What changed in this filing

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Item 1. Financial Statements

2023-05-15 compared with 2022-11-14 · 1265 added, 1065 removed, 1076 unchanged (68% of the section changed)

Financial Statements.

September 30 2022

December 31 2021

Fixed maturity securities, available for sale, at estimated fair value (amortized cost of $ 340,262,502 and $ 236,303,310 for 2022 and 2021)

Fixed maturity

securities, available for sale, at estimated fair value (amortized cost of $ 369,382,018 and $ 362,750,511 for 2023 and 2022;

for credit losses of $ 179,500 and nil for 2023 and 2022)

$ 357,570,527

$ 345,858,492

Equity securities at estimated fair value (cost of $ 9,792,380 and $ 8,275,772 for 2022 and 2021)

Mortgage loans held for investment (net of allowances for loan losses of $ 1,675,015 and $ 1,699,902 for 2022 and 2021)

Real estate held for investment (net of accumulated depreciation of $ 22,293,450 and $ 17,692,038 for 2022 and 2021)

Equity securities at estimated

fair value (cost of $ 10,356,783 and $ 9,942,265 for 2023 and 2022)

Mortgage loans held for

investment (net of allowance for credit losses of $ 2,735,419 and $ 1,970,311 for 2023 and 2022)

Real estate held for investment

(net of accumulated depreciation of $ 25,361,779 and $ 23,793,204 for 2023 and 2022)

Real estate held for sale

Other investments and policy loans (net of allowances for doubtful accounts of $ 1,736,761 and $ 1,686,218 for 2022 and 2021)

Other investments and policy

loans (net of allowance for credit losses of $ 1,685,901 and $ 1,609,951 for 2023 and 2022)

Accrued investment income

2 unchanged sentences

Loans held for sale at estimated fair value

Receivables (net of allowances for doubtful accounts of $ 1,660,221 and $ 1,800,725 for 2022 and 2021)

Restricted assets (including $ 5,730,936 and $ 5,205,510 for 2022 and 2021 at estimated fair value)

Cemetery perpetual care trust investments (including $ 3,440,102 and $ 4,087,245 for 2022 and 2021 at estimated fair value)

Receivables (net of allowance for credit losses

of $ 1,867,124 and $ 2,229,791 for 2023 and 2022)

Restricted assets (including $ 6,877,734 and

$ 6,565,552 for 2023 and 2022 at estimated fair value;

allowance for credit losses of $ 5,874 and nil for 2023 and 2022)

Cemetery perpetual care trust investments (including

$ 3,948,380 and $ 3,859,893 for 2023 and 2022 at estimated fair value;

allowance for credit losses of $ 2,196 and nil for 2023

Receivable from reinsurers

Cemetery land and improvements

Deferred policy and pre-need contract acquisition costs

Deferred policy and pre-need contract acquisition

Mortgage servicing rights, net

6 unchanged sentences

CONSOLIDATED BALANCE SHEETS (Continued)

September 30 2022

December 31 2021

Liabilities and Stockholders’ Equity

Future policy benefits and unpaid claims

Liabilities and Stockholders’

Future policy benefits and unpaid

$ 895,198,901

2 unchanged sentences

Bank and other loans payable

Deferred pre-need cemetery and mortuary contract revenues

Deferred pre-need cemetery and mortuary contract

Cemetery perpetual care obligation

11 unchanged sentences

issued 18,807,013 shares in 2023 and 18,758,031 shares in 2022

non-voting common stock - $ 1.00 par value;

non-voting common stock - $ 1.00 par

5,000,000 shares authorized;

none issued or outstanding

convertible common stock - $ 2.00 par value;

convertible common stock - $ 2.00 par

6,000,000 shares authorized;

2 unchanged sentences

Additional paid-in capital

Accumulated other comprehensive income (loss), net of taxes

Accumulated other comprehensive loss, net of

( 8,942,719 )

( 13,070,277 )

Retained earnings

Treasury stock at cost - 599,219 Class A shares and 34,016 Class C shares in 2022;

Treasury stock at cost - 612,142 Class A shares

and 34,016 Class C shares in 2023;

and 525,870 Class A shares and 34,016 Class C shares in 2022

1 unchanged sentence

( 4,366,651 )

Total stockholders’ equity

Total Liabilities and Stockholders’ Equity

Total stockholders’

Liabilities and Stockholders’ Equity

$ 1,443,082,430

3 unchanged sentences

CONSOLIDATED STATEMENTS OF EARNINGS

Three Months Ended September 30

Nine Months Ended September 30

Months Ended March 31

Mortgage fee income

$ 118,983,231

$ 204,414,276

Insurance premiums and other considerations

1 unchanged sentence

Net mortuary and cemetery sales

Gains (losses) on investments and other assets

( 2,178,952 )

( 2,921,372 )

Gains on investments and other assets

Total revenues

3 unchanged sentences

Increase in future policy benefits

Amortization of deferred policy and pre-need acquisition costs and value of business acquired

Amortization of deferred policy and pre-need

acquisition costs and value of business acquired

Selling, general and administrative expenses:

Rent and rent related

Depreciation on property and equipment

Costs related to funding mortgage loans

Depreciation on property

and equipment

Costs related to funding

mortgage loans

Interest expense

Cost of goods and services sold-mortuaries and cemeteries

Cost of goods and services sold-mortuaries

and cemeteries

Total benefits and expenses

Earnings (loss) before income taxes

( 3,302,344 )

Income tax benefit (expense)

( 3,352,663 )

( 1,421,036 )

( 10,998,876 )

Net earnings (loss)

Earnings before income taxes

Income tax expense

( 1,214,798 )

Net earnings (loss) per Class A Equivalent common share ( 1 ) (1)

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

dilution ( 1 ) (1)

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

Weighted-average Class A equivalent common shares outstanding-assuming dilution

Net earnings (loss) 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 (loss) per common

share represent net earnings (loss) per equivalent Class A common share.

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) Net earnings per

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

The weighted-average shares outstanding includes

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

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

accompanying notes to condensed consolidated financial statements (unaudited).

1 unchanged sentence

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended September 30

Nine Months Ended September 30

Net earnings (loss)

$ ( 2,353,185 )

Months Ended March 31

Other comprehensive income:

Unrealized losses on fixed maturity securities available for sale

$ ( 13,523,240 )

( 1,406,615 )

( 41,845,274 )

( 3,477,826 )

Unrealized gains (losses) on restricted assets

Unrealized gains (losses) on cemetery perpetual care trust investments

Foreign currency translation adjustments

Other comprehensive loss, before income tax

( 13,467,249 )

( 1,425,235 )

( 41,957,626 )

( 3,507,600 )

Income tax benefit

Other comprehensive loss, net of income tax

( 10,641,313 )

Unrealized gains (losses)

on fixed maturity securities available for sale

( 15,326,903 )

Unrealized gains (losses)

on restricted assets (1)

gains (losses) on cemetery perpetual care trust investments (1)

comprehensive income (loss), before income tax

( 15,436,206 )

tax (expense) benefit

( 1,097,530 )

Comprehensive income (loss)

Other comprehensive

income (loss), net of income tax

( 12,190,330 )

Comprehensive income

$ ( 8,961,612 )

Fixed maturity securities available for sale

accompanying notes to condensed consolidated financial statements (unaudited).

1 unchanged sentence

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Class A Common Stock

Class C Common Stock

Additional Paid-in Capital

Accumulated Other Comprehensive Income (Loss)

Retained Earnings

Treasury Stock

Nine Months Ended September 30, 2022

Class A Common Stock

Class C Common Stock

Additional Paid-in Capital

Accumulated Other Comprehensive Income (Loss)

Retained Earnings

Treasury Stock

Months Ended March 31, 2023

A Common Stock

C Common Stock

Paid-in Capital

Other Comprehensive Income (Loss)

January 1, 2023

2 unchanged sentences

$ ( 4,366,651 )

Other comprehensive loss

$ 292,786,927

( 12,190,330 )

Stock-based compensation expense

Exercise of stock options

Sale of treasury stock

Purchase of treasury stock

Conversion Class C to Class A

March 31, 2022

$ 187,766,207

$ ( 843,916 )

$ 292,300,867

Other comprehensive loss

( 10,310,485 )

Cumulative effect adjustment upon adoption

of new accounting standard (ASU 2016-13)

Other comprehensive gain

Stock-based compensation expense

4 unchanged sentences

( 1,204,357 )

Conversion Class C to Class A

Stock dividends

Conversion Class C to

March 31, 2023

$ ( 8,942,719 )

June 30, 2022

$ 202,728,972

1 unchanged sentence

$ 297,033,642

Months Ended March 31, 2022

A Common Stock

C Common Stock

Paid-in Capital

Other Comprehensive Income (Loss)

January 1, 2022

$ 184,537,489

4 unchanged sentences

( 12,190,330 )

Stock-based compensation expense

Sale of treasury stock

Conversion Class C to Class A

September 30, 2022

$ ( 15,071,680 )

$ 180,919,986

$ ( 5,041,822 )

$ 268,861,877

NATIONAL FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

Nine Months Ended September 30, 2021

Class A Common Stock

Class C Common Stock

Additional Paid-in Capital

Accumulated Other Comprehensive Income (Loss)

Retained Earnings

Treasury Stock

January 1, 2021

$ 153,739,167

$ ( 1,833,272 )

$ 263,987,053

Other comprehensive loss

Other comprehensive gain (loss)

( 12,190,330 )

4 unchanged sentences

Purchase of treasury stock

Conversion Class C to Class A

Conversion Class C to

March 31, 2022

2 unchanged sentences

$ 292,300,867

Other comprehensive income

Exercise of stock options

Sale of treasury stock

Purchase of treasury stock

( 2,596,006 )

Stock dividends

( 8,710,354 )

June 30, 2021

$ 168,415,007

$ ( 2,207,608 )

$ 285,848,713

Beginning balance

$ 168,415,007

$ ( 2,207,608 )

$ 285,848,713

Net earnings (loss)

Other comprehensive loss

( 1,125,206 )

Exercise of stock options

Sale of treasury stock

Purchase of treasury stock

Stock dividends

Conversion Class C to Class A

September 30, 2021

$ 179,195,423

$ ( 1,127,442 )

$ 296,716,168

Ending balance

$ 179,195,423

$ ( 1,127,442 )

$ 296,716,168

accompanying notes to condensed consolidated financial statements (unaudited).

