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Item 8. Financial Statements and Supplementary Data

2024-03-29 compared with 2023-03-31 · 1576 added, 1325 removed, 2119 unchanged (58% of the section changed)

12 unchanged sentences

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

as of December 31, 2022 and 2021, the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and

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

to as the “financial statements”).

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

financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of

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

as of December 31, 2023 and 2022, the related consolidated statements of earnings, comprehensive income, stockholders’ equity,

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

referred to as the “financial statements”).

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

the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each

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

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

27 unchanged sentences

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

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

to Notes 1 and 22 to the financial statements

Policy Benefits for Life Insurance Contracts and Amortization of Deferred Policy Acquisition Costs for Insurance Contracts and Value

of Business Acquired - Refer to Notes 1 and 21 to the financial statements

Audit Matter Description

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

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

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

Assumptions are determined based

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

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

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

made in the future (future policy benefits for life insurance contracts), (2) determining amortization of deferred policy acquisition costs for

insurance contracts and value of business acquired and (3) performing premium deficiency tests.

The most significant assumptions

include mortality, lapse, and projected investment yield.

Assumptions are determined based upon analysis of Company specific

experience, industry standards, adjusted for changes in exposure and other relevant factors.

Given the inherent uncertainty of these

significant assumptions, auditing the development of such assumptions involved especially subjective judgment.

the Critical Audit Matter Was Addressed in the Audit

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

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

among others:

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

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

audit procedures related to management’s judgments regarding the mortality, lapse and projected investment yield assumptions

used in the development of future policy benefits for life insurance contracts and the amortization of deferred policy acquisition

costs for insurance contracts and value of business acquired, included the following, among others:

With the assistance of our actuarial specialists, we:

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

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

deferred policy acquisition costs and value of business acquired,

these actuarial assumptions, including testing the accuracy and completeness of the supporting experience studies,

management’s judgments regarding these assumptions used in the development of future policy benefits for life insurance

contracts and the amortization of deferred policy acquisition costs and value of business acquired,

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

4 unchanged sentences

BALANCE SHEETS

maturity securities, available for sale, at estimated fair value

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

(amortized cost of $ 390,884,441 and $ 362,750,511 for 2023 and 2022,

respectively;

net of allowance for credit losses of $ 314,549 and nil for

2023 and 2022, respectively)

$ 381,535,986

$ 345,858,492

securities at estimated fair value (cost of $ 9,942,265 and

$ 8,275,772 for 2022 and 2021)

loans held for investment (net of allowances for loan losses

of $ 1,970,311 and $ 1,699,902 for 2022 and 2021)

estate held for investment (net of accumulated depreciation

of $ 23,793,204 and $ 17,692,038 for 2022 and 2021)

estate held for sale

investments and policy loans (net of allowances for doubtful

accounts of $ 1,609,951 and $ 1,686,218 for 2022 and 2021)

investment income

and cash equivalents

held for sale at estimated fair value

(net of allowances for doubtful accounts of $ 2,229,791 and

$ 1,800,725 for 2022 and 2021)

assets (including $ 6,565,552 and $ 5,205,510 for 2022 and 2021

at estimated fair value)

perpetual care trust investments (including $ 3,859,893 and $ 4,087,245 for 2022 and 2021 at estimated fair value)

from reinsurers

land and improvements

policy and pre-need contract acquisition costs

servicing rights, net

and equipment, net

Value of business

Equity securities at estimated fair value (cost of $ 10,571,505 and

$ 9,942,265 for 2023 and 2022, respectively)

Mortgage loans held for investment (net of allowance for credit losses

of $ 3,818,653 and $ 1,970,311 for 2023 and 2022, respectively)

Real estate held for investment (net of accumulated depreciation

of $ 29,307,791 and $ 23,793,204 for 2023 and 2022, respectively)

Real estate held for sale

Other investments and policy loans (net of allowances for credit losses

of $ 1,553,836 and $ 1,609,951 for 2023 and 2022, respectively)

Accrued investment income

Total investments

Cash and cash equivalents

Loans held for sale at estimated fair value

Receivables (net of allowance for credit losses of $ 1,897,887 and

$ 2,229,791 for 2023 and 2022, respectively)

Restricted assets (including $ 9,239,063 and $ 6,565,552 for 2023 and

2022, respectively, at estimated fair value)

Cemetery perpetual care trust investments (including $ 4,969,005 and $ 3,859,893 for 2023 and 2022 at estimated fair value)

Receivable from reinsurers

Cemetery land and improvements

Deferred policy and pre-need contract acquisition costs

Mortgage servicing rights, net

Property and equipment, net

Value of business acquired

$ 1,430,552,275

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BALANCE SHEETS (Continued)

and Stockholders’ Equity

policy benefits and unpaid claims

Liabilities and Stockholders’ Equity

Future policy benefits and unpaid claims

$ 916,038,616

$ 889,327,303

premium reserve

and other loans payable

pre-need cemetery and mortuary contract revenues

perpetual care obligation

liabilities and accrued expenses

Unearned premium reserve

Bank and other loans payable

Deferred pre-need cemetery and mortuary contract revenues

Cemetery perpetual care obligation

Accounts payable

Other liabilities and accrued expenses

Total liabilities

1,117,657,056

1,168,325,965

Stockholders’

stock - non-voting-$ 1.00 par value;

Stockholders’ Equity

Preferred Stock:

Preferred stock - non-voting-$ 1.00 par value;

5,000,000 shares authorized;

none issued or outstanding

Common Stock:

common stock - $ 2.00 par value;

40,000,000 shares authorized;

issued 18,758,031 shares in 2022 and 17,642,722 shares in 2021

20,048,002 shares issued and outstanding as of December 31, 2023 and

18,758,031 shares issued and outstanding as of December 31, 2022

non-voting common stock - $ 1.00 par value;

3 unchanged sentences

6,000,000 shares

issued 2,889,859 shares in 2022 and 2,866,565 shares

2,971,854 shares issued and outstanding as

of December 31, 2023 and 2,889,859 shares issued and outstanding as of December 31, 2022

Common stock value

paid-in capital

other comprehensive income (loss), net of taxes

Additional paid-in capital

Accumulated other comprehensive loss, net of taxes

( 6,885,558 )

stock, at cost - 525,870 Class A shares and 109,193 Class C shares

34,016 Class A shares and 109,193 Class C shares

( 13,070,277 )

Retained earnings

Treasury stock, at cost - 806,311 Class A shares and 35,717 Class C shares

as of December 31, 2023;

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

shares as of December 31, 2022

( 5,661,737 )

stockholders’ equity

Liabilities and Stockholders’ Equity

( 4,366,651 )

Total stockholders’ equity

Total Liabilities and Stockholders’ Equity

$ 1,430,552,275

$ 1,461,112,892

accompanying notes to consolidated financial statements.

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Ended December 31,

$ 173,499,681

Mortgage fee income

$ 173,499,681

premiums and other considerations

investment income

mortuary and cemetery sales

(losses) on investments and other assets

than temporary impairments on investments

and expenses:

and other policy benefits

in future policy benefits

of deferred policy and pre-need acquisition

costs and value of business acquired

general and administrative expenses:

and rent related

on property and equipment

related to funding mortgage loans

of goods and services sold – cemeteries and mortuaries

Insurance premiums and other considerations

Net investment income

Net mortuary and cemetery sales

Gains (losses) on investments and other

Total revenues

Benefits and expenses:

before income taxes

Death benefits

Surrenders and other policy benefits

Increase in future policy benefits

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

Interest expense

Cost of goods and services

sold – cemeteries and mortuaries

Total benefits and

Earnings before income

Income tax expense

( 1,805,354 )

2 unchanged sentences

earnings per Class A equivalent common share -

average Class A equivalent common shares

assuming dilution (1)

Weighted average Class A equivalent common

outstanding (1)

average Class A equivalent common shares

Weighted average Class A equivalent common

outstanding-assuming dilution (1)

8 unchanged sentences

Ended December 31,

comprehensive income:

losses on fixed maturity securities available for sale

( 39,331,688 )

( 6,517,731 )

losses on restricted assets

losses on cemetery perpetual care trust investments

currency translation adjustments

comprehensive loss, before income tax

Other comprehensive income:

Unrealized gains (losses)

on fixed maturity securities available for sale

( 39,331,688 )

Unrealized gains (losses)

on restricted assets

gains (losses) on cemetery perpetual care trust investments

Other comprehensive income

(loss), before income tax

( 39,423,169 )

comprehensive loss, net of income tax

tax benefit (expense)

( 1,643,697 )

comprehensive income (loss), net of income tax

( 31,140,725 )

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Other Comprehensive Income (Loss)

at December 31, 2020

Balance at December 31, 2021

$ 184,537,489

1 unchanged sentence

$ 299,766,834

comprehensive loss

Other comprehensive loss

( 31,140,725 )

based compensation expense

Exercise of stock

of treasury stock

Stock based compensation expense

Exercise of stock options

Sale of treasury stock

Purchase of treasury stock

( 7,770,081 )

( 7,663,905 )

Stock dividends

( 8,067,485 )

Class C to Class A

at December 31, 2021

Conversion Class C to

Balance at December 31, 2022

( 13,070,277 )

comprehensive loss

( 4,366,651 )

Balance, value

( 13,070,277 )

based compensation expense

Exercise of stock

of treasury stock

( 4,366,651 )

Other comprehensive income

Stock based compensation expense

Exercise of stock options

Vesting of restricted stock units

Sale of treasury stock

Purchase of treasury stock

( 3,429,603 )

( 2,846,447 )

Class C to Class A

at December 31, 2022

Stock dividends

( 9,005,485 )

Conversion Class C to

Balance at December

$ ( 6,885,558 )

1 unchanged sentence

$ ( 5,661,737 )

$ 312,895,219

Balance, value

$ ( 6,885,558 )

$ 206,978,373

$ ( 5,661,737 )

$ 312,895,219

accompanying notes to consolidated financial statements.

2 unchanged sentences

Ended December 31,

flows from operating activities:

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

(gains) on investments and other assets

Cash flows from operating

Adjustments to reconcile

net earnings to net cash used in operating activities:

Losses (gains) on investments

and other assets

( 1,837,342 )

than temporary impairments on investments

for loan losses and doubtful accounts

amortization of deferred fees and costs, premiums and discounts

Provision for credit losses

Net amortization of deferred

fees and costs, premiums and discounts

( 2,140,548 )

( 1,018,200 )

for deferred income taxes

Provision for deferred

( 2,495,489 )

and pre-need acquisition costs deferred

( 9,954,005 )

Policy and pre-need acquisition

costs deferred

( 24,432,809 )

and pre-need acquisition costs amortized

of business acquired amortized

servicing rights, additions

( 20,233,669 )

Policy and pre-need acquisition

costs amortized

Value of business acquired amortized

Mortgage servicing rights,

( 1,009,312 )

of mortgage servicing rights

gains on the sale of mortgage servicing rights

( 10,243,922 )

based compensation expense

plans funded with treasury stock

change in fair value of loans held for sale

Amortization of mortgage

servicing rights

Net gains on the sale of

mortgage servicing rights

( 34,051,938 )

Stock based compensation

Benefit plans funded with

treasury stock

Net change in fair value

of loans held for sale

Originations of loans held

( 2,173,080,584 )

( 3,373,554,484 )

from sales of loans held for sale

Proceeds from sales of

loans held for sale

2,224,454,040

3,549,405,402

gains on sales of loans held for sale

Net gains on sales of loans

held for sale

( 40,239,112 )

( 74,779,721 )

in assets and liabilities:

and improvements held for sale

policy benefits and unpaid claims

Change in assets and liabilities:

Land and improvements held

Future policy benefits

and unpaid claims

operating assets and liabilities

1 unchanged sentence

cash provided by operating activities

flows from investing activities:

of fixed maturity securities

Cash flows from investing

Purchases of fixed maturity

( 70,315,501 )

( 151,581,252 )

calls and maturities of fixed maturity securities

of equity securities

Sales, calls and maturities

of fixed maturity securities

Purchase of equity securities

( 6,993,289 )

( 4,193,460 )

of equity securities

changes in restricted assets

changes in cemetery perpetual care trust investments

loans held for investment, other investments and policy loans made

Sales of equity securities

Purchases of restricted

( 3,065,758 )

Sales, calls and maturities

of restricted assets

Purchases of cemetery perpetual

care trust investments

( 1,083,550 )

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

from the sale of mortage servicing rights

of property and equipment

Sales, calls and maturities

of cemetery perpetual care trust investments

Mortgage loans held for

investment, other investments and policy loans made

( 645,581,141 )

( 752,301,471 )

of property and equipment

of real estate

Payments received for mortgage

loans held for investment, other investments and policy loans

Proceeds from the sale

of mortgage servicing rights

Purchases of property and

( 1,109,937 )

( 1,600,195 )

of real estate

paid for purchase of subsidiaries, net of cash acquired

Sales of property and equipment

Purchases of real estate

( 22,894,604 )

cash used in investing activities

( 20,458,983 )

of real estate

cash provided by (used in) investing activities

( 37,161,736 )

21 unchanged sentences

( 101,219,183 )

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

change in cash, cash equivalents, restricted cash and restricted

cash equivalents

( 7,930,465 )

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

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

cash equivalents, restricted cash and restricted cash equivalents at

beginning of year

cash equivalents, restricted cash and restricted cash equivalents

at end of year

$ 139,923,399

4 unchanged sentences

of loans held for sale to mortgage loans held for investment

from mortgage loans held for investment to restricted assets

from mortgage loans held for investment to cemetery perpetual care trust investments

real estate construction costs and retainage

loans held for investment foreclosed into real estate held for investment

assets obtained in exchange for operating lease liabilities

real estate construction costs and retainage

of property and equipment to real estate held for investment

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

assets obtained in exchange for finance lease liabilities

Reconciliation

2 unchanged sentences

Ended December 31,

and cash equivalents

Cash and cash equivalents

$ 126,941,658

$ 120,919,805

perpetual care trust investments

cash, cash equivalents, restricted cash and restricted cash equivalents

Restricted assets

Cemetery perpetual care

trust investments

Total cash, cash

equivalents, restricted cash and restricted cash equivalents

$ 139,923,399

20 unchanged sentences

of Consolidation

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

All intercompany

transactions and accounts have been eliminated in consolidation.

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

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

intercompany transactions and accounts have been eliminated in consolidation.

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

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

Actual results could differ from those estimates.

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

assets and liabilities;

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

derivative assets and liabilities;

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

those used in determining

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

those used in determining the liability for future policy

benefits and unearned revenue;

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

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

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;

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.

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 the value of loans held for sale;

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.

