SECURITY NATIONAL FINANCIAL CORP 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2024 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to ________ Commission File Number: 000-09341 Security National Financial Corporation (Exact name of registrant as specified in its charter) utah 87-0345941 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 433 Ascension Way , 6th Floor , Salt Lake City , Utah 84123 (Address of principal executive offices) (Zip Code) (801) 264-1060 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading symbol Name of each exchange on which registered Class A Common Stock SNFCA The Nasdaq Global Select Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of August 6, 2024, the registrant had 21,099,277 shares of Class A Common Stock, $ 2.00 par value, outstanding and 3,120,166 shares of Class C Common Stock, $ 2.00 par value, outstanding. SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 2024 Table of Contents Page No. Part I - Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2024 (unaudited) and December 31, 2023 3-4 Condensed Consolidated Statements of Earnings for the three and six month periods ended June 30, 2024 and 2023 (unaudited) 5 Condensed Consolidated Statements of Comprehensive Income for the three and six month periods ended June 30, 2024 and 2023 (unaudited) 6 Condensed Consolidated Statements of Stockholders’ Equity as of June 30, 2024 and June 30, 2023 (unaudited) 7 Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2024 and 2023 (unaudited) 8-9 Notes to Condensed Consolidated Financial Statements (unaudited) 10 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 66 Item 3. Quantitative and Qualitative Disclosures about Market Risk 72 Item 4. Controls and Procedures 72 Part II - Other Information Item 1. Legal Proceedings 72 Item 1A. Risk Factors 72 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 72 Item 3. Defaults Upon Senior Securities 73 Item 4. Mine Safety Disclosures 73 Item 5. Other Information 73 Item 6. Exhibits 74 Signatures 75 2 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS Part I - Financial Information Item 1. Financial Statements. June 30, 2024 (Unaudited) December 31, 2023 Assets Investments: Fixed maturity securities, available for sale, at estimated fair value (amortized cost of $ 360,599,601 and $ 390,884,441 for 2024 and 2023, respectively; net of allowance for credit losses of $ 394,260 and $ 314,549 for 2024 and 2023, respectively) $ 349,358,027 $ 381,535,986 Equity securities at estimated fair value (cost of $ 11,266,705 and $ 10,571,505 for 2024 and 2023, respectively) 15,019,179 13,636,071 Mortgage loans held for investment (net of allowance for credit losses of $ 2,853,852 and $ 3,818,653 for 2024 and 2023, respectively) 284,343,531 275,616,837 Real estate held for investment (net of accumulated depreciation of $ 28,582,113 and $ 29,307,791 for 2024 and 2023, respectively) 188,320,653 183,419,292 Real estate held for sale 1,010,530 3,028,973 Other investments and policy loans (net of allowance for credit losses of $ 1,535,324 and $ 1,553,836 for 2024 and 2023, respectively) 72,520,587 69,404,617 Accrued investment income 8,838,006 10,170,790 Total investments 919,410,513 936,812,566 Cash and cash equivalents 143,632,984 126,941,658 Loans held for sale at estimated fair value 150,196,416 126,549,190 Receivables (net of allowance for credit losses of $ 1,770,911 and $ 1,897,887 for 2024 and 2023, respectively) 13,962,320 15,335,315 Restricted assets (including $ 10,107,237 and $ 9,239,063 for 2024 and 2023 respectively, at estimated fair value) 22,600,416 20,028,976 Cemetery perpetual care trust investments (including $ 5,197,829 and $ 4,969,005 for 2024 and 2023, respectively, at estimated fair value) 8,452,082 8,082,917 Receivable from reinsurers 14,443,938 14,857,059 Cemetery land and improvements 9,546,015 9,163,691 Deferred policy and pre-need contract acquisition costs 119,038,952 116,351,067 Mortgage servicing rights, net 3,172,109 3,461,146 Property and equipment, net 18,048,120 19,175,099 Value of business acquired 8,076,263 8,467,613 Goodwill 5,253,783 5,253,783 Other 24,890,610 20,072,195 Total Assets $ 1,460,724,521 $ 1,430,552,275 See accompanying notes to condensed consolidated financial statements (unaudited). 3 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) June 30, 2024 (Unaudited) December 31, 2023 Liabilities and Stockholders’ Equity Liabilities Future policy benefits and unpaid claims $ 931,047,632 $ 916,038,616 Unearned premium reserve 2,441,180 2,543,822 Bank and other loans payable 103,540,666 105,555,137 Deferred pre-need cemetery and mortuary contract revenues 18,917,596 18,237,246 Cemetery perpetual care obligation 5,487,676 5,326,196 Accounts payable 3,295,434 2,936,968 Other liabilities and accrued expenses 55,612,594 53,266,090 Income taxes 14,615,750 13,752,981 Total liabilities 1,134,958,528 1,117,657,056 Stockholders’ Equity Preferred Stock - non-voting - $ 1.00 par value; 5,000,000 shares authorized; none issued or outstanding - - Class A: common stock - $ 2.00 par value; 40,000,000 shares authorized; 21,085,936 shares issued and outstanding as of June 30, 2024 and 20,048,002 shares issued and outstanding as of December 31, 2023 42,171,872 40,096,004 Class B: non-voting common stock - $ 1.00 par value; 5,000,000 shares authorized; none issued or outstanding - - Class C: convertible common stock - $ 2.00 par value; 6,000,000 shares authorized; 3,120,166 shares issued and outstanding as of June 30, 2024 and 2,971,854 shares issued and outstanding as of December 31, 2023 6,240,332 5,943,708 Common stock value 6,240,332 5,943,708 Additional paid-in capital 78,752,885 72,424,429 Accumulated other comprehensive loss, net of taxes ( 8,297,785 ) ( 6,885,558 ) Retained earnings 213,570,620 206,978,373 Treasury stock at cost - 966,102 Class A shares and 37,503 Class C shares as of June 30, 2024; and 806,311 Class A shares and 35,717 Class C shares as of December 31, 2023 ( 6,671,931 ) ( 5,661,737 ) Total stockholders’ equity 325,765,993 312,895,219 Total Liabilities and Stockholders’ Equity $ 1,460,724,521 $ 1,430,552,275 See accompanying notes to condensed consolidated financial statements (unaudited). 4 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) 2024 2023 2024 2023 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenues: Mortgage fee income $ 29,619,516 $ 26,078,753 $ 51,451,186 $ 52,067,759 Insurance premiums and other considerations 29,960,558 28,813,299 59,812,651 56,780,591 Net investment income 18,044,808 20,171,974 37,991,376 37,946,857 Net mortuary and cemetery sales 7,768,947 7,168,714 14,717,438 13,640,143 Gains (losses) on investments and other assets ( 377,239 ) 816,584 1,292,187 927,738 Other 774,746 796,835 1,714,696 1,983,805 Total revenues 85,791,336 83,846,159 166,979,534 163,346,893 Benefits and expenses: Death benefits 14,070,165 15,455,305 29,783,918 32,133,671 Surrenders and other policy benefits 1,042,940 950,657 2,258,733 2,083,350 Increase in future policy benefits 9,212,937 8,499,804 18,558,824 16,554,743 Amortization of deferred policy and pre-need acquisition costs and value of business acquired 4,301,389 4,251,321 9,045,302 9,134,902 Selling, general and administrative expenses: Commissions 13,452,841 10,736,126 21,434,058 20,409,436 Personnel 20,802,576 20,508,415 40,657,711 42,470,927 Advertising 786,217 965,753 1,473,872 1,869,164 Rent and rent related 1,297,239 1,831,011 2,698,716 3,607,791 Depreciation on property and equipment 592,899 587,213 1,180,348 1,175,629 Costs related to funding mortgage loans 1,533,881 1,841,367 2,982,976 3,683,709 Other 6,999,384 7,403,409 13,285,294 15,183,944 Interest expense 1,073,816 1,414,802 2,101,290 2,868,135 Cost of goods and services sold-mortuaries and cemeteries 1,235,459 1,251,643 2,509,588 2,437,271 Total benefits and expenses 76,401,743 75,696,826 147,970,630 153,612,672 Earnings before income taxes 9,389,593 8,149,333 19,008,904 9,734,221 Income tax expense ( 2,118,044 ) ( 1,796,627 ) ( 4,262,833 ) ( 2,141,343 ) Net earnings $ 7,271,549 $ 6,352,706 $ 14,746,071 $ 7,592,878 Net earnings per Class A Equivalent common share (1) $ 0.31 $ 0.27 $ 0.63 $ 0.33 Net earnings per Class A Equivalent common share-assuming dilution (1) $ 0.30 $ 0.27 $ 0.62 $ 0.32 Weighted-average Class A equivalent common shares outstanding (1) 23,297,455 23,110,818 23,313,768 23,172,477 Weighted-average Class A equivalent common shares outstanding-assuming dilution (1) 23,873,958 23,702,284 23,976,904 23,750,919 (1) Net earnings per share amounts have been adjusted retroactively for the effect of annual stock dividends. The weighted-average shares outstanding includes the weighted-average Class A common shares and the weighted-average Class C common shares determined on an equivalent Class A common stock basis. Net earnings per common share represent net earnings per equivalent Class A common share. See accompanying notes to condensed consolidated financial statements (unaudited). 