NATIONAL FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30

Cash flows from operating activities:

Net cash provided by operating activities

$ 109,318,230

Months Ended March 31

Cash flows from operating

cash (used in) provided by operating activities

$ ( 16,073,799 )

Cash flows from investing activities:

Cash flows from investing

Purchases of fixed maturity securities

1 unchanged sentence

( 32,508,649 )

Sales, calls and maturities of fixed maturity securities

Sales, calls and maturities of fixed maturity

Purchases of equity securities

3 unchanged sentences

Net changes in restricted assets

( 1,157,021 )

Net changes in perpetual care trusts

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

Purchases of restricted assets

Sales, calls and maturities of restricted assets

Net changes in cemetery perpetual care trust

Purchases of cemetery perpetual care trust

Sales, calls and maturities of perpetual care

trust investments

Mortgage loans held for investment, other investments

and policy loans made

( 165,651,041 )

( 195,470,561 )

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

Payments received for mortgage loans held for

investment, other investments and policy loans

Purchases of property and equipment

( 4,187,580 )

Sale of property and equipment

Sales of property and equipment

Purchases of real estate

2 unchanged sentences

Sales of real estate

Net cash used in investing activities

( 96,403,904 )

cash provided by (used in) investing activities

( 37,238,498 )

Cash flows from financing activities:

Cash flows from financing

Investment contract receipts

5 unchanged sentences

( 1,204,357 )

( 3,722,157 )

Repayment of bank loans

( 15,684,446 )

( 54,454,529 )

Proceeds from bank loans

Net change in warehouse line borrowings for loans held for sale

Net change in warehouse

line borrowings for loans held for sale

( 53,656,378 )

( 24,430,063 )

Net cash used in financing activities

cash used in financing activities

( 25,242,173 )

( 19,760,407 )

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

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

( 23,951,570 )

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

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

Cash, cash equivalents,

restricted cash and restricted cash equivalents at beginning of period

cash equivalents, restricted cash and restricted cash equivalents at end of period

$ 109,532,247

Supplemental Disclosure of Cash Flow Information:

$ 156,924,145

Supplemental Disclosure

of Cash Flow Information:

Cash paid during the year for:

Income taxes (net of refunds)

Non Cash Operating, Investing and Financing Activities:

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

Non Cash Operating, Investing

and Financing Activities:

Transfer from mortgage loans held for investment

to restricted assets

Transfer from mortgage loans held for investment

to cemetery perpetual care trust investments

Benefit plans funded with treasury stock

Accrued real estate construction costs and retainage

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

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

Right-of-use assets obtained in exchange for

operating lease liabilities

Accrued real estate construction costs and

accompanying notes to condensed consolidated financial statements (unaudited).

NATIONAL FINANCIAL CORPORATION

3 unchanged sentences

flows is presented in the table below:

Nine Months Ended September 30

Months Ended March 31

Cash and cash equivalents

2 unchanged sentences

Cemetery perpetual care trust investments

Total cash, cash equivalents, restricted cash and restricted cash equivalents

Total cash, cash equivalents,

restricted cash and restricted cash equivalents

$ 109,532,247

cash equivalents, restricted cash and restricted cash equivalents at end of period

$ 156,924,145

cash equivalents, restricted cash and restricted cash equivalents at end of period

accompanying notes to condensed consolidated financial statements (unaudited).

13 unchanged sentences

considered necessary for a fair presentation have been included.

Operating results for the three and nine months ended September 30,

2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

Operating results for the three month period ended March 31, 2023 are

not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires

9 unchanged sentences

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 and unearned revenue;

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

those used in determining the liability for future

policy benefits and unearned revenue;

those used in determining the estimated future costs for pre-need sales;

those used in determining the

value of mortgage servicing rights;

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

used in determining loan loss reserve;

those used in determining

the value of mortgage servicing rights;

those used in determining allowances for credit losses;

those used in determining loan loss reserve;

and those used in determining deferred tax assets and liabilities.

Although some variability is

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

During 2020, the outbreak of COVID-19 had spread worldwide and was declared a global pandemic by the World Health Organization on March

COVID-19, and its variants, pose a threat to the health and economic well-being of the Company’s employees, customers,

The Company continues to closely monitor developments relating to COVID-19 and assess its impact on the Company’s

The continued uncertainty surrounding COVID-19 has had and continues to have a significant impact on the global economy and

financial markets.

Governments and businesses have taken numerous measures to try to contain the virus and its variants, which include

the implementation of travel bans, self-imposed quarantine periods, social distancing, and various mask and vaccine mandates.

These measures

have disrupted and will continue to disrupt businesses globally.

Governments and central banks have reacted with significant monetary

and fiscal interventions designed to stabilize economic conditions.

Most monetary and fiscal interventions have been significantly curtailed.

most businesses, COVID-19 has impacted the Company, including the temporary adoption of work from home arrangements and a restructuring

of selling techniques for its products and services.

The Company also experienced increased expenses for cleaning services of its offices.

Throughout 2021 and 2022, the Company continued to adapt to the impact of COVID-19 and its related economic effects.

The Company cannot,

with any certainty predict the severity or duration with which COVID-19 will impact the Company’s business, financial condition,

results of operations, and cash flows.

To the extent COVID-19 adversely affects the Company’s business, financial condition, results

of operations and cash flows, it may also have the effect of heightening many other risks to the Company.

These uncertainties have the

potential to negatively affect the risk of credit default for the issuers of the Company’s fixed maturity debt securities and individual

borrowers with mortgage loans held by the Company.

Company has implemented risk management, business continuity plans and has taken preventive measures and other precautions, including

some remote work arrangements.

Such measures and precautions have enabled the Company to continue to conduct business.

Although some variability is inherent in these estimates, management

believes the amounts provided are fairly stated in all material respects.

Environment .

Item 7.01 Regulation FD Disclosure.

March 10, 2023 and March 12, 2023, Silicon Valley Bank and Signature Bank were placed in receivership with the Federal Deposit Insurance

Corporation (“FDIC”).

Normal banking activities resumed shortly thereafter.

On May 1, 2023, First Republic bank was placed

in receivership with the FDIC and was immediately purchased by a national bank.

Company does not maintain any deposit or other accounts or credit facilities with Silicon Valley Bank, Signature Bank or First Republic

The Company may periodically transfer funds to these banks to pay for services rendered by third party vendors that continue to

maintain banking relationships with these banks.

The Company continues to monitor the banking industry and its relationships with regional

and community banks.

information furnished in this Item 7.01 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange

Act of 1934, as amended, and shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended,

except as shall be expressly set forth by specific reference in such filing.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

2 unchanged sentences

Recent Accounting Pronouncements

Standards Issued But Not Yet Adopted

Standards Adopted in 2023

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

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

held to maturity debt securities) and available for sale debt securities.

For assets held at amortized cost basis, Topic 326

eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current

estimate of all expected credit losses.

The allowance for credit losses is a valuation account that is deducted from the amortized

cost basis of the financial assets to present the net amount expected to be collected.

For available for sale debt securities,

credit losses should be measured in a manner similar to current GAAP;

however, Topic 326 will require that credit losses be

presented as an allowance rather than as a write-down.

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

2016-13 that would

make the ASU effective for the Company on January 1, 2023.

The Company has evaluated the potential impact of this standard and

estimates that the allowance for credit losses will increase within a range of $ 500,000 to $ 750,000 for its residential mortgage

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

to maturity debt securities) and available for sale debt securities.

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

probable initial recognition threshold and, instead, requires an entity to reflect its current estimate of all expected

credit losses.

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

assets to present the net amount expected to be collected.

For available for sale debt securities Topic 326 requires that credit losses be presented as an allowance rather than as a write-down.

Company adopted this standard on January 1, 2023, and after a review of the affected assets, decreased the opening balance of retained

earnings in stockholders’ equity by $ 671,506 on January 1, 2023.

The allowances for credit losses increased (decreased) by the

following amounts.

of Increased (Decrease) in Allowances for Credit Losses Upon ASU

Mortgage loans held for investment:

$ ( 192,607 )

Restriced assets - mortgage

loans held for investment:

Upon adoption, on January 1, 2023, this will be an adjustment to the

opening balance of retained earnings in stockholders’ equity.

The Company is still evaluating the potential impact of

this standard for its commercial mortgage loans held for investment.

Cemetery perpetual care trust

investments - mortgage loans held for investment:

Standards Issued But Not Yet Adopted

“Financial Services – Insurance (Topic 944):

15 unchanged sentences

31, 2023 (Unaudited)

Company’s investments as of September 30, 2022 are summarized as follows:

Schedule of Investments

Company’s investments as of March 31, 2023 are summarized as follows:

of Investments

Unrealized Gains

Unrealized Losses (1)

September 30,

Fixed maturity securities, available for sale,

at estimated fair value:

securities and obligations of U.S.

for Credit Losses

Fixed maturity securities,

available for sale, at estimated fair value:

Treasury securities and obligations of U.S.

Government agencies

$ ( 2,047,395 )

Obligations of states and

political subdivisions

Corporate securities including

public utilities

of states and political subdivisions

securities including public utilities

( 9,039,301 )

Mortgage-backed securities

Mortgage-backed

( 4,209,488 )

Redeemable preferred stock

preferred stock

fixed maturity securities available for sale

2 unchanged sentences

$ ( 179,500 )

Equity securities at estimated fair value:

$ 357,570,527

Equity securities at estimated

Common stock:

Industrial, miscellaneous

and all other

miscellaneous and all other

$ ( 744,496 )

1 unchanged sentence

$ ( 744,496 )

Mortgage loans held for investment at amortized

Residential construction

Unamortized deferred

loan fees, net

Mortgage loans held for investment

at amortized cost:

Unamortized deferred loan fees, net

( 1,752,369 )

Allowance for loan

Allowance for credit losses

( 2,735,419 )

Net discounts

Total mortgage loans

held for investment

mortgage loans held for investment

$ 286,546,639

Real estate held for investment - net of

accumulated depreciation:

Total real estate

held for investment

Real estate held for investment

- net of accumulated depreciation:

real estate held for investment

$ 187,077,012

Real estate held for sale:

Total real estate

held for sale

Other investments and policy loans at amortized

Insurance assignments

Federal Home Loan Bank

Other investments

Allowance for doubtful accounts

real estate held for sale

Other investments and policy

loans at amortized cost:

Home Loan Bank stock (2)

Allowance for credit losses for insurance assignments

( 1,685,901 )

Total policy loans and

other investments

Accrued investment

Total investments

other investments and policy loans

investment income

$ 930,584,465

(1) Includes $ 933,300 of Membership

stock and $ 1,655,100 of Activity stock due to short-term borrowings and letters of credit.

unrealized losses are net of allowance for credit losses

$ 978,100 of Membership stock and $ 2,918,700 of Activity stock due to short-term borrowings and letters of credit.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

5 unchanged sentences

Unrealized Losses

Fixed maturity securities, available for sale,

at estimated fair value:

Fixed maturity securities,

available for sale, at estimated fair value:

securities and obligations of U.S.

Government agencies

$ ( 2,685,277 )

Obligations of states and

2 unchanged sentences

public utilities

( 11,930,773 )

Mortgage-backed securities

( 4,100,674 )

Redeemable preferred stock

3 unchanged sentences

$ 345,858,492

Equity securities at estimated fair value:

Equity securities at estimated

Common stock:

Industrial, miscellaneous

and all other

miscellaneous and all other

$ ( 948,114 )

1 unchanged sentence

$ ( 948,114 )

Mortgage loans held for investment at amortized

Mortgage loans held for investment

at amortized cost:

Residential construction

1 unchanged sentence

loan fees, net

Allowance for loan

( 1,746,605 )

Allowance for credit

( 1,970,311 )

Net discounts

Total mortgage loans

held for investment

mortgage loans held for investment

$ 308,123,927

Real estate held for investment - net of

accumulated depreciation:

Total real estate

held for investment

Real estate held for investment

- net of accumulated depreciation:

real estate held for investment

$ 191,328,616

Real estate held for sale:

Total real estate

held for sale

Other investments and policy loans at amortized

real estate held for sale

Other investments and policy

loans at amortized cost:

Insurance assignments

Federal Home Loan Bank

Federal Home Loan Bank stock

Other investments

Allowance for doubtful accounts

Allowance for credit losses for insurance assignments

( 1,609,951 )

Total policy loans and

other investments

Accrued investment

Total investments

other investments and policy loans

investment income

$ 948,963,125

7 unchanged sentences

following table summarizes unrealized losses on fixed maturity securities available for sale that were carried at estimated fair value

at September 30, 2022 and at December 31, 2021.

