgage Warehouse Lines of Credit

Company, through its subsidiary SecurityNational Mortgage, has a $ 100,000,000 line of credit with Wells Fargo Bank N.A.

The agreement

charges interest at the 1-Month LIBOR rate plus 2.1 % and matures on June 9, 2022 .

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 .

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Bank and Other Loans Payable (Continued)

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.

The agreement charges interest at the 1-Month LIBOR rate plus 3% and matures on November 15, 2021.

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, 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.

The agreement charges interest at the 1-Month LIBOR rate plus 2.5% and matures on May 27, 2021.

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.

The agreement charges interest at the 1-Month LIBOR rate plus 2.5% and matures on August 1, 2021.

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 December 31, 2020, the Company believes that it was in compliance with all debt covenants.

The following tabulation shows the combined maturities of bank and other loans payable:

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 $ 100,000,000 for the sole purpose of funding mortgage loans.

The agreement charges

interest at the 1-Month LIBOR rate plus 2 % and matures on August 9, 2022 .

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.

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 $ 75,000,000 for the sole purpose of funding mortgage loans.

The agreement charges interest

at the 1-Month LIBOR rate plus 2.15 % and matures on May 27, 2022 .

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 twelve months.

Company through its subsidiary SecurityNational Mortgage, has a line of credit with U.S Bank.

This agreement with the bank allows SecurityNational

Mortgage to borrow up to $ 100,000,000 for the sole purpose of funding mortgage loans.

The agreement charges interest at the 1-Month LIBOR

rate plus 2.0 % and matures on June 4, 2022 .

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 twelve months.

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 December 31, 2021, the Company was in compliance with all debt covenants.

following tabulation shows the combined maturities of bank and other loans payable:

Schedule of Combined Maturities of Bank Loans Payable, Lines of Credit and Notes and Contracts Payable

$ 164,747,672

$ 251,286,927

Interest expense in 2020 and 2019 was $8,578,810 and $7,386,688, respectively.

expense in 2021 and 2020 was $ 7,127,516 and $ 8,578,810 , respectively.

Interest paid in 2021 and 2020 was $ 7,290,867 and $ 8,385,270 , respectively.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Cemetery Perpetual Care Trust Investments and Obligation and Restricted Assets

State law requires the Company to pay into endowment care trusts a portion of the proceeds from the sale of certain cemetery property interment rights for cemeteries that have established an endowment care trust.

These endowment care trusts are defined as variable interest entities pursuant to GAAP.

Also, management has determined that the Company is the primary beneficiary of these trusts, as it absorbs both a majority of the losses and returns associated with the trusts.

The Company has consolidated cemetery endowment care trust investments with a corresponding amount recorded as Cemetery Perpetual Care Obligation in the accompanying consolidated balance sheets .

The components of the cemetery perpetual care investments and obligation are as follows:

law requires the Company to pay into endowment care trusts a portion of the proceeds from the sale of certain cemetery property interment

rights for cemeteries that have established an endowment care trust.

These endowment care trusts are defined as variable interest entities

pursuant to GAAP.

Also, management has determined that the Company is the primary beneficiary of these trusts, as it absorbs both a majority

of the losses and returns associated with the trusts.

The Company has consolidated cemetery endowment care trust investments with a corresponding

amount recorded as Cemetery Perpetual Care Obligation in the accompanying consolidated balance sheets .

components of the cemetery perpetual care investments and obligation are as follows:

Schedule of The Components of The Cemetery Perpetual Care Obligation

Cash and cash equivalents

1 unchanged sentence

Equity securities, at estimated fair value

Commerical mortgage loans held for investment

Participating interests in residential construction mortgage loans

held for investment with Security National Life

Participating interests in residential construction mortgage loans held for investment with Security National Life

Real estate held for investment

Note receivables from Cottonwood Mortuary, Singing Hills

Cemetery and Memorial Estates eliminated in consolidation

Total cemetery perpetual care trust investments

Cemetery perpetual care obligation

( 4,915,285 )

( 4,087,704 )

Trust investments in excess of trust obligations

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Cemetery Perpetual Care Trust Investments and Obligation and Restricted Assets (Continued)

The Company has also established certain restricted assets to provide for future merchandise and service obligations incurred in connection with its pre-need sales for its cemetery and mortuary segment.

Restricted cash also represents escrows held for borrowers and investors under servicing and appraisal agreements relating to mortgage loans, funds held by warehouse banks in accordance with loan purchase agreements and funds held in escrow for certain real estate construction development projects.

Additionally, the Company elected to maintain its medical benefit fund without change from the prior year and has included this amount as a component of restricted cash.

Company has also established certain restricted assets to provide for future merchandise and service obligations incurred in connection

with its pre-need sales for its cemetery and mortuary segment.

cash also represents escrows held for borrowers and investors under servicing and appraisal agreements relating to mortgage loans, funds

held by warehouse banks in accordance with loan purchase agreements and funds held in escrow for certain real estate construction development

Additionally, the Company elected to maintain its medical benefit fund without change from the prior year and has included

this amount as a component of restricted cash.

These restricted cash items are for the Company’s life insurance and mortgage segments.

Restricted assets are summarized as follows:

assets are summarized as follows:

Schedule of Restricted Assets in Cemetery and Mortuary Endowment Care and Pre need Merchandise Funds

Cash and cash equivalents (1)

1 unchanged sentence

Equity securities, at estimated fair value

Participating interests in mortgage loans held for investment

with Security National Life

Participating interests in mortgage loans held for investment with Security

National Life

Including cash and cash equivalents of $ 7,869,295 and $ 852,499 as of December 31, 2021 and 2020, respectively, for the life insurance and mortgage segments.

A surplus note receivable in the amount of $4,000,000 at December 31, 2020 and 2019, from Security National Life, was eliminated in consolidation.

See Notes 1 and 17 for additional information regarding restricted assets.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

9) Income Taxes

The Company’s income tax liability is summarized as follows:

Significant components of the Company’s deferred tax (assets) and liabilities are approximately as follows:

surplus note receivable in the amount of $ 4,000,000 at

December 31, 2021 and 2020, from Security National Life,

was eliminated in consolidation.

Notes 1 and 17 for additional information regarding restricted assets.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Company’s income tax liability is summarized as follows:

Summary of Income Tax Liability

$ ( 1,558,687 )

components of the Company’s deferred tax (assets) and liabilities are approximately as follows:

Schedule of Deferred Tax Assets and Liabilities

Future policy benefits

2 unchanged sentences

Loan loss reserve

( 5,352,942 )

Unearned premium

1 unchanged sentence

Deferred compensation

( 2,750,406 )

( 2,833,298 )

Deposit obligations

( 1,712,895 )

( 1,269,533 )

Valuation allowance

Total deferred tax assets

( 19,408,939 )

( 22,794,035 )

Deferred policy acquisition costs

5 unchanged sentences

Net deferred tax liability

The valuation allowance relates to differences between recorded deferred tax assets and liabilities and ultimate anticipated realization.

The Company has recorded a valuation allowance related to Kilpatrick Life Insurance Company that was acquired in December 2019.

The Company paid $11,813,120 and $4,861,318 in income taxes for the years ended December 31, 2020 and 2019, respectively.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

valuation allowance relates to differences between recorded deferred tax assets and liabilities and ultimate anticipated realization.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Income Taxes (Continued)

The Company’s income tax expense is summarized as follows for the years ended December 31:

The reconciliation of income tax expense at the U.S.

Company’s income tax expense is summarized as follows:

Schedule of Components of Income Tax Expense (Benefit)

Total Current Income Tax Expense (Benefit)

Total Deferred Income Tax

Expense (Benefit)

reconciliation of income tax expense at the U.S.

federal statutory rates is as follows:

Schedule of Effective Income Tax Rate Reconciliation

Computed expense at statutory rate

1 unchanged sentence

Change in valuation allowance

( 1,477,474 )

Income tax expense

The Company’s overall effective tax rate for the years ended December 31, 2020 and 2019 was 22.2% and 21.9% 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 and a decrease to the valuation allowance related to Kilpatrick Life Insurance Company that decreased the effective income tax rate when compared to the prior year.

At December 31, 2020, the Company had no significant unrecognized tax benefits.

As of December 31, 2020, the Company does not expect any material changes to the estimated amount of unrecognized tax benefits in the next twelve months.

Federal and state income tax returns for 2017 through 2020 are subject to examination by taxing authorities.

Net Operating Losses and Tax Credit Carryforwards:

Company’s overall effective tax rate for the years ended December 31, 2021 and 2020 was 23.7 % and 22.2 % 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 and a decrease

to the valuation allowance.

The increase in the effective tax rate when compared to the prior year is partially due to a smaller decrease

to the valuation allowance in the current period when compared to the prior period year.

December 31, 2021, the Company had no significant unrecognized tax benefits.

As of December 31, 2021, the Company does not expect any

material changes to the estimated amount of unrecognized tax benefits in the next twelve months.

Federal and state income tax returns

for 2018 through 2021 are subject to examination by taxing authorities.

Operating Losses and Tax Credit Carryforwards:

Summary of Operating Loss Carryforwards

Year of Expiration

Thereafter up through 2037

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

Indefinite carryforwards

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Reinsurance, Commitments and Contingencies

The Company follows the procedure of reinsuring risks in excess of a specified limit, which ranged from $25,000 to $100,000 during the years 2020 and 2019.

Company follows the procedure of reinsuring risks in excess of a specified limit, which ranged from $ 25,000 to $ 100,000 during the years

2021 and 2020.

The Company is liable for these amounts in the event such reinsurers are unable to pay their portion of the claims.

The Company has also assumed insurance from other companies having insurance in force amounting to approximately $96,000,000 and approximately $99,000,000 at December 31, 2020 and 2019, respectively.

Mortgage Loan Loss Settlements

Future loan losses can be extremely difficult to estimate.

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

The estimated liability for indemnification losses is included in other liabilities and accrued expenses and, as of December 31, 2020 and 2019, the balances were $20,584,000 and $4,046,000, respectively.

The Company believes that the final loan loss reserve as of December 31, 2020, represents its best estimate for adequate loss reserves on loans sold.

Mortgage Loan Loss Litigation

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.

Company has also assumed insurance from other companies having insurance in force amounting to approximately $ 129,000,000 and approximately

$ 96,000,000 at December 31, 2021 and 2020, respectively.