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

2 unchanged sentences

Changes in fair values are reported as unrealized gains

or losses and are recorded in accumulated other comprehensive income.

or losses and are recorded in accumulated other comprehensive income (loss).

securities are carried at estimated fair value.

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

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

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

NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

Significant Accounting Policies (Continued)

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

and the related allowance for loan losses.

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 credit losses.

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

and is recognized when earned.

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

the net fees over the term of the loans.

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

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

and amortizes the net fees over the term of the loans.

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

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

Generally, the

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

Amounts over 80% will require additional

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

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

For loans of more

than 80% of the fair market value of the respective loan collateral, additional collateral or mortgage insurance by an approved third-party

insurer is required.

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

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

Included are foreclosed properties which

the Company intends to hold for investment purposes.

Included, if any, are foreclosed properties.

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

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

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

Also, included is residential subdivision land development

which is carried at cost.

estate held for sale is carried at lower of cost or fair value, less estimated costs to sell.

Depreciation is not recognized on real estate classified as held

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

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

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

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

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

If in management’s judgment a decline

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

charge to earnings.

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

the financial condition, business

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

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

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

and are recorded on the trade date and the cost of the securities sold is determined using the specific identification method.

The provision

(release) for credit losses for fixed maturity securities held for sale are also included in gains (losses) on investments.

2 for more information regarding the Company’s evaluation of credit losses.

and Cash Equivalents

11 unchanged sentences

These loans are intended

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

Electing fair value also

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

related derivatives used for these assets.

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

loans held for sale.

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

Electing fair value also reduces

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

derivatives used for these assets.

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

held for sale.

NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

Significant Accounting Policies (Continued)

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

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

loans held for sale.

5 unchanged sentences

in the representations and warranties made at loan sale.

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

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

under certain events, which include the following:

5 unchanged sentences

declines purchase, and

● Discontinued

product and expired commitment.

1 unchanged sentence

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

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

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

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

7 unchanged sentences

to secondary investors.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

loan interest rate.

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

Company uses the market value for the similar product.

NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

Significant Accounting Policies (Continued)

loans that are non-committed where no active market exists, the Company determines that the

unpaid principal balance best approximates the market value, after considering the fair value

of the underlying real estate collateral, estimated future cash flows, and the loan interest

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

1 unchanged sentence

of the loan, thus minimizing credit losses.

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

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

balance sheets as loans held for sale.

loans originated are sold to third-party investors.

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

sheets as loans held for sale.

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

34 unchanged sentences

Significant Accounting Policies (Continued)

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

participations

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

carried at estimated fair value;

equity securities carried at estimated fair value;

and a surplus note with Security National Life (which

is eliminated in consolidation).

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

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

for certain real estate construction development projects.

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

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

assets are assets held in a trust account for future mortuary services and merchandise.

Restricted assets also include escrows held for

borrowers and investors under servicing and appraisal agreements relating to mortgage loans, funds held by warehouse banks in accordance

with loan purchase agreements and funds held in escrow for certain real estate construction development projects.

Additionally, the Company

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

Additional information related to restricted assets is included in Notes 2 and 8 to Consolidated Financial Statements.

Perpetual Care Trust Investments

1 unchanged sentence

Under endowment care arrangements a portion

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

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

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

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

Additional information related

to cemetery perpetual care trust investments is included in Notes 2 and 8 to Consolidated Financial Statements.

Land and Improvements

25 unchanged sentences

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

similar to deferred policy acquisition costs.

like deferred policy acquisition costs.

NATIONAL FINANCIAL CORPORATION

43 unchanged sentences

The Company has identified two classes of MSRs:

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

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

The Company distinguishes

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

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

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

21 unchanged sentences

Significant Accounting Policies (Continued)

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

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

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

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

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

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

and Equipment

9 unchanged sentences

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

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

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

Banking Derivatives

4 unchanged sentences

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

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

issuance of the loan commitment.

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

of the loan commitment.

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

2 unchanged sentences

The probability that a loan will

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

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

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

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

approval status.

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

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

These fallout estimates are used to estimate

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

the most current data.

The Company has developed fallout estimates using historical data that consider all the variables, as well as renegotiations

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

These fallout estimates are used to estimate the number of

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

current data.

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

22 unchanged sentences

and Put Option Derivatives

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

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

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

market prices.

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

value of the option.

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

In the event a call option is exercised,

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

If the option expires unexercised,

the Company recognizes a gain from the expired option.

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

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

The equity security is then treated

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

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

current earnings as a component of 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

and accrued expenses on the consolidated balance sheets.

for Doubtful Accounts and Loan Losses and Impaired Loans

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

and receivables in accordance with GAAP.

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

The allowance is based upon

the Company’s historical experience for collectively evaluated impairment.

Other allowances are based upon receivables individually

evaluated for impairment.

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

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

overall economy.

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.

See the schedules in Note 2 for additional

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

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.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2022 and 2021

Significant Accounting Policies (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:

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

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

Accordingly, the repayment of

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

ability to repay.

— Secured by family dwelling units.

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

The borrower’s

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

Where loan to values exceed 80%, the loan

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

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.

and accrued expenses on the condensed consolidated balance sheets.

for Credit Losses

The Company records

allowances for current expected credit losses from fixed maturity securities available for sale, mortgage loans held for investment, other

investments, and receivables in accordance with GAAP.

The allowances for credit losses are valuation accounts that are reported as a reduction

of the financial asset’s cost basis and are measured on a pool basis when similar risk characteristics exist.

The Company estimates

allowances for credit losses using relevant available information from both internal and external sources.

The Company considers its historical

loss experience, analyzes current market conditions and forecasts and uses third-party assistance to arrive at current expected credit

Amounts are written off against the allowance for credit losses when determined to be uncollectible.

See below under Recent Accounting

Pronouncements regarding the adoption of ASU 2016-13.

See Notes 2 and 4 to Consolidated Financial Statements regarding

the Company’s evaluation of allowances for credit losses.

Policy Benefits and Unpaid Claims

14 unchanged sentences

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

in the period in excess of related policy account balances.

Interest crediting rates for interest-sensitive insurance products ranged

from 3 % to 6.5 %.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2022 and 2021

Significant Accounting Policies (Continued)

in the period more than related policy account balances.

Interest credit rates for interest-sensitive insurance products ranged from

3 % to 6.5 %.

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

4 unchanged sentences

period when claims were incurred.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2023 and 2022

Significant Accounting Policies (Continued)

Participating

3 unchanged sentences

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

Amounts to be paid are determined by the Board of

The amounts to be paid are determined by the Board

of Directors.

The expense recognized for policyholder dividends is included in surrenders and other policy benefits on the consolidated

8 unchanged sentences

charges and surrender charges.

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

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

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

14 unchanged sentences

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

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2022 and 2021

Significant Accounting Policies (Continued)

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

3 unchanged sentences

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

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2023 and 2022

Significant Accounting Policies (Continued)

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

15 unchanged sentences

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

No impairment of goodwill

has been recognized in the accompanying financial statements.

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

5 unchanged sentences

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

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2022 and 2021

Significant Accounting Policies (Continued)

taxes include taxes currently payable plus deferred taxes.

4 unchanged sentences

temporary differences are expected to be recovered or settled.

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

threshold based on the technical merits of the positions.

Estimated interest and penalties related to uncertain tax penalties are included

as a component of income tax expense.

Liabilities are established for uncertain tax positions expected to be

taken in income tax returns when such positions are judged to meet the “more-likely-than-not” threshold based on the technical

merits of the positions.

Estimated interest and penalties related to uncertain tax penalties are included as a component of income tax

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2023 and 2022

Significant Accounting Policies (Continued)

Per Common Share

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

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

Basic earnings per equivalent

27 unchanged sentences

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 are measured in a manner

similar to current GAAP;

however, 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, determined that it would decrease the opening

balance of retained earnings in stockholders’ equity by $ 671,505 on January 1, 2023.

The allowances for credit losses increased

(decreased) by the following amounts.

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

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

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

the net amount expected to be collected.

For available for sale debt securities Topic 326 requires that credit losses be presented as

an allowance rather than as a write-down.

The Company adopted this standard on January 1, 2023, and after a review of the affected assets,

decreased the opening balance of retained earnings in stockholders’ equity by $ 671,506 on January 1, 2023.

The allowances for credit

losses increased (decreased) by the following amounts.

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

loans held for investment:

Mortgage loans held for investment:

$ ( 192,607 )

assets - mortgage loans held for investment:

perpetual care trust investments - mortgage loans held for investment:

Residential construction

Restricted assets - mortgage loans held for

Cemetery perpetual care trust investments -

mortgage loans held for investment:

Standards Issued But Not Yet Adopted

4 unchanged sentences

the rate used to discount future cash flows.

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

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

The standard is aimed at improving the accounting for certain market-based options or guarantees

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

required disclosures.

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

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

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

systems specialists.

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

2018-12 that requires the standard to be adopted by the

Company commencing on January 1, 2025.

The Company is nearing completion of its analysis and implementation of the new standard, including

the identification of cohorts, system updates, and design.

The Company has engaged its team of actuaries, accountants, and systems

specialists and consulted external system providers as part of the implementation.

The Company is in the process of estimating the impact

of the new guidance on the consolidated financial statements.

“Income Taxes (Topic 740):

Improvements to Income Tax Disclosures” — Issued in December 2023, ASU 2023-09 requires that public business entities,

on an annual basis:

(i) disclose specific categories in the rate reconciliation and (ii) provide additional information for reconciling

items that meet a quantitative threshold.

In addition, the amendments in this update require that all entities disclose on an annual

basis the following information about income taxes paid:

(i) the amount of income taxes paid (net of refunds received) disaggregated

by federal (national), state, and foreign taxes and (ii) the amount of income taxes paid (net of refunds received) disaggregated by individual

jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net

of refunds received).

ASU 2023-09 is effective for the Company beginning on January 1, 2025.

The Company is in the process of estimating

the impact of the new guidance on the consolidated financial statements.

“Segment Reporting (Topic

Improvements to Reportable Segment Disclosures” — Issued in November 2023, ASU 2023-07 requires enhanced disclosures

about significant segment expenses.

The key amendments include:

(i) disclosures on significant segment expenses that are regularly provided

to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss on an annual and interim

(ii) disclosures on an amount for other segment items by reportable segment and a description of its composition on an annual

and interim basis.

The other segment items category is the difference between segment revenue less the significant expenses disclosed

and each reported measure of segment profit or loss;

(iii) providing all annual disclosures on a reportable segment’s profit or

loss and assets currently required by FASB ASC Topic 280, Segment Reporting in interim periods;

and (iv) specifying the title and position

ASU 2023-07 is effective for the Company for annual periods beginning January 1, 2024 and interim periods beginning January

The Company is in the process of estimating the impact of the new guidance on the consolidated financial statements.

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

7 unchanged sentences

Unrealized Losses (1)

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

Treasury securities and obligations of U.S.

for Credit Losses

Fixed maturity securities, available for sale,

at estimated fair value:

securities and obligations of U.S.

Government agencies

$ 111,450,753

of states and political subdivisions

securities including public utilities

$ ( 1,416,448 )

Mortgage-backed

$ 110,378,730

preferred stock

Obligations of states and

political subdivisions

Corporate securities including

public utilities

( 7,145,507 )

Mortgage-backed securities

( 4,702,905 )

Redeemable preferred stock

fixed maturity securities available for sale

2 unchanged sentences

$ ( 314,549 )

securities at estimated fair value:

miscellaneous and all other

$ 381,535,986

Equity securities at estimated fair value:

Common stock:

Industrial, miscellaneous

and all other

$ ( 439,575 )

loans held for investment at amortized cost:

Unamortized deferred loan fees, net

equity securities at estimated fair value

$ ( 439,575 )

Allowance for loan losses

Mortgage loans held for investment at amortized

$ 103,153,587

Residential construction

Unamortized deferred

loan fees, net

( 1,623,226 )

Allowance for credit

( 3,818,653 )

Net discounts

mortgage loans held for investment

Total mortgage loans

held for investment

$ 275,616,837

estate held for investment - net of accumulated depreciation:

real estate held for investment

Real estate held for investment - net of

accumulated depreciation:

Total real estate

held for investment

$ 183,419,292

estate held for sale:

Real estate held for sale:

investments and policy loans at amortized cost:

Home Loan Bank stock (1)

Allowance for doubtful accounts

Total real estate

held for sale

Other investments and policy loans at amortized

Insurance assignments

Federal Home Loan Bank

Other investments

Allowance for credit losses

( 1,553,836 )

policy loans and other investments

investment income

Total policy loans and

other investments

Accrued investment

Total investments

$ 936,812,566

(1) Includes $ 938,500

of Membership stock and $ 1,661,800 of Activity stock due to short-term advances and letters of credit.

(1) Gross unrealized losses are net

of allowance for credit losses

(2) Includes $ 530,900 of Membership

stock and $ 1,748,900 of Activity stock due to short-term advances and letters of credit.

NATIONAL FINANCIAL CORPORATION

5 unchanged sentences

Unrealized Losses

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

Treasury securities and obligations of U.S.

Government agencies

of states and political subdivisions

securities including public utilities

Mortgage-backed

preferred stock

Fixed maturity securities, available for sale,

at estimated fair value:

Treasury securities and obligations

Government agencies

$ ( 2,685,277 )

Obligations of states and political subdivisions

Corporate securities including public utilities

( 11,930,773 )

Mortgage-backed securities

( 4,100,674 )

securities at estimated fair value:

miscellaneous and all other

Redeemable preferred

Total fixed maturity

securities available for sale

$ 362,750,511

$ ( 19,174,861 )

$ 345,858,492

Equity securities at estimated fair value:

Common stock:

Industrial, miscellaneous

and all other

$ ( 948,114 )

loans held for investment at amortized cost:

Total equity securities

at estimated fair value

$ ( 948,114 )

Mortgage loans held for investment at amortized

Residential construction

Unamortized deferred loan fees, net

( 1,746,605 )

Allowance for loan losses

1 unchanged sentence

Net discounts

mortgage loans held for investment

Total mortgage loans

held for investment

$ 308,123,927

estate held for investment - net of accumulated depreciation:

real estate held for investment

Real estate held for investment - net of

accumulated depreciation:

Total real estate

held for investment

$ 191,328,616

estate held for sale:

Real estate held for sale:

investments and policy loans at amortized cost:

Home Loan Bank stock (1)

Allowance for doubtful accounts

Total real estate

held for sale

Other investments and policy loans at amortized

Insurance assignments

Federal Home Loan Bank stock (1)

Other investments

Allowance for

doubtful accounts

( 1,609,951 )

policy loans and other investments

investment income

Total policy loans and

other investments

Accrued investment

Total investments

$ 948,963,125

(1) Includes $ 905,700 of Membership

stock and $ 1,641,400 of Activity stock due to short-term advances and letters of credit.