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

relating to COVID-19.

at March 31, 2023 and at December 31, 2022.

The unrealized losses were primarily related to interest rate fluctuations and inflation.

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.

The table below sets forth unrealized losses by duration with the fair value of the related fixed maturity securities.

3 unchanged sentences

Unrealized Loss

At September 30, 2022

Treasury Securities And Obligations

At March 31, 2023

Securities And Obligations of U.S.

Government Agencies

Obligations of States and Political Subdivisions

Obligations of States and

Political Subdivisions

Corporate Securities

Mortgage and other asset-backed

and other asset-backed securities

$ 188,358,922

1 unchanged sentence

At December 31,

Obligations of States and Political Subdivisions

Treasury Securities And

Obligations of U.S.

Government Agencies

Obligations of States and

Political Subdivisions

Corporate Securities

Mortgage and other asset-backed

were 703 securities with fair value of 93.1 % of aggregate amortized cost at September 30, 2022.

and other asset-backed securities

$ 267,774,539

$ 280,964,126

were 656 securities with fair value of 94.4 % of aggregate amortized cost at March 31, 2023.

There were 713 securities with fair value

of 93.6 % of aggregate amortized cost at December 31, 2022.

No credit losses have been recognized for the three and nine months ended

September 30, 2022 and 2021, since the increase in unrealized losses is primarily a result of the recent rise in interest rates.

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.

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.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

Credit losses of $ 179,500 and nil have been recognized for the three month

periods ended March 31, 2023 and 2022 and are included in gains (losses) on investments and other assets on the condensed consolidated

statements of earnings.

Other unrealized losses for which no credit loss was recognized are primarily the result of the recent rise in

interest rates and inflation.

of Allowance for Credit Losses

Note 2 regarding the adoption of ASU 2016-13.

a quarterly basis, the Company evaluates its fixed maturity securities classified as available for sale to identify any potential credit

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 credit loss, unless current market or recent

company news could lead to a credit downgrade.

Securities with ratings of 3 to 5 are evaluated for credit loss.

Securities with a rating

of 6 are automatically determined to be impaired and a credit loss is recognized in earnings.

The evaluation involves assessing all facts

and circumstances surrounding each security including, but not limited 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.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Investments (Continued)

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.

the decline in fair value of fixed maturity securities is attributable to changes in market interest rates or to factors such as market

volatility, liquidity and spread widening, and the Company anticipates recovery of all contractual or expected cash flows, the Company

does not consider these securities to have credit loss because the Company does not intend to sell these securities and it is not more

likely than not the Company will be required to sell these securities before a recovery of amortized cost, which may be maturity.

the Company intends to sell a fixed maturity security or if it is more likely than not that the Company will be required to sell a security

before recovery of its amortized cost basis, a credit loss has occurred and the difference between the amortized cost and the fair value

that relates to the expected credit loss is recognized as a loss in earnings, included in gains (losses) on investments and other assets

on the condensed consolidated statements of earnings.

the Company does not intend to sell and it is not more likely than not the Company will be required to sell the debt security but also

do not expect to recover the entire amortized cost basis of the security, a credit loss would be recognized in earnings for the amount

of the expected credit loss with a corresponding allowance for credit losses as a contra-asset account.

The credit loss is included in

gains (losses) on investments and other assets on the condensed consolidated statements of earnings.

The recognized credit loss is limited

to the total unrealized loss on the security due to a change in credit.

on available for sale fixed maturities that are deemed to be uncollectible are written off and removed from the allowance for credit

A write-off may also occur if the Company intends to sell a security or when it is more likely than not the Company will be required

to sell the security before the recovery of its amortized cost.

Company does not measure a credit loss allowance on accrued interest receivable, included in accrued investment income on the condensed

consolidated balance sheets, as the Company writes off any accrued interest receivable balance to net investment income in a timely manner

(after 90 days) when the Company has concerns regarding collectability.

following table presents a roll forward of the Company’s allowance for credit losses on fixed maturity securities available for

of Allowance for Credit Losses on Fixed Maturity Securities Available for Sale

Months Ended March 31, 2023

Treasury Securities And Obligations of U.S.

Government Agencies

of states and political subdivisions

Mortgage-backed

Beginning balance

for credit losses not previously recorded

in allowance on securities with previous allowance

for securities sold during the period

for securities with credit losses due to intent to sell

charged against the allowance

of amounts previously written off

Ending Balance

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Investments (Continued)

following table presents a roll forward of the Company’s cumulative other than temporary credit impairments (“OTTI”)

recognized in earnings on fixed maturity securities available for sale which was required to be presented prior to the adoption of ASU

Schedule of Earnings on Fixed Maturity

Balance of credit-related OTTI at January 1

Additions for credit impairments recognized on:

Securities not previously impaired

Securities previously impaired

Reductions for credit impairments previously recognized on:

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

Securities due to an increase in expected cash flows

Balance of credit-related OTTI at September 30

following table presents the amortized cost and estimated fair value of fixed maturity securities available for sale at September 30,

Balance of credit-related

OTTI at January 1

for credit impairments recognized on:

not previously impaired

previously impaired

Reductions for credit impairments

previously recognized on:

that matured or were sold during the period (realized)

due to an increase in expected cash flows

of credit-related OTTI at March 31

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

2023, 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.

Actual or 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.

Schedule of Investments Classified by Contractual

5 unchanged sentences

Mortgage-backed securities

Redeemable preferred stock

preferred stock

$ 369,382,018

2 unchanged sentences

The Company had pledged a total of $ 93,436,027 ,

at estimated fair value, of fixed maturity securities with the FHLB at September 30, 2022.

These securities are used as collateral on

any cash borrowings from the FHLB.

As of September 30, 2022, the Company owed nil to the FHLB and its estimated maximum borrowing capacity

at estimated fair value, of fixed maturity securities with the FHLB at March 31, 2023.

These pledged securities are used as collateral

for any FHLB cash advances.

As of March 31, 2023, the Company owed $ 31,000,000 to the FHLB and its estimated maximum borrowing capacity

was $ 55,351,809 .

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

Quality Indicators

NAIC assigns designations to fixed maturity securities.

These designations range from Class 1 (highest quality) to Class 6 (lowest quality).

The NAIC designations are utilized by insurers in preparing their annual statutory statements.

NAIC Class 1 and 2 are considered “investment

grade” while the NAIC Class 3 through 6 designations are considered “non-investment grade.” Based on the NAIC designations,

the Company had 98.1 % and 97.7 % of its fixed maturity securities rated investment grade as of March 31, 2023 and December 31, 2022, respectively.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Investments (Continued)

Related Earnings

following table presents the 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.

Schedule of Gain (Loss) on Investments

Three Months Ended

Nine Months Ended

Fixed maturity securities:

Gross realized gains

Gross realized losses

Equity securities:

Gains (losses) on securities sold

Unrealized gains and (losses) on securities held at the end of the period

following table summarizes the credit quality, as determined by NAIC designation, of the Company’s fixed maturity securities available

for sale, excluding redeemable preferred stock.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Investments (Continued)

Schedule of Credit Quality of Fixed Maturity Security Portfolio by NAIC Designation

$ 202,589,256

$ 197,298,515

Other assets:

Gross realized gains

Gross realized losses

$ 197,753,818

$ 189,691,540

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

Three Months Ended

Nine Months Ended

Proceeds from sales

Gross realized gains

Gross realized losses

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

3) Investments (Continued)

categories of net investment income were as follows:

Three Months Ended

Nine Months Ended

Fixed maturity securities available for sale

Equity securities

Mortgage loans held for investment

Real estate held for investment and sale

Insurance assignments

Other investments

Cash and cash equivalents

Gross investment income

Investment expenses

$ 369,132,018

2 unchanged sentences

$ 345,598,492

Net investment income

investment income includes income earned by the restricted assets of the cemeteries and mortuaries of $ 675,259 and $ 778,892 for the three

months ended September 30, 2022 and 2021, respectively, and of $ 1,882,502 and $ 1,130,771 for the nine months ended September 30, 2022

and 2021, 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.

and cash on deposit with regulatory authorities as required by law amounted to $ 11,048,787 at September 30, 2022 and $ 10,168,853 at December

31, 2021 (the December 31, 2021 amount has been corrected from that previously reported due to a typographical error).

These restricted

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

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

Schedule of Major Categories of Net Investment Income

Months Ended March 31

Proceeds from

Gross realized gains

Gross realized losses

and cash on deposit with regulatory authorities as required by law amounted to $ 10,952,850 at March 31, 2023 and $ 11,032,165 at December

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

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

equity securities and fixed maturity securities) at September 30, 2022, other than investments issued or guaranteed by the United States

equity securities and fixed maturity securities) at March 31, 2023, other than investments issued or guaranteed by the United States

Estate Held for Investment and Held for Sale

6 unchanged sentences

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

third-party resources.

The geographic locations and asset classes of investments are determined by senior management under the direction

of the Board of Directors.

1 unchanged sentence

surrounding markets.

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

The Company utilizes third party property managers where the geographic location 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 in assets that provide operational efficiencies.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

3) Investments (Continued)

The Company generally looks to acquire assets that are located in regions expected to have high

growth in employment and population and that provide operational efficiencies.

Company currently owns and operates nine commercial properties in three states.

1 unchanged sentence

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

uses bank 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 $ 133,785,749 and $ 134,251,205 as

of September 30, 2022 and December 31, 2021, respectively.

The associated bank loan carrying values totaled $ 97,562,264 and $ 85,663,148

as of September 30, 2022 and December 31, 2021, respectively.

the three months ended September 30, 2022 and 2021, the Company did not record any impairment losses on commercial real estate held for

investment or held for sale.

During the nine months ended September 30, 2022 and 2021, the Company recorded impairment losses on commercial

real estate held for sale of nil and $ 28,378 , respectively.

Impairment losses are included in gains (losses) on investment and other

assets on the condensed consolidated statements of earnings.

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

uses bank debt in strategic cases, primarily where it is anticipated to improve yields, or facilitate the acquisition of higher quality

assets or asset class diversification.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Investments (Continued)

aggregated net book value of commercial real estate serving as collateral for bank loans was $ 128,272,775 and $ 129,330,119 as of March

31, 2023, and December 31, 2022, respectively.

The associated bank loan carrying values totaled $ 96,652,659 and $ 97,112,131 as of March

31, 2023, and December 31, 2022, respectively.

the three month periods ended March 31, 2023, and 2022, the Company did not record any impairment losses on commercial real estate held

for investment or held for sale.