See Financial Statement Schedule IV for information regarding premiums for direct

business, reinsurance assumed and reinsurance ceded.

Loan Loss Settlements

loan losses can be extremely difficult to estimate.

However, the Company believes that its reserve methodology and its current practice

of property preservation allow it to estimate potential losses on loans sold.

The estimated liability for indemnification losses is included

in other liabilities and accrued expenses and, as of December 31, 2021 and 2020, the balances were $ 2,447,000 and $ 20,584,000 , respectively.

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

Loan Loss Litigation

Agreement and Mutual Release with Lehman Brothers Holdings Inc.

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.

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 Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Corporation (“Freddie Mac”).

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.

District Court against

certain Lehman Holdings affiliates.

In June of 2011, Lehman Holdings filed a complaint in Federal District Court against SecurityNational

Mortgage, both the complaint filed in May 2011 and that filed in June 2011 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.

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 Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Corporation (“Freddie Mac”).

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

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.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

10) Reinsurance, Commitments and Contingencies (Continued)

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.

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 has been accounted for in the Company’s loan loss reserve as of December 31, 2020.

Non-Cancelable Leases

The Company leases office space and equipment under various non-cancelable agreements.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Reinsurance, Commitments and Contingencies (Continued)

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.

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.

Non-Cancelable

Company leases office space and equipment under various non-cancelable agreements.

See Note 24 regarding leases.

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 December 31, 2020, the Company’s commitments were approximately $185,751,000, for these loans of which $115,898,000 had been funded.

Contingencies and Commitments

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

and development.

As of December 31, 2021, the Company’s commitments were approximately $ 329,903,000 , for these loans of which $ 179,674,000

had been funded.

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

The maximum loan commitment ranges between 50% and 80% of appraised value.

The Company receives fees and interest for these loans and the interest rate is generally fixed 5.50% to 8.00% per annum.

The maximum loan

commitment ranges between 50 % and 80 % of appraised value.

The Company receives fees and interest for these loans and the interest rate

is generally fixed 5.50 % to 8.00 % per annum.

Maturities range between six and eighteen months.

The Company belongs to a captive insurance group for certain casualty insurance, worker compensation and liability programs.

Insurance reserves are maintained relative to these programs.

The level of exposure from catastrophic events is limited by the purchase of stop-loss and aggregate liability reinsurance coverage.

When estimating the insurance liabilities and related reserves, the captive insurance management considers a number of factors, which include historical claims experience, demographic factors, severity factors and valuations provided by independent third-party actuaries.

If actual claims or adverse development of loss reserves occurs and exceed these estimates, additional reserves may be required.

The estimation process contains uncertainty since captive insurance management must use judgment to estimate the ultimate cost that will be incurred to settle reported claims and unreported claims for incidents incurred but not reported as of the balance sheet date.

The Company is a defendant in various other legal actions arising from the normal conduct of business.

Management believes that none of the actions will have a material effect on the Company’s financial position or results of operations.

Based on management’s assessment and legal counsel’s representations concerning the likelihood of unfavorable outcomes, no amounts have been accrued for the above claims in the consolidated financial statements.

The Company is not a party to any other material legal proceedings outside the ordinary course of business or to any other legal proceedings, which, if adversely determined, would have a material adverse effect on its financial condition or results of operations.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

Company belongs to a captive insurance group for certain casualty insurance, worker compensation and liability programs.

Insurance reserves

are maintained relative to these programs.

The level of exposure from catastrophic events is limited by the purchase of stop-loss and

aggregate liability reinsurance coverage.

When estimating the insurance liabilities and related reserves, the captive insurance management

considers a number of factors, which include historical claims experience, demographic factors, severity factors and valuations provided

by independent third-party actuaries.

If actual claims or adverse development of loss reserves occurs and exceed these estimates, additional

reserves may be required.

The estimation process contains uncertainty since captive insurance management must use judgment to estimate

the ultimate cost that will be incurred to settle reported claims and unreported claims for incidents incurred but not reported as of

the balance sheet date.

Company is a defendant in various other legal actions arising from the normal conduct of business.

Management believes that none of the

actions will have a material effect on the Company’s financial position or results of operations.

Based on management’s assessment

and legal counsel’s representations concerning the likelihood of unfavorable outcomes, no amounts have been accrued for the above

claims in the consolidated financial statements.

Company is not a party to any other material legal proceedings outside the ordinary course of business or to any other legal proceedings,

which, if adversely determined, would have a material adverse effect on its financial condition or results of operations.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Retirement Plans

The Company and its subsidiaries have a noncontributory Employee Stock Ownership Plan (“ESOP”) for all eligible employees.

Eligible employees are primarily those with more than one year of service, who work in excess of 1,000 hours per year.

Contributions, which may be in cash or stock of the Company, are determined annually by the Board of Directors.

The Company’s contributions are allocated to eligible employees based on the ratio of each eligible employee’s compensation to total compensation for all eligible employees during each year.

Company and its subsidiaries had a noncontributory Employee Stock Ownership Plan (“ESOP”) for all eligible employees.

employees are primarily those with more than one year of service, who work in excess of 1,000 hours per year.

Contributions, which may

be in cash or stock of the Company, are determined annually by the Board of Directors.

The Company’s contributions are allocated

to eligible employees based on the ratio of each eligible employee’s compensation to total compensation for all eligible employees

during each year.

The Company did not make any contributions for the years ended December 31, 2021 and 2020.

On November 25, 2019, the Company distributed a “Notice of Intent to Terminate” the ESOP Plan to all current plan participants.

The Company also filed Form 5310 “Application for Determination for Terminating Plan”, with the IRS on December 6, 2019.

Beginning in the 4 th quarter of 2020, the Company began to distribute the ESOP Plan assets to participants that had made a distribution election.

The Company is awaiting approval of its application from the IRS prior to its final distribution of the ESOP Plan assets to the participants.

At December 31, 2020, the ESOP held 231,312 shares of Class A and 118,880 shares of Class C common stock of the Company.

All shares held by the ESOP have been allocated to the participating employees and all shares held by the ESOP are considered outstanding for purposes of computing earnings per share.

The Company has three 401(k) savings plans covering all eligible employees, as defined above, which includes employer participation in accordance with the provisions of Section 401(k) of the Internal Revenue Code.

The plans allow participants to make pretax contributions up to a maximum of $19,500 and $19,000 for the years 2020 and 2019, respectively or the statutory limits.

Beginning January 1, 2008, the Company elected to be a “Safe Harbor” Plan for its matching 401(k) contributions.

The Company matched 100% of up to 3% of an employee’s total annual compensation and matched 50% of 4% to 5% of an employee’s annual compensation.

On November 25, 2019, the

Company distributed a notice of intent to terminate the ESOP Plan to all current plan participants.

The Company also filed Form 5310

application for determination for terminating plan, with the IRS on December 6, 2019.

As of the 4 th quarter of 2020, the Company

began to distribute the ESOP Plan assets to participants that had made a distribution election.

The Company received approval of its

application from the IRS and distributed all the remaining ESOP Plan assets to the participants during 2021.

Company has three 401(k) savings plans covering all eligible employees which includes employer participation in accordance with the provisions

of Section 401(k) of the Internal Revenue Code.

The plans allow participants to make pretax contributions up to a maximum of $ 19,500

and $ 19,500 for the years 2021 and 2020, respectively or the statutory limits.

Beginning in January 2008, the Company elected to be a

“Safe Harbor” Plan for its matching 401(k) contributions.

The Company matched 100% of up to 3% of an employee’s total

annual compensation and matched 50% of 4% to 5% of an employee’s annual compensation.

The match was in Company stock.

The Company’s contribution for the years ended December 31, 2020 and 2019 was $1,690,568 and $695,560, respectively under the “Safe Harbor” plan.

In 2001, the Company’s Board of Directors adopted a Non-Qualified Deferred Compensation Plan, and this plan was amended in 2005.

Under the terms of the Plan, the Company will provide deferred compensation for a select group of management or highly compensated employees, within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended.

The Board has appointed a Committee of the Company to be the Plan Administrator and to determine the employees who are eligible to participate in the plan.

The Company’s

contribution for the years ended December 31, 2021 and 2020 was $ 2,820,315 and $ 1,690,568 , respectively under the “Safe Harbor”

2001, the Company’s Board of Directors adopted a Non-Qualified Deferred Compensation Plan, and this plan was amended in 2005.

the terms of the Plan, the Company will provide deferred compensation for a select group of management or highly compensated employees,

within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended.

Board has appointed a Committee of the Company to be the Plan Administrator and to determine the employees who are eligible to participate

The employees who participate may elect to defer a portion of their compensation into the plan.

The Company may contribute into the plan at the discretion of the Company’s Board of Directors.

The Company may contribute

into the plan at the discretion of the Company’s Board of Directors.

The Company did not make any contributions for 2021 and 2020.

Effective December 4, 2018, the Board members approved a motion to extend the Chief Executive Officer’s employment agreement, dated December 4, 2012, for an additional four-year term ending December 2022.

In the event of disability, the Chief Executive Officer’s salary would be continued for up to five years at 75% of its current level of compensation.

In the event of a sale or merger of the Company and the Chief Executive Officer is not retained in his current position, the Company would be obligated to continue paying the Chief Executive Officer’s current compensation and benefits for seven years following the merger or sale.

The agreement further provides that the Chief Executive Officer is entitled to receive annual retirement benefits beginning (i) one month from the date of his retirement (to commence no sooner than age 65), (ii) five years following complete disability, or (iii) upon termination of his employment without cause.

These retirement benefits are to be paid for a period of twenty years in annual installments in the amount equal to 75% of his then current level of compensation.

In the event that the Chief Executive Officer dies prior to receiving all retirement benefits thereunder, the remaining benefits are to be paid to his heirs.

The Company expensed $900,000 and $660,000 during the years ended December 31, 2020 and 2019, respectively, to cover the present value of anticipated retirement benefits under the employment agreement.

The liability accrued was $6,656,363 and $5,722,837 as of December 31, 2020 and 2019, respectively.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

December 4, 2018, the Board members approved a motion to extend the Chief Executive Officer’s employment agreement, dated December

4, 2012, for an additional four-year term ending December 2022.

In the event of disability, the Chief Executive Officer’s salary

would be continued for up to five years at 75% of its current level of compensation.