(1) Includes $ 938,500

of Membership stock and $ 1,661,800 of Activity stock due to short-term advances and letters of credit.

NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

Investments (Continued)

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

equity securities and fixed maturity securities) as of December 31, 2023, other than investments issued or guaranteed by the United States

Maturity Securities

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

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

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:

Schedule of Fair Value of Fixed Maturity Securities

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

as of December 31, 2023 and 2022.

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

For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing

services, or in the case of private placements, 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 tables set forth unrealized losses by duration with the fair

value of the related fixed maturity securities.

of Fair Value of Fixed Maturity Securities

Losses for Less than Twelve Months

1 unchanged sentence

Unrealized Loss

December 31, 2022

Treasury securities and obligations of U.S.

At December 31, 2023

Treasury securities and obligations

Government agencies

of States and Political Subdivisions

and other asset-backed securities

unrealized losses

Obligations of states and political subdivisions

Corporate securities including public utilities

Mortgage and other asset-backed

Total unrealized losses

$ 205,910,291

$ 250,584,924

December 31, 2021

of States and Political Subdivisions

and other asset-backed securities

unrealized losses

were 713 securities with fair value of 93.6 % of amortized cost at December 31, 2022.

There were 55 securities with fair value of 97.3 %

of amortized cost at December 31, 2021.

Credit losses of nil and $ 39,502 have been recognized for the years ended December 31, 2022 and

2021, respectively.

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

This evaluation includes a review

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

Securities with a rating of 1 or 2 are

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

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

Securities with a rating of 6 are automatically determined

to be impaired and are written down.

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

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

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.

At December 31, 2022

Treasury securities and obligations of

Government agencies

Obligations of states and political subdivisions

Corporate securities including public utilities

Mortgage and other asset-backed

Total unrealized losses

$ 267,774,539

$ 280,964,126

holdings were comprised of 606 securities with fair values aggregating 94.9 % of the aggregated amortized cost as of December 31, 2023.

Relevant holdings were comprised of 713 securities with fair values aggregating 93.6 % of the aggregated amortized cost as of December

Credit loss provision (release) of $ 325,314 and nil have been recognized for 2023 and 2022, respectively.

Credit losses 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 increases in interest rates.

NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

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.

Schedule of Earnings on Fixed Maturity

of credit-related OTTI at January 1

for credit impairments recognized on:

not previously impaired

previously impaired

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 December 31

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

2022, 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

in 5-10 years

in more than 10 years

Mortgage-backed

preferred stock

of Allowance for Credit Losses

Note 1 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”)

and other industry rating agencies.

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

loss unless current market data or recent company news could lead to a credit downgrade.

Securities with ratings of 3 to 5 are evaluated

for credit loss.

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.

Securities with a rating of 6 are automatically

determined to be impaired and a credit loss is recognized in earnings.

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 at 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 a debt security and it is less likely than not that the Company will be required to sell the debt

security but the Company also does not expect to recover the entire amortized cost basis of the security, a credit loss is recognized

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

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 that 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.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2023 and 2022

Investments (Continued)

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 98.2 % and 97.7 % of its fixed maturity securities rated investment grade as of December 31, 2023 and 2022, respectively.

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

sale, excluding redeemable preferred stock.

of Credit Quality of Fixed Maturity Security Portfolio by NAIC Designation

NAIC Designation

$ 221,933,425

$ 216,975,288

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

The Company pledged a total of $ 93,034,880 ,

at estimated fair value, of fixed maturity securities with the FHLB at December 31, 2022.

These securities are used as collateral on

any cash borrowings from the FHLB.

As of December 31, 2022, the Company owed nil to the FHLB and its estimated maximum borrowing capacity

was $ 86,032,116 .

$ 197,753,818

$ 189,691,540

$ 390,634,441

$ 381,275,986

$ 362,500,511

$ 345,598,492

following tables 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

Ended December 31, 2023

Treasury Securities And Obligations of U.S.

Government Agencies

of states and political subdivisions

including public utilities

Mortgage-backed

Beginning balance - December 31, 2022

Additions for

credit losses not previously recorded

Change in allowance on

securities with previous allowance

Reductions for securities

sold during the period

Reductions for securities

with credit losses due to intent to sell

Write-offs charged against

the allowance

Recoveries of amounts previously

Ending Balance - December 31, 2023

NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

Investments (Continued)

Related Earnings

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

and other than temporary impairments from investments and other assets.

Schedule of Gain (Loss) on Investments

Ended December 31

maturity securities available for sale:

realized gains

realized losses

than temporary impairments

(losses) on securities sold

gains (losses) on securities held at the

end of the period

( 2,109,556 )

loans held for investment:

realized gains

realized losses

estate held for investment and sale:

realized gains

realized losses

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

of Earnings on Fixed Maturity Securities

Balance of credit-related OTTI

Additions for credit impairments recognized

Securities not previously

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 December 31

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

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

Mortgage-backed securities

Redeemable preferred

$ 390,884,441

assets, including call and put option derivatives:

realized gains

realized losses

$ 381,535,986

net realized gains and losses on the sale of securities are recorded on the trade date, and the cost of the securities sold is determined

using the specific identification method.

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

and mortuaries of $ 817,000 in net losses and $ 933,045 in net gains for the years ended December 31, 2022 and 2021, respectively.

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

Schedule of Major

Categories of Net Investment Income

of Major Categories of Net Investment Income

Ended December 31,

realized gains

realized losses

Proceeds from sales

Gross realized gains

Gross realized losses

NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

Investments (Continued)

categories of net investment income were as follows:

on Deposit, Held in Trust, and Pledged as Collateral

on deposit with life insurance regulatory authorities as required by law were as follows:

of Assets on Deposit With Life Insurance

Ended December 31,

maturity securities available for sale

loans held for investment

estate held for investment and sale

and cash equivalents

investment income

( 17,453,334 )

( 14,414,793 )

investment income

investment income includes income earned by the restricted assets and cemetery perpetual care trust investments of the cemeteries and

mortuaries of $ 2,404,277 and $ 1,472,295 for the years ended December 31, 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.

on deposit for regulatory authorities as required by law amounted to $ 11,032,165 and $ 10,168,853 at December 31, 2022 and 2021, respectively

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

The restricted securities

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

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

December 31, 2022, other than investments issued or guaranteed by the United States Government.

Fixed maturity securities available

at estimated fair value

Other investments

Cash and cash equivalents

assets on deposit

held in trust related to third-party reinsurance agreements were as follows:

Ended December 31,

Fixed maturity securities available

at estimated fair value

Cash and cash equivalents

assets on deposit

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

Assets pledged as collateral with the

FHLB are presented below.

These pledged securities are used as collateral for any FHLB cash advances.

See Note 7 of the Notes to the

Consolidated Financial Statements for more information about the FHLB.

Ended December 31,

Fixed maturity

securities available for sale

at estimated fair value

assets pledged as collateral

Estate Held for Investment and Held for Sale

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

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

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

to Consolidated Financial Statements.

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

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

foreclosures.

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

1 of the Notes to Consolidated Financial Statements.

Real Estate Held for Investment and Held for Sale

3 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.

5 unchanged sentences

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 assets that provide operational efficiencies.

The Company generally looks to acquire assets that are 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.

These properties include office buildings, flex office

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

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

aggregated net ending balance of commercial real estate that serves as collateral for bank loans was $ 129,330,119 and $ 134,251,205 as

of December 31, 2022 and 2021, respectively.

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

The Company 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.

aggregated net book value of commercial real estate serving as collateral for bank loans was $ 124,381,467 and $ 129,330,119 as of December

31, 2023 and 2022, respectively.

The associated bank loan carrying values totaled $ 97,807,614 and $ 97,112,131 as of December 31, 2023

and 2022, respectively.

the years ended December 31, 2022 and 2021, the Company recorded impairment losses on commercial real estate held for sale of nil and

2023 and 2022, the Company did not record any impairment losses on commercial real estate held for investment or held for sale.

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

2023 and 2022, the Company recorded depreciation expense on commercial real estate held for investment of $ 6,278,828 and $ 6,090,575 ,

respectively.

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

the years ended December 31, 2022 and 2021, the Company recorded depreciation expense on commercial real estate held for investment of

$ 6,090,575 and $ 3,592,207 , 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

leases arise from the leasing of the Company’s commercial real estate held for investment.

Initial lease terms generally range

from three to ten years .

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:

Schedule of Commercial Real Estate Investment

Ending Balance

Square Footage

of Commercial Real Estate Investment

Net Book Value

Total Square Footage

$ 142,475,177

$ 147,627,946

Mississippi (2)

$ 142,494,427

1 unchanged sentence

(1) Includes Center53

phase 1 and phase 2

(2) This property was

moved to held for sale

(1) Consists of approximately

93 acres of undeveloped land for $ 151,553 .

The remaining property for $2,877,420 was sold in February 2024.

leases arise from the leasing of the Company’s commercial real estate held for investment.

Initial lease terms generally range

from three to ten years .

NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

Investments (Continued)

following is a maturity analysis of the annual undiscounted cash flows of the operating lease payments to be received.

following is a maturity analysis of the annual undiscounted cash flows of the operating lease payments expected to be received.

Schedule of Annual Undiscounted Cash Flows of Operating Lease Payments

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

Ending Balance

Square Footage

(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.

Net Book Value

Total Square Footage

Mississippi (1)

of approximately 93 acres of undeveloped land for $ 151,553 for 2023 and 2022.

The remaining property for $ 2,877,420

was sold in February 2024 for a gain of approximately $ 250,000 .

properties are 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.

Company occasionally acquires a small portfolio of residential homes primarily because 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.

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

The Company also invests in residential

subdivision development.

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.

the years ended December 31, 2022 and 2021, the Company recorded impairment losses on residential real estate held for sale of $ 94,400

and nil , respectively.

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

the years ended December 31, 2022 and 2021, the Company recorded depreciation expense on residential real estate held for investment

of $ 10,592 and $ 12,850 , 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

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

residential property portfolio.

2023 and 2022, the Company recorded impairment losses on residential real estate held for sale of nil and $ 94,000 , respectively.

Impairment losses, if any, are included in gains (losses) on investments and other assets on the consolidated statements of

2023 and 2022, the Company recorded depreciation expense on residential real estate held for investment of $ 10,592 and $ 10,592 , 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.

NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

Investments (Continued)

net ending balance of foreclosed residential real estate included in residential real estate held for investment or sale was $ 11,010,029

and $ 1,190,602

as of December 31, 2022 and 2021, respectively.

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

Schedule of Residential Real Estate Investment

Ending Balance

(1) Including subdivision

land developments

(2) Improved residential

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

available for sale

to be developed

of Residential Real Estate Investment

Net Book Value

(1) Includes multiple

residential subdivision development projects

following table presents additional information regarding the Company’s residential subdivision development in Utah.

Lots available for sale

Lots to be developed

Ending Balance

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

Ending Balance

estate held for sale

properties are all actively being marketed with the assistance of residential real estate brokers.

The Company expects these properties

to sell within the coming 12 months.

Net Book Value

$ 11,010,029 (1)

(1) All sold in 2023

net book value of foreclosed residential real estate included in residential real estate held for investment or sale was nil and $ 11,010,029

as of December 31, 2023 and 2022, respectively.

NATIONAL FINANCIAL CORPORATION

8 unchanged sentences

Business Segment

Approximate Square Footage

Square Footage Occupied by the Company

433 Ascension Way, Floors 4, 5 and 6, Salt Lake City, UT - Center53 Building 2

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

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, MS (1) (3)

8 unchanged sentences

Life Insurance Sales

(1) Included in real

estate held for investment on the consolidated balance sheets

(2) Included in property

and equipment on the consolidated balance sheets

(3) Listed for sale

and sold during the first quarter of 2024

(4) Listed for sale

and currently under contract

(5) Listed for sale

Loans Held for Investment

1 unchanged sentence

Financial Statements.

loans consist of first and second mortgages.

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

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

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

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

in economic conditions.

Although the Company has a diversified mortgage loan portfolio consisting of residential mortgages, commercial

loans and residential construction loans and requires collateral on all real estate exposures, a substantial portion of its debtors’

ability to honor obligations is reliant on the economic stability of the geographic region in which the debtors do business.

31, 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.

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.

Concentrations

of credit risk arise when several 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 the relevant debtors’ ability to honor obligations is dependent upon the economic stability

of the geographic region in which the debtors do business or are employed.

As of December 31, 2023, the Company had 44 %, 11 %, 10 %, 7 %

and 6 %, of its mortgage loans from borrowers located in the states of Utah, Florida, California, Texas, and Arizona, respectively.

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

California, and Texas, respectively.

of Allowance for Credit Losses

Note 1 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

NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

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

Residential Construction

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 reverse any

interest income that had been accrued.

Given this policy, the Company does not measure a credit loss allowance on accrued interest receivable.

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 when received.

The interest income recognized from 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 $ 237,000 and $ 226,000 as of December 31, 2023 and 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.

determine 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

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

Accordingly, the repayment of

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

guarantor’s) ability to repay.

Commercial loans are evaluated for credit loss by

analyzing common metrics that are predictors for future credit losses such as debt service coverage ratio (“DSCR”), loan to

value (“LTV”), local market conditions, borrower quality, and underlying collateral.

The fair value of the underlying collateral

is based on a third-party appraisal of the property at origination of the loan.

The fair value is assessed if the loan becomes 90 days

The Company uses these metrics to pool similar loans.

The allowance for credit losses is based on estimates, historical experience,

probability of loss, value of the underlying collateral, and other factors that affect the collectability of the loan.

The Company applies

a future loss factor to the outstanding balance of each group to arrive at the allowance for credit losses.

— 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.

Residential loans are evaluated

for credit loss by using relevant available information from both internal and external sources.

Among other things, the Company uses

its historical delinquency information and considers current and forecasted economic conditions.

External sources include a monthly analysis

of its residential portfolio by a third party.

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.

Analyzing the information from the various sources allows the Company to arrive at the

allowance for credit losses.

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.

loans are 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.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2023 and 2022

Investments (Continued)

Residential construction mortgage loans are evaluated for credit loss by considering historical activity and current

housing market trends to arrive at a per loan basis point allowance that is recognized at loan origination and for subsequent draws.

per loan basis point is reviewed at least annually or as loan losses or market trends require.