Impairment losses, if any, are included in gains (losses) on investment and other assets on the condensed

consolidated statements of earnings.

the three month periods ended March 31, 2023, and 2022, the Company recorded depreciation expense on commercial real estate held for

investment of $ 1,565,927 and $ 1,323,930 , respectively.

Commercial real estate held for investment is stated at cost and is depreciated

over the estimated useful life, primarily using the straight-line method.

Depreciation is included in net investment income on the consolidated

statements of earnings.

Company’s commercial real estate held for investment is summarized as follows as of the respective dates indicated:

Schedule of Commercial Real Estate Investment

Net Ending Balance

Total Square Footage

Square Footage

$ 146,397,779

2 unchanged sentences

$ 152,890,656

(1) 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

December 31 2021

Center53 phase 1 and phase 2

Company’s commercial real estate held for sale is summarized as follows as of the respective dates indicated:

Mississippi (1)

(1) Approximately 93

acres of undeveloped land

property is being marketed with the assistance of commercial real estate brokers in the markets where the property is located.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

3) Investments (Continued)

of approximately 93 acres of undeveloped land

property is being marketed with the assistance of commercial real estate brokers in Mississippi.

Real Estate Held for Investment and Held for Sale

Company occasionally 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.

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

Company occasionally acquires a small portfolio of residential homes primarily as a result of loan foreclosures.

The Company has the

option to sell these properties or to continue to hold them for expected cash flow and price appreciation.

The Company also invests in

residential subdivision land developments.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Investments (Continued)

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

SNRE cultivates

and maintains the preferred vendor relationships necessary to manage costs and quality of work performed on the residential portfolio

across the country.

net ending balance of foreclosed residential real estate included in residential real estate held for sale was nil and $ 1,190,602 as

of September 30, 2022 and December 31, 2021, respectively.

the three months ended September 30, 2022 and 2021 the Company did not record any impairment losses on residential real estate held for

sale or held for investment.

During the nine months ended September 30, 2022 and 2021 the Company recorded impairment losses on residential

real estate held for sale of $ 94,400 and nil , respectively.

Impairment losses are included in gains (losses) on investment and other

assets on the condensed consolidated statements of earnings.

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

and maintains the preferred vendor relationships necessary to manage costs and quality of work performed on the Company’s entire

residential property portfolio.

the three month periods ended March 31, 2023, and 2022 the Company did not record any impairment losses on residential real estate held

for sale or held for investment.

Impairment losses, if any, are included in gains (losses) on investment and other assets on the condensed

consolidated statements of earnings.

the three month periods ended March 31, 2023, and 2022, the Company recorded depreciation expense on residential real estate held for

investment of $ 2,648 and $ 2,648 , respectively.

Residential real estate held for investment is stated at cost and is depreciated over

the estimated useful life, primarily using the straight-line method.

Depreciation is included in net investment income on the consolidated

statements of earnings.

Company’s residential real estate held for investment is summarized as follows as of the respective dates indicated:

Schedule of Residential Real Estate Investment

Net Ending Balance

Washington (2)

(1) Includes subdivision land developments

(2) Improved residential lots

subdivision land developments

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

1 unchanged sentence

Lots to be developed

Ending Balance

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

Net Ending Balance

Real estate held for sale

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

Company’s residential real estate held for sale is summarized as follows as of the respective dates indicated:

net book value of foreclosed residential real estate included in residential real estate held for sale was $ 5,570,788 and $ 11,010,029

as of March 31, 2023, and December 31, 2022, respectively.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Investments (Continued)

1 unchanged sentence

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

As of September 30, 2022, real estate

owned and occupied by the Company is summarized as follows:

As of March 31, 2023, real estate owned

and occupied by the Company is summarized as follows:

of Real Estate Owned and Occupied by the Company

Business Segment

Approximate Square Footage

Square Footage Occupied by the Company

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

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

1044 River Oaks Dr., Flowood, MS

Square Footage

Footage Occupied by the Company

433 Ascension

Way, Floors 4, 5 and 6, Salt Lake City, UT - Center53 Building 2 (1)

Corporate Offices,

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

1044 River Oaks Dr., Flowood,

Life Insurance Operations

1818 Marshall Street, Shreveport, LA (1)

1818 Marshall Street, Shreveport,

Life Insurance Operations

909 Foisy Street, Alexandria, LA (1)

909 Foisy Street, Alexandria,

Life Insurance Sales

812 Sheppard Street, Minden, LA (1)

812 Sheppard Street, Minden,

Life Insurance Sales

1 unchanged sentence

Life Insurance Sales

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

in real estate held for investment on the condensed consolidated balance sheets

in property and equipment on the condensed consolidated balance sheets

Loans Held for Investment

1 unchanged sentence

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

At September 30, 2022, the Company had 69 %, 8 %, 4 %, 4 %, 4 % and 3 % of its mortgage loans from borrowers located in the states

of Utah, Florida, Texas, California, Arizona, and Nevada, respectively.

At December 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.

maturity dates range from nine months to 30 years and the loans 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 or are employed.

As of March 31, 2023, the Company had 60 %, 10 %, 6 %, 5 %, 5 %, 3 % and

3 % of its mortgage loans from borrowers located in the states of Utah, Florida, California, Texas, Arizona, Hawaii, and Nevada, respectively.

As of December 31, 2022, the Company had 64 %, 10 %, 5 %, 5 %, 3 % and 3 % of its mortgage loans from borrowers located in the states of Utah,

Florida, California, Texas, Nevada, and Arizona, respectively.

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

and the related allowance for loan losses.

and the related allowance for credit losses.

Interest income is included in net investment income on the condensed consolidated statements

6 unchanged sentences

Generally, the Company

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

Amounts over 80% will require additional

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

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.

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.

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 or held for sale.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

requires that loans not exceed 80% of the fair market value of the respective loan collateral.

For loans in excess of 80% of the fair

market value of the respective loan collateral, additional collateral or mortgage insurance by an approved third-party insurer is required.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Investments (Continued)

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:

of Allowance for Credit Losses

Note 2 regarding the adoption of ASU 2016-13.

allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the Company’s mortgage loans

held for investment to present the net amount expected to be collected.

The Company reports in net earnings, as a credit loss expense,

the amount necessary to adjust the allowance for credit losses for the Company’s current estimate of expected credit losses on

mortgage loans held for investment.

This credit loss expense is included in other expenses on the condensed consolidated statements of

a mortgage 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 interest income that had been accrued.

Given this policy of timely writing off uncollectible accrued interest, the Company does not

measure a credit loss allowance on accrued interest receivable as it writes off any uncollectible accrued interest receivable balances

to net investment income in a timely manner.

Accrued interest receivable is included in accrued investment income on the condensed consolidated

balance sheets.

Payments received for mortgage loans on a non-accrual status are recognized on a cash basis.

Interest income recognized

from any payments received for mortgage loans on a non-accrual status was immaterial.

Accrual of interest resumes if a mortgage loan

is brought current.

Interest not accrued on these loans totaled approximately $ 110,000 and $ 226,000 as of March 31, 2023, and December

31, 2022, respectively.

Company measures expected credit losses based on the fair value of the collateral when the Company determines that foreclosure is probable.

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

Once foreclosed, the property is classified as real estate held for investment or held for sale.

purposes of determining the allowance for credit 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:

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

3 unchanged sentences

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 value exceeds 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

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.

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.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

loans are evaluated for credit loss by analyzing loan attributes that are predictors for future credit losses.

The Company uses a combination of the debt service coverage ratio (“DSCR”)

and loan to value (“LTV”) to group similar commercial loans.

The Company applies a future loss factor to the outstanding balance of each group to arrive

at the allowance for credit loss.

— These loans are secured by first and second mortgages on single family dwellings.

The borrower’s ability to repay is

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

Where loan to value exceeds 80%, the loan is generally

guaranteed by private mortgage insurance, the FHA, or VA.

Company uses a third-party to provide a monthly analysis of its residential portfolio for credit losses.

The third-party uses the Company’s

current loan data and runs it through various models to project cash flows and provide a projected life of loan loss.

The models consider

loan features such as loan type, loan to value, payment status, age, and current property values.

Company also considers historical delinquency rates and current unemployment trends.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Investments (Continued)

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.

Schedule of Allowance for Loan Losses as

Contra -Asset Account

construction (including land acquisition and development) – These loans are 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, and factor in estimates of the value of construction projects upon completion.

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 acquisition and development loans are underwritten in accordance with the Company’s underwriting policies, which include independent

appraisal valuations as well as the estimated value associated with the land upon completion of development into finished lots.

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.

determine the allowance for credit losses on residential construction mortgage loans, the Company considers historical activity and housing

market trends.

Given the continued volatility in the housing market, the Company has adjusted its

credit loss analysis.

following table presents a roll forward of the allowance for credit losses as of the dates indicated.

Schedule of Allowance for Loan Losses

Residential Construction

September 30, 2022

March 31, 2023

Allowance for credit losses:

Beginning balance - January 1, 2023

Ending balance - September 30, 2022

Ending balance:

individually evaluated for impairment

Ending balance:

collectively evaluated for impairment

Mortgage loans:

Ending balance - September 30, 2022

$ 201,685,076

$ 324,316,457

Ending balance:

individually evaluated for impairment

Ending balance:

collectively evaluated for impairment

$ 201,685,076

$ 322,501,358

Cumulative effect adjustment upon adoption of new accounting standard (ASU 2016-13)

Change in provision for credit losses

Ending balance - March 31, 2023

December 31, 2022

1 unchanged sentence

Beginning balance - January 1, 2022

Ending balance - December 31, 2021

Ending balance:

individually evaluated for impairment

Ending balance:

collectively evaluated for impairment

Mortgage loans:

Change in provision for credit losses

Ending balance - December 31, 2022

$ 175,117,783

$ 280,334,517

Ending balance:

individually evaluated for impairment

Ending balance:

collectively evaluated for impairment

$ 175,117,783

$ 276,062,489 (1)

(1) Amount corrected from that previously reported due to a typographical error.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

Note 2 of the notes to the condensed consolidated financial statements

in other expenses on the condensed consolidated statements of earnings

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Investments (Continued)

following table presents the aging of mortgage loans held for investment.

following table presents the aging of mortgage loans held for investment by loan type as of the dates indicated.

Schedule of Aging of Mortgage Loans

September 30, 2022

March 31, 2023

30-59 days past due

60-89 days past due

Greater Than 90 Days (1)

Over 90 days past due (1)

In process of foreclosure (1)

1 unchanged sentence

Total mortgage loans

Allowance for Loan Losses

Allowance for credit losses

( 1,685,100 )

10 unchanged sentences

60-89 days past due

Greater Than 90 Days (1)

Over 90 days past due (1)

In process of foreclosure (1)

1 unchanged sentence

Total mortgage loans

Allowance for Loan Losses

Allowance for credit losses

( 1,739,980 )

1 unchanged sentence

Unamortized deferred loan fees, net

( 1,212,994 )

( 1,746,605 )

Unamortized discounts, net

2 unchanged sentences

$ 308,123,927

(1) Interest income is not recognized on loans past due greater than 90 days or in foreclosure.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

3) Investments (Continued)

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:

of Impairment Mortgage Loans

Recorded Investment

Unpaid Principal Balance

Related Allowance

Average Recorded Investment

Interest Income Recognized

September 30, 2022

With no related allowance recorded:

Residential construction

With an allowance recorded:

Residential construction

December 31, 2021

With no related allowance recorded:

Residential construction

With an allowance recorded:

Residential construction

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

income is not recognized on loans past due greater than 90 days or in foreclosure.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Investments (Continued)

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.