In the event of a sale or merger of the Company

and the Chief Executive Officer is not retained in his current position, the Company would be obligated to continue paying the Chief

Executive Officer’s current compensation and benefits for seven years following the merger or sale.

The agreement further provides

that the Chief Executive Officer is entitled to receive annual retirement benefits beginning (i) one month from the date of his retirement

(to commence no sooner than age 65), (ii) five years following complete disability, or (iii) upon termination of his employment without

These retirement benefits are to be paid for a period of twenty years in annual installments in the amount equal to 75% of his

then current level of compensation.

In the event that the Chief Executive Officer dies prior to receiving all retirement benefits thereunder,

the remaining benefits are to be paid to his heirs.

The Company expensed $ 900,000 and $ 900,000 during the years ended December 31, 2021

and 2020, respectively, to cover the present value of anticipated retirement benefits under the employment agreement.

The liability accrued

was $ 7,556,363 and $ 6,656,363 as of December 31, 2021 and 2020, respectively.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Retirement Plans (Continued)

The Company, through its wholly owned subsidiary, SecurityNational Mortgage, also has an employment agreement with its former Vice President of Mortgage Operations and President of SecurityNational Mortgage, who retired from the Company on December 31, 2015.

Under the terms of the employment agreement, this individual is entitled to receive retirement benefits from the Company for a period of ten years in an amount equal to 50% of his rate of compensation at the time of his retirement, which was $267,685 for the year ended December 31, 2015.

Company, through its wholly owned subsidiary, SecurityNational Mortgage, also has an employment agreement with its former Vice President

of Mortgage Operations and President of SecurityNational Mortgage, who retired from the Company on December 31, 2015.

Under the terms

of the employment agreement, this individual is entitled to receive retirement benefits from the Company for a period of ten years in

an amount equal to 50% of his rate of compensation at the time of his retirement , which was $ 267,685 for the year ended December 31,

Such retirement payments are paid monthly during the ten-year period.

In the event that this individual dies prior to receiving all of his retirement benefits under his employment agreement, the remaining benefits will be made to his heirs.

The company paid $133,843 and $133,843 in retirement compensation to this individual during the years ended December 31, 2020 and 2019, respectively.

The liability accrued was $669,212 and $803,055 as of December 31, 2020 and 2019, respectively and is included in Other liabilities and accrued expenses on the consolidated balance sheets.

In the event that this individual dies prior to receiving

all of his retirement benefits under his employment agreement, the remaining benefits will be made to his heirs.

The company paid $ 133,843

and $ 133,843 in retirement compensation to this individual during the years ended December 31, 2021 and 2020, respectively.

The liability

accrued was $ 535,370 and $ 669,212 as of December 31, 2021 and 2020, respectively and is included in Other liabilities and accrued expenses

on the consolidated balance sheets.

Capital Stock

The Company has one class of preferred stock of $1.00 par value, 5,000,000 shares authorized, of which none are issued.

The preferred stock is non-voting.

The Company has two classes of common stock with shares outstanding, Class A common shares and Class C common shares.

Class C shares have 10 votes per share on all matters except for the election of one third of the directors who are elected solely by the Class A shares.

Company has one class of preferred stock of $ 1.00 par value, 5,000,000 shares authorized, of which no ne are issued.

The preferred stock

is non-voting.

Company has two classes of common stock with shares outstanding, Class A common shares and Class C common shares.

Class C shares have

10 votes per share on all matters except for the election of one third of the directors who are elected solely by the Class A shares.

Class C shares are convertible into Class A shares at any time on a one to one ratio.

The decrease in treasury stock was the result of treasury stock being used to fund the company’s 401(k) Plans.

Stockholders of both Class A and Class C common stock have received 5% stock dividends in the years 1990 through 2019, and a 7.5% stock dividend in the year 2020, as authorized by the Company’s Board of Directors.

The Company has Class B common stock of $1.00 par value, 5,000,000 shares authorized, of which none are issued.

Class B shares are non-voting stock except to any proposed amendment to the Articles of Incorporation which would affect Class B common stock.

The following table summarizes the activity in shares of capital stock for the two-year period ended December 31, 2020:

The decrease in treasury stock was the result of

treasury stock being used to fund the company’s 401(k) and deferred compensation plans.

of both Class A and Class C common stock have received 5% stock dividends in the years 1990 through 2019, a 7.5% stock dividend in the

year 2020, and a 5% stock dividend in the year 2021, as authorized by the Company’s Board of Directors.

Company has Class B common stock of $ 1.00 par value, 5,000,000 shares authorized, of which no ne are issued.

Class B shares are non-voting

stock except to any proposed amendment to the Articles of Incorporation which would affect Class B common stock.

following table summarizes the activity in shares of capital stock.

of Activities in Shares of Capital Stock

Outstanding shares at December 31, 2019

7 unchanged sentences

Outstanding shares at December 31, 2021

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Capital Stock (Continued)

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

In accordance with GAAP, the basic and diluted earnings per share amounts were calculated as follows:

Denominator for basic earnings

per share-weighted-average shares

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

In accordance with GAAP, the basic and diluted

earnings per share amounts were calculated as follows:

Schedule of Earnings Per Share, Basic and Diluted

Years Ended December 31

Denominator for basic earnings per share-weighted-average shares

Effect of dilutive securities

1 unchanged sentence

Dilutive potential common shares

Denominator for diluted earnings

per share-adjusted weighted-average

Denominator for diluted earnings per share-adjusted weighted-average

shares and assumed conversions

1 unchanged sentence

Diluted earnings per share

For the years ended December 31, 2020 and 2019, there were -0- and 382,289 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.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

the years ended December 31, 2021 and 2020, there were 50,000 and - 0 - 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.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Stock Compensation Plans

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

Compensation expense for options issued of $358,878 and $256,996 has been recognized under these plans for the years ended December 31, 2020 and 2019, respectively, and is included in personnel expenses on the consolidated statements of earnings.

As of December 31, 2020, the total unrecognized compensation expense related to the options issued was $39,152, which is expected to be recognized over the vesting period of one year.

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

The Company estimates the expected life of the options using the simplified method.

Future volatility is estimated based upon the weighted historical volatility of the Company’s Class A common stock over a period equal to the expected life of the options.

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.

The following table summarizes the assumptions used in estimating the fair value of each option granted along with the weighted-average fair value of the options granted:

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

Compensation expense for options

issued of $ 118,384 and $ 358,878 has been recognized under these plans for the years ended December 31, 2021 and 2020, respectively, and

is included in personnel expenses on the consolidated statements of earnings.

As of December 31, 2021, the total unrecognized compensation

expense related to the options issued was $ 875,735 , which is expected to be recognized over the vesting period of one year.

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

The Company estimates

the expected life of the options using the simplified method.

Future volatility is estimated based upon the weighted historical volatility

of the Company’s Class A common stock over a period equal to the expected life of the options.

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.

following table summarizes the assumptions used in estimating the fair value of each option granted along with the weighted-average fair

value of the options granted.

Schedule of Assumptions Used

Weighted-Average Fair Value of Each Option

4 unchanged sentences

Weighted-Average Expected Life (years)

March 27, 2020

December 3, 2021

January 17, 2019

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

March 27, 2020

Stock dividend

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Stock Compensation Plans (Continued)

Activity of the stock option plans is summarized as follows:

of the stock option plans is summarized as follows:

Schedule of Activity of Stock Option Plans

Class A Shares

9 unchanged sentences

Available options for future grant

Weighted average contractual term of options

outstanding at December 31, 2020

Weighted average contractual term of options

exercisable at December 31, 2020

Aggregated intrinsic value of options outstanding

at December 31, 2020 (1)

Aggregated intrinsic value of options exercisable

at December 31, 2020 (1)

(1) The Company used a stock price of $8.35 as of December 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 years ended December 31, 2020 and 2019 was $663,901 and $271,220, respectively.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

Weighted average contractual term of options outstanding at December 31, 2021

Weighted average contractual term of options exercisable at December 31, 2021

Aggregated intrinsic value of options outstanding at December 31, 2021 (1)

Aggregated intrinsic value of options exercisable at December 31, 2021 (1)

The Company used a stock price of $ 9.20 as of December 31,

2021 to derive intrinsic value.

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 years ended December 31, 2021 and 2020 was $ 1,153,417 and $ 663,901 , respectively.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Statutory Financial Information and Dividend Limitations

The Company’s insurance subsidiaries prepare their statutory-basis financial statements in conformity with accounting practices prescribed or permitted by the insurance department of the applicable state of domicile.

Prescribed statutory accounting practices include a variety of publications of the NAIC, as well as state laws, regulations and general administrative rules.

Permitted statutory accounting practices encompass all accounting practices not so prescribed.

All states require domiciled insurance companies to prepare statutory-basis financial statements in conformity with the NAIC Accounting Practices and Procedures Manual, subject to any deviations prescribed or permitted by the applicable insurance commissioner and/or director.

Statutory accounting practices differ from GAAP primarily since they require charging policy acquisition and certain sales inducement costs to expense as incurred, establishing life insurance reserves based on different actuarial assumptions, and valuing certain investments and establishing deferred taxes on a different basis.

Statutory net income and capital and surplus of the Company’s insurance subsidiaries, determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities are as follows:

Company’s insurance subsidiaries prepare their statutory-basis financial statements in conformity with accounting practices prescribed

or permitted by the insurance department of the applicable state of domicile.

Prescribed statutory accounting practices include a variety

of publications of the NAIC, as well as state laws, regulations and general administrative rules.

Permitted statutory accounting practices

encompass all accounting practices not so prescribed.

states in which the Company’s life insurance subsidiaries are domiciled require the preparation of statutory-basis financial statements

in conformity with the NAIC Accounting Practices and Procedures Manual, subject to any deviations prescribed or permitted by the applicable

insurance commissioner and/or director.

Statutory accounting practices differ from GAAP primarily since they require charging policy

acquisition and certain sales inducement costs to expense as incurred, establishing life insurance reserves based on different actuarial

assumptions, and valuing certain investments and establishing deferred taxes on a different basis.

net income and capital and surplus of the Company’s insurance subsidiaries, determined in accordance with statutory accounting

practices prescribed or permitted by insurance regulatory authorities are as follows:

Schedule of Statutory Accounting Practices

Statutory Net Income

Statutory Capital and Surplus

Years Ended December 31

Amounts by insurance subsidiary:

5 unchanged sentences

Trans-Western Life Insurance Company

(1) Includes 12 months even though Kilpatrick Life Insurance Company wasn't acquired by the Company until December 2019.