5 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) 2024 2023 2024 2023 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net earnings $ 7,271,549 $ 6,352,706 $ 14,746,071 $ 7,592,878 Other comprehensive income: Unrealized gains (losses) on fixed maturity securities available for sale $ ( 650,489 ) ( 4,993,177 ) ( 1,782,140 ) 224,852 Unrealized losses on restricted assets (1) ( 1,694 ) ( 6,189 ) ( 3,583 ) ( 2,056 ) Unrealized losses on cemetery perpetual care trust investments (1) ( 1,052 ) ( 3,738 ) ( 1,825 ) ( 812 ) Other comprehensive income (loss), before income tax ( 653,235 ) ( 5,003,104 ) ( 1,787,548 ) 221,984 Income tax (expense) benefit 136,106 1,051,052 375,321 ( 46,478 ) Other comprehensive income (loss), net of income tax ( 517,129 ) ( 3,952,052 ) ( 1,412,227 ) 175,506 Comprehensive income $ 6,754,420 $ 2,400,654 $ 13,333,844 $ 7,768,384 (1) Fixed maturity securities available for sale See accompanying notes to condensed consolidated financial statements (unaudited). 6 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Class A Common Stock Class C Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock Total Six Months Ended June 30, 2024 Class A Common Stock Class C Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock Total January 1, 2024 $ 40,096,004 $ 5,943,708 $ 72,424,429 $ ( 6,885,558 ) $ 206,978,373 $ ( 5,661,737 ) $ 312,895,219 Net earnings - - - - 7,474,522 - 7,474,522 Other comprehensive loss - - - ( 895,098 ) - - ( 895,098 ) Stock-based compensation expense - - 199,887 - - - 199,887 Vesting of restricted stock units 810 - ( 810 ) - - - - Sale of treasury stock - - 103,788 - - 366,733 470,521 Purchase of treasury stock - - - - - ( 41,077 ) ( 41,077 ) Conversion Class C to Class A 348 ( 348 ) - - - - - March 31, 2024 $ 40,097,162 $ 5,943,360 $ 72,727,294 $ ( 7,780,656 ) $ 214,452,895 $ ( 5,336,081 ) $ 320,103,974 Net earnings - - - - 7,271,549 - 7,271,549 Other comprehensive loss - - - ( 517,129 ) - - ( 517,129 ) Stock-based compensation expense - - 184,066 - - - 184,066 Exercise of stock options 64,164 - ( 17,982 ) - - - 46,182 Vesting of restricted stock units 920 - ( 920 ) - - - - Sale of treasury stock - - 13,201 - - 252,208 265,409 Purchase of treasury stock - - - - - ( 1,588,058 ) ( 1,588,058 ) Conversion Class C to Class A 184 ( 184 ) - - - - - Stock dividends 2,009,442 297,156 5,847,226 - ( 8,153,824 ) - - June 30, 2024 $ 42,171,872 $ 6,240,332 $ 78,752,885 $ ( 8,297,785 ) $ 213,570,620 $ ( 6,671,931 ) $ 325,765,993 Six Months Ended June 30, 2023 Class A Common Stock Class C Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock Total January 1, 2023 $ 37,516,062 $ 5,779,718 $ 64,767,769 $ ( 13,070,277 ) $ 202,160,306 $ ( 4,366,651 ) $ 292,786,927 Adoption of ASU 2016-13 - - - - ( 671,506 ) - ( 671,506 ) Net earnings - - - - 1,240,172 - 1,240,172 Other comprehensive income - - - 4,127,558 - - 4,127,558 Stock-based compensation expense - - 143,671 - - - 143,671 Exercise of stock options 96,092 - ( 62,073 ) - - - 34,019 Sale of treasury stock - - ( 43,493 ) - - 620,651 577,158 Purchase of treasury stock - - - - - ( 1,204,357 ) ( 1,204,357 ) Conversion Class C to Class A 1,872 ( 1,872 ) - - - - - March 31, 2023 $ 37,614,026 $ 5,777,846 $ 64,805,874 $ ( 8,942,719 ) $ 202,728,972 $ ( 4,950,357 ) $ 297,033,642 Balance $ 37,614,026 $ 5,777,846 $ 64,805,874 $ ( 8,942,719 ) $ 202,728,972 $ ( 4,950,357 ) $ 297,033,642 Net earnings - - - - 6,352,706 - 6,352,706 Other comprehensive loss - - - ( 3,952,052 ) - - ( 3,952,052 ) Other comprehensive income (loss) - - - ( 3,952,052 ) - - ( 3,952,052 ) Stock-based compensation expense - - 141,954 - - - 141,954 Exercise of stock options 159,284 - ( 154,424 ) - - - 4,860 Vesting of restricted stock units 810 - ( 810 ) - - - - Sale of treasury stock - - ( 54,350 ) - - 623,056 568,706 Purchase of treasury stock - - 126,990 - - ( 1,514,049 ) ( 1,387,059 ) Conversion Class C to Class A 113,930 ( 113,930 ) - - - - - Stock dividends 1,899,350 283,188 6,820,431 - ( 9,002,969 ) - - June 30, 2023 $ 39,787,400 $ 5,947,104 $ 71,685,665 $ ( 12,894,771 ) $ 200,078,709 $ ( 5,841,350 ) $ 298,762,757 Balance $ 39,787,400 $ 5,947,104 $ 71,685,665 $ ( 12,894,771 ) $ 200,078,709 $ ( 5,841,350 ) $ 298,762,757 7 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) 2024 2023 Six Months Ended June 30, 2024 2023 Cash flows from operating activities: Net cash provided by operating activities $ 8,104,137 $ 2,181,039 Cash flows from investing activities: Purchases of fixed maturity securities ( 34,437,326 ) ( 28,549,767 ) Sales, calls and maturities of fixed maturity securities 65,265,141 19,851,603 Purchases of equity securities ( 2,658,514 ) ( 5,949,902 ) Sales of equity securities 1,996,963 5,430,156 Purchases of restricted assets ( 1,116,336 ) ( 1,148,199 ) Sales, calls and maturities of restricted assets 483,871 64,746 Purchases of cemetery perpetual care trust investments ( 49,443 ) ( 355,152 ) Sales, calls and maturities of perpetual care trust investments 122,773 91,504 Mortgage loans held for investment, other investments and policy loans made ( 364,394,871 ) ( 326,286,179 ) Payments received for mortgage loans held for investment, other investments and policy loans 352,904,166 369,206,657 Purchases of property and equipment ( 423,139 ) ( 527,285 ) Sales of property and equipment 377,521 10,973 Purchases of real estate ( 27,823,031 ) ( 3,971,593 ) Sales of real estate 23,136,542 20,684,319 Net cash provided by investing activities 13,384,317 48,551,881 Cash flows from financing activities: Investment contract receipts 6,775,570 6,103,142 Investment contract withdrawals ( 7,864,720 ) ( 7,663,735 ) Proceeds from stock options exercised 46,182 38,879 Purchases of treasury stock ( 1,629,135 ) ( 2,591,416 ) Repayment of bank loans ( 939,619 ) ( 68,658,021 ) Proceeds from bank loans - 66,000,000 Net change in warehouse line borrowings for loans held for sale ( 1,114,584 ) ( 55,805,126 ) Net cash used in financing activities ( 4,726,306 ) ( 62,576,277 ) Net change in cash, cash equivalents, restricted cash and restricted cash equivalents 16,762,148 ( 11,843,357 ) Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period 139,923,399 133,483,817 Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period $ 156,685,547 $ 121,640,460 Supplemental Disclosure of Cash Flow Information: Cash paid during the year for: Interest $ 2,107,045 $ 3,056,099 Income taxes (net of refunds) 3,024,742 17,458,807 Non Cash Operating, Investing and Financing Activities: Transfer of loans held for sale to mortgage loans held for investment $ 1,867,552 $ 1,150,074 Right-of-use assets obtained in exchange for operating lease liabilities 1,130,610 139,095 Loans held for sale foreclosed into real estate held for sale 858,977 - Benefit plans funded with treasury stock 735,930 1,145,864 Right-of-use assets obtained in exchange for finance lease liabilities - 12,332 Transfer from mortgage loans held for investment to restricted assets - 1,625,961 Transfer from mortgage loans held for investment to cemetery perpetual care trust investments - 1,611,550 8 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited) Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents as shown in the condensed consolidated statements of cash flows is presented in the table below: Six Months Ended June 30, 2024 2023 Cash and cash equivalents $ 143,632,984 $ 110,285,941 Restricted assets 11,849,488 10,276,918 Cemetery perpetual care trust investments 1,203,075 1,077,601 Total cash, cash equivalents, restricted cash and restricted cash equivalents $ 156,685,547 $ 121,640,460 Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period $ 156,685,547 $ 121,640,460 See accompanying notes to condensed consolidated financial statements (unaudited). 