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

Quality Indicators

Company evaluates and monitors the credit quality of its commercial loans by analyzing loan to value (“LTV”) and debt service

coverage ratios (“DSCR”).

Monitoring a commercial mortgage loan increases when the loan is delinquent or earlier if there

is an indication of impairment.

unpaid principal balance of commercial mortgage loans by credit quality indicator and vintage year was as follows as of March 31, 2023:

of Commercial Mortgage Loans By Credit Quality Indicator

Credit Quality Indicator

Less than 65%

Greater than 80%

1.00x - 1.20x

8,561,409 (1)

construction loan

Company evaluates and monitors the credit quality of its residential mortgage loans by analyzing loan performance.

The Company defines

non-performing mortgage loans as loans 90 days or greater delinquent and on a non-accrual status.

Monitoring a residential mortgage loan

increases when the loan is delinquent or earlier if there is an indication of impairment.

unpaid principal balance of residential mortgage loans by credit quality indicator and vintage year was as follows as of March 31, 2023:

Credit Quality Indicator

Performance Indicators:

Non-performing (1)

Includes residential mortgage loans

in the process of foreclosure of $ 713,552 at March 31, 2023

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Investments (Continued)

company evaluates and monitors the credit quality of its residential construction loans (including land acquisition and development loans)

by analyzing LTV and loan performance.

Monitoring a residential construction mortgage loan increases when the loan is delinquent or earlier

if there is an indication of impairment.

unpaid principal balance of residential construction mortgage loans by credit quality indicator and vintage year was as follows as of

March 31, 2023:

of Residential Construction Mortgage Loans

Credit Quality Indicator

Performance Indicators:

$ 146,093,947

Non-performing

$ 146,093,947

Less than 65%

Greater than 80%

$ 146,093,947

Non-performing

following table presents the aging of insurance assignments, included in other investments and policy loans on the condensed consolidated

balance sheets.

of Aging of Insurance Assignments

December 31 2022

30-59 days past due

60-89 days past due

Over 90 days past due

Total past due

Total insurance assignments

Allowance for credit losses

( 1,685,901 )

( 1,609,951 )

Net insurance assignments

Company records an allowance for credit losses when the insurance assignment is funded.

Once an insurance assignment

moves to 90 days or legal proceedings, it is monitored for write-off and collectability, and any adjustments to the allowance are done

at that time.

See Note 2 regarding the adoption of ASU 2016-13.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Investments (Continued)

following table presents a roll forward of the allowance for credit losses as a contra-asset account for insurance assignments.

of Allowance for Credit Losses

Beginning balance - January 1, 2023

Change in provision for credit losses

Ending balance - March 31, 2023

Beginning balance - January 1, 2022

Change in provision for credit losses

Ending balance - December 31, 2022

Included in other expenses on the

condensed consolidated statements of earnings

Related Earnings

following table presents the realized gains and losses from sales, calls, and maturities, and unrealized gains and losses on equity securities

from investments and other assets.

Schedule of Gain (Loss) on Investments

Three Months Ended March 31

Fixed maturity securities:

Gross realized gains

Gross realized losses

Net credit loss (provision) release

Equity securities:

Gains (losses) on securities sold

Unrealized gains and (losses) on securities held at the end of the period

Real estate held for investment and sale:

Gross realized gains

Gross realized losses

Other assets, including call and put option derivatives:

Gross realized gains

Gross realized losses

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.

realized gains and losses includes gains and losses by the restricted assets and cemetery perpetual care trust investments of the cemeteries

and mortuaries of $ 53,931 in net gains and $ 275,741 in net losses for the three month periods ended March 31, 2023, and 2022, respectively.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Investments (Continued)

categories of net investment income were as follows:

Three Months Ended March 31

Fixed maturity securities available for sale

Equity securities

Mortgage loans held for investment

Real estate held for investment and sale

Insurance assignments

Other investments

Cash and cash equivalents

Gross investment income

Investment expenses

( 4,116,170 )

( 4,414,373 )

Net investment income

investment income includes income earned by the restricted assets of the cemeteries and mortuaries of $ 633,527 and $ 476,708 for the three

month periods ended March 31, 2023 and 2022, 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.

Investment Income

investment income consists of the following:

of Accrued Investment Income

December 31 2022

Fixed maturity securities available for sale

Equity securities

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 interest

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.

Accrual of interest resumes if a loan is brought current.

Interest not accrued on these loans totaled approximately $ 110,000 and $ 236,000 as of September 30, 2022 and December 31, 2021, respectively.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

Held for Sale

Real estate held for investment

Cash and cash equivalents

Total accrued investment income

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Loans Held for Sale

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

5 unchanged sentences

following table presents the aggregate fair value and the aggregate unpaid principal balance of loans held for sale:

Summary of Aggregate Fair Value - Loans Held for Sale

of Aggregate Fair Value Loans Held for Sale

December 31 2022

Aggregate fair value

2 unchanged sentences

Unpaid principal balance

Unrealized gain

Unrealized gain (loss)

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

1 unchanged sentence

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

Schedule of Mortgage Fee Income for Loans Held

Three Months Ended

Nine Months Ended

Schedule of Mortgage Fee Income for Loans Held for Sale

Three Months Ended March 31

Interest income

1 unchanged sentence

Change in fair value of loan commitments

( 3,271,282 )

( 2,843,155 )

Change in fair value of loans held for sale

( 2,746,565 )

( 7,973,171 )

( 8,319,820 )

Provision for loan loss reserve

( 1,701,700 )

Mortgage fee income

$ 118,983,231

$ 204,414,276

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.

demands from third party investors that correspond to mortgage loans previously held for sale and sold are reviewed and relevant data

is captured so that an estimated future loss can be calculated.

The key factors that are used in the estimated future 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 Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

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 AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Loans Held for Sale (Continued)

loan loss reserve, which is included in other liabilities and accrued expenses, is summarized as follows:

Summary of Loan Loss Reserve Included in Other Liabilities and

Accrued Expenses

of Loan Loss Reserve Included in Other Liabilities and Accrued Expenses

Balance, beginning of period

2 unchanged sentences

( 1,800,284 )

( 20,347,709 )

Balance, end of period

1 unchanged sentence

Company maintains reserves for estimated losses on current production volumes.

For the nine months ended September 30, 2022, $ 829,243

For the three month period ended March 31, 2023, $ 239,801

in reserves were added at a rate of 4.5 basis points per loan, the equivalent of $ 450 per $ 1,000,000 in loans originated.

This is a decrease

over the nine months ended September 30, 2021, when reserves of $ 1,701,700 were added at a rate of 3.0 basis points per loan originated,

This is an increase

over the three month period ended March 31, 2022, when reserves of $ 306,026 were added at a rate of 2.9 basis points per loan originated,

the equivalent of $ 290 per $ 1,000,000 in loans originated.

In February 2021, SecurityNational Mortgage executed a settlement agreement

with Lehman Holdings in relation to 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.The unique nature of COVID-19 creates significant difficulty for forecasting

potential future losses.

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 September 30, 2022, represents its best estimate

for adequate loss reserves on loans sold.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

Compensation Plans

Company has three fixed option plans (the “2013 Plan”, the “2014 Director Plan” and the “2022 Plan”).

Compensation expense for options issued of $ 230,853 and nil has been recognized for these plans for the three months ended September

30, 2022 and 2021, respectively, and $ 722,775 and $ 39,153 has been recognized for these plans for the nine months ended September 30,

2022 and 2021, respectively.

As of September 30, 2022, the total unrecognized compensation expense related to the options issued was

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 March 31,

2023, represents its best estimate for adequate loss reserves on loans sold.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Stock Compensation Plans

Company has three fixed option plans (the “2013 Plan”, the “2014 Director Plan” and the “2022 Equity Incentive

based compensation expense for stock options issued of $ 142,929 and $ 271,747 has been recognized for these plans for the three month

periods ended March 31, 2023, and 2022, respectively, and is included in personnel expenses on the condensed consolidated statements

As of March 31, 2023, the total unrecognized compensation expense related to the options issued was $ 390,702 , which is expected

to be recognized over the vesting period.

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

5 unchanged sentences

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.

summary of the status of the Company’s stock compensation plans as of September 30, 2022, and the changes during the nine months

ended September 30, 2022, are presented below:

of the stock option plans during the three month period ended March 31, 2023, is summarized as follows:

Schedule of Activity of Stock Option Plans

4 unchanged sentences

Outstanding at January 1, 2023

Adjustment for effect of stock dividends

Outstanding at September 30, 2022

As of September 30, 2022:

Outstanding at March 31, 2023

As of March 31, 2023:

Options exercisable

As of September 30, 2022:

As of March 31, 2023:

Available options for future grant

Weighted average contractual term of

options outstanding at September 30, 2022

Weighted average contractual term of

options exercisable at September 30, 2022

intrinsic value of options outstanding at September 30, 2022 (1)

intrinsic value of options exercisable at September 30, 2022 (1)

(1) The Company used a stock price of $ 6.35 as of September 30, 2022 to derive intrinsic value.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

Weighted average contractual term of options outstanding at March 31, 2023

Weighted average contractual term of options exercisable at March 31, 2023

Aggregated intrinsic value of options outstanding at March 31, 2023 (1)

Aggregated intrinsic value of options exercisable at March 31, 2023 (1)

Company used a stock price of $ 6.23 as of March 31, 2023 to derive intrinsic value.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Stock Compensation Plans (Continued)

summary of the status of the Company’s stock compensation plans as of September 30, 2021, and the changes during the nine months

ended September 30, 2021, are presented below:

of the stock option plans during the three month period ended March 31, 2022, is summarized as follows:

Class A Shares

Weighted Average Exercise Price

Average Exercise Price

Class C Shares

Weighted Average Exercise Price

Average Exercise Price

Outstanding at January 1, 2022

Adjustment for effect of stock dividends

Outstanding at September 30, 2021

As of September 30, 2021:

Outstanding at March 31, 2022

As of March 31, 2022:

Options exercisable

As of September 30, 2021:

Available options for future grant

Weighted average contractual term of options outstanding at

September 30, 2021

Weighted average contractual term of options exercisable at

September 30, 2021

Aggregated intrinsic value of

options outstanding at September 30, 2021 (1)

Aggregated intrinsic value of

options exercisable at September 30, 2021 (1)

(1) The Company used a stock price of $ 8.23 as of September 30, 2021, which was the closing price

of the Company’s Class A shares on Nasdaq for that day, to derive intrinsic value.