The Utah, Arkansas, Louisiana, Mississippi and Texas Insurance Departments impose minimum risk-based capital (RBC) requirements that were developed by the NAIC on insurance enterprises.

The formulas for determining the RBC specify various factors that are applied to financial balances or various levels of activity based on the perceived degree of risk.

Regulatory compliance is determined by a ratio (the Ratio) of the enterprise’s regulatory total adjusted capital, as defined by the NAIC, to its authorized control level, as defined by the NAIC.

Enterprises below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action.

Utah, Louisiana, Mississippi and Texas Insurance Departments impose minimum risk-based capital (RBC) requirements that were developed

by the NAIC on insurance enterprises.

The formulas for determining the RBC specify various factors that are applied to financial balances

or various levels of activity based on the perceived degree of risk.

Regulatory compliance is determined by a ratio (the Ratio) of the

enterprise’s regulatory total adjusted capital, as defined by the NAIC, to its authorized control level, as defined by the NAIC.

Enterprises below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective

The life insurance subsidiaries each have a ratio that is greater than the first level of regulatory action as of December 31,

Generally, the net assets of the life insurance subsidiaries available for transfer to the Company are limited to the amounts of the life insurance subsidiaries net assets, as determined in accordance with statutory accounting practices, that exceed minimum statutory capital requirements.

Additional requirements must be met depending on the state, and payments of such amounts as dividends are subject to approval by regulatory authorities.

Under the Utah Insurance Code, Security National Life Insurance Company is permitted to pay a stockholder dividend to the Company as long as the Company provides the Utah Insurance Commissioner (the “Utah Commissioner”) with at least 30 days notice and the aggregate amount of all such dividends in any 12 month period does not exceed the lesser of:

(i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) net gain from operations, not including realized capital gains, for the immediately preceding calendar year, not including

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

the net assets of the life insurance subsidiaries available for transfer to the Company are limited to the amounts of the life insurance

subsidiaries net assets, as determined in accordance with statutory accounting practices, that exceed minimum statutory capital requirements.

Additional requirements must be met depending on the state, and payments of such amounts as dividends are subject to approval by regulatory

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Statutory Financial Information and Dividend Limitations (Continued)

pro rata distributions of the Company’s own securities.

In determining whether a dividend is extraordinary, the Company may include carryforward net income from the previous two calendar years, excluding realized capital gains less dividends paid in the second and immediately preceding calendar years.

Security National Life Insurance Company will be permitted to pay a dividend to the Company in excess of the lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the Utah Commissioner and the Utah Commissioner either approves the distribution of the dividend or does not disapprove the distribution within 30 days of its filing.

In all cases, a dividend may not be paid that would reduce the insurer’s total adjusted capital below the insurer’s company action level risk-based capital, as defined for statutory reporting purposes.

Amounts available to be paid as dividends in the next 12 months totals approximately $5,309,000.

Under the Louisiana Insurance Code, First Guaranty Insurance Company and Kilpatrick Life Insurance Company are permitted to pay a stockholder dividend to Security National Life as long as their capital has been (i) fully paid in cash, (ii) is unimpaired, (iii) has a surplus beyond its capital stock and (iv) has a surplus beyond its minimum required surplus.

In 2019, First Guaranty Insurance Company paid to Security National Life a cash dividend of $500,000 and Kilpatrick Life Insurance Company paid a cash dividend of $3,000,000.

Amounts available to be paid as dividends at December 31, 2020 totaled approximately $3,146,000 for First Guaranty Insurance Company and totaled approximately $11,478,000 for Kilpatrick Life Insurance Company.

the Utah Insurance Code, Security National Life Insurance Company is permitted to pay stockholder dividends, or otherwise make distributions,

to the Company subject to certain limitations.

Security National Life Insurance Company must ensure that its surplus held for policyholders

is reasonable in relation to its outstanding liabilities and adequate to its financial needs after payment of any such dividend or distribution.

Furthermore, where any dividend or distribution, together with all other dividends and distributions made within the preceding 12 months,

exceeds the lesser of (i) 10% of its surplus held for policyholders as of the next preceding December 31;

or (ii) its net gain from operations,

not including realized capital gains, for the 12-month period ending the next preceding December 31, such dividend or distribution constitutes

“extraordinary” under Utah law and Security National Life Insurance Company would be required to file notice of its intention

to declare such a dividend or make such a distribution with the Utah Commissioner and the Utah Commissioner must either approve the distribution

or dividend or not disapprove the dividend or distribution within 30 days’ of the notice filing.

Based on Security National Life

Insurance Company’s surplus held for policyholders and net gain from operations as of December 31, 2021, the maximum aggregate

amount of dividends and distributions that it could pay or make in 2022 and which would not constitute an “extraordinary”

dividend or distribution under Utah law, and would therefore not require notice and approval or lack of disproval from the Utah Commissioner,

would be approximately $ 5,054,000 .

the Louisiana Insurance Code, First Guaranty Insurance Company and Kilpatrick Life Insurance Company are permitted to pay stockholder

dividends, or otherwise make distributions, to the Company subject to certain limitations.

First Guaranty Insurance Company and Kilpatrick

Life Insurance Company must ensure that its surplus held for policyholders is reasonable in relation to its outstanding liabilities and

adequate to its financial needs after payment of any such dividend or distribution.

Furthermore, where any dividend or distribution,

together with all other dividends and distributions made within the preceding 12 months, exceeds the lesser of (i) 10% of its surplus

held for policyholders as of the next preceding December 31;

or (ii) its net gain from operations, not including realized capital gains,

for the 12-month period ending the next preceding December 31, such dividend or distribution constitutes “extraordinary”

under Louisiana law and First Guaranty Insurance Company and Kilpatrick Life Insurance Company would be required to file notice of its

intention to declare such a dividend or make such a distribution with the Louisiana Commissioner and the Louisiana Commissioner must

either approve the distribution or dividend or not disapprove the dividend or distribution within 30 days’ of the notice filing.

Based on First Guaranty Insurance Company’s and Kilpatrick Life Insurance Company’s surplus held for policyholders and net

gain from operations as of December 31, 2021, the maximum aggregate amount of dividends and distributions that it could pay or make in

2022 and which would not constitute an “extraordinary” dividend or distribution under Louisiana law, and would therefore

not require notice and approval or lack of disproval from the Louisiana Commissioner, would be approximately $ 605,000 for First Guaranty

Insurance Company and $ 950,000 for Kilpatrick Life Insurance Company.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Business Segment Information

Description of Products and Services by Segment

The Company has three reportable business segments:

of Products and Services by Segment

Company has three reportable business segments:

life insurance, cemetery and mortuary, and mortgage.

The Company’s life insurance segment consists of life insurance premiums and operating expenses from the sale of insurance products sold by the Company’s independent agency force and net investment income derived from investing policyholder and segment surplus funds.

The Company’s cemetery and mortuary segment consists of revenues and operating expenses from the sale of at-need cemetery and mortuary merchandise and services at its mortuaries and cemeteries, pre-need sales of cemetery spaces after collection of 10% or more of the purchase price and the net investment income from investing segment surplus funds.

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 pre-sold loans before the funds are received from financial institutional investors.

Measurement of Segment Profit or Loss and Segment Assets

The accounting policies of the reportable segments are the same as those described in the Significant Accounting Principles.

Intersegment revenues are recorded at cost plus an agreed upon intercompany profit, and are eliminated upon consolidation.

Factors Management Used to Identify the Enterprise’s Reportable Segments

The Company’s reportable segments are business units that are managed separately due to the different products provided and the need to report separately to the various regulatory jurisdictions.

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 Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

The Company’s life insurance

segment consists of life insurance premiums and operating expenses from the sale of insurance products sold by the Company’s independent

agency force and net investment income derived from investing policyholder and segment surplus funds.

The Company’s cemetery and

mortuary segment consists of revenues and operating expenses from the sale of at-need cemetery and mortuary merchandise and services

at its mortuaries and cemeteries, pre-need sales of cemetery spaces after collection of 10% or more of the purchase price and the net

investment income from investing segment surplus funds.

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 pre-sold loans before the funds

are received from financial institutional investors.

of Segment Profit or Loss and Segment Assets

accounting policies of the reportable segments are the same as those described in the Significant Accounting Principles.

revenues are recorded at cost plus an agreed upon intercompany profit, and are eliminated upon consolidation.

Management Used to Identify the Enterprise’s Reportable Segments

Company’s reportable segments are business units that are managed separately due to the different products provided and the need

to report separately to the various regulatory jurisdictions.

The Company regularly reviews the quantitative thresholds and other criteria

to determine when other business segments may need to be reported.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Business Segment Information (Continued)

Schedule of Revenues and Expenses by Reportable Segment

Year Ended December 31, 2021

From external sources:

2 unchanged sentences

$ 263,418,230

$ 387,670,116

Net investment income

4 unchanged sentences

Net investment income

( 8,482,991 )

Total revenues

( 8,482,991 )

Death, surrenders and other policy benefits

6 unchanged sentences

Cost related to funding mortgage loans

( 1,281,282 )

Interest expense:

( 7,201,709 )

Costs of goods and services sold-mortuaries and cemeteries

Total benefits and expenses

( 8,482,991 )

Earnings before income taxes

Income tax benefit (expense)

( 2,943,715 )

( 1,975,787 )

( 7,362,283 )

( 12,281,785 )

Identifiable assets

3 unchanged sentences

$ 1,542,339,522

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Business Segment Information (Continued)

Year Ended December 31, 2020

From external sources:

4 unchanged sentences

Gains on investments and other assets

Other than temporary impairments

Other revenues

1 unchanged sentence

Net investment income

( 9,090,248 )

Total revenues

( 9,090,248 )

Death, surrenders and other policy benefits

4 unchanged sentences

Depreciation on property and equipment

Provision for loan loss reserve

Cost related to funding mortgage loans

( 1,345,136 )

Interest expense:

( 7,745,112 )

Costs of goods and services sold-mortuaries and cemeteries

Total benefits and expenses

( 9,090,248 )

Earnings before income taxes

Income tax benefit (expense)

( 1,433,901 )

( 1,009,137 )

( 13,410,476 )

( 15,853,514 )

Identifiable assets

3 unchanged sentences

$ 1,545,420,890

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Related Party Transactions

The Company’s Board of Directors has a written procedure, which requires disclosure to the Board of any material interest or any affiliation on the part of any of its officers, directors or employees that is in conflict or may be in conflict with the interests of the Company.