9 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 1) Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Articles 8 and 10 of Regulation S-X. Accordingly, they do not include all the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements of the Company and notes thereto for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K (File Number 000-09341). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to adopt policies and make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. In applying these policies and estimates, the Company makes judgments that frequently require assumptions about matters that are inherently uncertain. Accordingly, significant estimates used in the preparation of the Company’s financial statements may be subject to significant adjustments in future periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near term are those used in determining the value of derivative assets and liabilities; 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 or sale; those used in determining the liability for future policy benefits and unearned revenue; those used in determining the estimated future costs for pre-need sales; those used in determining the value of mortgage servicing rights; those used in determining the value of loans held for sale; those used in determining allowances for credit losses; those used in determining loan loss reserve; and those used in determining deferred tax assets and liabilities. Although some variability is inherent in these estimates, management believes the amounts provided are fairly stated in all material respects. 10 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 2) Recent Accounting Pronouncements Accounting Standards Adopted in 2023 ASU No. 2016-13: “Financial Instruments – Credit Losses (Topic 326)” — Issued in September 2016, ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis (such as mortgage loans held for investment and held to maturity debt securities) and available for sale debt securities. For assets held at 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. Schedule of Increased (Decrease) in Allowances for Credit Losses Upon ASU Amount Mortgage loans held for investment: Residential $ ( 192,607 ) Residential construction 301,830 Commercial 555,807 Total 665,030 Restriced assets - mortgage loans held for investment: Residential construction 3,463 Cemetery perpetual care trust investments - mortgage loans held for investment: Residential construction 3,013 Grand Total 671,506 Accounting Standards Issued But Not Yet Adopted ASU No. 2018-12: “Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts” — Issued in August 2018, ASU 2018-12 is intended to improve the timeliness of recognizing changes in the liability for future policy benefits on traditional long-duration contracts by requiring that assumptions be updated after contract inception and by modifying the rate used to discount future cash flows. The 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 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. 11 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 2) Recent Accounting Pronouncements (Continued) ASU No. 2023-09: “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. ASU No. 2023-07: “Segment Reporting (Topic 280): 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 basis; (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 of the CODM. ASU 2023-07 is effective for the Company for annual periods beginning January 1, 2024 and interim periods beginning January 1, 2025. The Company is in the process of estimating the impact of the new guidance on the consolidated financial statements. The Company has reviewed other recent accounting pronouncements and has determined that they will not significantly impact the Company’s results of operations or financial position. 12 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments The Company’s investments as of June 30, 2024 are summarized as follows: Schedule of Investments Amortized Cost Gross Unrealized Gains Gross Unrealized Losses (1) Allowance for Credit Losses Estimated Fair Value June 30, 2024: Fixed maturity securities, available for sale, at estimated fair value: U.S. Treasury securities and obligations of U.S. Government agencies $ 84,577,137 $ 92,975 $ ( 961,257 ) $ - $ 83,708,855 Obligations of states and political subdivisions 6,030,338 348 ( 289,225 ) - 5,741,461 Corporate securities including public utilities 232,747,782 2,272,483 ( 7,783,014 ) ( 382,211 ) 226,855,040 Mortgage-backed securities 36,994,344 260,021 ( 4,449,645 ) ( 12,049 ) 32,792,671 Redeemable preferred stock 250,000 10,000 - - 260,000 Total fixed maturity securities available for sale $ 360,599,601 $ 2,635,827 $ ( 13,483,141 ) $ ( 394,260 ) $ 349,358,027 Equity securities at estimated fair value: Common stock: Industrial, miscellaneous and all other $ 11,266,705 $ 4,219,352 $ ( 466,878 ) $ 15,019,179 Total equity securities at estimated fair value $ 11,266,705 $ 4,219,352 $ ( 466,878 ) $ 15,019,179 Mortgage loans held for investment at amortized cost: Residential $ 103,667,890 Residential construction 112,571,713 Commercial 73,221,774 Less: Unamortized deferred loan fees, net ( 1,952,616 ) Less: Allowance for credit losses ( 2,853,852 ) Less: Net discounts ( 311,378 ) Total mortgage loans held for investment $ 284,343,531 Real estate held for investment - net of accumulated depreciation: Residential $ 60,200,289 Commercial 128,120,364 Total real estate held for investment $ 188,320,653 Real estate held for sale: Residential $ 858,977 Commercial 151,553 Total real estate held for sale $ 1,010,530 Other investments and policy loans at amortized cost: Policy loans $ 13,472,198 Insurance assignments 48,406,690 Federal Home Loan Bank stock (2) 2,350,500 Other investments 9,826,523 Less: Allowance for credit losses for insurance assignments ( 1,535,324 ) Total other investments and policy loans $ 72,520,587 Accrued investment income $ 8,838,006 Total investments $ 919,410,513 (1) Gross unrealized losses are net of allowance for credit losses (2) Includes $ 553,900 of Membership stock and $ 1,796,600 of Activity stock attributable to short-term borrowings and letters of credit. 13 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) The Company’s investments as of December 31, 2023 are summarized as follows: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses (1) Allowance for Credit Losses Estimated Fair Value December 31, 2023: Fixed maturity securities, available for sale, at estimated fair value: U.S. Treasury securities and obligations of U.S. Government agencies $ 111,450,753 $ 344,425 $ ( 1,416,448 ) $ - $ 110,378,730 Obligations of states and political subdivisions 6,524,083 500 ( 319,260 ) - 6,205,323 Corporate securities including public utilities 232,299,727 3,688,642 ( 7,145,507 ) ( 308,500 ) 228,534,362 Mortgage-backed securities 40,359,878 506,647 ( 4,702,905 ) ( 6,049 ) 36,157,571 Redeemable preferred stock 250,000 10,000 - - 260,000 Total fixed maturity securities available for sale $ 390,884,441 $ 4,550,214 $ ( 13,584,120 ) $ ( 314,549 ) $ 381,535,986 Equity securities at estimated fair value: Common stock: Industrial, miscellaneous and all other $ 10,571,505 $ 3,504,141 $ ( 439,575 ) $ 13,636,071 Total equity securities at estimated fair value $ 10,571,505 $ 3,504,141 $ ( 439,575 ) $ 13,636,071 Mortgage loans held for investment at amortized cost: Residential $ 103,153,587 Residential construction 104,052,748 Commercial 74,176,538 Less: Unamortized deferred loan fees, net ( 1,623,226 ) Less: Allowance for credit losses ( 3,818,653 ) Less: Net discounts ( 324,157 ) Total mortgage loans held for investment $ 275,616,837 Real estate held for investment - net of accumulated depreciation: Residential $ 40,924,865 Commercial 142,494,427 Total real estate held for investment $ 183,419,292 Real estate held for sale: Residential $ - Commercial 3,028,973 Total real estate held for sale $ 3,028,973 Other investments and policy loans at amortized cost: Policy loans $ 13,264,183 Insurance assignments 45,605,322 Federal Home Loan Bank stock (2) 2,279,800 Other investments 9,809,148 Less: Allowance for credit losses for insurance assignments ( 1,553,836 ) Total policy loans and other investments $ 69,404,617 Accrued investment income $ 10,170,790 Total investments $ 936,812,566 (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. 