As of March 31, 2022:

Available options for

Weighted average contractual term of options outstanding

at March 31, 2022

Weighted average contractual term of options exercisable

at March 31, 2022

Aggregated intrinsic

value of options outstanding at March 31, 2022 (1)

Aggregated intrinsic

value of options exercisable at March 31, 2022 (1)

(1) The Company used

a stock price of $ 10.00 as of March 31, 2022, which was the closing price of the Company’s Class A shares on Nasdaq for that day,

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 nine months September 30, 2022 and 2021 was $ 521,527 and $ 591,603 , respectively.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2022 (Unaudited)

(loss) Per Share

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

In accordance with GAAP, the basic

and diluted earnings (loss) per share amounts were calculated as follows:

Schedule of Earning Per Share, Basic and Diluted

Three Months Ended

Nine Months Ended

Net earnings (loss)

$ ( 2,353,185 )

Basic weighted-average shares outstanding

the exercise date) of stock options exercised during the three month periods ended March 31,2023 and 2022 was $ 176,935 and $ 395,831 ,

respectively.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Stock Compensation Plans (Continued)

Stock Units (“RSUs”)

based compensation expense for RSUs issued of $ 742 and nil has been recognized under these plans for the three month periods ended March

31, 2023 and 2022, respectively, and is included in personnel expenses on the condensed consolidated statements of earnings.

31, 2023, the total unrecognized compensation expense related to the RSUs issued was nil .

The fair value of each RSU granted is determined

based on the Company’s stock price on the date of grant.

Prior to December 2022, the Company did not grant any RSUs.

of the RSUs during the three month period ended March 31, 2023 is summarized as follows:

Schedule of Activity Restricted Stock Units

Class A Shares

Average Grant Date Fair Value

Non-vested at January 1, 2023

Non-vested at March 31, 2023

Available RSUs for future

Aggregated intrinsic value of RSUs outstanding

at March 31, 2023 (1)

(1) The Company used

a stock price of $ 6.23 as of March 31, 2023 to derive intrinsic value.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Earnings Per Share

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

weighted-average shares outstanding

Effect of dilutive securities:

Employee stock options

Diluted weighted-average shares outstanding

Basic net earnings (loss) per share

Diluted net earnings (loss) per share

the nine months September 30, 2022 and 2021, there were 339,150 and nil anti-dilutive employee stock option shares, respectively, that

were not included in the computation of diluted net earnings per common share as their effect would be anti-dilutive.

Basic and diluted

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

weighted-average shares outstanding

Basic net earnings per share

Diluted net earnings per share

the three month periods ended March 31, 2023, and 2022, there were 730,270 and nil 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.

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

following table summarizes the activity in shares of capital stock.

2 unchanged sentences

Exercise of stock options

Stock dividends

Conversion of Class C to Class A

Outstanding shares at September 30, 2021

Conversion of Class C to

Outstanding shares at March 31, 2022

Outstanding shares at December 31, 2022

Common stock, shares, outstanding, beginning

Exercise of stock options

Stock dividends

Conversion of Class C to Class A

Outstanding shares at September 30, 2022

Conversion of Class C to

Outstanding shares at March 31, 2023

Common stock, shares, outstanding, ending

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

28 unchanged sentences

Business Segment Information (Continued)

Schedule of Revenues and Expenses by

Reportable Segment

Life Insurance

Schedule of Revenues and Expenses by Reportable Segment

For the Three Months Ended

September 30, 2022

Revenues from external customers

Intersegment revenues

( 1,916,530 )

Segment profit (loss) before income taxes

( 8,437,047 )

( 3,302,344 )

For the Nine Months Ended

September 30, 2022

March 31, 2023

Revenues from external customers

$ 125,786,154

$ 134,237,417

$ 281,469,781

Intersegment revenues

10 unchanged sentences

For the Three Months Ended

September 30, 2021

Revenues from external customers

$ 119,509,131

Intersegment revenues

( 1,989,458 )

Segment profit before income taxes

For the Nine Months Ended

September 30, 2021

March 31, 2022

Revenues from external customers

$ 102,425,907

$ 216,764,653

$ 358,918,052

Intersegment revenues

1 unchanged sentence

Segment profit before income taxes

Segment profit (loss) before income taxes

Identifiable Assets

19 unchanged sentences

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

a) Quoted prices for similar

assets or liabilities in active markets;

prices for similar assets or liabilities in active markets;

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

models whose inputs are observable, directly or indirectly, for substantially the full term

of the asset or liability.

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

40 unchanged sentences

The Company’s mortgage segment enters into loan commitments with potential borrowers

and forward sale commitments to sell loans to third-party investors.

and forward sale commitments to sell loans with third-party investors.

The Company also uses a hedging strategy for these transactions.

17 unchanged sentences

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).

The appraisal typically considers comparable sales

in the area, property condition, and potential rental income that could be generated (particularly for commercial properties).

For residential

25 unchanged sentences

following tables summarize Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a recurring basis by

their classification in the condensed consolidated balance sheet at September 30, 2022.

their classification in the condensed consolidated balance sheet at March 31, 2023.

of Fair Value Assets and Liabilities Measured on a Recurring Basis

Quoted Prices in Active Markets for Identical Assets

Significant Observable Inputs

Significant Unobservable Inputs

Prices in Active Markets for Identical Assets

Observable Inputs

Unobservable Inputs

Assets accounted for at fair value on a recurring basis

Fixed maturity securities available for sale

Fixed maturity securities available

$ 357,570,527

7 unchanged sentences

Derivatives - loan commitments (3)

Total assets accounted for at fair value on a recurring basis

accounted for at fair value on a recurring basis

$ 560,327,000

1 unchanged sentence

$ 181,011,871

Liabilities accounted for at fair value on a recurring basis

Liabilities accounted for at fair value

on a recurring basis

Derivatives - call options (4)

3 unchanged sentences

( 3,176,119 )

Total liabilities accounted for at fair value on a recurring basis

Total liabilities

accounted for at fair value on a recurring basis

$ ( 3,176,119 )

(1) Fixed maturity

securities available for sale

(2) Equity securities

(3) Included in other

assets on the consolidated balance sheets

(4) Included in other

liabilities and accrued expenses on the consolidated balance sheets

Fixed maturity securities

available for sale

in other assets on the consolidated balance sheets

Included in other liabilities

and accrued expenses on the consolidated balance sheets

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

4 unchanged sentences

their classification in the condensed consolidated balance sheet at December 31, 2022.

Quoted Prices in Active Markets for Identical Assets

Significant Observable Inputs

Significant Unobservable Inputs

Assets accounted for at fair value on a recurring basis

Fixed maturity securities available for sale

Prices in Active Markets for Identical Assets

Observable Inputs

Unobservable Inputs

Assets accounted for at fair value on a

recurring basis

Fixed maturity securities available

$ 345,858,492

4 unchanged sentences

Restricted assets (1)

Restricted assets (2)

Cemetery perpetual care trust investments (1)

Cemetery perpetual care trust investments (2)

Derivatives - loan commitments (3)

Total assets accounted for at fair value on a recurring basis

Derivatives - loan commitments (3)

Total assets accounted

for at fair value on a recurring basis

$ 513,235,939

1 unchanged sentence

$ 146,704,995

Liabilities accounted for at fair value on a recurring basis

Liabilities accounted for at fair value

on a recurring basis

Derivatives - call options (4)

3 unchanged sentences

( 1,382,979 )

Total liabilities accounted for at fair value on a recurring basis

Derivatives - call options (4)

Derivatives - put options (4)

Derivatives - loan commitments (4)

( 1,382,979 )

(1) Fixed maturity

securities available for sale

Total liabilities

accounted for at fair value on a recurring basis

$ ( 1,426,582 )

$ ( 1,382,979 )

Fixed maturity securities

available for sale

Equity securities

(3) Included in other

assets on the consolidated balance sheets

(4) Included in other

liabilities and accrued expenses on the consolidated balance sheets

Included in other assets

on the consolidated balance sheets

Included in other liabilities

and accrued expenses on the consolidated balance sheets

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

2 unchanged sentences

Fair Value of Financial Instruments (Continued)

Level 3 assets and liabilities measured at fair value on a recurring basis as of September 30, 2022, the significant unobservable inputs

Level 3 assets and liabilities measured at fair value on a recurring basis as of March 31, 2023, the significant unobservable inputs

used in the fair value measurements were as follows:

and Liabilities Measured at Fair Value on A Recurring Basis

held for sale

Assets and Liabilities Measured at Fair Value on A Recurring Basis

Fair Value at

Loans held for sale

$ 173,015,404

contract pricing as a percentage of unpaid principal balance

- loan commitments (net)

Market approach

Investor contract pricing as a percentage

of unpaid principal balance

Derivatives - loan commitments (net)

Market approach

Pull-through rate

Initial-Value

maturity securities available for sale

Fixed maturity securities available for sale

Broker quotes

Pricing quotes

Level 3 assets and liabilities measured at fair value on a recurring basis as of December 31, 2022, the significant unobservable inputs

used in the fair value measurements were as follows:

Range of Inputs

Fair Value at

1 unchanged sentence

$ 141,179,620

contract pricing as a percentage of unpaid principal balance

Market approach

Investor contract pricing as a percentage

of unpaid principal balance

Derivatives - loan commitments (net)

Market approach

Pull-through rate

Initial-Value

Fixed maturity securities available for sale

Broker quotes

Pricing quotes

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

1 unchanged sentence

31, 2023 (Unaudited)

Fair Value of Financial Instruments (Continued)

following table is a summary of changes in the condensed consolidated balance sheet line items measured using level 3 inputs for the

nine months ending September 30, 2022:

of Changes in the Consolidated Balance Sheet Line Items Measured Using Level 3 Inputs

Fixed Maturity

Available for

Balance - December 31, 2021

$ 302,776,827

Originations and purchases

2,837,349,328

Sales, maturities and paydowns

( 2,987,906,269 )

Transfer to mortgage loans held for investment

( 49,428,757 )

Total gains (losses):

Included in earnings (loss)

( 2,843,155 )(1)

59,190,794 (1)

Included in other comprehensive income (loss)

Balance - September 30, 2022

$ 161,981,923

(1) As a component

of Mortgage fee income on the condensed consolidated statements of earnings

(2) As a component

of Net investment income on the condensed consolidated statements of earnings

Value of Financial Instruments (Continued)

following table is a summary of changes in the condensed consolidated balance sheet line items measured using level 3 inputs for the

nine months ending September 30, 2021:

Fixed Maturity

Available for

three month periods ended March 31, 2023:

of Changes in the Condensed Consolidated Balance Sheet Line Items Measured Using Level 3 Inputs

Net Loan Commitments

Loans Held for Sale

Fixed Maturity Securities Available for Sale

Balance - December 31, 2022

1 unchanged sentence

Originations and purchases

4,243,072,600

Sales, maturities and paydowns

( 511,909,942 )

Transfer to mortgage loans held for investment

Total gains (losses):

1 unchanged sentence

11,877,930 (1)

131,183,580 (1)

Included in other comprehensive income

Balance - September 30, 2021

$ 312,655,843

(1) As a component

of Mortgage fee income on the condensed consolidated statements of earnings

(2) As a component

of Net investment income on the condensed consolidated statements of earnings

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

30, 2022 (Unaudited)