Company’s Board of Directors has a written procedure, which requires disclosure to the Board of any material interest or any affiliation

on the part of any of its officers, directors or employees that is in conflict or may be in conflict with the interests of the Company.

The Company and its Board of Directors is unaware of any related party transactions that require disclosure as of December 31, 2021.

Fair Value of Financial Instruments

GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.

GAAP also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques.

Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions.

Fair value measurements are classified under the following hierarchy:

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

defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal

or most advantageous market for the asset or liability in an orderly transaction between market participants.

GAAP also specifies a fair

value hierarchy based upon the observability of inputs used in valuation techniques.

Observable inputs (highest level) reflect market

data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions.

value measurements are classified under the following hierarchy:

Financial assets and financial liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities

in an active market that the Company can access.

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

a) Quoted prices for similar assets or liabilities in active markets;

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

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

Financial assets and financial liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

These inputs may reflect the Company’s estimates of the assumptions that market participants would use in valuing the financial assets and financial liabilities.

The Company utilizes a combination of third-party valuation service providers, brokers, and internal valuation models to determine fair value.

The following methods and assumptions were used by the Company in estimating the fair value disclosures related to significant financial instruments:

The items shown under Level 1 and Level 2 are valued as follows:

Fixed Maturity Securities Available for Sale :

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

For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services, or in the case of private placements (considered Level 3 investments), are estimated by discounting expected future cash flows using a current market value applicable to the coupon rate, credit and maturity of the investments.

Equity Securities :

Quoted prices for similar assets or liabilities in active markets;

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

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

Financial assets and financial liabilities whose values are based on prices or valuation techniques that require inputs that are

both unobservable and significant to the overall fair value measurement.

These inputs may reflect the Company’s estimates of the

assumptions that market participants would use in valuing the financial assets and financial liabilities.

Company utilizes a combination of third-party valuation service providers, brokers, and internal valuation models to determine fair value.

following methods and assumptions were used by the Company in estimating the fair value disclosures related to significant financial

items shown under Level 1 and Level 2 are valued as follows:

Maturity Securities Available for Sale :

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

For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing

services, or in the case of private placements (considered Level 3 investments), are estimated by discounting expected future cash flows

using a current market value applicable to the coupon rate, credit and maturity of the investments.

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

Loans Held for Sale :

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.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

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

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Fair Value of Financial Instruments (Continued)

Restricted Assets :

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

Also included are cash and cash equivalents and participations in mortgage loans.

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

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.

A portion of these assets include mutual funds, equity securities and fixed maturity securities available for sale that

have quoted market prices that are used to determine fair value.

Also included are cash and cash equivalents and participations in mortgage

The carrying amounts reported in the accompanying consolidated balance sheets for these financial instruments approximate their

fair values due to their short-term nature.

Perpetual Care Trust Investments :

A portion of these assets include equity securities and fixed maturity securities available

for sale that have quoted market prices that are used to determine fair value.

Also included are cash and cash equivalents.

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

Call and Put Options :

amounts reported in the accompanying consolidated balance sheets for these financial instruments approximate their fair values due to

their short-term nature

and Put Options :

The Company uses quoted market prices to value its call and put options.

Additionally, there were no transfers between Level 1 and Level 2 in the fair value hierarchy.

The items shown under Level 3 are valued as follows:

Loan Commitments and Forward Sale Commitments :

The Company’s mortgage segment enters into loan commitments with potential borrowers and forward sale commitments to sell loans to third-party investors.

Additionally,

there were no transfers between Level 1 and Level 2 in the fair value hierarchy.

items shown under Level 3 are valued as follows:

Commitments and Forward Sale Commitments :

The Company’s mortgage segment enters into loan commitments with potential borrowers

and forward sale commitments to sell loans to third-party investors.

The Company also uses a hedging strategy for these transactions.

A loan commitment binds the Company to lend funds to a qualified borrower at a specified interest rate and within a specified period of time, generally up to 30 days after issuance of the loan commitment.

Loan commitments are defined to be derivatives under GAAP and are recognized at fair value on the consolidated balance sheets with changes in their fair values recorded in current earnings.

The Company estimates the fair value of a loan commitment based on the change in estimated fair value of the underlying mortgage loan, quoted MBS prices, estimates of the fair value of mortgage servicing rights, and an estimate of the probability that the mortgage loan will fund within the terms of the commitment.

The change in fair value of the underlying mortgage loan is measured from the date the loan commitment is issued.

Following issuance, the value of a mortgage loan commitment can be either positive or negative depending upon the change in value of the underlying mortgage loans.

Fallout rates and other factors from the Company’s recent historical data are used to estimate the quantity and value of mortgage loans that will fund within the terms of the commitments.

Impaired Mortgage Loans Held for Investment :

The Company believes that the fair value of these nonperforming loans will approximate the unpaid principal balance expected to be recovered based on the fair value of the underlying collateral.

For residential and commercial properties, the collateral value is estimated by obtaining an independent appraisal.

The appraisal typically considers area comparables and property condition as well as potential rental income that could be generated (particularly for commercial properties).

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.

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.

The Company believes the highest and best use of the properties are as income producing assets since it is the Company’s intent to hold the properties as rental properties, matching the income from the investment in rental properties with the funds required for future estimated policy claims.

It should be noted that for replacement cost, when determining the fair value of real estate held for investment, the Company uses a provider of building cost information to the real estate construction industry.

For the investment analysis, the Company used market data based upon its real estate operation experience and projected the present

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

A loan commitment binds the Company to lend funds to a qualified borrower at a specified interest rate and within a specified period

of time, generally up to 30 days after issuance of the loan commitment.

Loan commitments are defined to be derivatives under GAAP and

are recognized at fair value on the consolidated balance sheets with changes in their fair values recorded in current earnings.

Company estimates the fair value of a loan commitment based on the change in estimated fair value of the underlying mortgage loan, quoted

MBS prices, estimates of the fair value of mortgage servicing rights, and an estimate of the probability that the mortgage loan will

fund within the terms of the commitment.

The change in fair value of the underlying mortgage loan is measured from the date the loan

commitment is issued.

Following issuance, the value of a mortgage loan commitment can be either positive or negative depending upon the

change in value of the underlying mortgage loans.

Fallout rates and other factors from the Company’s recent historical data are

used to estimate the quantity and value of mortgage loans that will fund within the terms of the commitments.

Mortgage Loans Held for Investment :

The Company believes that the fair value of these nonperforming loans will approximate the

unpaid principal balance expected to be recovered based on the fair value of the underlying collateral.

For residential and commercial

properties, the collateral value is estimated by obtaining an independent appraisal.

The appraisal typically considers area comparables

and property condition as well as potential rental income that could be generated (particularly for commercial properties).

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 :

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.

The Company believes the highest and best use

of the properties are as income producing assets since it is the Company’s intent to hold the properties as rental properties,

matching the income from the investment in rental properties with the funds required for future estimated policy claims.

should be noted that for replacement cost, when determining the fair value of real estate held for investment, the Company uses a provider

of building cost information to the real estate construction industry.

For the investment analysis, the Company used market data based

upon its real estate operation experience and projected the present value of the net rental income over seven years.

The Company also

considers area comparable properties and property condition when determining fair value.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Fair Value of Financial Instruments (Continued)

value of the net rental income over seven years.

The Company also considers area comparables and property condition when determining fair value.

In addition to this analysis performed by the Company, the Company depreciates Real Estate Held for Investment.

This depreciation reduces the book value of these properties and lessens the exposure to the Company from further deterioration in real estate values.

Mortgage Servicing Rights :

The Company initially recognizes 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.

The following table summarizes Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a recurring basis by their classification in the consolidated balance sheet at December 31, 2020.

addition to this analysis performed by the Company, the Company depreciates Real Estate Held for Investment.

This depreciation reduces

the book value of these properties and lessens the exposure to the Company from further deterioration in real estate values.

Servicing Rights :

The Company initially recognizes 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.

following table summarizes Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a recurring basis by

their classification in the consolidated balance sheet at December 31, 2021.

Schedule of Fair Value Assets and Liabilities Measured on a Recurring Basis

Quoted Prices in Active Markets for Identical Assets

21 unchanged sentences

Derivatives - call options (4)

Derivatives - put options (4)

Derivatives - loan commitments (4)

( 1,547,895 )

Total liabilities accounted for at fair value

5 unchanged sentences

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 Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

Included in other liabilities and accrued expenses on the consolidated

balance sheets

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Fair Value of Financial Instruments (Continued)

Quoted Prices in Active Markets for Identical Assets

following table summarizes Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a recurring basis by

their classification in the consolidated balance sheet at December 31, 2020.