14 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) There 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 June 30, 2024, other than investments issued or guaranteed by the United States Government. Fixed Maturity Securities The table below summarizes unrealized losses on fixed maturity securities available for sale that were carried at estimated fair value as of June 30, 2024 and December 31, 2023. The fair values of fixed maturity securities are based on quoted market prices, when available. For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services, or in the case of private placements, are estimated by discounting expected future cash flows using a current market value applicable to the coupon rate, credit and maturity of the investments. The table below sets forth unrealized losses by duration with the fair value of the related fixed maturity securities. Schedule of Fair Value of Fixed Maturity Securities Unrealized Losses for Less than Twelve Months Fair Value Unrealized Losses for More than Twelve Months Fair Value Total Unrealized Loss Combined Fair Value June 30, 2024 U.S. Treasury securities and obligations of U.S. Government agencies $ 112,212 $ 42,279,344 $ 849,045 $ 22,526,803 $ 961,257 $ 64,806,147 Obligations of states and political subdivisions - - 289,225 5,291,113 289,225 5,291,113 Corporate securities 593,138 31,797,535 7,189,876 117,820,419 7,783,014 149,617,954 Mortgage-backed securities 9,481 2,816,918 4,440,164 22,812,836 4,449,645 25,629,754 Totals $ 714,831 $ 76,893,797 $ 12,768,310 $ 168,451,171 $ 13,483,141 $ 245,344,968 December 31, 2023 U.S. Treasury securities and obligations of U.S. Government agencies $ 29,394 $ 9,436,090 $ 1,387,054 $ 70,885,403 $ 1,416,448 $ 80,321,493 Obligations of states and political subdivisions 11,105 470,325 308,155 5,284,498 319,260 5,754,823 Corporate securities 529,660 32,507,773 6,615,847 107,556,216 7,145,507 140,063,989 Mortgage-backed securities 29,799 2,260,445 4,673,106 22,184,174 4,702,905 24,444,619 Totals $ 599,958 $ 44,674,633 $ 12,984,162 $ 205,910,291 $ 13,584,120 $ 250,584,924 Relevant holdings were comprised of 646 securities with fair values aggregating 94.8 % of the aggregate amortized cost as of June 30, 2024. Relevant holdings were comprised of 606 securities with fair values aggregating 94.9 % of the aggregate amortized cost as of December 31, 2023. Credit loss release of $ 16,289 and credit loss provision of $ 44,505 have been recognized for the three month periods ended June 30, 2024 and 2023, respectively. Credit loss provision of $ 79,711 and $ 224,005 have been recognized for the six month periods ended June 30, 2024 and 2023, 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. 15 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) Evaluation of Allowance for Credit Losses See Note 2 regarding the adoption of ASU 2016-13. On a quarterly basis, the Company evaluates its fixed maturity securities classified as available for sale to identify any potential credit losses. 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. Where 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. If 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. If 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. The credit loss is included in gains (losses) on investments and other assets on the condensed consolidated statements of earnings. The recognized credit loss is limited to the total unrealized loss on the security due to a change in credit. Amounts on available for sale fixed maturities that are deemed to be uncollectible are written off and removed from the allowance for credit loss. 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. The 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. 16 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) Credit Quality Indicators The NAIC assigns designations to fixed maturity securities. These designations range from Class 1 (highest quality) to Class 6 (lowest quality). The NAIC designations are utilized by insurers in preparing their annual statutory statements. NAIC Class 1 and 2 are considered investment grade while the NAIC Class 3 through 6 designations are considered non-investment grade. Based on the NAIC designations, the Company had 98.1 % and 98.2 % of its fixed maturity securities rated investment grade as of June 30, 2024 and December 31, 2023, 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. Schedule of Credit Quality of Fixed Maturity Security Portfolio by NAIC Designation June 30, 2024 December 31, 2023 NAIC Designation Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value 1 $ 188,735,664 $ 182,709,415 $ 221,933,425 $ 216,975,288 2 164,475,503 159,828,103 161,062,016 157,346,803 3 6,067,391 5,716,888 6,418,829 5,953,542 4 827,044 806,121 982,290 948,478 5 242,804 37,500 236,648 51,875 6 1,195 - 1,233 - Total $ 360,349,601 $ 349,098,027 $ 390,634,441 $ 381,275,986 The following tables present a roll forward of the Company’s allowance for credit losses on fixed maturity securities available for sale for the three month periods ended June 30, 2024: Schedule of Allowance for Credit Losses on Fixed Maturity Securities Available for Sale Three Months Ended June 30, 2024 U.S. Treasury securities and obligations of U.S. Government agencies Obligations of states and political subdivisions Corporate securities including public utilities Mortgage-backed securities Total Beginning balance - March 31, 2024 $ - $ - $ 398,500 $ 12,049 $ 410,549 Additions for credit losses not previously recorded - - - - - Change in allowance on securities with previous allowance - - ( 16,289 ) - ( 16,289 ) 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 written off - - - - - Ending Balance - June 30, 2024 $ - $ - $ 382,211 $ 12,049 $ 394,260 17 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) Three Months Ended June 30, 2023 U.S. Treasury securities and obligations of U.S. Government agencies Obligations of states and political subdivisions Corporate securities including public utilities Mortgage-backed securities Total Beginning balance - March 31, 2023 $ - $ - $ 179,500 $ - $ 179,500 Additions for credit losses not previously recorded - - - - - Change in allowance on securities with previous allowance - - 44,505 - 44,505 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 written off - - - - - Ending Balance - June 30, 2023 $ - $ - $ 224,005 $ - $ 224,005 The following tables present a roll forward of the Company’s allowance for credit losses on fixed maturity securities available for sale for the six month periods ended June 30, 2024: Six Months Ended June 30, 2024 U.S. Treasury securities and obligations of U.S. Government agencies Obligations of states and political subdivisions Corporate securities including public utilities Mortgage-backed securities Total Beginning balance - January 1, 2024 $ - $ - $ 308,500 $ 6,049 $ 314,549 Additions for credit losses not previously recorded - - 30,000 6,000 36,000 Change in allowance on securities with previous allowance - - 43,711 - 43,711 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 written off - - - - - Ending Balance - June 30, 2024 $ - $ - $ 382,211 $ 12,049 $ 394,260 Six Months Ended June 30, 2023 U.S. Treasury securities and obligations of U.S. Government agencies Obligations of states and political subdivisions Corporate