Fair Value of Financial Instruments (Continued)

following table is a summary of changes in the condensed consolidated balance sheet line items measured using level 3 inputs for the

three months ending September 30, 2022:

Fixed Maturity

Available for

Balance - June 30, 2022

$ 209,860,409

Originations and purchases

Sales, maturities and paydowns

( 800,430,402 )

Transfer to mortgage loans held for investment

( 49,428,757 )

Total gains (losses):

Included in earnings

( 3,271,282 )(1)

14,590,805 (1)

Included in other comprehensive income

Balance - September 30, 2022

Balance - March 31, 2023

$ 173,015,404

(1) As a component

of Mortgage fee income on the condensed consolidated statements of earnings

(2) As a component

of Net investment income on the condensed consolidated statements of earnings

As a component of Mortgage fee income on the condensed consolidated

statements of earnings

As a component of Net investment income on the condensed consolidated

statements of earnings

following table is a summary of changes in the condensed consolidated balance sheet line items measured using level 3 inputs for the

three months ending September 30, 2021:

Fixed Maturity

Available for

Balance - June 30, 2021

three month periods ended March 31, 2022:

Net Loan Commitments

Loans Held for Sale

Fixed Maturity Securities Available for Sale

Balance - December 31, 2021

$ 302,776,827

8 unchanged sentences

Included in other comprehensive income

Balance - September 30, 2021

Balance - March 31, 2022

$ 234,012,872

(1) As a component

of Mortgage fee income on the condensed consolidated statements of earnings

(2) As a component

of Net investment income on the condensed consolidated statements of earnings

As a component of Mortgage fee income on the condensed consolidated

statements of earnings

As a component of Net investment income on the condensed consolidated

statements of earnings

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

1 unchanged sentence

31, 2023 (Unaudited)

Fair Value of Financial Instruments (Continued)

following table summarizes Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a nonrecurring basis

by their classification in the condensed consolidated balance sheet at September 30, 2022.

of Fair Value Assets Measured on a Nonrecurring Basis

Quoted Prices in Active

Markets for Identical Assets

Significant Observable

Significant Unobservable

Assets accounted for at fair value on a nonrecurring basis

Impaired mortgage loans held for investment

Total assets accounted for at fair value on a nonrecurring

Value of Financial Instruments (Continued)

Company didn’t have any financial assets and financial liabilities measured at fair value on a nonrecurring basis at March 31,

following table summarizes Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a nonrecurring basis

by their classification in the condensed consolidated balance sheet at December 31, 2022.

Quoted Prices in Active

Markets for Identical Assets

Significant Observable

Significant Unobservable

Schedule of Fair Value Assets Measured on a Nonrecurring Basis

Quoted Prices in Active Markets for Identical Assets

Significant Observable Inputs

Significant Unobservable Inputs

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

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

30, 2022 (Unaudited)

Fair Value of Financial Instruments (Continued)

Total assets accounted for at fair value on a nonrecurring basis

Value of Financial Instruments Carried at Other Than Fair Value

5 unchanged sentences

Therefore, for substantially all financial instruments, the fair value estimates presented herein are not

necessarily indicative of the amounts the Company could have realized in a sales transaction at September 30, 2022 and December 31, 2021.

necessarily indicative of the amounts the Company could have realized in a sales transaction at March 31, 2023 and December 31, 2022.

carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy,

are summarized as follows as of September 30, 2022:

of Financial Instruments Carried at Other Than Fair Value

are summarized as follows as of March 31, 2023:

Schedule of Financial Instruments Carried at Other Than Fair Value

Carrying Value

22 unchanged sentences

( 128,238,451 )

(1) Included in other

investments and policy loans on the condensed consolidated balance sheets

(2) Mortgage loans

held for investment

(3) Included in future

policy benefits and unpaid claims on the condensed consolidated balance sheets

(4) Refer to Note 15

of the Notes to Condensed Consolidated Financial Statements

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

Mortgage loans held for investment

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

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

1 unchanged sentence

31, 2023 (Unaudited)

Fair Value of Financial Instruments (Continued)

Value of Financial Instruments (Continued)

carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy,

24 unchanged sentences

( 126,078,031 )

(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

Included in other investments and policy loans on the consolidated

balance sheets

Mortgage loans held for investment

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 these financial instruments are

22 unchanged sentences

31, 2023 (Unaudited)

Fair Value of Financial Instruments (Continued)

Value of Financial Instruments (Continued)

and Other Loans Payable :

14 unchanged sentences

to changing interest rates is minimized through the matching of investment maturities with amounts due under insurance contracts.

Allowance for Doubtful Accounts

Company records an allowance and recognizes an expense for potential losses from other investments and receivables in accordance with

generally accepted accounting principles.

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

Derivative Instruments

9) Derivative

Banking Derivatives

18 unchanged sentences

the most current data.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

30, 2022 (Unaudited)

Derivative Instruments (Continued)

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

6 unchanged sentences

mortgage loans that will fund within the terms of the commitments.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Derivative Instruments (Continued)

Sale Commitments

8 unchanged sentences

and Put Options 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.

Company discontinued its use of selling “out of the money” call options on its equity securities and the use of selling put

options as a source of revenue in the first quarter of 2023.

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

2 unchanged sentences

of Derivative Assets at Fair Value

September 30, 2022

March 31, 2023

December 31, 2022

8 unchanged sentences

Loan commitments

assets and Other liabilities

Other assets and Other liabilities

$ 441,138,434

$ 453,371,808

Other liabilities

$ 441,138,434

$ 454,894,908

following table presents the gains 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 testing.

Schedule of Gains and Losses on Derivatives

Net Amount Gain (Loss)

Three Months Ended March 31

Classification

Loan commitments

Mortgage fee income

Call and put options

Gains on investments and other assets

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

1 unchanged sentence

31, 2023 (Unaudited)

Derivative Instruments (Continued)

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

of Gains and Losses on Derivatives

Amount Gain (Loss)

Months Ended September 30

Classification

$ ( 3,271,282 )

$ ( 380,696 )

$ ( 2,843,155 )

$ ( 549,093 )

and put options

on investments and other assets

Reinsurance, Commitments and Contingencies

10) Reinsurance,

Commitments and Contingencies

Company follows the procedure of reinsuring risks in excess of a specified limit, which ranges from $ 25,000 to $ 100,000 .

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.

The Company evaluates the financial

condition of reinsurers and monitors the concentration of credit risk.

The Company has also assumed insurance from other companies.

Loan Loss Settlements

15 unchanged sentences

The agreement charges

interest at the 1-Month LIBOR rate plus 2% and matures on November 9, 2022 .

interest at the 1-Month SOFR rate plus 2% and matures on November 9, 2023 .

The Company is required to comply with covenants for adjusted

9 unchanged sentences

rights) of at least $ 1.00 on a rolling twelve months.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

30, 2022 (Unaudited)

Reinsurance, Commitments and Contingencies (Continued)

Company through its subsidiary SecurityNational Mortgage, has a line of credit with U.S Bank.

6 unchanged sentences

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 September 30, 2022, SecurityNational Mortgage was not in compliance, but received waivers

or amendments from the warehouse banks.

In the unlikely event the Company is required to repay the warehouse lines, the Company has sufficient

cash and borrowing capacity to do so and to continue to fund its origination activities through other internal funding sources.

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 March 31, 2023, the Company was not in compliance with the net income covenant

on its warehouse line with U.S.

Bank and has received or is in the process of receiving waivers from the warehouse banks.

unlikely event the Company is required to repay the outstanding advances of approximately $ 8,900,000

on the Texas Capital Bank N.A.

warehouse line that has not provided a covenant waiver, the Company has sufficient cash and borrowing

capacity on the warehouse lines that have provided covenant waivers to fund its origination activities.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

10) Reinsurance,

Commitments and Contingencies

Contingencies and Commitments

1 unchanged sentence

and development.

As of September 30, 2022, the Company’s commitments were approximately $ 302,567,000 for these loans, of which

As of March 31, 2023, the Company’s commitments were approximately $ 192,542,000 for these loans, of which $ 151,740,182

had been funded.

The Company will advance 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 5.25 % 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 5.25 % to 8.50 % per annum.

Maturities range between six and eighteen months.

22 unchanged sentences

31, 2023 (Unaudited)

Mortgage Servicing Rights

Servicing Rights

Company initially records these MSRs at fair value as discussed in Note 8.

Also, refer to Note 15 regarding a subsequent event for the

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

13 unchanged sentences

of Mortgage Servicing Rights

As of March 31

As of December 31

Amortized cost:

4 unchanged sentences

( 51,185,906 )

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

Application of valuation allowance to write down MSRs with

other than temporary impairment

Balance before valuation allowance at end of period

1 unchanged sentence

Balance at beginning of year

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

Application of valuation allowance to write down MSRs with

other than temporary impairment

Balance at end of period

1 unchanged sentence

Estimated fair value of MSRs at end of period

(1) Included in mortgage

fee income on the condensed consolidated statements of earnings

(2) Included in other

expenses on the condensed consolidated statements of earnings

Included in mortgage fee income on the condensed consolidated

statements of earnings

Included in other expenses on the condensed consolidated statements

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

1 unchanged sentence

31, 2023 (Unaudited)

12) Mortgage Servicing Rights

Servicing Rights

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 September 30, 2022 valuation of MSRs.

was developed using the assumptions made by management in its March 31, 2023 valuation of MSRs.

The assumptions underlying the following

3 unchanged sentences

of Finite-Lived Intangible Assets, Future Amortization Expense, Mortgage Servicing Rights

Estimated MSR

Estimated MSR Amortization

Company collected the following contractual servicing fee income and late fee income as reported in other revenues on the condensed consolidated

1 unchanged sentence

of Other Revenues

servicing fees

Three Months Ended

Contractual servicing fees

following is a summary of the unpaid principal balances (“UPB”) of the servicing portfolio.

of Unpaid Principal Balances of the Servicing Portfolio

September 30 2022

December 31 2021

As of March 31

As of December 31

Servicing UPB

3 unchanged sentences

of Assumptions Used in Determining MSR Value

September 30, 2022

March 31, 2023

December 31, 2022

October 31, 2022, the Company sold certain of its MSRs.

The MSRs related to mortgage loans previously originated by the Company in aggregate

unpaid principal amount of approximately $ 7.02 billion.

As a result of the sale, the book value of the Company’s MSRs decreased

$ 51,185,906 and generated a gain of $ 34,051,938 included in mortgage fee income on the consolidated statements of earnings.

Substantially

all of the consideration was received by the Company with the remainder subject to certain holdbacks during transfer of the MSRs.

Company completed the physical transfer of files prior to its deadline.

The Company received half of the holdbacks in the first quarter

of 2023 and anticipates the release of the remaining holdbacks in the second quarter of 2023.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

1 unchanged sentence

31, 2023 (Unaudited)

Company’s overall effective tax rate for the three months ended September 30, 2022 and 2021 was 28.7 % and 23.7 % , respectively,

Company’s overall effective tax rate for the three month periods ended March 31, 2023 and 2022 was 21.8 % and 27.3 %, respectively,

which resulted in a provision for income taxes of $ 344,716 and $ 1,214,798 , respectively.