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

of Allowance for Loan Losses

December 31, 2023

Allowance for credit losses:

Beginning balance

Ending balance

Ending balance:

individually evaluated for impairment

Ending balance:

collectively evaluated for impairment

Mortgage loans:

Ending balance

$ 172,516,125

$ 312,183,703

Ending balance:

individually evaluated for impairment

Ending balance:

collectively evaluated for impairment

$ 172,516,125

$ 309,616,318

Beginning balance - January 1, 2023

Adoption of ASU 2016-13 (1)

Change in provision for

credit losses (2)

Ending balance - December 31, 2023

December 31, 2022

Allowance for credit losses:

Beginning balance

Ending balance

Ending balance:

individually evaluated for impairment

Ending balance:

collectively evaluated for impairment

Mortgage loans:

Ending balance

$ 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)

corrected from that previously reported due to a typographical error.

Beginning balance - January 1, 2022

Change in provision for

credit losses (2)

Ending balance - December 31, 2022

(1) See Note 1 of the

notes to the consolidated financial statements

(2) Included in other

expenses on the consolidated statements of earnings

NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

Investments (Continued)

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

Schedule of Aging of Mortgage Loans

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

of Aging of Mortgage Loans

December 31, 2023

60-89 days past due

60-89 Days Past Due

Greater Than 90 Days (1)

In Process of Foreclosure (1)

Total Past Due

Total Mortgage Loans

Allowance for Loan Losses

Over 90 days past due (1)

process of foreclosure (1)

mortgage loans

Allowance for credit losses

( 1,219,653 )

( 2,390,894 )

Unamortized deferred loan fees, net

( 3,818,653 )

Unamortized deferred loan

( 1,135,491 )

Unamortized discounts, net

Net Mortgage Loans

( 1,623,226 )

discounts, net

mortgage loans held for investment

$ 103,529,896

$ 275,616,837

December 31, 2022

1 unchanged sentence

60-89 days past due

Greater Than 90 Days (1)

In Process of Foreclosure (1)

Total Past Due

Total Mortgage Loans

Allowance for Loan Losses

Over 90 days past due (1)

process of foreclosure (1)

mortgage loans

Allowance for credit losses

( 1,739,980 )

( 1,970,311 )

Unamortized deferred loan fees, net

Unamortized discounts, net

Net Mortgage Loans

Unamortized deferred loan

( 1,212,994 )

( 1,746,605 )

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

discounts, net

mortgage loans held for investment

$ 172,139,077

$ 308,123,927

(1) Interest income is not recognized

on loans which are more than 90 days past due or in foreclosure.

NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

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:

Schedule of Impaired Mortgage Loans

Recorded Investment

Unpaid Principal Balance

Related Allowance

Average Recorded Investment

Interest Income Recognized

December 31, 2022

With no related allowance recorded:

Residential construction

With an allowance recorded:

Residential construction

Quality Indicators

Company evaluates and monitors the credit quality of its commercial loans by analyzing LTV and DSCR.

Monitoring a commercial mortgage

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

aggregate unpaid principal balance of commercial mortgage loans by credit quality indicator and origination year was as follows as of

December 31, 2023:

With no related allowance recorded:

Residential construction

With an allowance recorded:

Residential construction

Risk Profile Based on Performance Status

Company’s mortgage loans 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.

of Commercial Mortgage Loans By Credit Quality Indicator

Quality Indicator

Less than 65%

Greater than 80%

1.00x - 1.20x

9,174,841 (1) (1)

(1) Commercial construction loan

NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

Investments (Continued)

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

$ 172,516,125

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

defines non-performing mortgage loans as loans more than 90 days past due 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.

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

December 31, 2023:

Quality Indicator

Performance Indicators:

Non-performing (1)

$ 103,153,587

(1) Includes residential mortgage loans in the process of foreclosure of $ 1,021,790

Less than 65%

Greater than 80%

$ 103,153,587

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2023 and 2022

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.

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

follows as of December 31, 2023:

Schedule of Residential Construction Mortgage Loans

Quality Indicator

Performance Indicators:

$ 104,052,748

1 unchanged sentence

$ 104,052,748

$ 175,117,783

$ 312,183,703

Less than 65%

Greater than 80%

$ 104,052,748

Mortgage Loans Held for Investment

a loan is past due 90 days, it is the policy of the Company to end the accrual of interest income on the loan and write off any income

that had been accrued.

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

Interest income recognized

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

Accrual of interest resumes if a loan is brought current.

Interest not accrued on these loans totals approximately $ 226,000 and $ 236,000 as of December 31, 2022 and 2021, respectively.

following table presents the amortized cost and contractual payments on mortgage loans held for investment by category as of December

2 unchanged sentences

of Mortgage loans Held for Investment

$ 103,153,587

Residential Construction

1 unchanged sentence

$ 130,997,762

$ 106,523,736

NATIONAL FINANCIAL CORPORATION

1 unchanged sentence

Ended December 31, 2023 and 2022

Investments (Continued)

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

Ended December 31,

30-59 days past due

60-89 days past due

Over 90 days past due

Total past due

Total insurance assignments

Allowance for credit

( 1,553,836 )

( 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 recorded at that time.

See Note 1 regarding the adoption of ASU 2016-13.

following table presents a roll forward of the allowance for credit losses for insurance assignments:

of Allowance for Credit Losses

Beginning balance - January 1, 2023

Change in provision for

credit losses (1)

Ending balance - December 31, 2023

Beginning balance - January 1, 2022

Change in provision for

credit losses (1)

Ending balance - December 31, 2022

(1) Included in other expenses on the

consolidated statements of earnings

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2023 and 2022

Investments (Continued)

Related Earnings

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

from investments and other assets.

of Gain (Loss) on Investments

Ended December 31

Fixed maturity securities available for

Gross realized

Gross realized losses

Net credit loss (provision)

Equity securities:

Gains (losses) on securities

Unrealized gains (losses)

on securities held at the

end of the period

( 2,109,556 )

Real estate held for investment and sale:

Gross realized gains

Gross realized losses

Other assets, including call and put option

Gross realized gains

realized losses

$ ( 857,460 )

net realized gains and losses on the sale of securities are recorded on the trade date, and the cost of the securities sold is determined

using the specific identification method.

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

and mortuaries of $ 730,000 in

net gains and $ 817,000 in

net losses for 2023 and 2022, respectively.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2023 and 2022

Investments (Continued)

Major categories of net investment income were as follows:

Ended December 31

Fixed maturity securities available

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

( 16,976,162 )

( 17,453,334 )

Net investment income

investment income includes income earned by the restricted assets and cemetery perpetual care trust investments of the cemeteries and

mortuaries of $ 2,365,378 and $ 2,404,277 for 2023 and 2022, respectively.

investment income on real estate consists primarily of rental revenue.

Investment expenses consist primarily of depreciation, property

taxes, operating expenses of real estate and an estimated portion of administrative expenses relating to investment activities.

Investment Income

investment income consists of the following:

of Accrued Investment Income

Ended December 31,

Fixed maturity securities available for sale

Equity securities

Mortgage loans held for investment

Real estate held for investment

Cash and cash equivalents

Total accrued investment income

Loans Held for Sale

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

Changes in the fair value of the loans are included in mortgage fee income.

Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on mortgage

loans held for investment and is included in mortgage fee income on the consolidated statement of earnings.

There aren’t any loans

that are 90 or more days past due and on a nonaccrual status as of December 31, 2022.

See Note 17 of the Notes to Consolidated Financial

Statements for additional disclosures regarding loans held for sale.

Company’s loans held for sale portfolio is valued using the fair value option.

Changes in the fair value of the loans are included

in mortgage fee income.

Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s

policy on recognition of mortgage loan interest income and is included in mortgage fee income on the consolidated statement of earnings.

Included in loans held for sale are loans in the process of foreclosure with an aggregate unpaid principal balance of $ 1,636,090 and

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

See Note 17 of the Notes to Consolidated Financial Statements for additional

disclosures regarding loans held for sale.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2023 and 2022

Loans Held for Sale (Continued)

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

4 unchanged sentences

Unpaid principal balance

Unrealized (loss) gain

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

of mortgage loans held for sale.

Unrealized loss

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

loans held for sale.

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

Schedule of Mortgage Fee Income for Loans Held for Sale

Years Ended December 31

of Mortgage Fee Income for Loans Held for Sale

Ended December 31

Interest income

6 unchanged sentences

( 8,834,797 )

( 8,783,376 )

Provision for loan loss reserve

( 1,078,812 )

Provision for loan

( 1,078,812 )

1 unchanged sentence

$ 173,499,681

$ 263,418,230

(1) Includes a net

gain of $ 34,051,938 for the sale of mortgage servicing rights

a repurchase demand corresponding to a mortgage loan previously held for sale and sold to a third-party investor is received from a third-party

investor, the relevant data is reviewed and captured so that an estimated future loss can be calculated.

The key factors that are used

in the estimated loss calculation are as follows:

(i) lien position, (ii) payment status, (iii) claim type, (iv) unpaid principal balance,

(v) interest rate, and (vi) validity of the demand.

Other data is captured and is useful for management purposes;

the actual estimated

loss is generally based on these key factors.

The 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.

(1) Includes a net gain of $ 34,051,938

for the sale of mortgage servicing rights

NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

Loans Held for Sale (Continued)

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 Company conducts its own review upon the receipt of a repurchase demand.

In many instances, the Company can resolve

the issues relating to the repurchase demand by the third-party investor without having to make any payments to the investor.

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

Balance, beginning of period

Summary of Loan Loss Reserve Included in Other Liabilities and Accrued Expenses

Beginning Balance

Provision for current loan originations (1)

Charge-offs, net of recaptured amounts

Charge-offs, net of

recaptured amounts

( 1,205,598 )

( 1,800,284 )

Balance, at December 31

Ending Balance

(1) Included in Mortgage

Company maintains reserves for estimated losses on current production volumes.

For the year ended December 31, 2022, $ 1,078,812

in reserves were added at a rate of 3.19 basis points per loan, the equivalent of $ 319

per $ 1,000,000

in loans originated.

This is a decrease over the year ended December 31, 2021, when $ 2,211,230

in reserves were added at a rate of 3.9 basis points per loan originated, the equivalent of $ 390

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 December 31, 2022, represents its best estimate for adequate loss reserves on loans sold.

For 2023, $ 27,164 in reserves were added at a rate of

4.3 basis points per loan, the equivalent of $ 430 per $ 1,000,000 in loans originated.

This is a decrease over 2022, when $ 1,078,812 in

reserves were added at a rate of 3.19 basis points per loan originated, the equivalent of $ 319 per $ 1,000,000 in loans originated.

Company monitors market data and trends, economic conditions (including forecasts) and its own experience to maintain adequate loss reserves

on current production.

NATIONAL FINANCIAL CORPORATION

3 unchanged sentences

Schedule of Receivables

Trade contracts

Contracts with customers

Receivables from sales agents

Total receivables

Allowance for doubtful accounts

Allowance for credit

( 1,897,887 )

1 unchanged sentence

Net receivables

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

See Note 1 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 (1)

Ending balance - December 31, 2023

Beginning balance - January 1, 2022

Change in provision for

credit losses (1)

Ending balance - December 31, 2022

(1) Included in other

expenses on the condensed consolidated statements of earnings

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2023 and 2022

Value of Business Acquired, Goodwill and Other Intangible Assets

with regard to value of business acquired was as follows:

regarding value of business acquired was as follows:

Schedule of Value of Business Acquired

Balance at beginning of year

Value of business acquired

at beginning of year

Value of business

Imputed interest at 7 % included in earnings

2 unchanged sentences

( 1,907,250 )(1)

Shadow amortization included in other comprehensive income

amortization included in other

comprehensive income

Net amortization

( 1,336,123 )

Balance at end of year

Balance at end of

(1) Included in Amortization

of deferred policy and pre-need acquistion costs and value of business acquired on the consolidated statements of earnings

of deferred policy and pre-need acquisition costs and value of business acquired on the consolidated statements of earnings

no additional acquisitions, net amortization charged to income is expected to approximate the following:

9 unchanged sentences

Schedule of Goodwill by Segment

Life Insurance

Balance at January 1, 2022:

1 unchanged sentence

Total goodwill, net

1,734,195 (1)

Balance at December 31, 2022:

3 unchanged sentences

Accumulated impairment

Total goodwill, net

(1) See Note 20 regarding

the acquisition of Rivera Funerals, Cremations and Memorial Gardens and Holbrook Mortuary

goodwill, net

is not amortized but is tested annually for impairment.

The annual impairment tests resulted in no impairment of goodwill for the years

ended December 31, 2022 and 2021.

The annual impairment tests resulted in no impairment of goodwill for 2023 and

NATIONAL FINANCIAL CORPORATION

5 unchanged sentences

Intangible asset - trade name

Intangible asset - customer lists

Intangible asset - trade name (2)

Intangible assets - other (1)

Less accumulated amortization

Balance at end of year

(1) See Note 20 regarding

the acquisition of Rivera Funerals, Cremations and Memorial Gardens

Intangible asset - trade name (2)

Intangible asset - customer lists (3)

Less accumulated

Balance at end of

(1) Rivera Funerals,

Cremations and Memorial Gardens

(2) Kilpatrick Life

expense for the years ended December 31, 2022 and 2021 was $ 256,000 and $ 99,999 , respectively, and is included in other expenses on the

consolidated statements of earnings.

(3) Beta Capital Corp

expense for 2023 and 2022 was $ 254,000 and $ 256,000 , respectively, and is included in other expenses on the consolidated statements of

following table summarizes the Company’s estimate of future amortization for the other intangible assets:

5 unchanged sentences

and equipment is summarized below:

Schedule of Property, Plant and Equipment

Schedule of Property and Equipment

Land and buildings

Furniture and equipment

Property, plant and equipment,

Less accumulated depreciation

Property and equipment,

Less accumulated

( 13,707,781 )

( 13,534,056 )

expense for the years ended December 31, 2022 and 2021 was $ 2,496,906 and $ 1,935,613 , respectively.

Property and equipment are stated

at cost and are depreciated over their estimated useful lives, primarily using the straight-line method.

During 2021, the Company reclassified

a building with a gross building cost of $ 3,640,755 with its associated accumulated depreciation of $ 532,074 from property and equipment

to real estate held for investment.

See Note 20 for additional information regarding property and equipment acquired through acquisitions.

expense for 2023 and 2022 was $ 2,351,661 and $ 2,496,906 , respectively.

Property and equipment are stated at cost and are depreciated

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

The Company recognized an impairment loss of $ 122,229 in

2023 on a property held by the life segment.

This property is listed for sale and currently under contract.

Impairment losses are included

in gains (losses) on the consolidated statements of earnings.

NATIONAL FINANCIAL CORPORATION

4 unchanged sentences

Summary of Bank Loans Payable

Prime rate note payable in monthly installments of $ 75,108 including principal and interest,collateralized by shares of Security National Life Insurance Company stock, due December 2024.