securities including public utilities Mortgage-backed securities Total Beginning balance - January 1, 2023 $ - $ - $ - $ - $ - Balance $ - $ - $ - $ - $ - Additions for credit losses not previously recorded - - 179,500 - 179,500 Change in allowance on securities with previous allowance - - 44,505 - 44,505 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 written off - - - - - Ending Balance - June 30, 2023 $ - $ - $ 224,005 $ - $ 224,005 Balance $ - $ - $ 224,005 $ - $ 224,005 18 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) The table below presents the amortized cost and the estimated fair value of fixed maturity securities available for sale as of June 30, 2024, by contractual maturity. Actual or expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Schedule of Investments Classified by Contractual Maturity Date Amortized Cost Estimated Fair Value Due in 1 year $ 28,273,026 $ 28,077,221 Due in 2-5 years 127,055,688 124,443,548 Due in 5-10 years 102,523,947 101,192,513 Due in more than 10 years 65,502,596 62,592,074 Mortgage-backed securities 36,994,344 32,792,671 Redeemable preferred stock 250,000 260,000 Total $ 360,599,601 $ 349,358,027 Information regarding sales of fixed maturity securities available for sale is presented as follows. Schedule of Major Categories of Net Investment Income 2024 2023 2024 2023 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Proceeds from sales $ 427,253 $ - $ 607,242 $ 955,610 Gross realized gains 24,031 - 24,334 11,257 Gross realized losses ( 36,646 ) - ( 37,499 ) ( 54,104 ) 19 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) Assets on Deposit, Held in Trust, and Pledged as Collateral Assets on deposit with life insurance regulatory authorities as required by law were as follows: Schedule of Assets on Deposit With Life Insurance As of June 30, 2024 As of December 31, 2023 Fixed maturity securities available for sale at estimated fair value $ 6,202,936 $ 6,206,650 Other investments 400,000 400,000 Cash and cash equivalents 1,424,707 1,909,215 Total assets on deposit $ 8,027,643 $ 8,515,865 Assets held in trust related to third-party reinsurance agreements were as follows: As of June 30, 2024 As of December 31, 2023 Fixed maturity securities available for sale at estimated fair value $ 28,134,790 $ 27,903,952 Cash and cash equivalents 776,883 2,101,052 Total assets on deposit $ 28,911,673 $ 30,005,004 The 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. As of June 30, 2024 As of December 31, 2023 Fixed maturity securities available for sale at estimated fair value $ 58,645,012 $ 93,903,089 Total assets pledged as collateral $ 58,645,012 $ 93,903,089 Real Estate Held for Investment and Held for Sale The Company strategically deploys resources into real estate assets to match the income and yield durations of its primary obligations. The sources for these real estate assets come through its various business units in the form of acquisition, development, and mortgage foreclosures. Commercial Real Estate Held for Investment and Held for Sale The Company owns and manages commercial real estate assets as a means of generating investment income. These assets are acquired in accordance with the Company’s goals and objectives for risk-adjusted returns. Due diligence is conducted on each asset using internal and third-party resources. The geographic locations and asset classes of investments are determined by senior management under the direction of the Board of Directors. 20 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) The Company employs full-time employees to attend to the day-to-day operations of those assets within the greater Salt Lake area and close surrounding markets. The Company utilizes third party property managers where the geographic location does not warrant full-time staff or through strategic lease-up periods. 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. The Company currently owns and operates six commercial properties in two states. These properties include office buildings, flex office 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. The aggregated net book value of commercial real estate serving as collateral for bank loans was $ 121,972,571 and $ 124,381,467 as of June 30, 2024 and December 31, 2023, respectively. The associated bank loan carrying values totaled $ 96,911,932 and $ 97,807,614 as of June 30, 2024 and December 31, 2023, respectively. During the three and six month periods ended June 30, 2024 and 2023, the Company did not record any impairment losses on commercial real estate held for investment or held for sale. Impairment losses, if any, are included in gains (losses) on investment and other assets on the condensed consolidated statements of earnings. During the three month periods ended June 30, 2024 and 2023, the Company recorded depreciation expense on commercial real estate held for investment of $ 1,418,301 and $ 1,576,901 , respectively, and of $ 2,946,094 and $ 3,142,828 during the six month periods ended June 30, 2024 and 2023, respectively. Commercial real estate held for investment is stated at cost and is depreciated over the estimated useful life, primarily using the straight-line method. Depreciation is included in net investment income on the consolidated statements of earnings. The Company’s commercial real estate held for investment is summarized as follows as of the respective dates indicated: Schedule of Commercial Real Estate Investment Net Book Value Total Square Footage June 30, 2024 December 31, 2023 June 30, 2024 December 31, 2023 Utah (1) $ 128,101,446 $ 142,475,177 546,941 625,920 Louisiana 18,918 19,250 1,622 1,622 $ 128,120,364 $ 142,494,427 548,563 627,542 (1) Includes Center53 21 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) The Company’s commercial real estate held for sale is summarized as follows as of the respective dates indicated: Net Book Value Total Square Footage June 30, 2024 December 31, 2023 June 30, 2024 December 31, 2023 Mississippi (1) $ 151,553 $ 3,028,973 - 19,694 $ 151,553 $ 3,028,973 - 19,694 (1) Consists of approximately 93 acres of undeveloped land for $ 151,553 for 2024 and 2023. The remaining property for $ 2,877,420 was sold in February 2024 for a gain of approximately $ 250,000 . The property is being marketed with the assistance of commercial real estate brokers in Mississippi. Residential Real Estate Held for Investment and Held for Sale The Company occasionally acquires a small portfolio of residential homes primarily because of loan foreclosures. The Company has the option to sell these properties or to continue to hold them for expected cash flow and price appreciation. The Company also invests in residential subdivision development. The 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 Company’s entire residential property portfolio. During the three and six month periods ended June 30, 2024 and 2023 the Company did no t record any impairment losses on residential real estate held for sale or held for investment. Impairment losses, if any, are included in gains (losses) on investment and other assets on the condensed consolidated statements of earnings. During the three month periods ended June 30, 2024 and 2023, the Company recorded depreciation expense on residential real estate held for investment of $ 2,653 and $ 2,648 , respectively, and $ 5,305 and $ 5,296 during the six month periods ended June 30, 2024 and 2023, 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. The Company’s residential real estate held for investment is summarized as follows as of the respective dates indicated: Schedule of Residential Real Estate Investment Net Book Value June 30, 2024 December 31, 2023 Utah (1) $ 60,200,289 $ 40,924,865 $ 60,200,289 $ 40,924,865 (1) Includes multiple residential subdivision development projects 22 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) The following table presents additional information regarding the Company’s residential subdivision development in Utah: June 30, 2024 December 31, 2023 Lots developed 50 42 Lots to be developed 1,293 1,145 Book Value $ 60,019,930 $ 40,739,201 The