The Company’s overall effective tax

rate for the nine months ended September 30, 2022 and 2021 was 24.2 % and 24.3 % , respectively, which resulted in a provision for income

taxes of $ 1,421,036 and $ 10,998,876 , respectively.

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

federal statutory rate

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

The decrease in the effective tax rate when compared to the prior year

is partially due to the Company’s provision for state income taxes.

The Company’s effective tax rates differ

from the U.S.

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

The decrease in the effective tax

rate when compared to the prior year is partially due to the Company’s provision for state income taxes.

income taxes are based on an estimated annualized effective tax rate applied to the respective quarterly periods, adjusted for discrete

11 unchanged sentences

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.

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

21 unchanged sentences

31, 2023 (Unaudited)

14) Revenues from Contracts

with Customers (Continued)

13) Revenues from Contracts with Customers (Continued)

opening and closing balances of the Company’s receivables, contract assets and contract liabilities are as follows:

of Opening and Closing Balances of Receivables, Contract Assets and Contract Liabilities

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 condensed consolidated balance sheets

amount of revenue recognized and included in the opening contract liability balance for the three months ended September 30, 2022 and

2021 was $ 1,034,035 and $ 1,143,745 , respectively, and for the nine months ended September 30, 2022 and 2021 was $ 3,624,463 and $ 3,588,682 ,

respectively.

Included in Receivables, net on the condensed consolidated

balance sheets

amount of revenue recognized and included in the opening contract liability balance for the three month periods ended March 31, 2023

and 2022 was $ 1,119,898 and $ 1,064,104 , respectively.

difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results

3 unchanged sentences

of Revenues of the Cemetery and Mortuary Contracts

goods/service lines

Three Months Ended

Major goods/service lines

Net mortuary and cemetery

of Revenue Recognition

transferred at a point in time

Timing of Revenue Recognition

Goods transferred at a point in time

Services transferred at a point in time

Net mortuary and cemetery

6 unchanged sentences

of Reconciliation of Revenues from Cemetery and Mortuary Contracts to Business Segment Information

mortuary and cemetery sales

(losses) on investments and other assets

Three Months Ended

Net mortuary and cemetery sales

Gains (losses) on investments and other assets

Net investment income

Other revenues

Revenues from external customers

consist of the following:

Schedule of Receivables

As of March 31, 2023

As of December 31, 2022

Contracts with customers

Receivables from sales agents

Total receivables

Allowance for doubtful accounts

( 1,867,124 )

investment income

from external customers

Subsequent Events

31, 2022, the Company, through its wholly owned subsidiary, SecurityNational Mortgage Company (“SecurityNational Mortgage”)

sold certain of its mortgage loan servicing rights (“MSRs”) to PNC Bank, NA for aggregate gross consideration of approximately

$ 89.7 million.

The MSRs related to mortgage loans previously originated by SecurityNational Mortgage in aggregate unpaid principal amount

of approximately $ 7.05 billion.

Substantially all of the consideration has been received by SecurityNational Mortgage, with the remainder

subject to certain holdbacks during transfer of the MSRs.

( 2,229,791 )

Net receivables

Company records an allowance for credit losses for its receivables in accordance with GAAP.

See Note 2 regarding the adoption of ASU

following table presents a roll forward of the allowance for credit losses.

of Allowance Credit Losses

Beginning balance - January 1, 2023

Change in provision for credit losses

( 318,664 )(1)

Ending balance - March 31, 2023

Beginning balance - January 1, 2022

Change in provision for credit losses

Ending balance - December 31, 2022

Included in other expenses on the condensed consolidated statements

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Cemetery Perpetual Care Trust Investments and Obligation and Restricted Assets (Continued)

Perpetual Care Trust Investments and Obligation

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 as of March 31, 2023, are as follows:

of Investments

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Allowance for Credit Losses

Estimated Fair Value

March 31, 2023:

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

Treasury securities and obligations of U.S.

Government agencies

Obligations of states and political subdivisions

Total fixed maturity securities available for sale

Equity securities at estimated fair value:

Common stock:

Industrial, miscellaneous and all other

$ ( 162,096 )

Total equity securities at estimated fair value

$ ( 162,096 )

Mortgage loans held for investment at amortized cost:

Residential construction

Allowance for credit losses

Total mortgage loans held for investment

Real estate held for investment:

Cash and cash equivalents

Total cemetery perpetual care trust investments

Cemetery perpetual care obligation

$ ( 5,143,233 )

Trust investments in excess of trust obligations

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Cemetery Perpetual Care Trust Investments and Obligation and Restricted Assets (Continued)

components of the cemetery perpetual care investments and obligation as of December 31, 2022, are as follows:

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

December 31, 2022:

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

Treasury securities and obligations of U.S.

Government agencies

Obligations of states and political subdivisions

Total fixed maturity securities available for sale

Equity securities at estimated fair value:

Common stock:

Industrial, miscellaneous and all other

$ ( 175,163 )

Total equity securities at estimated fair value

$ ( 175,163 )

Mortgage loans held for investment at amortized cost:

Residential construction

Real estate held for investment:

Cash and cash equivalents

Total cemetery perpetual care trust investments

Cemetery perpetual care obligation

$ ( 5,099,542 )

Trust investments in excess of trust obligations

Maturity Securities

following tables summarize unrealized losses on fixed maturities securities that were carried at estimated fair value at March 31, 2023

and at December 31, 2022.

The unrealized losses were primarily related to interest rate fluctuations and inflation.

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

Unrealized Losses for More than Twelve Months

Total Unrealized Loss

At March 31, 2023

Obligations of states and political subdivisions

Total unrealized losses

At December 31, 2022

Treasury securities and obligations of U.S.

Government agencies

Obligations of states and political subdivisions

Total unrealized losses

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Cemetery Perpetual Care Trust Investments and Obligation and Restricted Assets (Continued)

were 3 securities with fair value of 96.6 % of aggregate amortized cost at March 31, 2023.

There were 5 securities with fair value of

96.4 % of aggregate amortized cost at December 31, 2022.

No credit losses have been recognized for the three month periods ended March

31, 2023 and 2022, since the increase in unrealized losses is primarily a result of the recent rise in interest rates and inflation.

following table presents the amortized cost and estimated fair value of fixed maturity securities available for sale at March 31, 2023,

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.

Schedule of Investments Classified by Contractual

Maturity Date

Estimated Fair

Due in 1 year

Due in 2-5 years

Due in 5-10 years

Due in more than 10 years

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.

assets as of March 31, 2023, are summarized as follows:

Schedule of Restricted Assets in Cemetery and Mortuary Endowment Care and Pre need Merchandise Funds

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Allowance for Credit Losses

Estimated Fair Value

March 31, 2023:

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

Obligations of states and political subdivisions

Corporate securities including public utilities

Total fixed maturity securities available for sale

Equity securities at estimated fair value:

Common stock:

Industrial, miscellaneous and all other

$ ( 272,945 )

Total equity securities at estimated fair value

$ ( 272,945 )

Mortgage loans held for investment at amortized cost:

Residential construction

Allowance for credit losses

Total mortgage loans held for investment

Cash and cash equivalents (1)

Total restricted assets

Including cash and cash equivalents of $ 8,232,615 for the life

insurance and mortgage segments.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Cemetery Perpetual Care Trust Investments and Obligation and Restricted Assets (Continued)

assets as of December 31, 2022, are summarized as follows:

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

December 31, 2022:

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

Obligations of states and political subdivisions

Corporate securities including public utilities

Total fixed maturity securities available for sale

Equity securities at estimated fair value:

Common stock:

Industrial, miscellaneous and all other

$ ( 310,165 )

Total equity securities at estimated fair value

$ ( 310,165 )

Mortgage loans held for investment at amortized cost:

Residential construction

Cash and cash equivalents (1)

Total restricted assets

Including cash and cash equivalents of $ 8,527,620 for the life

insurance and mortgage segments.

Maturity Securities

following tables summarize unrealized losses on fixed maturities securities that were carried at estimated fair value at March 31, 2023

and at December 31, 2022.

The unrealized losses were primarily related to interest rate fluctuations and inflation.

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

Unrealized Losses for More than Twelve Months

Total Unrealized Loss

At March 31, 2023

Obligations of states and political subdivisions

Corporate securities including public utilities

Total unrealized losses

At December 31, 2022

Obligations of states and political subdivisions

Corporate securities including public utilities

Total unrealized losses

were 17 securities with fair value of 98.7 % of aggregate amortized cost at March 31, 2023.

There were 17 securities with fair value of

98.2 % of aggregate amortized cost at December 31, 2022.

No credit losses have been recognized for the three month periods ended March

31, 2023 and 2022, since the increase in unrealized losses is primarily a result of the recent rise in interest rates and inflation.

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

Cemetery Perpetual Care Trust Investments and Obligation and Restricted Assets (Continued)

following table presents the amortized cost and estimated fair value of fixed maturity securities available for sale at March 31, 2023,

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.

Schedule of Investments Classified by Contractual

Maturity Date

Estimated Fair

Due in 1 year

Due in 2-5 years

Due in 5-10 years

Due in more than 10 years

Notes 3 and 8 for additional information regarding restricted assets and cemetery perpetual care trust investments.

Accumulated Other Comprehensive Income (loss)

following summarizes the changes in accumulated other comprehensive income (loss):

Schedule of Changes in Accumulated Other Comprehensive Income

Three Months Ended March 31

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

$ ( 15,372,096 )

Amounts reclassified into net earnings

Net unrealized gains (losses) before taxes

( 15,326,903 )

Tax (expense) benefit

( 1,095,787 )

( 12,108,255 )

Unrealized gains (losses) on restricted assets (1)

Tax (expense) benefit

Unrealized gains (losses) on cemetery perpetual care trust investments (1)

Tax (expense) benefit

Other comprehensive income (loss) changes

$ ( 12,190,330 )

Fixed maturity securities available for sale

NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

to Condensed Consolidated Financial Statements

31, 2023 (Unaudited)

16) Accumulated Other Comprehensive Income (loss) (Continued)

following is the accumulated balances of other comprehensive income (loss) as of March 31, 2023:

Schedule of Accumulated Balances of Other Comprehensive Income

Beginning Balance December 31, 2022

Change for the period

Ending Balance March 31,

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

$ ( 13,050,767 )

$ ( 8,928,525 )

Unrealized gains (losses) on restricted assets (1)

Unrealized gains (losses) on cemetery perpetual care trust investments (1)

Other comprehensive income (loss)

$ ( 13,070,277 )

$ ( 8,942,719 )

Fixed maturity securities available for sale

following is the accumulated balances of other comprehensive income (loss) as of December 31, 2022:

Beginning Balance December 31, 2021

Change for the period

Ending Balance December 31,

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

$ ( 31,072,032 )

$ ( 13,050,767 )

Unrealized gains (losses) on restricted assets (1)

Unrealized gains (losses) on cemetery perpetual care trust investments (1)

Other comprehensive income (loss)

$ ( 31,140,725 )

$ ( 13,070,277 )

Fixed maturity securities available for sale

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

What changed 10-Q

Item 1. Financial Statements