4.329 % fixed note payable in monthly installments of $ 9,775 including principal and interest,collateralized by real property with a book value of approximately $ 3,023,000 , paid in full April 2022.

4.00 % variable with LIBOR at a 1 % floor and a spread at 3 % rate construction loan collateralized by real property with a book value of approximately $ 65,422,000 , paid off with long term financing in May 2022.

3.85 % fixed note payable in monthly installments of $ 243,781 including principal and interest, collateralized by real property with a book value of approximately $ 65,422,000 , due June 2032.

3.30 % fixed note payable in monthly installments of $ 179,562 including principal and interest, collateralized by real property with a book value of approximately $ 46,960,000 , due April 2031.

4.7865 % fixed interest only note payable in monthly installments, collateralized by real property with

a book value of approximately $ 16,948,000 , due June 2028.

1 month SOFR rate plus 2.1 % loan purchase agreement with a warehouse line availability of $ 100,000,000 , matures June 2023.

1 month SOFR rate plus 2 % loan purchase agreement with a warehouse line availability of $ 100,000,000 , matures November 2023.

1 month SOFR rate plus 2.5 % loan purchase agreement with a warehouse line availability of $ 75,000,000 , matures May 2023.

1 month SOFR rate plus 2.1 % loan purchase agreement with a warehouse line availability of $ 50,000,000 , matures June 2023.

Other short-term borrowings (1)

Prime rate note

payable in monthly installments of $ 75,108 including principal and interest, collateralized by shares of Security National Life

Insurance Company stock, paid in full in

3.85 % fixed note payable in monthly installments

of $ 243,781 including principal and interest, collateralized by real property with a book value of approximately $ 62,977,000 , due

3.30 % fixed note payable in monthly installments

of $ 179,562 including principal and interest, collateralized by real property with a book value of approximately $ 44,811,000 , due

4.7865 % fixed interest only note payable in

monthly installments, collateralized by real property with a book value of approximately $ 16,594,000 , due June 2028.

1 month SOFR rate plus 2.1 % loan purchase agreement

with a warehouse line availability of $ 100,000,000 , expired December 2023 due to the lender exiting the market place.

1 month SOFR rate plus 2 % loan purchase agreement

with a warehouse line availability of $ 100,000,000 , matures November 2024.

1 month SOFR rate plus 2.5 % loan purchase agreement

with a warehouse line availability of $ 75,000,000 , expired December 2023 due to the lender exiting the market place.

1 month SOFR rate plus 2.1 % loan purchase agreement

with a warehouse line availability of $ 15,000,000 , matures May 2024.

Finance lease liabilities

Other loans payable

Total bank and other loans

Less current installments

Bank and other loans, excluding current installments

(1) Revolving Line

( 9,543,052 )

( 65,560,608 )

Bank and other loans,

excluding current installments

NATIONAL FINANCIAL CORPORATION

9 unchanged sentences

Home Loan Bank of Des Moines

December 31, 2022, the amount available for borrowings from the FHLB of Des Moines was approximately $ 80,312,445 , compared with $ 19,259,722

at December 31, 2021.

United States Treasury fixed maturity securities with an estimated fair value of $ 86,338,880 at December 31, 2022

have been pledged at the FHLB of Des Moines as collateral for current and potential borrowings compared with $ 20,244,900 at December

At December 31, 2022 and 2021, the Company had no outstanding FHLB borrowings.

At December 31, 2022, the Company’s total

investment in FHLB stock was $ 856,800 compared with $ 826,800 at December 31, 2021.

At December 31, 2022, the Company was contingently

liable under standby letters of credit aggregating $ 968,903 , $ 443,758 to be used as collateral to cover any contingency related to additional

risk assessments pertaining to the Company’s captive insurance program and $ 525,145 for land developments.

of December 31, 2023, the amount available for borrowings from the FHLB of Des Moines was approximately $ 77,324,238 , compared with $ 80,312,445

as of December 31, 2022.

United States Treasury fixed maturity securities with an estimated fair value of $ 88,400,026 as of December

31, 2023 have been pledged at the FHLB of Des Moines as collateral for current and potential borrowings compared with $ 86,338,880 at

December 31, 2022.

As of December 31, 2023 and 2022, the Company had no outstanding FHLB borrowings.

As of December 31, 2023, the Company’s

total investment in FHLB stock was $ 453,600 compared with $ 856,800 as of December 31, 2022.

As of December 31, 2023, the Company was

contingently liable under standby letters of credit aggregating $ 5,823,496 .

These letters of credit are to be used to cover any contingency

related to additional risk assessments pertaining to the Company’s captive insurance program for $ 443,758 and for bonding of residential

land development for $ 5,379,738 .

Home Loan Bank of Dallas

December 31, 2022, the amount available for borrowings from the FHLB of Dallas was approximately $ 5,719,671 , compared with $ 7,794,625

at December 31, 2021.

Mortgage-Backed fixed maturity securities with an estimated fair value of $ 6,696,100 at December 31, 2022 have

been pledged at the FHLB of Dallas as collateral for current and potential borrowings compared with $ 8,774,352 at December 31, 2021.

At December 31, 2022 and 2021, the Company had no outstanding FHLB borrowings.

At December 31, 2022, the Company’s total investment

in FHLB stock was $ 1,743,500 compared with $ 1,720,300 at December 31, 2021.

of December 31, 2023, the amount available for borrowings from the FHLB of Dallas was approximately $ 5,104,610 , compared with $ 5,719,671

as of December 31, 2022.

Mortgage-Backed fixed maturity securities with an estimated fair value of $ 5,503,063 as of December 31, 2023

have been pledged at the FHLB of Dallas as collateral for current and potential borrowings compared with $ 6,696,100 at December 31, 2022.

As of December 31, 2023 and 2022, the Company had no outstanding FHLB borrowings.

As of December 31, 2023, the Company’s total

investment in FHLB stock was $ 1,826,200 compared with $ 1,743,500 as of December 31, 2022.

Lines of Credit

Company has a $ 2,000,000 revolving line-of-credit with a bank with interest payable at the Prime rate plus 0.75 % with a 3 % prime floor,

secured by the capital stock of Security National Life and maturing December 31, 2023 , renewable annually.

At December 31, 2022, the

secured by the capital stock of Security National Life and maturing March 31, 2024 , renewable annually.

As of December 31, 2023 , the

Company was contingently liable under standby letters of credit aggregating $ 38,290 , to be used as collateral for residential subdivision

land developments.

land development.

The standby letters of credit will draw on the line of credit if necessary.

4 unchanged sentences

Company also has a $ 2,500,000 revolving line-of-credit with a bank with interest payable at the daily simple SOFR plus 2.35 % , which includes

a mandatory .10% credit spread adjustment, maturing December 31, 2023 .

As of December 31, 2022, there were no amounts outstanding under

the revolving line-of-credit.

a mandatory .10% credit spread adjustment, maturing March 31, 2024 .

As of December 31, 2023, the Company was contingently liable under

standby letters of credit aggregating $ 1,250,000 , to be used as collateral for SecurityNational Mortgage’s state licensing.

standby letters of credit will draw on the line of credit if necessary.

The Company does not expect any material losses to result from

the issuance of the standby letters of credit.

As of December 31, 2023, there were no amounts outstanding under the revolving line-of-credit.

NATIONAL FINANCIAL CORPORATION

3 unchanged sentences

Covenants for Mortgage Warehouse Lines of Credit

Company, through its subsidiary SecurityNational Mortgage, has a $ 100,000,000 line of credit with Wells Fargo Bank N.A.

The agreement

charges interest at the 1-Month SOFR rate plus 2.1% and matures on June 2, 2023 .

SecurityNational Mortgage is required to comply with

covenants for adjusted tangible net worth, unrestricted cash balance, the ratio of indebtedness to adjusted tangible net worth, and the

liquidity overhead coverage ratio, and a quarterly gross profit of at least $ 1.00 .

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

This agreement with the

bank allows SecurityNational Mortgage to borrow up to $ 100,000,000 for the sole purpose of funding mortgage loans.

The agreement charges

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

The Company is required to comply with covenants for adjusted

tangible net worth, unrestricted cash balance, and minimum combined pre-tax income (excluding any changes in the fair value of mortgage

servicing rights) of at least $ 1.00 on a rolling four-quarter basis.

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

This agreement with the bank allows

SecurityNational Mortgage to borrow up to $ 75,000,000 for the sole purpose of funding mortgage loans.

The agreement charges interest

at the 1-Month SOFR rate plus 2.50% and matures on May 26, 2023 .

The Company is required to comply with covenants for adjusted tangible

net worth, unrestricted cash balance, and minimum combined pre-tax income (excluding any changes in the fair value of mortgage servicing

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

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

This agreement with the bank allows SecurityNational

Mortgage to borrow up to $ 50,000,000 for the sole purpose of funding mortgage loans.

The agreement charges interest at 2.10% plus the

greater of (i) 0% , and (ii) the one-month forward-looking term rate based on SOFR and matures on June 2, 2023 .

This agreement allows SecurityNational

Mortgage to borrow up to $ 100,000,000 for the sole purpose of funding mortgage loans (the “Texas Capital Bank Warehouse Line of

The agreement charges interest at the 1-Month SOFR rate plus 2.0% and matures on November 30, 2024 .

The Company is required

to comply with covenants for adjusted tangible net worth, unrestricted cash balance, and minimum combined pre-tax income (excluding any

changes in the fair value of mortgage servicing rights) of at least $ 1.00 on a rolling twelve months.

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

violation under the other agreement.

As of December 31, 2022, the Company was in compliance with all debt covenants.

changes in the fair value of mortgage servicing rights) of at least $ 1.00 on a rolling four-quarter basis.

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

This agreement allows SecurityNational

Mortgage to borrow up to $ 15,000,000 for the sole purpose of funding mortgage loans (the “U.S.

Bank Warehouse Line of Credit”

and, together with the Texas Capital Bank Warehouse Line of Credit, the “Warehouse Lines of Credit”).

The agreement charges

interest at 2.10% plus the greater of (i) 0% , and (ii) the one-month forward-looking term rate based on SOFR and matures on May 26, 2024 .

The Company is required to comply with covenants for adjusted tangible net worth, unrestricted cash balance, and minimum combined pre-tax

income (excluding any changes in the fair value of mortgage servicing rights) of at least $ 1.00 on a rolling twelve months.

agreements for the warehouse lines of credit include cross default provisions where certain events of default under other of SecurityNational

Mortgage’s obligations constitute events of default under the warehouse lines of credit.

As of December 31, 2023, the Company was

not in compliance with the net income covenant of the warehouse lines of credit and its operating cash flow covenant for its standby

letter of credit with its primary bank.

SecurityNational Mortgage has received or is in the process of receiving waivers under the warehouse

lines of credit from the warehouse banks.

In the unlikely event the Company is required to repay the outstanding advances of approximately

$ 7,732,000 on the warehouse line of credit that has not provided a covenant waiver, the Company has sufficient cash and borrowing capacity

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

The Company has performed an

internal analysis of its funding capacities of both internal and external sources and has determined that there are sufficient funds

to continue its business model.

The Company continues to negotiate other warehouse lines of credit with other lenders.

Covenants for Revolving Lines of Credit and Bank Loans

Company has debt covenants on its revolving lines of credit and is required to comply with minimum operating cash flow ratios and

minimum net worth for each of its business segments.

The Company also has debt covenants for one of its loans on real estate for a

minimum consolidated operating cash flow ratio, minimum liquidity, and consolidated net worth.

In addition to these financial debt

covenants, the company is required to provide segment specific financial statements and building specific financial statements on

all bank loans.

As of December 31, 2023, the Company was in compliance with all these debt covenants.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2023 and 2022

Bank and Other Loans Payable (Continued)

following tabulation shows the combined maturities of bank and other loans payable:

1 unchanged sentence

$ 105,555,137

expense in 2022 and 2021 was $ 7,830,443 and $ 7,127,516 , respectively.

Interest paid in 2022 and 2021 was $ 7,697,921 and $ 7,290,867 , respectively.

expense in 2023 and 2022 was $ 4,865,327

and $ 7,830,443 ,

respectively.

NATIONAL FINANCIAL CORPORATION

7 unchanged sentences

pursuant to GAAP.

Also, management has determined that the Company is the primary beneficiary of these trusts, as it absorbs both a majority

of the losses and returns associated with the trusts.

The Company has consolidated cemetery endowment care trust investments with a corresponding

amount recorded as Cemetery Perpetual Care Obligation in the accompanying consolidated balance sheets .

The Company is the primary beneficiary of these trusts, as it absorbs both the losses and any expenses associated with

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 December 31, 2023 are as follows:

of Investments

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

December 31, 2022:

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

Unrealized Gains

Unrealized Losses

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

of states and political subdivisions

securities including public utilities

fixed maturity securities available for sale

securities at estimated fair value:

miscellaneous and all other

$ ( 146,771 )

Total equity securities at estimated fair value

equity securities at estimated fair value

$ ( 146,771 )

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

loans held for investment at amortized cost:

Allowance for credit losses

mortgage loans held for investment

and cash equivalents

cemetery perpetual care trust investments

perpetual care obligation

$ ( 5,326,196 )

Trust investments in excess of trust obligations

investments in excess of trust obligations

NATIONAL FINANCIAL CORPORATION

3 unchanged sentences

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, 2021:

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

Unrealized Gains

Unrealized Losses

Fixed maturity securities, available for sale,

at estimated fair value:

securities and obligations of U.S.

Government agencies

of states and political subdivisions

fixed maturity securities available for sale

Equity securities at estimated fair value:

Common stock:

Industrial, miscellaneous and all other

Total equity securities at estimated fair value

Mortgage loans held for investment at amortized cost:

Industrial, miscellaneous

and all other

$ ( 175,163 )

equity securities at estimated fair value

$ ( 175,163 )

Mortgage loans held for investment at amortized

Residential construction

Real estate held for investment:

Real estate held

for investment:

Cash and cash equivalents

Total cemetery perpetual care trust investments

Cemetery perpetual care obligation

Total cemetery perpetual

care trust investments

Cemetery perpetual

care obligation

$ ( 5,099,542 )

Trust investments in excess of trust obligations

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 December 31,

2022 and at December 31, 2021.

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

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

of December 31, 2023 and 2022.

The unrealized losses were primarily related to interest rate fluctuations.

The tables set

1 unchanged sentence

of Fair Value of Fixed Maturity Securities

Unrealized Losses for Less than Twelve Months

Unrealized Losses for More than Twelve Months

Total Unrealized Loss

Losses for Less than Twelve Months

Losses for More than Twelve Months

Unrealized Loss

At December 31, 2023

Treasury securities and obligations of U.S.