Company’s residential real estate held for sale is summarized as follows as of the respective dates indicated: Net Book Value June 30, 2024 December 31, 2023 Utah $ 858,977 $ - $ 858,977 $ - The net book value of foreclosed residential real estate included in residential real estate held for sale was $ 858,977 and nil as of June 30, 2024 and December 31, 2023, respectively. Real Estate Owned and Occupied by the Company The primary business units of the Company occupy a portion of the real estate owned by the Company. As of June 30, 2024, real estate owned and occupied by the Company is summarized as follows: Schedule of Real Estate Owned and Occupied by the Company Location 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 (1) Corporate Offices, Life Insurance, Cemetery/Mortuary Operations, and Mortgage Operations and Sales 221,000 50 % 1818 Marshall Street, Shreveport, LA (2) Life Insurance Operations 12,274 100 % 812 Sheppard Street, Minden, LA (2) (3) Life Insurance Sales 1,560 100 % (1) Included in real estate held for investment on the condensed consolidated balance sheets (2) Included in property and equipment on the condensed consolidated balance sheets (3) Listed for sale Mortgage Loans Held for Investment Mortgage loans held for investment 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 the loans are secured by real estate. Concentrations of credit risk arise when a number of mortgage loan debtors have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. Although the Company has a diversified mortgage loan portfolio consisting of residential mortgages, commercial loans and residential construction loans and requires collateral on all real estate exposures, a substantial portion of 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 June 30, 2024, the Company had 47 %, 10 %, 8 %, 7 % and 7 %, of its mortgage loans from borrowers located in the states of Utah, Texas, Florida, California, and Arizona, respectively. 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. 23 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) Mortgage 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 condensed consolidated statements of earnings and is recognized when earned. The Company defers related material loan origination fees, net of related direct loan origination costs, and amortizes the net fees over the terms of the loans. Origination fees are included in net investment income on the condensed consolidated statements of earnings. Mortgage loans are secured by the underlying property and require an appraisal at the time of underwriting and funding. Generally, the Company 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. Evaluation of Allowance for Credit Losses See Note 2 regarding the adoption of ASU 2016-13. The 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 earnings. Once 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 $ 274,000 and $ 237,000 as of June 30, 2024 and December 31, 2023, respectively. The 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. To 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: Commercial - Underwritten in accordance with the Company’s policies to determine the borrower’s ability to repay the obligation as agreed. 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 delinquent. 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. 24 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) Residential — 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. Residential construction (including land acquisition and development) – These loans are underwritten in accordance with the Company’s underwriting policies, which include a financial analysis of the builders, borrowers (guarantors), construction cost estimates, and independent appraisal valuations, and factor in estimates of the value of construction projects upon completion. Construction loans generally involve the disbursement of substantial funds over a short period of time with repayment substantially dependent upon the success of the completed project and the ability of the borrower to secure long-term financing. Additionally, land acquisition and development loans are underwritten in accordance with the Company’s underwriting policies, which include independent appraisal valuations as well as the estimated value associated with the land upon completion of development into finished lots. These loans are 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. 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. The per loan basis point is reviewed at least annually or as loan losses or market trends require. 25 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) The following table presents a roll forward of the allowance for credit losses as of the dates indicated: Schedule of Allowance for Loan Losses Three Months Ended Commercial Residential Residential Construction Total Beginning balance - March 31, 2024 $ 859,622 $ 1,862,495 $ 199,497 $ 2,921,614 Adoption of ASU 2016-13 (1) 555,807 ( 192,607 ) 301,830 665,030 Change in provision for credit losses ( 10,299 ) ( 83,109 ) 25,646 ( 67,762 ) Charge-offs - - - - Ending balance - June 30, 2024 $ 849,323 $ 1,779,386 $ 225,143 $ 2,853,852 Beginning balance - March 31, 2023 $ 758,131 $ 1,685,100 $ 292,188 $ 2,735,419 Change in provision for credit losses (2) 72,924 ( 95,240 ) ( 49,543 ) ( 71,859 ) Charge-offs - - - - Ending balance - June 30, 2023 $ 831,055 $ 1,589,860 $ 242,645 $ 2,663,560 Six Months Ended Commercial Residential Residential Construction Total Beginning balance - January 1, 2024 $ 1,219,653 $ 2,390,894 $ 208,106 $ 3,818,653 Change in provision for credit losses (2) ( 370,330 ) ( 611,508 ) 17,037 ( 964,801 ) Charge-offs - - - - Ending balance - June 30, 2024 $ 849,323 $ 1,779,386 $ 225,143 $ 2,853,852 Beginning balance - January 1, 2023 $ 187,129 $ 1,739,980 $ 43,202 $ 1,970,311 Adoption of ASU 2016-13 (1) 555,807 ( 192,607 ) 301,830 665,030 Change in provision for credit losses (2) 88,119 42,487 ( 102,387 ) 28,219 Charge-offs - - - - Ending balance - June 30, 2023 $ 831,055 $ 1,589,860 $ 242,645 $ 2,663,560 (1) See Note 2 of the notes to the condensed consolidated financial statements (2) Included in other expenses on the condensed consolidated statements of earnings 26 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) The following table presents the aging of mortgage loans held for investment by loan type as of the dates indicated: Schedule of Aging of Mortgage Loans Commercial Residential Residential Construction Total June 30, 2024 30-59 days past due $ 2,150,000 $ 8,155,074 $ - $ 10,305,074 60-89 days past due 109,510 1,807,652 - 1,917,162 Over 90 days past due (1) 405,000 3,367,379 - 3,772,379 In process of foreclosure (1) 191,508 1,965,642 - 2,157,150 Total past due 2,856,018 15,295,747 - 18,151,765 Current 70,365,756 88,372,143 112,571,713 271,309,612 Total mortgage loans 73,221,774 103,667,890 112,571,713 289,461,377 Allowance for credit losses ( 849,323 ) ( 1,779,386 ) ( 225,143 ) ( 2,853,852 ) Unamortized deferred loan fees, net ( 119,303 ) ( 1,195,913 ) ( 637,400 ) ( 1,952,616 ) Unamortized discounts, net ( 156,409 ) ( 154,969 ) - ( 311,378 ) Net mortgage loans held for investment $ 72,096,739 $ 100,537,622 $ 111,709,170 $ 284,343,531 December 31, 2023 30-59 days past due $ - $ 3,387,673 $ - $ 3,387,673 60-89 days past due - 3,472,760 - 3,472,760 Over 90 days past due (1) 405,000 3,480,931 - 3,885,931 In process of foreclosure (1) 1,241,508 1,021,790 - 2,263,298 Total past due 1,646,508 11,363,154 - 13,009,662 Current 72,530,030 91,790,433 104,052,748 268,373,211 Total mortgage loans 74,176,538 103,153,587 104,052,748 281,382,873 Allowance for credit losses ( 1,219,653 ) ( 2,390,894 ) ( 208,106 ) ( 3,818,653 ) Unamortized deferred loan fees, net ( 172,989 ) ( 1,135,491 ) ( 314,746 ) ( 1,623,226 ) Unamortized discounts, net ( 216,705 ) ( 107,452 ) - ( 324,157 ) Net mortgage loans held for investment $ 72,567,191 $ 99,519,750 $ 103,529,896 $ 275,616,837 (1) Interest income is not recognized on loans which are more than 90 days past due or in foreclosure. 