Quoted Prices in Active Markets

for Identical Assets

Significant Observable Inputs

20 unchanged sentences

Derivatives - call options (4)

Derivatives - put options (4)

Derivatives - loan commitments (4)

( 2,464,062 )

Total liabilities accounted for at fair value

on a recurring basis

$ ( 2,507,159 )

$ ( 2,464,062 )

Fixed maturity securities available for sale

(2) Mutual funds and equity securities

Equity securities

Included in other assets on the consolidated balance sheets

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

For Level 3 assets and liabilities measured at fair value on a recurring basis as of December 31, 2020, the significant unobservable inputs used in the fair value measurements were as follows:

Included in other liabilities and accrued expenses on the consolidated

balance sheets

Level 3 assets and liabilities measured at fair value on a recurring basis as of December 31, 2021, the significant unobservable inputs

used in the fair value measurements were as follows:

Assets and Liabilities Measured at Fair Value on A Recurring Basis

Range of Inputs

1 unchanged sentence

Loans held for sale

$ 302,776,827

Market approach

7 unchanged sentences

Pricing quotes

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Fair Value of Financial Instruments (Continued)

For Level 3 assets and liabilities measured at fair value on a recurring basis as of December 31, 2019, the significant unobservable inputs used in the fair value measurements were as follows:

Level 3 assets and liabilities measured at fair value on a recurring basis as of December 31, 2020, the significant unobservable inputs

used in the fair value measurements were as follows:

Range of Inputs

1 unchanged sentence

Loans held for sale

$ 422,772,418

Market approach

7 unchanged sentences

Pricing quotes

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

Net Derivatives Loan Commitments

Loans Held for Sale

Fixed Maturity Securities Available for Sale

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

Schedule of Changes in the Consolidated Balance Sheet Line Items Measured Using Level 3 Inputs

Net Derivatives

Loans Held for

Fixed Maturity Securities

Available for Sale

Balance - December 31, 2020

7 unchanged sentences

Included in earnings

( 3,113,095 )(1)

169,093,539 (1)

Included in other comprehensive income

1 unchanged sentence

$ 302,776,827

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

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

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

Net Derivatives Loan Commitments

Loans Held for Sale

Fixed Maturity Securities Available for Sale

As a component of mortgage fee income on the consolidated statements

As a component of net investment income on the consolidated

statements of earnings

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

Net Derivatives

Loans Held for

Fixed Maturity Securities

Available for Sale

Balance - December 31, 2019

4 unchanged sentences

( 5,600,045,285 )

( 1,042,400 )

Transfer to mortgage loans held for investment

Transfer from fixed maturity securities held to maturity

( 16,960,549 )

Total gains (losses):

Included in earnings

7,637,377 (1)

199,306,871 (1)

Included in other comprehensive income

Balance - December 31, 2020

$ 422,772,418

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

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

As a component of mortgage fee income on the consolidated statements

As a component of net investment income on the consolidated

statements of earnings

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

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 consolidated balance sheet at December 31, 2020.

Quoted Prices in Active Markets for Identical Assets

Significant Observable Inputs

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 consolidated balance sheet at December 31, 2021.

Schedule of Fair Value Assets Measured on a Nonrecurring Basis

Quoted Prices in Active Markets

for Identical

Significant Observable

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 sale

Total assets accounted for at fair value on

a nonrecurring basis

Quoted Prices in Active Markets for Identical Assets

Significant Observable Inputs

Total assets accounted for at fair value on a nonrecurring basis

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 consolidated balance sheet at December 31, 2020.

Quoted Prices in Active Markets

for Identical

Significant Observable

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

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

Impaired real estate held for sale

Total assets accounted for at fair value on a nonrecurring basis

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Fair Value of Financial Instruments (Continued)

Fair Value of Financial Instruments Carried at Other Than Fair Value

ASC 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value.

Management uses its best judgment in estimating the fair value of the Company’s financial instruments;

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 December 31, 2020 and 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 December 31, 2020:

Value of Financial Instruments Carried at Other Than Fair Value

825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the

balance sheet, for which it is practicable to estimate that value.

uses its best judgment in estimating the fair value of the Company’s financial instruments;

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 December 31, 2021 and 2020.

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 December 31, 2021:

Schedule of Financial Instruments Carried at Other Than Fair Value

Carrying Value

1 unchanged sentence

Mortgage loans held for investment

$ 100,384,283

Residential construction

12 unchanged sentences

Policyholder account balances (3)

( 42,939,055 )

( 35,855,934 )

Future policy benefits - annuities (3)

2 unchanged sentences

( 116,215,717 )

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

Included in other investments and policy loans on the consolidated

balance sheets

Mortgage loans held for investment

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

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

Included in future policy benefits and unpaid claims on the

consolidated balance sheets

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Fair Value of Financial Instruments (Continued)

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 December 31, 2019:

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 December 31, 2020:

Carrying Value

3 unchanged sentences

$ 100,384,283

$ 115,320,638

Residential construction

2 unchanged sentences

$ 256,493,572

Insurance assignments, net (1)

7 unchanged sentences

Policyholder account balances (3)

( 44,026,809 )

( 42,220,725 )

Future policy benefits - annuities (3)

2 unchanged sentences

( 112,354,186 )

(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 consolidated balance sheets

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

Included in other investments and policy loans on the consolidated

balance sheets

Mortgage loans held for investment

The estimated fair value of the Company’s mortgage loans held for investment is determined using various methods.

Included in future policy benefits and unpaid claims on the

consolidated balance sheets

methods, assumptions and significant valuation techniques and inputs used to estimate the fair value of financial instruments are summarized

Loans Held for Investment :

The estimated fair value of the Company’s mortgage loans held for investment is determined using

various methods.

The Company’s mortgage loans are grouped into three categories:

Residential, Residential Construction and Commercial.

When estimating the expected future cash flows, it is assumed that all loans will be held to maturity, and any loans that are non-performing are evaluated individually for impairment.

Residential – The estimated fair value of mortgage loans is determined through a combination of discounted cash flows (estimating expected future cash flows of payments and discounting them using current interest rates from single family mortgages) and considering pricing of similar loans that were sold recently.

Residential Construction – These loans are primarily short in maturity.

Accordingly, the estimated fair value is determined to be the carrying value.

Commercial – The estimated fair value is determined by estimating expected future cash flows of payments and discounting them using current interest rates for commercial mortgages.

Policy Loans :

The carrying amounts reported in the accompanying consolidated balance sheet for these financial instruments approximate their fair values because they are fully collateralized by the cash surrender value of the underlying insurance policies.

Insurance Assignments, Net :

When estimating the expected future cash flows, it is assumed that all loans will be held to maturity, and any loans that are non-performing

are evaluated individually for impairment.

— The estimated fair value of mortgage loans is determined through a combination of discounted cash flows (estimating expected

future cash flows of payments and discounting them using current interest rates from single family mortgages) and considering pricing

of similar loans that were sold recently.

Construction — These loans are primarily short in maturity.

Accordingly, the estimated fair value is determined to be the carrying

— The estimated fair value is determined by estimating expected future cash flows of payments and discounting them using current

interest rates for commercial mortgages.

The carrying amounts reported in the accompanying consolidated balance sheet for these financial instruments approximate

their fair values because they are fully collateralized by the cash surrender value of the underlying insurance policies.

Assignments, Net :

These investments are short in maturity.

Accordingly, the carrying amounts reported in the accompanying consolidated balance sheet for these financial instruments approximate their fair values.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

Accordingly, the carrying amounts reported in the accompanying consolidated

balance sheet for these financial instruments approximate their fair values.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Fair Value of Financial Instruments (Continued)

Bank and Other Loans Payable :

The carrying amounts reported in the accompanying consolidated balance sheet for these financial instruments approximate their fair values due to their relatively short-term maturities and variable interest rates.

Policyholder Account Balances and Future Policy Benefits-Annuities :

Future policy benefit reserves for interest-sensitive insurance products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges.

Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances.

Interest crediting rates for interest-sensitive insurance products ranged from 1.5% to 6.5%.

The fair values for these investment-type insurance contracts are estimated based on the present value of liability cash flows.

The fair values for the Company’s insurance contracts other than investment-type contracts are not required to be disclosed.

However, the fair values of liabilities under all insurance contracts are taken into consideration in the Company’s overall management of interest rate risk, such that the Company’s exposure to changing interest rates is minimized through the matching of investment maturities with amounts due under insurance contracts.

and Other Loans Payable :

The carrying amounts reported in the accompanying consolidated balance sheet for these financial instruments

approximate their fair values due to their relatively short-term maturities and variable interest rates.

Account Balances and Future Policy Benefits-Annuities :

Future policy benefit reserves for interest-sensitive insurance products

are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges.

Policy benefits

and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances.

crediting rates for interest-sensitive insurance products ranged from 1.5% to 6.5%.

The fair values for these investment-type insurance

contracts are estimated based on the present value of liability cash flows.

The fair values for the Company’s insurance contracts

other than investment-type contracts are not required to be disclosed.

However, the fair values of liabilities under all insurance contracts

are taken into consideration in the Company’s overall management of interest rate risk, such that the Company’s exposure

to changing interest rates is minimized through the matching of investment maturities with amounts due under insurance contracts.

Accumulated Other Comprehensive Income

The following summarizes the changes in accumulated other comprehensive income:

following summarizes the changes in accumulated other comprehensive income:

Schedule of Changes in accumulated other comprehensive income

Unrealized gains on fixed maturity securities available for sale

$ ( 7,323,241 )

Amounts reclassified into net earnings

Net unrealized gains before taxes

( 6,517,731 )

( 2,522,876 )

( 5,149,010 )

Unrealized gains on restricted assets (1)

4 unchanged sentences

Fixed maturity securities available for sale

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Accumulated Other Comprehensive Income (Continued)

The following is the accumulated balances of other comprehensive income as of December 31, 2020:

Beginning Balance December 31, 2019

Change for the period

Ending Balance December 31,

Unrealized gains on fixed maturity securities available for sale

Unrealized gains on restricted assets (1)

following is the accumulated balances of other comprehensive income as of December 31, 2021:

Schedule of Accumulated Balances of Other Comprehensive Income

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

$ ( 5,149,010 )

Unrealized gains (losses) on restricted assets (1)

Unrealized gains (losses) on cemetery perpetual

2 unchanged sentences

Other comprehensive income

$ ( 5,172,685 )

Fixed maturity securities available for sale

The following is the accumulated balances of other comprehensive income as of December 31, 2019:

Beginning Balance December 31, 2018

Change for the period

Ending Balance December 31,

following is the accumulated balances of other comprehensive income as of December 31, 2020:

Unrealized gains on fixed maturity securities available for sale

Unrealized gains on restricted assets (1)

Unrealized gains on cemetery perpetual care trust investments (1)

Unrealized gains (losses) on cemetery perpetual

care trust investments (1)

Foreign currency translation adjustments

Other comprehensive income (loss)

Other comprehensive income

Fixed maturity securities available for sale

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Derivative Instruments

The following table shows the fair value and notional amounts of derivative instruments as of December 31, 2020 and 2019.

Fair Values and Notional Amounts of Derivative Instruments

following table shows the fair value and notional amounts of derivative instruments.

Schedule of Derivative Assets at Fair Value

December 31, 2021

6 unchanged sentences

Asset Fair Value

Liability Fair Value

Liability Fair

Derivatives not designated as hedging instruments:

1 unchanged sentence

Other assets and Other liabilities

$ 862,568,967

$ 659,245,038

Other liabilities

The following table shows the gain (loss) on derivatives for the periods presented.