Treasury securities and obligations

Government agencies

Obligations of states and political subdivisions

Corporate securities

including public utilities

Total unrealized losses

At December 31, 2022

Obligations of states and political subdivisions

Treasury securities and obligations of

Government agencies

Obligations of states

and political subdivisions

Total unrealized losses

were 5 securities with fair value of 96.4 % of aggregate amortized cost at December 31, 2022.

There were 2 securities with fair value

of 99.1 % of aggregate amortized cost at December 31, 2021.

No credit losses have been recognized for the years ended December 31, 2022

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

holdings were comprised of four securities with fair values aggregating 98.1 % of aggregate amortized cost as of December 31, 2023.

were five securities with fair values aggregating 96.4 % of aggregate amortized cost as of December 31, 2022.

No credit losses have been

recognized for 2023 and 2022, since the increase in unrealized losses is primarily a result of increases in interest rates.

Note 2 for additional information regarding the Company’s evaluation of the allowance for credit losses for fixed maturity securities

available for sale.

NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

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 December 31,

table below presents the amortized cost and estimated fair value of fixed maturity securities available for sale as of December 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.

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

4 unchanged sentences

Due in 5-10 years

Due in more than 10 years

Due in more than 10

Company has also established certain restricted assets to provide for future merchandise and service obligations incurred in connection

7 unchanged sentences

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

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

Unrealized Gains

Unrealized Losses

Fixed maturity securities, available for sale,

at estimated fair value:

securities and obligations of U.S.

Government agencies

Obligations of states and

political subdivisions

securities including public utilities

fixed maturity securities available for sale

Equity securities at estimated fair value:

Common stock:

Industrial, miscellaneous and all other

Industrial, miscellaneous

and all other

$ ( 247,996 )

Total equity securities at estimated fair value

equity securities at estimated fair value

$ ( 247,996 )

Mortgage loans held for investment at amortized cost:

Mortgage loans held for investment at amortized

Residential construction

Allowance for credit losses

Total mortgage loans

held for investment

Cash and cash equivalents

Total restricted assets

Total restricted

(1) Including cash

5 unchanged sentences

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

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

December 31, 2021:

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

Unrealized Gains

Unrealized Losses

Fixed maturity securities, available for sale,

at estimated fair value:

of states and political subdivisions

securities including public utilities

fixed maturity securities available for sale

Equity securities at estimated fair value:

Common stock:

Industrial, miscellaneous and all other

Total equity securities at estimated fair value

Industrial, miscellaneous

and all other

$ ( 310,165 )

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

(1) Including cash

and cash equivalents of $ 7,869,295 for the life insurance and mortgage segments.

and cash equivalents (1)

Total restricted

(1) Including cash and cash equivalents

of $ 8,527,620 for the life insurance and mortgage segments.

surplus note receivable in the amount of $ 4,000,000 at December 31, 2023 and 2022, from Security National Life, was eliminated in consolidation.

Maturity Securities

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

2022 and at December 31, 2021.

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

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

of December 31, 2023 and 2022.

The unrealized losses were primarily related to interest rate fluctuations.

The tables set

1 unchanged sentence

of Fair Value of Fixed Maturity Securities

Unrealized Losses for Less than Twelve Months

Unrealized Losses for More than Twelve Months

Total Unrealized Loss

Losses for Less than Twelve Months

Losses for More than Twelve Months

Unrealized Loss

At December 31, 2023

Treasury securities and obligations

Government agencies

Obligations of states and political subdivisions

Corporate securities including public utilities

Corporate securities

including public utilities

Total unrealized losses

1 unchanged sentence

Obligations of states and political subdivisions

Corporate securities including public utilities

Corporate securities

including public utilities

Total unrealized losses

were 17 securities with fair value of 98.2 % of aggregate amortized cost at December 31, 2022.

There were 4 securities with fair value

of 99.4 % of aggregate amortized cost at December 31, 2021.

No credit losses have been recognized for the years ended December 31, 2022

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

NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

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 December 31,

holdings were comprised of 12 securities with fair values aggregating 99.1 % of aggregate amortized cost as of December 31, 2023.

holdings were comprised of 17 securities with fair values aggregating of 98.2 % of aggregate amortized cost at December 31, 2022.

losses have been recognized for 2023 and 2022, since the increase in unrealized losses is primarily a result of increases in interest

See Note 3 for additional information regarding the Company’s evaluation of the allowance for credit losses for fixed maturity

securities available for sale.

table below presents the amortized cost and estimated fair value of fixed maturity securities available for sale as of December 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.

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

4 unchanged sentences

Due in 5-10 years

Due in more than 10 years

Due in more than 10

Notes 1, 2 and 17 for additional information regarding restricted assets and cemetery perpetual care trust investments.

4 unchanged sentences

Summary of Income Tax Liability

$ ( 1,558,687 )

components of the Company’s deferred tax assets and liabilities are approximately as follows:

1 unchanged sentence

Future policy benefits

$ ( 13,974,221 )

$ ( 13,015,255 )

Loan loss reserve

2 unchanged sentences

Deferred compensation

( 2,166,593 )

( 2,750,406 )

Deposit obligations

Tax on unrealized appreciation

( 2,590,726 )

( 1,712,895 )

Valuation allowance

Total deferred tax assets

( 1,506,144 )

( 19,408,939 )

Total deferred tax assets

Deferred policy acquisition costs

Basis difference in property, equipment and real estate

Basis difference in property, equipment and

Value of business acquired

Deferred gains

Tax on unrealized appreciation

Total deferred tax liabilities

10 unchanged sentences

( 7,400,620 )

( 2,553,385 )

Total Deferred Income Tax

1 unchanged sentence

( 2,495,489 )

( 9,954,005 )

reconciliation of income tax expense at the U.S.

2 unchanged sentences

Computed expense at statutory rate

State tax expense, net of federal tax benefit

State tax expense (benefit), net of federal tax

Change in valuation allowance

( 1,506,144 )

Income tax expense

Company’s overall effective tax rate for the years ended December 31, 2022 and 2021 was 25.3 % and 23.7 % respectively.

The Company’s

effective tax rates differ from the U.S.

federal statutory rate of 21 % partially due to its provision for state income taxes and an increase

to the valuation allowance related to Kilpatrick Life Insurance Company.

The increase in the effective tax rate when compared to the

prior year is partially due to an increase to the valuation allowance in the current period when compared to the prior period year.

December 31, 2022, the Company had no significant unrecognized tax benefits.

As of December 31, 2022, the Company does not expect any

material changes to the estimated amount of unrecognized tax benefits in the next twelve months.

Company’s overall effective tax rate for 2023 and 2022 was 11.1 % and 25.3 % respectively.

The Company’s effective tax rates

differ from the U.S.

federal statutory rate of 21 % partially due to its provision for state income taxes and a decrease to the valuation

allowance related to Kilpatrick Life Insurance Company.

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

due to a decrease to the valuation allowance in the current period when compared to the prior period year.

of December 31, 2023, the Company had no significant unrecognized tax benefits.

As of December 31, 2023, the Company does not expect

any material changes to the estimated amount of unrecognized tax benefits in the next twelve months.

Federal and state income tax returns

for 2020 through 2023 are subject to examination by taxing authorities.

Operating Losses and Tax Credit Carryforwards:

Summary of Operating Loss Carryforwards

Net Operating Losses and Tax Credit Carryforwards:

Year of Expiration

5 unchanged sentences

Reinsurance, Commitments and Contingencies

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

2022 and 2021.

The Company is liable for these amounts in the event such reinsurers are unable to pay their portion of the claims.

Company evaluates the financial condition of reinsurers and monitors the concentration of credit risk.

The Company had a significant

concentration of credit risk with a single reinsurer of 93.7 % and 93.6 % of ceded life insurance in force as of December 31, 2022 and

2021, respectively.

This represented approximately 11.3 % and 11.9 % of the Company’s total life insurance in force as of December

31, 2022 and 2021, respectively.

The Company has also assumed insurance from other companies.

See Financial Statement Schedule IV for

information regarding life insurance in force and premiums for reinsurance.

Company follows the procedure of reinsuring risks of more than a specified limit, which ranges from $ 25,000 to $ 100,000 on newly issued

The Company has also assumed various reinsurance agreements through acquisition of various life companies and has assets held

in trust related to certain agreements.

The Company is ultimately liable for these reinsured amounts in the event such reinsurers are

unable to pay their portion of the claims.

The Company evaluates the financial condition of reinsurers and monitors the concentration

of credit risk.

The Company had a significant concentration of credit risk with a single reinsurer of 94.0 % and 93.7 % of ceded life insurance

in force as of December 31, 2023 and 2022, respectively.

This represented approximately 8.8 % and 11.3 % of the Company’s total life

insurance in force as of December 31, 2023 and 2022, respectively.

See Financial Statement Schedule IV for information regarding life

insurance in force and premiums for reinsurance.

Loan Loss Settlements

loan losses can be extremely difficult to estimate.

However, the Company believes that its reserve methodology and its current practice

of property preservation allow it to estimate potential losses on loans sold.

The estimated liability for indemnification losses is included

in other liabilities and accrued expenses and, as of December 31, 2022 and 2021, the balances were $ 1,725,667 and $ 2,447,139 , respectively.

The Company believes that the loan loss reserve as of December 31, 2022, represents its best estimate for adequate loss reserves on loans

However, the Company believes that the Company’s reserve methodology and its

current practice of property preservation allow it to estimate potential losses on loans sold.

See Note 3 for additional information

about the Company’s loan loss reserve.

Non-Cancelable

2 unchanged sentences

Contingencies and Commitments

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

and development.

As of December 31, 2022, the Company’s commitments were approximately $ 231,250,000 , for these loans of which $ 175,754,000

had been funded.

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

The maximum loan

commitment ranges between 50 % and 80 % of appraised value.

The Company receives fees and interest for these loans and the interest rate

is generally fixed 5.25 % to 8.50 % per annum.

Company has commitments to fund existing construction and land development loans pursuant to the various loan agreements.

As of December

31, 2023, the Company’s commitments were approximately $ 146,953,000 for these loans, of which $ 104,977,000 had been funded.

Company advances funds in accordance with the loan agreements 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 at 5.25 % to 8.50 % per annum.

Maturities range between six and eighteen months.

Company belongs to a captive insurance group for certain casualty insurance, worker compensation and liability programs.

Insurance reserves

are maintained relative to these programs.

The level of exposure from catastrophic events is limited by the purchase of stop-loss and

aggregate liability reinsurance coverage.

When estimating the insurance liabilities and related reserves, the captive insurance management

considers a number of factors, which include historical claims experience, demographic factors, severity factors and valuations provided

by independent third-party actuaries.

If actual claims or adverse development of loss reserves occurs and exceed these estimates, additional

reserves may be required.

The estimation process contains uncertainty since captive insurance management must use judgment to estimate

the ultimate cost that will be incurred to settle reported claims and unreported claims for incidents incurred but not reported as of

the balance sheet date.

Company belongs to a captive insurance group (“the captive group”) for certain casualty insurance, worker compensation and

general liability programs.

The captive group maintains insurance reserves relative to these programs.

The level of exposure from catastrophic

events is limited by the purchase of stop-loss and aggregate liability reinsurance coverage.

When estimating the insurance liabilities

and related reserves, the captive group considers several factors, which include historical claims experience, demographic factors, severity

factors and valuations provided by independent third-party actuaries.

If actual claims or adverse development of loss reserves occurs

and exceed these estimates, additional reserves may be required from the Company and its members.

The estimation process contains uncertainty

since captive insurance management must use judgment to estimate the ultimate cost that will be incurred to settle reported claims and

unreported claims for incidents incurred but not reported as of the balance sheet date.

Company is a defendant in various other legal actions arising from the normal conduct of business.

Management believes that none of the

actions will have a material effect on the Company’s financial position or results of operations.

Based on management’s assessment

and legal counsel’s representations concerning the likelihood of unfavorable outcomes, no amounts have been accrued for the above

claims in the consolidated financial statements.

The Company believes that none of

the actions, if adversely determined, will have a material effect on the Company’s financial position or results of operations.

Based on the Company’s assessment and legal counsel’s representations concerning the likelihood of unfavorable outcomes,

no amounts have been accrued for the above claims in the consolidated financial statements.

The Company is not a party to any other material

legal proceedings outside the ordinary course of business or to any other legal proceedings, which, if adversely determined, would have

a material adverse effect on its financial condition or results of operations.

NATIONAL FINANCIAL CORPORATION

1 unchanged sentence

Ended December 31, 2023 and 2022

Reinsurance, Commitments and Contingencies (Continued)

Company is not a party to any other material legal proceedings outside the ordinary course of business or to any other legal proceedings,

which, if adversely determined, would have a material adverse effect on its financial condition or results of operations.

Retirement Plans

Company and its subsidiaries had a noncontributory Employee Stock Ownership Plan (“ESOP”) for all eligible employees.

November 25, 2019, the Company distributed a notice of intent to terminate the ESOP Plan to all current plan participants.

also filed Form 5310 application for determination for terminating plan, with the IRS on December 6, 2019.

As of the 4 th quarter

of 2020, the Company began to distribute the ESOP Plan assets to participants that had made a distribution election.

The Company received

approval of its application from the IRS and distributed all the remaining ESOP Plan assets to the participants during 2021.

Company has three 401(k) savings plans covering all eligible employees which includes employer participation in accordance with the provisions

Company has three 401(k) savings plans covering all eligible employees which include employer participation in accordance with the provisions

of Section 401(k) of the Internal Revenue Code.

1 unchanged sentence

and $ 20,500 for the years 2023 and 2022, respectively or the statutory limits.

Beginning in January 2008, the Company elected to be a

“Safe Harbor” Plan for its matching 401(k) contributions.

The Company matched 100% of up to 3% of an employee’s total

annual compensation and matched 50% of 4% to 5% of an employee’s annual compensation.

The Company matched 100% of up to 3% of an employee’s

total annual compensation and matched 50% of 4% to 5% of an employee’s annual compensation .

The match was in Company stock.

The Company’s

contribution for the years ended December 31, 2022 and 2021 was $ 2,573,956 and $ 2,820,315 , respectively under the “Safe Harbor”

2001, the Company’s Board of Directors adopted a Non-Qualified Deferred Compensation Plan, and this plan was amended in 2005.

the terms of the Plan, the Company will provide deferred compensation for a select group of management or highly compensated employees,

within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended.

Board has appointed a Committee of the Company to be the Plan Administrator and to determine the employees who are eligible to participate

The employees who participate may elect to defer a portion of their compensation into the plan.

The Company may contribute

into the plan at the discretion of the Company’s Board of Directors.

Company’s contribution for 2023 and 2022 was $ 1,819,275 and $ 2,573,956 , respectively under the plan.