27 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) Credit Quality Indicators The Company evaluates and monitors the credit quality of its commercial loans by analyzing loan to value (“LTV”) and debt service coverage ratios (“DSCR”). Monitoring a commercial mortgage loan increases when the loan is delinquent or earlier if there is an indication of impairment. The aggregate unpaid principal balance of commercial mortgage loans by credit quality indicator and origination year was as follows as of June 30, 2024: Schedule of Commercial Mortgage Loans By Credit Quality Indicator Credit Quality Indicator 2024 2023 2022 2021 2020 Prior Total % of Total LTV: Less than 65% $ 6,034,800 $ 33,954,450 $ 2,828,743 $ 3,033,422 $ - $ 9,271,857 $ 55,123,272 75.28 % 65% to 80% 10,432,942 1,523,850 823,397 - 4,913,313 - $ 17,693,502 24.16 % Greater than 80% - - - 405,000 - - $ 405,000 0.55 % Total $ 16,467,742 $ 35,478,300 $ 3,652,140 $ 3,438,422 $ 4,913,313 $ 9,271,857 $ 73,221,774 100.00 % DSCR >1.20x $ 16,034,800 $ 20,990,000 $ 1,000,000 $ - $ 4,913,313 $ 5,502,594 $ 48,440,707 66.16 % 1.00x - 1.20x 432,942 7,988,300 2,652,140 3,438,422 - 3,769,263 18,281,067 24.97 % <1.00x - 6,500,000 - - - - 6,500,000 8.88 % Total $ 16,467,742 $ 35,478,300 $ 3,652,140 $ 3,438,422 $ 4,913,313 $ 9,271,857 $ 73,221,774 100.00 % The aggregate unpaid principal balance of commercial mortgage loans by credit quality indicator and origination year was as follows as of December 31, 2023: Credit Quality Indicator 2023 2022 2021 2020 2019 Prior Total % of Total LTV: Less than 65% $ 34,304,954 $ 13,555,737 $ 3,778,248 $ - $ 2,964,740 $ 6,565,389 $ 61,169,068 82.46 % 65% to 80% 1,523,926 5,115,231 1,050,000 4,913,313 - - 12,602,470 16.99 % Greater than 80% - - 405,000 - - - 405,000 0.55 % Total $ 35,828,880 $ 18,670,968 $ 5,233,248 $ 4,913,313 $ 2,964,740 $ 6,565,389 $ 74,176,538 100.00 % DSCR >1.20x $ 20,990,000 $ 1,000,000 $ 700,000 $ 4,913,313 $ 2,964,740 $ 2,612,625 $ 33,180,678 44.73 % 1.00x - 1.20x 8,338,880 8,496,127 3,483,248 - - 3,952,764 24,271,019 32.72 % <1.00x 6,500,000 9,174,841 (1) (1) 1,050,000 - - - 16,724,841 22.55 % Total $ 35,828,880 $ 18,670,968 $ 5,233,248 $ 4,913,313 $ 2,964,740 $ 6,565,389 $ 74,176,538 100.00 % (1) Commercial construction loan 28 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) The Company evaluates and monitors the credit quality of its residential mortgage loans by analyzing LTV and loan performance. The Company 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. The aggregate unpaid principal balance of residential mortgage loans by credit quality indicator and origination year was as follows as of June 30, 2024: Credit Quality Indicator 2024 2023 2022 2021 2020 Prior Total % of Total Performance Indicators: Performing $ 5,918,960 $ 13,236,536 $ 50,568,628 $ 6,657,886 $ 7,669,161 $ 14,283,699 $ 98,334,870 94.86 % Non-performing (1) - 2,880,161 696,461 365,061 406,356 984,981 5,333,020 5.14 % Total $ 5,918,960 $ 16,116,697 $ 51,265,089 $ 7,022,947 $ 8,075,517 $ 15,268,680 $ 103,667,890 100.00 % (1) Includes residential mortgage loans in the process of foreclosure of $ 1,965,642 LTV: Less than 65% $ 1,196,344 $ 3,388,129 $ 6,276,467 $ 2,422,737 $ 2,343,791 $ 6,296,278 $ 21,923,746 21.15 % 65% to 80% 4,722,616 10,345,277 40,410,742 3,134,505 3,829,636 7,013,035 69,455,811 67.00 % Greater than 80% - 2,383,291 4,577,880 1,465,705 1,902,090 1,959,367 12,288,333 11.85 % Total $ 5,918,960 $ 16,116,697 $ 51,265,089 $ 7,022,947 $ 8,075,517 $ 15,268,680 $ 103,667,890 100.00 % The aggregate unpaid principal balance of residential mortgage loans by credit quality indicator and origination year was as follows as of December 31, 2023: Credit Quality Indicator 2023 2022 2021 2020 2019 Prior Total % of Total Performance Indicators: Performing $ 15,337,828 $ 53,875,389 $ 7,156,934 $ 7,453,796 $ 2,786,562 $ 12,040,357 $ 98,650,866 95.63 % Non-performing (1) - 2,202,114 365,061 613,101 - 1,322,445 4,502,721 4.37 % Total $ 15,337,828 $ 56,077,503 $ 7,521,995 $ 8,066,897 $ 2,786,562 $ 13,362,802 $ 103,153,587 100.00 % (1) Includes residential mortgage loans in the process of foreclosure of $ 1,021,790 LTV: Less than 65% $ 3,280,144 $ 7,049,522 $ 1,843,286 $ 1,746,970 $ 446,675 $ 5,206,095 $ 19,572,692 18.97 % 65% to 80% 10,962,770 44,371,320 4,269,894 4,222,170 2,339,887 5,711,440 71,877,481 69.68 % Greater than 80% 1,094,914 4,656,661 1,408,815 2,097,757 - 2,445,267 11,703,414 11.35 % Total $ 15,337,828 $ 56,077,503 $ 7,521,995 $ 8,066,897 $ 2,786,562 $ 13,362,802 $ 103,153,587 100.00 % 29 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) The 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. The aggregate unpaid principal balance of residential construction mortgage loans by credit quality indicator and origination year was as follows as of June 30, 2024: Schedule of Residential Construction Mortgage Loans Credit Quality Indicator 2024 2023 2022 2021 Total % of Total Performance Indicators: Performing $ 60,704,074 $ 35,864,948 $ 4,585,632 $ 11,417,059 $ 112,571,713 100.00 % Non-performing - - - - - 0.00 % Total $ 60,704,074 $ 35,864,948 $ 4,585,632 $ 11,417,059 $ 112,571,713 100.00 % LTV: Less than 65% $ 18,845,154 $ 26,531,552 $ 3,038,388 $ 11,417,059 $ 59,832,153 53.15 % 65% to 80% 41,858,920 9,333,396 1,547,244 - 52,739,560 46.85 % Greater than 80% - - - - - 0.00 % Total $ 60,704,074 $ 35,864,948 $ 4,585,632 $ 11,417,059 $ 112,571,713 100.00 % The aggregate unpaid principal balance of residential construction mortgage loans by credit quality indicator and origination year was as follows as of December 31, 2023: Credit Quality Indicator 2023 2022 2021 Total % of Total Performance Indicators: Performing $ 60,311,679 $ 16,624,182 $ 27,116,887 $ 104,052,748 100.00 % Non-performing - - - - 0.00 % Total $ 60,311,679 $ 16,624,182 $ 27,116,887 $ 104,052,748 100.00 % LTV: Less than 65% $ 40,215,360 $ 8,732,500 $ 20,442,302 $ 69,390,162 66.69 % 65% to 80% 20,096,319 7,891,682 6,674,585 34,662,586 33.31 % Greater than 80% - - - - 0.00 % Total $ 60,311,679 $ 16,624,182 $ 27,116,887 $ 104,052,748 100.00 % 30 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) Insurance Assignments The following table presents the aging of insurance assignments, included in other investments and policy loans on the condensed consolidated balance sheets: Schedule of Aging of Insurance Assignments As of June 30, 2024 As of December 31, 2023 30-59 days past due $ 10,983,745 $ 10,829,629 60-89 days past due 4,082,558 3,709,754 Over 90 days past due 5,580,886 4,329,468 Total past due 20,647,189 18,868,851 Current 27,759,501 26,736,471 Total insurance assignments 48,406,690 45,605,322 Allowance for credit losses ( 1,535,324 ) ( 1,553,836 ) Net insurance assignments $ 46,871,366 $ 44,051,486 The 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 2 regarding the adoption of ASU 2016-13. The following table presents a roll forward of the allowance for credit losses for insurance assignments as of the dates indicated: Schedule of Allowance for Credit Losses Three Months Ended Beginning balance - March 31, 2024 $ 1,587,525 Change in provision for credit losses (1) 242,046 Charge-offs ( 294,247 ) Ending balance - June 30, 2024 $ 1,535,324 Beginning balance - March 31, 2023 $ 1,685,901 Change in provision for credit losses (1) 219,213 Charge-offs ( 214,421 ) Ending balance - June 30, 2023 $ 1,690,693 Six Months Ended Beginning balance - January 1, 2024 $ 1,553,836 Change in provision for credit losses (1) 492,613 Charge-offs ( 511,125 ) Ending balance - June 30, 2024 $ 1,535,324 Beginning balance - January 1, 2023 $ 1,609,951 Change in provision for credit losses (1) 452,326 Charge-offs ( 371,584 ) Ending balance - June 30, 2023 $ 1,690,693 (1) Included in other expenses on the condensed consolidated statements of earnings 31 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) Investment Related Earnings The following table presents the realized gains and losses from sales, calls, and maturities, and unrealized gains and losses on equity securities from investments and other assets: Schedule of Gain (Loss) on Investments 2024 2023 2024 2023 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Fixed maturity securities: Gross realized gains $ 24,031 $ 1,563 $ 24,334 $ 17,054 Gross realized losses ( 36,646 ) ( 36,908 ) ( 37,499 ) ( 91,799 ) Net credit loss release (provision) 16,289 ( 44,505 ) ( 79,711 ) ( 224,005 ) Equity securities: Gains (losses) on securities sold 43,733 5,363 ( 17,370 ) ( 46,952 ) Unrealized gains (losses) on securities held at the end of the period ( 424,455 ) 566,633 1,118,405 898,064 Real estate held for investment and sale: Gross realized gains 38,890 161,028 288,852 161,028 Gross realized losses - - ( 39,081 ) - Other assets: Gross realized gains ( 39,081 ) 163,410 35,486 214,348 Gross realized losses - - ( 1,229 ) - Total $ ( 377,239 ) $ 816,584 $ 1,292,187 $ 927,738 The 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. Net realized gains and losses includes gains and losses by the restricted assets and cemetery perpetual care trust investments of the cemeteries and mortuaries of $ 202,800 in net losses and $ 197,580 in net gains for the three month periods ended June 30, 2024 and 2023, respectively, and of $ 379,363 and $ 251,510 in net gains for the six month periods ended June 30, 2024 and 2023, respectively. 