There were no gains or losses reclassified from accumulated other comprehensive income into income or gains or losses recognized in income on derivatives ineffective portion or any amounts excluded from effective testing.

Net Amount Gain (Loss)

$ 863,914,367

$ 661,118,238

following table presents the gains (losses) on derivatives.

There were no gains or losses reclassified from accumulated other comprehensive

income into income or gains or losses recognized in income on derivatives ineffective portion or any amounts excluded from effective

Schedule of Gains and Losses on Derivatives

Years ended December 31

2 unchanged sentences

Mortgage fee income

$ ( 3,113,095 )

Call and put options

Gains on investments and other assets

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

20) Acquisitions

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 deposited into an interest bearing escrow account, as agreed with the shareholders.

The current amount that is available to be disbursed to the prior owners is $598,949.

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

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.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

20) Acquisitions (Continued)

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

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Funerals, Cremations and Memorial Gardens

December 21, 2021, the Company, through its wholly-owned subsidiary, Memorial Estates Inc., completed a business combination transaction

with Rivera Funerals, Cremations and Memorial Gardens.

The mortuaries and cemetery are located in New Mexico.

the terms of the transaction, as set forth in the Asset Purchase Agreement, dated December 21, 2021, Memorial Estates Inc.

purchase price of $ 10,693,395 for the business and assets of Rivera Funerals, Cremations and Memorial Gardens, subject to holdback amounts

held by Memorial Estates, Inc.

in the total amount of $ 1,120,000 .

Pursuant to the Asset Purchase Agreement, Memorial Estates, Inc.

to use $ 70,000 of the holdback amount to pay, perform and discharge when due, trade accounts payable of Rivera Funerals, Cremations and

Memorial Gardens to third parties that remained unpaid.

Unapplied portions of the remaining $ 1,050,000 holdback amount are to be released

and paid by Memorial Estates Inc.

in annual payments of up to $ 105,000 each, beginning on the first anniversary date of the closing date

and continuing thereafter on the anniversary dates of the closing date.

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

of Estimated Fair Values of Assets Acquired and Liabilities Assumed

Restricted assets (1)

Property and equipment (2)

Cemetery land and improvements

Total assets acquired

Future policy benefits and unpaid claims

Cemetery perpetual care obligation

Other liabilities - holdback

( 1,120,000 )

Accounts payable

Other liabilities and accrued expenses

Total liabilities assumed

1 unchanged sentence

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.

Kilpatrick Life’s revenues and net loss since the date of acquisition for the year ended December 31, 2019 were $1,461,011 and $848,031, respectively.

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 deposited into an escrow account.

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

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

(1) Includes $ 39,000

of cash and $ 579,006 of fixed maturity securities, available for sale, at estimated fair value which is a Level 2 asset in the fair value

estimated fair value which is a Level 3 asset in the fair value hierarchy

(3) Including $ 2,310,000

of intangible assets

Funerals, Cremations and Memorial Gardens revenues and net earnings since the date of acquisition for the year ended December 31, 2021

were $ 137,386 and $ 14,892 , respectively.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Acquisitions (Continued)

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

December 28, 2021, the Company, through its wholly-owned subsidiary, Memorial Mortuary Inc., completed a business combination transaction

with Holbrook Mortuary located in Salt Lake City, Utah.

the terms of the transaction, as set forth in the Asset Purchase Agreement, dated December 28, 2021, Memorial Mortuary Inc.

purchase price of $ 3,051,747 for the business and assets of Holbrook Mortuary.

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

Estimated Fair Values of Assets Acquired and Liabilities Assumed

Property and equipment (1)

Total assets acquired

Bank and other loans payable

Total liabilities assumed

Fair value of net assets acquired/consideration paid

Fair value of net assets acquired/consideration paid,

net of cash acquired

Probst Family Funerals and Heber Valley Funeral Home’s revenues and net earnings since the date of acquisition for the year ended December 31, 2019 were $796,992 and $97,400, respectively.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

At estimated fair value which is a Level 3 asset in

the fair value hierarchy

Mortuary’s revenues and net loss since the date of acquisition for the year ended December 31, 2021 were $- 0 - and $ ( 98,531 ) , respectively.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Mortgage Servicing Rights

The Company reports MSRs pursuant to the accounting policy discussed in Note 1 of the Notes to Consolidated Financial Statements.

The following table presents the MSR activity for the periods presented.

Company reports MSRs pursuant to the accounting policy discussed in Note 1 of the Notes to Consolidated Financial Statements.

following table presents the MSR activity.

Schedule of Mortgage Servicing Rights

Amortized cost:

2 unchanged sentences

Amortization (1)

( 14,851,880 )

( 11,841,478 )

Application of valuation allowance to write down MSRs

8 unchanged sentences

Estimated fair value of MSRs at year end

(1) Included in other expenses on the consolidated statements of earnings

The following table summarizes the Company’s estimate of future amortization of its existing MSRs carried at amortized cost.

This projection was developed using the assumptions made by management in its December 31, 2020 valuation of MSRs.

The assumptions underlying the following estimate will change as market conditions and portfolio composition and behavior change, causing both actual and projected amortization levels to change over time.

(1) Included in other

expenses on the consolidated statements of earnings

following table summarizes the Company’s estimate of future amortization of its existing MSRs carried at amortized cost.

This projection

was developed using the assumptions made by management in its December 31, 2021 valuation of MSRs.

The assumptions underlying the following

estimate will change as market conditions and portfolio composition and behavior change, causing both actual and projected amortization

levels to change over time.

Therefore, the following estimates will change in a manner and amount not presently determinable by management.

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense, Mortgage Servicing Rights

Estimated MSR Amortization

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Mortgage Servicing Rights (Continued)

During the years ended December 31, 2020 and 2019, the Company collected the following contractual servicing fee income and late fee income as reported in other revenues on the consolidated statements of earnings:

Contractual servicing fees

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

Company collected the following contractual servicing fee income and late fee income as reported in other revenues on the consolidated

statements of earnings.

Schedule of Other Revenues

Years Ended December 31

Contractual servicing fees

following is a summary of the unpaid principal balances (“UPB”) of the servicing portfolio.

Summary of Unpaid Principal Balances of the Servicing Portfolio

Servicing UPB

1 unchanged sentence

$ 5,070,287,864

The following key assumptions were used in determining MSR value:

following key assumptions were used in determining MSR value.

Assumptions Used in Determining MSR Value

December 31, 2021

December 31, 2020

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Future Policy Benefits and Unpaid Claims

The Company reports future policy benefits and unpaid claims pursuant to the accounting policy discussed in Note 1 of the Notes to Consolidated Financial Statements.

The following table provides information regarding future policy benefits and unpaid claims and the related receivable from reinsurers.

Company reports future policy benefits and unpaid claims pursuant to the accounting policy discussed in Note 1 of the Notes to Consolidated

Financial Statements.

following table provides information regarding future policy benefits and unpaid claims and the related receivable from reinsurers.

Schedule of Liability for Future Policy Benefits, by Product Segment

$ 698,366,477

$ 674,230,463

Policyholder account balances

5 unchanged sentences

$ 863,274,693

$ 844,790,087

Receivable from reinsurers

5 unchanged sentences

$ 848,424,085

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

$ 829,220,931

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Revenues from Contracts with Customers

The Company reports revenues from contracts with customers pursuant to ASC No.

Company reports revenues from contracts with customers pursuant to ASC No.

606, Revenue from Contracts with Customers.

Contracts with Customers

Information about Performance Obligations and Contract Balances

The Company’s cemetery and mortuary segment sells a variety of goods and services to customers in both at-need and pre-need situations.

with Customers

about Performance Obligations and Contract Balances

Company’s cemetery and mortuary segment sells a variety of goods and services to customers in both at-need and pre-need situations.

Due to the timing of the fulfillment of the obligation, revenue is deferred until that obligation is fulfilled.

The total contract liability for future obligations is included in deferred pre-need cemetery and mortuary contract revenues on the consolidated balance sheets and, as of December 31, 2020 and 2019, the balances were $13,080,179 and 12,607,978, respectively.

The Company’s three types of future obligations are as follows:

Pre - need Merchandise and Service Revenue :

All pre-need merchandise and service revenue is deferred and the funds are placed in trust until the need arises, the merchandise is received or the service is performed.

The trust is then relieved, and the revenue and commissions are recognized.

The total contract liability

for future obligations is included in deferred pre-need cemetery and mortuary contract revenues on the consolidated balance sheets and,

as of December 31, 2021 and 2020, the balances were $ 14,508,022 and $ 13,080,179 , respectively.

At-need Specialty Merchandise Revenue :

At-need specialty merchandise revenue consists of customizable merchandise ordered from a manufacturer such as markers and bases.

Company’s three types of future obligations are as follows:

Merchandise and Service Revenue :

All pre-need merchandise and service revenue is deferred and the funds are placed in trust until

the need arises, the merchandise is received or the service is performed.

The trust is then relieved, and the revenue and commissions

are recognized.

As of December 31, 2021 and 2020, the balances were $ 13,722,348 and $ 12,545,753 , respectively.

Specialty Merchandise Revenue :

At-need specialty merchandise revenue consists of customizable merchandise ordered from a manufacturer

such as markers and bases.

When specialty merchandise is ordered, it can take time to manufacture and deliver the product.

Revenue is deferred until the at-need merchandise is received.

deferred until the at-need merchandise is received.

As of December 31, 2021 and 2020, the balances were $ 785,674 and $ 534,426 , respectively.

Deferred revenue for at-need specialty revenue is not placed in trust.

Deferred Pre-need Land Revenue :

Deferred pre-need revenue and corresponding commissions are deferred until 10% of the funds are received from the customer through regular monthly payments.

Pre-need Land Revenue :

Deferred pre-need revenue and corresponding commissions are deferred until 10 % of the funds are received

from the customer through regular monthly payments.

As of December 31, 2021 and 2020, the balances were $- 0 - and $- 0 -, respectively.

Deferred pre-need land revenue is not placed in trust.

Complete payment of the contract does not constitute fulfillment of the performance obligation.

Goods or services are deferred until such time the service is performed or merchandise is received.

Pre-need contracts are required to be paid in full prior to a customer using a good or service from a pre-need contract.

Goods and services from pre-need contracts can be transferred when paid in full from one owner to another.

payment of the contract does not constitute fulfillment of the performance obligation.