Company has a Non-Qualified Deferred Compensation Plan.

Under the terms of the Plan, the Company will provide deferred compensation for

a select group of management or highly compensated employees, within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee

Retirement Income Security Act of 1974, as amended.

The Board has appointed a Committee of the Company to be the Plan Administrator and

to determine the employees who are eligible to participate in the plan.

The employees who participate may elect to defer a portion of

their compensation into the plan.

The Company may contribute into the plan at the discretion of the Company’s Board of Directors.

The Company did not make any contributions for 2023 and 2022.

11 unchanged sentences

then current level of compensation .

In the event that the Chief Executive Officer dies prior to receiving all retirement benefits thereunder,

the remaining benefits are to be paid to his heirs.

The Company expensed nil and $ 900,000 during the years ended December 31, 2022 and

2021, respectively, to cover the present value of anticipated retirement benefits under the employment agreement.

The liability accrued

was $ 7,556,363 and $ 7,556,363 as of December 31, 2022 and 2021, respectively.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2022 and 2021

Retirement Plans (Continued)

If the Chief Executive Officer dies prior to receiving all retirement benefits thereunder, the remaining

benefits are to be paid to his heirs.

The Company expensed nil and nil during 2023 and 2022, respectively, to cover the present value

of anticipated retirement benefits under the employment agreement.

The liability accrued was $ 7,556,363 and $ 7,556,363 as of December

31, 2023 and 2022, respectively.

Company, through its wholly owned subsidiary, SecurityNational Mortgage, also has an employment agreement with its former Vice President

4 unchanged sentences

Such retirement payments are paid monthly during the ten-year period.

In the event that this individual dies prior to receiving

all of his retirement benefits under his employment agreement, the remaining benefits will be made to his heirs.

The company paid $ 133,843

and $ 133,843 in retirement compensation to this individual during the years ended December 31, 2022 and 2021, respectively.

The liability

accrued was $ 401,529 and $ 535,370 as of December 31, 2022 and 2021, respectively and is included in Other liabilities and accrued expenses

on the consolidated balance sheets.

If this individual dies prior to receiving all his retirement

benefits under his employment agreement, the remaining benefits will be made to his heirs.

The company paid $ 133,843 and $ 133,843 in

retirement compensation to this individual during 2023 and 2022, respectively.

The liability accrued was $ 267,686 and $ 401,529 as of

December 31, 2023 and 2022, respectively and is included in other liabilities and accrued expenses on the consolidated balance sheets.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2023 and 2022

Capital Stock

7 unchanged sentences

of both Class A and Class C common stock have received 5% stock dividends in the years 1990 through 2019, a 7.5% stock dividend in the

year 2020, and a 5% stock dividend in the years 2021 and 2022, as authorized by the Company’s Board of Directors.

year 2020, and a 5% stock dividend in the years 2021 through 2023, as authorized by the Company’s Board of Directors .

Company has Class B common stock of $ 1.00 par value, 5,000,000 shares authorized, of which none are issued.

2 unchanged sentences

following table summarizes the activity in shares of capital stock.

of Activities in Shares of Capital Stock

Summary of Activities in Shares of Capital Stock

Outstanding shares at December

Exercise of stock options

Vesting of restricted stock units

Stock dividends

1 unchanged sentence

Outstanding shares at December 31, 2022

Common stock, shares, outstanding, beginning

Exercise of stock options

Vesting of restricted stock units

Stock dividends

1 unchanged sentence

Outstanding shares at December 31, 2023

Common stock, shares, outstanding, ending

NATIONAL FINANCIAL CORPORATION

6 unchanged sentences

Schedule of Earnings Per Share, Basic and Diluted

Years Ended December 31

Denominator for basic earnings per share-weighted-average shares

Ended December 31,

Denominator for basic

earnings per share-weighted-average shares

Effect of dilutive securities

Employee stock options

Unvested restricted stock units

Dilutive potential common shares

Denominator for diluted earnings per share-adjusted weighted-average

shares and assumed conversions

restricted stock units

potential common shares

for diluted earnings per share-adjusted weighted-average shares and assumed conversions

Basic earnings per share

Diluted earnings per share

the years ended December 31, 2022 and 2021, there were 339,150 and 50,000 of anti-dilutive employee stock option shares, respectively,

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

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

2023 and 2022, there were nil and 339,150 of anti-dilutive employee stock option shares, respectively, that were not included in the

computation of diluted net earnings per common share as their effect would be anti-dilutive.

Basic and diluted earnings per share amounts

are the same for each class of common stock.

NATIONAL FINANCIAL CORPORATION

2 unchanged sentences

Stock Compensation Plans

Company has three stock compensation plans (the “2013 Plan”, the “2014 Director Plan” and the “2022 Equity

Incentive Plan”).

based compensation expense for stock options issued of $ 929,321 and $ 118,384 has been recognized under these plans for the years ended

December 31, 2022 and 2021, respectively, and is included in personnel expenses on the consolidated statements of earnings.

As of December

31, 2022, the total unrecognized compensation expense related to the stock options issued was $ 506,701 , which is expected to be recognized

over the vesting period.

Company has equity incentive plans (the “2013 Plan”, the “2014 Director Plan” and the “2022 Plan”).

based compensation expense for stock options issued of $ 601,058 and $ 929,321 has been recognized under these plans for 2023 and 2022,

respectively, and is included in personnel expenses on the consolidated statements of earnings.

As of December 31, 2023, the total unrecognized

compensation expense related to the stock options issued was $ 677,948 , which is expected to be recognized over the remaining vesting

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

8 unchanged sentences

Schedule of Assumptions Used

Weighted-Average Fair Value of Each Option

Expected Dividend Yield (1)

Underlying stock FMV

Weighted-Average Volatility

Weighted-Average Risk-Free Interest Rate

Weighted-Average Expected Life (years)

Weighted-Average

Fair Value of Each Option

Dividend Yield (1)

Weighted-Average

Risk-Free Interest Rate

Weighted-Average

Expected Life (years)

December 1, 2023

January 30, 2023

January 18, 2023

December 2, 2022

7 unchanged sentences

Class A Shares

Weighted Average Exercise Price

Average Exercise Price

Class C Shares

Weighted Average Exercise Price

Average Exercise Price

Outstanding at January 1,

Adjustment for the effect of stock dividends

Adjustment for the effect

of stock dividends

Outstanding at December 31, 2022

Adjustment for the effect of stock dividends

Adjustment for the effect

of stock dividends

Outstanding at December 31, 2023

Exercisable at end of year

Available options for future grant

Weighted average contractual term of options

Exercisable at end of

Available options for

Weighted average contractual term of options outstanding at December

Weighted average contractual term of options exercisable at December

Aggregated intrinsic value of options

outstanding at December 31, 2023 (1)

Weighted average contractual term of options

Aggregated intrinsic value of options

exercisable at December 31, 2023 (1)

Aggregated intrinsic value of options outstanding at December 31, 2022 (1)

Aggregated intrinsic value of options exercisable at December 31, 2022 (1)

(1) The Company used

a stock price of $ 7.30 as of December 31, 2022 to derive intrinsic value.

(1) The Company used a stock price of

$ 9.00 as of December 31, 2023 to derive intrinsic value.

total intrinsic value (which is the amount by which the fair value of the underlying stock exceeds the exercise price of an option on

the exercise date) of stock options exercised during the years ended December 31, 2022 and 2021 was $ 619,064 and $ 1,153,417 , respectively.

the exercise date) of stock options exercised during 2023 and 2022 was $ 657,354 and $ 619,064 , respectively.

NATIONAL FINANCIAL CORPORATION

3 unchanged sentences

Stock Units (“RSUs”)

based compensation expense for RSUs issued of $ 371 and nil has been recognized under these plans for the years ended December 31, 2022

and 2021, respectively, and is included in personnel expenses on the consolidated statements of earnings.

As of December 31, 2022, the

total unrecognized compensation expense related to the RSUs issued was $ 742 , which is expected to be recognized over the vesting period

of three months.

The fair value of each RSU granted is determined based on the Company’s stock price on the date of grant.

weighted average grant date fair value of RSUs granted on December 2, 2022 was $ 6.48 .

based compensation expense for RSUs issued of $ 304 and $ 371 has been recognized under these plans for the 2023 and 2022, respectively,

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

As of December 31, 2023, the total unrecognized compensation

expense related to the RSUs issued was $ 3,263 , which is expected to be recognized over the remaining vesting period.

of the RSUs is summarized as follows:

1 unchanged sentence

Class A Shares

Weighted Average Grant Date Fair Value

Average Grant Date Fair Value

Non-vested at December 31,

Non-vested at December 31, 2023

Available RSUs for future grant

Aggregated intrinsic value of RSUs outstanding at December 31, 2022 (1)

(1) The Company used

a stock price of $ 7.30 as of December 31, 2022 to derive intrinsic value.

Available RSUs for future

NATIONAL FINANCIAL CORPORATION

19 unchanged sentences

Statutory Capital and Surplus

Years Ended December 31

Ended December 31,

Amounts by insurance subsidiary:

Security National Life Insurance Company

Security National Life Insurance

Kilpatrick Life Insurance Company

First Guaranty Insurance Company

Memorial Insurance Company of America

Southern Security Life Insurance Company, Inc.

Trans-Western Life Insurance Company

Trans-Western Life Insurance

$ 107,384,632

Utah, Louisiana, Mississippi, and Texas Insurance Departments impose minimum risk-based capital (“RBC”) requirements that

9 unchanged sentences

as of December 31, 2023.

The Company does not have any guarantees to maintain the capital and surplus of any affiliates except for the Company’s

agreement to provide additional capital to Security National Life Insurance Company in the event risk-based capital drops below 350% of

the authorized control level.

The Company does not have any guarantees to maintain the capital and surplus of any affiliates except for the

Company’s agreement to provide additional capital to Security National Life Insurance Company in the event risk-based capital drops

below 350% of the authorized control level.

the net assets of the life insurance subsidiaries available for transfer to the Company are limited to the amounts of the life insurance

4 unchanged sentences

Ended December 31, 2023 and 2022

Statutory Financial Information and Dividend Limitations (Continued)

14) Statutory

Financial Information and Dividend Limitations (Continued)

the Utah Insurance Code, Security National Life Insurance Company is permitted to pay stockholder dividends, or otherwise make distributions,

29 unchanged sentences

gain from operations as of December 31, 2023, the maximum aggregate amount of dividends and distributions that it could pay or make in

2023 and which would not constitute an “extraordinary” dividend or distribution under Louisiana law, and would therefore

not require notice and approval or lack of disproval from the Louisiana Commissioner, would be approximately $ 710,000 for First Guaranty

2024 and which would not constitute an “extraordinary” dividend or distribution under Louisiana law and would therefore not

require notice and approval or lack of disproval from the Louisiana Commissioner, would be approximately $ 742,000 for First Guaranty

Insurance Company and $ 1,973,000 for Kilpatrick Life Insurance Company.

2 unchanged sentences

Ended December 31, 2023 and 2022

Business Segment Information

Segment Information

of Products and Services by Segment

22 unchanged sentences

Ended December 31, 2023 and 2022

Business Segment Information (Continued)

Segment Information (Continued)

Schedule of Revenues and Expenses by Reportable Segment

4 unchanged sentences

$ 240,671,219

$ 305,495,176

Net investment income

Gains (losses) on investments and other assets

Other than temporary impairments

Other revenues

18 unchanged sentences

( 9,074,713 )

Earnings before income taxes

Income tax expense

Earnings (loss) before income taxes

$ ( 17,416,285 )

Income tax benefit (expense)

( 3,655,148 )

1 unchanged sentence

( 1,805,354 )

Identifiable assets

Net earnings (loss)

$ ( 13,435,202 )

Identifiable assets

$ 1,325,287,933

4 unchanged sentences

Ended December 31, 2023 and 2022

Business Segment Information (Continued)

Segment Information (Continued)

Year Ended December 31, 2022

5 unchanged sentences

Net investment income

Gains on investments and other assets

Other than temporary impairments

Gains (losses) on investments and other assets

Other revenues

32 unchanged sentences

Ended December 31, 2023 and 2022

Related Party Transactions

Party Transactions

Company’s Board of Directors has a written procedure, which requires disclosure to the Board of any material interest or any affiliation

on the part of any of its officers, directors or employees that is in conflict or may be in conflict with the interests of the Company.

The Company and its Board of Directors is unaware of any related party transactions that require disclosure as of December 31, 2022.

Fair Value of Financial Instruments

on the part of any of its officers, directors or employees that is in conflict or may conflict with the interests of the Company.

Company and its Board of Directors are unaware of any related party transactions that require disclosure as of December 31, 2023.

Value of Financial Instruments

defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal

5 unchanged sentences

value measurements are classified under the following hierarchy:

Financial assets and financial liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities

in an active market that the Company can access.

Financial assets and financial liabilities whose values are based on unadjusted quoted prices for identical assets or

liabilities in an active market that the Company can access.

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

Quoted prices for similar assets or liabilities in active markets;

Quoted prices for identical or similar assets or liabilities

in non-active markets;

Valuation models whose inputs are observable, directly or indirectly,

for substantially the full term of the asset or liability.

Financial assets and financial liabilities whose values are based on prices or valuation techniques that require inputs that are

both unobservable and significant to the overall fair value measurement.

These inputs may reflect the Company’s estimates of the

assumptions that market participants would use in valuing the financial assets and financial liabilities.

a) Quoted prices for similar assets or liabilities in active markets;

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

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

of the asset or liability.

Financial assets and financial liabilities whose values are based on prices or valuation techniques that require inputs that

are both unobservable and significant to the overall fair value measurement.

These inputs may reflect the Company’s estimates of

the assumptions that market participants would use in valuing financial assets and financial liabilities.

Company utilizes a combination of third-party valuation service providers, brokers, and internal valuation models to determine fair value.

10 unchanged sentences

Ended December 31, 2023 and 2022

Fair Value of Financial Instruments (Continued)

A portion of these assets include mutual funds, equity securities and fixed maturity securities available for sale that

have quoted market prices that are used to determine fair value.

Also included are cash and cash equivalents and participations in mortgage

The carrying amounts reported in the accompanying consolidated balance sheets for these financial instruments approximate their

fair values due to their short-term nature.

Value of Financial Instruments (Continued)

A portion of these assets include equity securities and fixed maturity securities available for sale that have quoted

market prices that are used to determine fair value.

Also included are cash and cash equivalents and participations in mortgage loans.

The carrying amounts reported in the accompanying consolidated balance sheets for these financial instruments approximate their fair

values due to their short-term nature.

Perpetual Care Trust Investments :

14 unchanged sentences

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

Fair value is often difficult to determine and may contain significant unobservable inputs.

Commitments and Forward Sale Commitments :

3 unchanged sentences

A loan commitment binds the Company to lend funds to a qualified borrower at a specified interest rate and within a specified period,

of time, generally up to 30 days after issuance of the loan commitment.

Loan commitments are defined to be derivatives under GAAP and

are recognized at fair value on the consolidated balance sheets with changes in their fair values recorded in current earnings.

generally up to 30 days after issuance of the loan commitment.

Loan commitments are defined to be derivatives under GAAP and are recognized

at fair value on the consolidated balance sheets with changes in their fair values recorded in current earnings.

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

12 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).

For residential

construction loans, the collateral is typically incomplete, so fair value is estimated as the replacement cost using data from a provider

of building cost information to the real estate construction.

The appraisal typically considers area comparable

properties and property condition as well as potential rental income that could be generated (particularly for commercial properties).

For residential construction loans, the collateral is typically incomplete, so fair value is estimated as the replacement cost using

data from a provider of building cost information to the real estate construction.

Real Estate Held for Investment :

7 unchanged sentences

Ended December 31, 2023 and 2022

Fair Value of Financial Instruments (Continued)

Value of Financial Instruments (Continued)

should be noted that for replacement cost, when determining the fair value of real estate held for investment, the Company uses a provider

11 unchanged sentences

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

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

their classification in the consolidated balance sheet as of December 31, 2023.

Schedule of Fair Value Assets and Liabilities Measured on a Recurring Basis

2 unchanged sentences

Significant Unobservable Inputs

Assets accounted for at fair value on a recurring basis

Assets accounted for at fair value on a

recurring basis

Fixed maturity securities available for sale

8 unchanged sentences

Derivatives - loan commitments (3)

Total assets accounted for at fair value on a recurring basis

Total assets accounted for at fair value on a

recurring basis

$ 540,924,801

1 unchanged sentence

$ 132,783,332

Liabilities accounted for at fair value on a recurring basis

Derivatives - call options (4)

Derivatives - put options (4)

Liabilities accounted for at fair value on a

recurring basis

Derivatives - loan commitments (4)

1 unchanged sentence

$ ( 3,412,224 )

Total liabilities accounted for at fair value on a recurring basis

Total liabilities accounted for at fair value

on a recurring basis

$ ( 3,412,224 )

10 unchanged sentences

Ended December 31, 2023 and 2022

Fair Value of Financial Instruments (Continued

Value of Financial Instruments (Continued)

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

their classification in the consolidated balance sheet at December 31, 2021.

their classification in the consolidated balance sheet as of December 31, 2022.

Quoted Prices in Active Markets for Identical Assets

13 unchanged sentences

Derivatives - loan commitments (3)

Total assets accounted for at fair value on a recurring basis

Total assets accounted for at fair value on a

recurring basis

$ 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

Total liabilities accounted for at fair value

on a recurring basis

$ ( 1,426,582 )

$ ( 1,382,979 )

(1) Fixed maturity

securities available for sale

(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

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

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

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

used in the fair value measurements were as follows:

Assets and Liabilities Measured at Fair Value on A Recurring Basis

Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis

Range of Inputs

14 unchanged sentences

Ended December 31, 2023 and 2022

Fair Value of Financial Instruments (Continued)

Value of Financial Instruments (Continued)

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

48 unchanged sentences

Transfer to mortgage loans held for investment

( 51,691,213 )

Total gains (losses):

12 unchanged sentences

Ended December 31, 2023 and 2022

Fair Value of Financial Instruments (Continued)

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

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

Value of Financial Instruments (Continued)

Company did not have any financial assets and financial liabilities measured at fair value on a nonrecurring basis as of December 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 consolidated balance sheet as of December 31, 2022.

Schedule of Fair Value Assets Measured on a Nonrecurring Basis

7 unchanged sentences

a nonrecurring basis

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

by their classification in the consolidated balance sheet at December 31, 2021.

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 basis

NATIONAL FINANCIAL CORPORATION

1 unchanged sentence

Ended December 31, 2023 and 2022

Fair Value of Financial Instruments (Continued)

Value of Financial Instruments (Continued)

Value of Financial Instruments Carried at Other Than Fair Value

1 unchanged sentence

balance sheet, for which it is practicable to estimate that value.

uses its best judgment in estimating the fair value of the Company’s financial instruments;

however, there are inherent limitations

in any estimation technique.

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

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

Company uses its best judgment in estimating the fair value of the Company’s financial instruments;

however, there are inherent

limitations in any estimation technique.

Therefore, for substantially all financial instruments, the fair value estimates presented herein

are not necessarily indicative of the amounts the Company could have realized in a sales transaction as of December 31, 2023 and 2022.

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

34 unchanged sentences

Ended December 31, 2023 and 2022

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,

54 unchanged sentences

Ended December 31, 2023 and 2022

Fair Value of Financial Instruments (Continued)

Value of Financial Instruments (Continued)

and Other Loans Payable :

The carrying amounts reported in the accompanying consolidated balance sheet for these financial instruments

approximate their fair values due to their relatively short-term maturities and variable interest rates.

The carrying amounts reported in the accompanying consolidated balance sheet for the warehouse lines

of credit approximate their fair values due to their relatively short-term maturities and variable interest rates.

The carrying amounts

reported in the accompanying consolidated balance sheet for the bank loans collateralized by real estate approximate their fair values

due to the non-assumable fixed rates.

Account Balances and Future Policy Benefits-Annuities :

2 unchanged sentences

Policy benefits

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

crediting rates for interest-sensitive insurance products ranged from 1.5% to 6.5%.

and claims that are charged to expense include benefit claims incurred in the period more than related policy account balances.

credit rates for interest-sensitive insurance products ranged from 1.5 % to 6.5 %.

The fair values for these investment-type insurance

5 unchanged sentences

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

Accumulated Other Comprehensive Income

following summarizes the changes in accumulated other comprehensive income:

Accumulated Other Comprehensive Income (loss)

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

Schedule of Changes in Accumulated Other Comprehensive Income

Unrealized gains on fixed maturity securities available for sale

$ ( 39,493,861 )

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

$ ( 39,493,861 )

Amounts reclassified into net earnings

Net unrealized gains before taxes

( 39,331,688 )

( 6,517,731 )

Net unrealized gains (losses) before taxes

( 39,331,688 )

Tax benefit (expense)

( 1,640,186 )

Unrealized gains on restricted assets (1)

Unrealized gains on cemetery perpetual care trust investments (1)

Unrealized gains before taxes

Unrealized gains for foreign currency translations adjustments

Other comprehensive income changes

( 31,072,032 )

Unrealized gains (losses) on restricted assets (1)

Tax benefit (expense)

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

Tax benefit (expense)

Other comprehensive income (loss) changes

$ ( 31,140,725 )

4 unchanged sentences

Ended December 31, 2023 and 2022

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

18) Accumulated

Other Comprehensive Income (loss) (Continued)

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

Schedule of Accumulated Balances of Other Comprehensive Income

1 unchanged sentence

Change for the period

Ending Balance December 31,

Ending Balance

Unrealized gains (losses) on fixed maturity securities

5 unchanged sentences

care trust investments (1)

Other comprehensive income

Other comprehensive income (loss)

$ ( 13,070,277 )

2 unchanged sentences

securities available for sale

following is the accumulated balances of other comprehensive income as of December 31, 2021:

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, 2021

Ending Balance

Unrealized gains (losses) on fixed maturity securities

1 unchanged sentence

$ ( 31,072,032 )

$ ( 13,050,767 )

Unrealized gains (losses) on restricted assets (1)

1 unchanged sentence

care trust investments (1)

Foreign currency translation adjustments

Other comprehensive income

Other comprehensive income (loss)

$ ( 31,140,725 )

$ ( 13,070,277 )

(1) Fixed maturity

4 unchanged sentences

19) Derivative Instruments

Company reports derivative instruments pursuant to the accounting policy discussed in Note 1 of the Notes to Consolidated Financial Statements.

following table shows the fair value and notional amounts of derivative instruments.

Schedule of Derivative Assets at Fair Value

of Derivative Assets at Fair Value

December 31, 2023

31 unchanged sentences

Ended December 31, 2023 and 2022

Funerals, Cremations and Memorial Gardens

December 21, 2021, the Company, through its wholly-owned subsidiary, Memorial Estates Inc., completed a business combination transaction

with Rivera Funerals, Cremations and Memorial Gardens.

The mortuaries and cemetery are located in New Mexico.

the terms of the transaction, as set forth in the Asset Purchase Agreement, dated December 21, 2021, Memorial Estates Inc.

purchase price of $ 10,693,395 for the business and assets of Rivera Funerals, Cremations and Memorial Gardens, subject to holdback amounts

held by Memorial Estates, Inc.

in the total amount of $ 1,120,000 .

Pursuant to the Asset Purchase Agreement, Memorial Estates, Inc.

$ 70,000 of the holdback amount to pay trade accounts payable of Rivera Funerals, Cremations and Memorial Gardens to third parties that

remained unpaid at the time of purchase.

The remaining $ 1,050,000 holdback amount is to be released and paid by Memorial Estates Inc.

in annual payments of up to $ 105,000 each, beginning in January 2023.

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

of Estimated Fair Values of Assets Acquired and Liabilities Assumed

Restricted assets (1)

Property and equipment (2)

Cemetery land and improvements

Total assets acquired

Cemetery perpetual care obligation

Other liabilities - holdback

( 1,120,000 )

Total liabilities assumed

( 1,738,006 )

Fair value of net assets acquired/consideration paid

(1) Includes $ 39,000

of cash and $ 579,006 of fixed maturity securities, available for sale, at estimated fair value which is a Level 2 asset in the fair value

(2) At estimated fair

value which is a Level 3 asset in the fair value hierarchy

(3) Including $ 2,310,000

of intangible assets

Funerals, Cremations and Memorial Gardens revenues and net earnings since the date of acquisition for the year ended December 31, 2021

were $ 137,386 and $ 14,892 , respectively.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2022 and 2021

Acquisitions (Continued)

December 28, 2021, the Company, through its wholly-owned subsidiary, Memorial Mortuary Inc., completed a business combination transaction

with Holbrook Mortuary located in Salt Lake City, Utah.

the terms of the transaction, as set forth in the Asset Purchase Agreement, dated December 28, 2021, Memorial Mortuary Inc.

purchase price of $ 3,051,747 for the business and assets of Holbrook Mortuary.

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

Estimated Fair Values of Assets Acquired and Liabilities Assumed

Property and equipment (1)

Total assets acquired

Fair value of net assets acquired/consideration paid

(1) At estimated fair

value which is a Level 3 asset in the fair value hierarchy

Mortuary’s revenues and net loss since the date of acquisition for the year ended December 31, 2021 were nil and $ ( 98,531 ) , respectively.

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2022 and 2021

Mortgage Servicing Rights

8 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

Balance before valuation allowance at year end

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

Balance at year end

3 unchanged sentences

expenses on the consolidated statements of earnings

following table summarizes the Company’s estimate of future amortization of its existing MSRs carried at amortized cost.

table below summarizes the Company’s estimate of future amortization of its existing MSRs carried at amortized cost.

This projection

was developed using the assumptions made by management in its December 31, 2022 valuation of MSRs.

The assumptions underlying the following

estimate will change as market conditions and portfolio composition and behavior change, causing both actual and projected amortization

levels to change over time.

Therefore, the following estimates will change in a manner and amount not presently determinable by management.

was developed using the Company’s assumptions in its December 31, 2023 valuation of MSRs.

The assumptions used in the following

table are likely to change as market conditions, portfolio composition and borrower behavior change, causing both actual and projected

amortization levels to change over time.

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

24 unchanged sentences

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 and anticipates the release of the holdbacks in the first quarter

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

completed the physical transfer of files prior to its deadline.

The holdbacks were received in 2023.

NATIONAL FINANCIAL CORPORATION

25 unchanged sentences

Net unpaid claims

following table provides a rollforward of the Company’s liability for reported but unpaid claims and incurred but not reported

following table provides a roll forward of the Company’s liability for reported but unpaid claims and incurred but not reported

claims, net of the related receivable from reinsurers.

35 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

14 unchanged sentences

payment of the contract does not constitute fulfillment of the performance obligation.

Goods or services are deferred until such time

Goods or services are deferred until such a time

the service is performed or merchandise is received.

27 unchanged sentences

net on the consolidated balance sheets

NATIONAL FINANCIAL CORPORATION

to Consolidated Financial Statements

Ended December 31, 2023 and 2022

Revenues from Contracts with Customers (Continued)

following table disaggregates the opening and closing balances of the Company’s contract balances.

26 unchanged sentences

Revenues from Contracts with Customers (Continued)

amount of revenue recognized for the years ended December 31, 2022 and 2021 that was included in the opening contract liability balance

was $ 4,588,290 and $ 4,528,646 , respectively.

amount of revenue recognized for 2023 and 2022 that was included in the opening contract liability balance was $ 4,539,540 and $ 4,588,290 ,

respectively.

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

16 unchanged sentences

Goods or services are not partially completed.

There are no significant judgements, estimations or allocation methods when revenue should be recognized.

There are no significant judgements, estimations, or allocation methods for when revenue should be recognized.

Company has not elected to use any of the practical expedients under ASC 606.

20 unchanged sentences

Revenue is recognized on pre-need land sales when the customer has paid at least 10% toward the land price.

In cases where customers pay less than 10% the revenue and associated commissions are deferred until such time when 10% of the contract

In cases where customers pay less than 10% the revenue and associated commissions are deferred until such a time when 10% of the contract

price is received.

following table disaggregates contract costs that are included in deferred policy and pre-need contract acquisition costs on the consolidated

balances sheets.

Reconciliation of Revenues from Cemetery and mortuary contracts to Business Segment Information

following table disaggregates contract costs that are included in the deferred policy and pre-need contract acquisition costs on the

consolidated balances sheets.

of Reconciliation of Revenues from Cemetery and mortuary contracts to Business Segment Information

Years Ended December 31

5 unchanged sentences

lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment

(an identified asset) for a period of time in exchange for consideration.

The Company determines if a contract is a lease at the inception

of the contract.

(an identified asset) for a period in exchange for consideration.

The Company determines if a contract is a lease at the inception of

the contract.

At the commencement date of a lease, the Company measures the lease liability at the present value of the lease payments

100 unchanged sentences

Bank and other loans payable

Company is also a lessor and has operating lease agreements with various tenants that lease its commercial and residential properties.

See Note 2 for information about the Company’s real estate held for investment.

Company is also a lessor and has operating lease agreements with various tenants that lease its commercial properties.

See Note 2 for

information about the Company’s real estate held for investment.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data