Goods or services are deferred until such time

the service is performed or merchandise is received.

Pre-need contracts are required to be paid in full prior to a customer using a good

or service from a pre-need contract.

Goods and services from pre-need contracts can be transferred when paid in full from one owner to

In such cases, the Company will act as an agent in transferring the requested goods and services.

A transfer of goods and services does not fulfill an obligation and revenue remains deferred.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

A transfer of goods and services

does not fulfill an obligation and revenue remains deferred.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Revenues from Contracts with Customers (Continued)

The opening and closing balances of the Company’s receivables, contract assets and contract liabilities are as follows:

opening and closing balances of the Company’s receivables, contract assets and contract liabilities are as follows:

Schedule of Opening and Closing Balances of Receivables, Contract Assets and Contract Liabilities

Contract Balances

12 unchanged sentences

Increase/(decrease)

(1) Included in Receivables, net on the consolidated balance sheets

The following table disaggregates the opening and closing balances of the Company’s contract balances.

(1) Included in Receivables,

net on the consolidated balance sheets

following table disaggregates the opening and closing balances of the Company’s contract balances.

Schedule of Opening and Closing Balances of the Assets and Liabilities

Contract Balances

20 unchanged sentences

Closing (12/31/2020)

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Revenues from Contracts with Customers (Continued)

The amount of revenue recognized for the years ended December 31, 2020 and 2019 that was included in the opening contract liability balance was $4,359,709 and $3,558,103, 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.

Disaggregation of Revenue

The following table disaggregates revenue for the Company’s cemetery and mortuary contracts.

amount of revenue recognized for the years ended December 31, 2021 and 2020 that was included in the opening contract liability balance

was $ 4,528,646 and $ 4,359,709 , respectively.

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.

Disaggregation

following table disaggregates revenue for the Company’s cemetery and mortuary contracts.

Revenues of the Cemetery and Mortuary Contracts

Years Ended December 31

3 unchanged sentences

Services transferred at a point in time

Significant Judgments and Estimates

The Company's cemetery and mortuary segment recognizes revenue on future performance obligations when goods are delivered and when services are performed and is not determined by the terms or payments of the contract as long as any good or service is paid in full prior to delivery.

Judgments and Estimates

Company’s cemetery and mortuary segment recognizes revenue on future performance obligations when goods are delivered and when

services are performed and is not determined by the terms or payments of the contract as long as any good or service is paid in full

prior to delivery.

Prices are determined based on the market at the time a contract is created.

1 unchanged sentence

There are no significant judgements, estimations or allocation methods when revenue should be recognized.

Practical Expedients

The Company has not elected to use any of the practical expedients under ASC 606.

Contract Costs

The Company's cemetery and mortuary segment defers certain costs associated with obtaining a contract on future obligations.

Pre - need Merchandise and Service Revenue :

Company has not elected to use any of the practical expedients under ASC 606.

Company’s cemetery and mortuary segment defers certain costs associated with obtaining a contract on future obligations.

Merchandise and Service Revenue :

Pre-need merchandise and service revenues are deferred until the goods or services are delivered.

Recognition can be years until the obligations are satisfied.

Commissions and other costs are capitalized and deferred until the obligation is satisfied.

Commissions and other costs are capitalized and deferred until the obligation

is satisfied.

Other costs include rent on pre-need offices and training rooms, and call center costs.

Costs that are allocated based on a percentage include family service advisor compensation, bonuses, utilities and supplies that are all used to procure a pre-need sale.

At-need Specialty Merchandise Revenue :

Costs that are allocated based

on a percentage include family service advisor compensation, bonuses, utilities and supplies that are all used to procure a pre-need

Specialty Merchandise Revenue :

At-need specialty merchandise is ordered from a third-party manufacturer.

Generally, at-need specialty merchandise is ordered and received within 90 days of order.

These orders are also short-term in nature and are deferred until the product is received from the manufacturer and the obligation is satisfied.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

Generally, at-need specialty

merchandise is ordered and received within 90 days of order.

These orders are also short-term in nature and are deferred until the product

is received from the manufacturer and the obligation is satisfied.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Revenues from Contracts with Customers (Continued)

Deferred Pre - need Land Revenue :

Pre-need Land Revenue :

Revenue is recognized on pre-need land sales when the customer has paid at least 10% toward the land price.

In cases, where customers pay less than 10%, the revenue and associated commissions are deferred until such time when 10% of the contract price is received.

The following table disaggregates contract costs that are included in deferred policy and pre-need contract acquisition costs on the consolidated balances sheets.

In cases, where customers pay less than 10%, the revenue and associated commissions are deferred until such time when 10% of the contract

price is received.

following table disaggregates contract costs that are included in deferred policy and pre-need contract acquisition costs on the consolidated

balances sheets.

Reconciliation of Revenues from Cemetery and mortuary contracts to Business Segment Information

Years Ended December 31

2 unchanged sentences

Pre-need land sales

On January 1, 2019, the Company adopted Accounting Standards Update No.

2016-02 regarding Leases ASC Topic 842.

See Note 1 regarding the adoption of this standard.

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.

The Company determines if a contract is a lease at the inception of the contract.

At the commencement date of a lease, the Company measures the lease liability at the present value of the lease payments over the lease term, discounted using the discount rate for the lease.

The Company uses the rate implicit in the lease, if available, otherwise the Company uses its incremental borrowing rate.

Also, at the commencement date of a lease, the Company measures the cost of the related right-of-use asset which consists of the amount of the initial measurement of the lease liability, any lease payments made to the lessor at or before the commencement date, minus any lease incentives received and any initial direct costs incurred by the Company.

Information about the Nature of Leases and Subleases

The Company leases office space and equipment from third-parties under various non-cancelable agreements.

The Company has operating leases for office space for its segments in areas where it conducts business.

Deferred policy and pre-need

contract acquisition costs

lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment

(an identified asset) for a period of time in exchange for consideration.

The Company determines if a contract is a lease at the inception

of the contract.

At the commencement date of a lease, the Company measures the lease liability at the present value of the lease payments

over the lease term, discounted using the discount rate for the lease.

The Company uses the rate implicit in the lease, if available,

otherwise the Company uses its incremental borrowing rate.

Also, at the commencement date of a lease, the Company measures the cost of

the related right-of-use asset which consists of the amount of the initial measurement of the lease liability, any lease payments made

to the lessor at or before the commencement date, minus any lease incentives received and any initial direct costs incurred by the Company.

about the Nature of Leases and Subleases

Company leases office space and equipment from third-parties under various non-cancelable agreements.

The Company has operating leases

for office space for its segments in areas where it conducts business.

The Company subleases some of this office space.

The Company also has finance leases for certain equipment, such as copy machines and postage machines.

The Company does not have any lease agreements with variable lease payments.

The Company has not included any options to extend or terminate leases in the recognition of the right-of-use assets or lease liabilities because of the uncertainty that they will be exercised.

No residual value guarantees have been provided to the Company.

The Company also

has finance leases for certain equipment, such as copy machines and postage machines.

The Company does not have any lease agreements

with variable lease payments.

The Company has not included any options to extend or terminate leases in the recognition of the right-of-use

assets or lease liabilities because of the uncertainty that they will be exercised.

No residual value guarantees have been provided to

The Company does not have any restrictions or covenants imposed by leases.

Leases that have not Commenced

The Company does not have any leases that have not commenced that create significant rights or obligations for the Company.

Related Party Lease Transactions

The Company does not have any related party lease transactions that require disclosure as of December 31, 2020.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

that have not Commenced

Company does not have any leases that have not commenced that create significant rights or obligations for the Company.

Party Lease Transactions

Company does not have any related party lease transactions that require disclosure as of December 31, 2021.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Leases (Continued)

Short-term Leases

The Company made an accounting policy election not to apply the recognition requirements of ASC 842 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.

Significant Judgments and Assumptions

The Company does not use any significant judgments or assumptions regarding the determination of whether a contract contains a lease;

the allocation of the consideration in a contract between lease and nonlease components;

or the determination of the discount rates for the leases.

The following table presents the Company’s total lease cost recognized in earnings, amounts capitalized as right-of- use assets and cash flows from lease transactions for the period presented:

Year Ended December 31

Company made an accounting policy election not to apply the recognition requirements of ASC 842 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.

Judgments and Assumptions

Company does not use any significant judgments or assumptions regarding the determination of whether a contract contains a lease;

allocation of the consideration in a contract between lease and nonlease components;

or the determination of the discount rates for the

The following table presents the Company’s total lease cost recognized in earnings, amounts capitalized as right-of- use

assets and cash flows from lease transactions.

Schedule of Lease Cost Recognized in Earnings

Years Ended December 31

Finance lease cost:

19 unchanged sentences

Operating leases

(1) Included in Depreciation on property and equipment on the consolidated statements of earnings

(2) Included in Interest expense on the consolidated statements of earnings

(3) Included in Rent and rent related expenses on the consolidated statements of earnings

(4) Includes leases with a term of 12 months or less

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019

(1) Included in Depreciation

on property and equipment on the consolidated statements of earnings

(2) Included in Interest

expense on the consolidated statements of earnings

(3) Included in Rent

and rent related expenses on the consolidated statements of earnings

(4) Includes leases

with a term of 12 months or less

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2021 and 2020

Leases (Continued)

The following table presents the maturity analysis of the Company’s lease liabilities.

following table presents the maturity analysis of the Company’s lease liabilities.

of Future Minimum Rental Payments for Finance Leases and Operating Leases

Finance Leases

3 unchanged sentences

Discount on cash flows

( 2,889,958 )

Present value of lease liabilities

The following table presents the Company’s right-of-use assets and lease liabilities for the period presented:

Balance Sheet Location

Year Ended December 31 2020

following table presents the Company’s right-of-use assets and lease liabilities.

Schedule of Right-of-Use Assets and Lease

Year Ended December 31

Balance Sheet Location

Operating Leases

9 unchanged sentences

Bank and other loans payable

The Company is also a lessor and has operating lease agreements with various tenants that lease its commercial and residential properties.

Company is also a lessor and has operating lease agreements with various tenants that lease its commercial and residential properties.

See Note 2 for information about the Company’s real estate held for investment.

1 unchanged sentence

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-K

Item 8. Financial Statements and Supplementary Data