32 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 3) Investments (Continued) Major categories of net investment income were as follows: 2024 2023 2024 2023 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Fixed maturity securities available for sale $ 4,345,704 $ 4,143,768 $ 8,749,262 $ 8,156,500 Equity securities 176,448 140,709 344,596 281,216 Mortgage loans held for investment 7,021,559 9,467,407 15,835,595 17,955,063 Real estate held for investment and sale 3,285,019 4,897,672 6,800,080 8,262,596 Policy loans 189,131 207,441 490,398 407,655 Insurance assignments 4,886,015 4,461,813 9,962,563 9,230,016 Other investments 201,342 213,103 400,301 342,160 Cash and cash equivalents 1,715,910 780,146 3,406,867 1,567,907 Gross investment income 21,821,128 24,312,059 45,989,662 46,203,113 Investment expenses ( 3,776,320 ) ( 4,140,085 ) ( 7,998,286 ) ( 8,256,256 ) Net investment income $ 18,044,808 $ 20,171,974 $ 37,991,376 $ 37,946,857 Net investment income includes income earned by the restricted assets of the cemeteries and mortuaries of $ 470,808 and $ 1,250,861 for the three month periods ended June 30, 2024 and 2023, respectively, and of $ 1,404,359 and $ 1,852,352 for the six month periods ended June 30, 2024 and 2023, respectively. Net investment income on real estate consists primarily of rental revenue. Investment expenses consist primarily of depreciation, property taxes, operating expenses of real estate and an estimated portion of administrative expenses relating to investment activities. Accrued Investment Income Accrued investment income consists of the following: Schedule of Accrued Investment Income As of June 30, 2024 As of December 31, 2023 Fixed maturity securities available for sale $ 4,125,306 $ 3,984,695 Equity securities 10,876 20,451 Mortgage loans held for investment 1,121,383 2,661,092 Real estate held for investment 3,507,053 3,486,115 Cash and cash equivalents 73,388 18,437 Total accrued investment income $ 8,838,006 $ 10,170,790 33 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 4) Loans Held for Sale The 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 condensed consolidated statement of earnings. Included in loans held for sale are loans in the process of foreclosure with an aggregate unpaid principal balance of $ 311,117 and $ 1,636,090 as of June 30, 2024 and December 31, 2023, respectively. See Note 8 to the condensed consolidated financial statements for additional disclosures regarding loans held for sale. The following table presents the aggregate fair value and the aggregate unpaid principal balance of loans held for sale: Schedule of Aggregate Fair Value Loans Held for Sale As of June 30, 2024 As of December 31, 2023 Aggregate fair value $ 150,196,416 $ 126,549,190 Unpaid principal balance 149,936,883 127,185,867 Unrealized gain (loss) 259,533 ( 636,677 ) Mortgage Fee Income 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. Major categories of mortgage fee income for loans held for sale are summarized as follows: Schedule of Mortgage Fee Income for Loans Held for Sale 2024 2023 2024 2023 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Loan fees $ 7,366,232 $ 5,986,802 $ 12,886,697 $ 10,375,215 Interest income 2,263,915 2,620,489 3,746,735 4,627,546 Secondary gains 18,674,595 19,298,213 33,405,569 37,259,571 Change in fair value of loan commitments 429,823 ( 151,382 ) 991,601 526,570 Change in fair value of loans held for sale 1,197,075 ( 1,401,738 ) 896,185 ( 607,123 ) Provision for loan loss reserve ( 312,124 ) ( 273,631 ) ( 475,601 ) ( 114,020 ) Mortgage fee income $ 29,619,516 $ 26,078,753 $ 51,451,186 $ 52,067,759 Loan Loss Reserve Repurchase 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. The loan loss reserve, which is included in other liabilities and accrued expenses, is summarized as follows: Schedule of Loan Loss Reserve Included in Other Liabilities and Accrued Expenses As of June 30, 2024 As of December 31, 2023 Balance, beginning of period $ 547,233 $ 1,725,667 Provision on current loan originations (1) 475,601 27,164 Charge-offs, net of recaptured amounts ( 273,801 ) ( 1,205,598 ) Balance, end of period $ 749,033 $ 547,233 (1) Included in mortgage fee income The Company maintains reserves for estimated losses on current production volumes. For the six month period ended June 30, 2024, $ 475,601 in reserves were added at a rate of 4.4 basis points per loan, the equivalent of $ 440 per $ 1,000,000 in loans originated. This is a decrease over the six month period ended June 30, 2023, when reserves of $ 513,431 were added at a rate of 4.5 basis points per loan originated, the equivalent of $ 450 per $ 1,000,000 in loans originated. The Company monitors market data and trends, economic conditions (including forecasts), and its own experience to maintain adequate loss reserves on current production. 34 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 5) Stock Compensation Plans The Company has equity incentive plans (the “2013 Plan”, the “2014 Director Plan” and the “2022 Plan”). Stock Options Stock based compensation expense for stock options issued of $ 183,184 and $ 142,696 has been recognized for these plans for the three month periods ended June 30, 2024 and 2023, respectively, and $ 382,182 and $ 284,883 has been recognized for these plans for the six month periods ended June 30, 2024 and 2023, respectively, and is included in personnel expenses on the condensed consolidated statements of earnings. As of June 30, 2024, the total unrecognized compensation expense related to the options issued was $ 329,670 , which is expected to be recognized over the remaining vesting period. The fair value of each option granted is estimated on the date of grant using the Black Scholes Option Pricing Model. The Company estimates the expected life of the options using the simplified method. Future volatility is estimated based upon the weighted historical volatility of the Company’s Class A common stock over a period equal to the expected life of the options. The risk-free interest rate for the expected life of the options is based upon the Federal Reserve Board’s daily interest rates in effect at the time of the grant. Activity of the stock option plans during the six month period ended June 30, 2024, is summarized as follows: Schedule of Activity of Stock Option Plans Number of Class A Shares Weighted Average Exercise Price (2) Number of Class C Shares Weighted Average Exercise Price (2) Outstanding at January 1, 2024 833,570 $ 4.91 1,520,062 $ 5.57 Adjustment for the effect of stock dividends 38,724 76,005 Granted 16,500 - Exercised ( 45,671 ) - Cancelled ( 16,538 ) - Outstanding at June 30, 2024 826,585 $ 5.09 1,596,067 $ 5.57 As of June 30, 2024: Options exercisable 768,960 $ 4.89 1,443,567 $ 5.35 As of June 30, 2024: Available options for future grant 38,564 556,238 Weighted average contractual term of options outstanding at June 30, 2024 5.05 years 6.00 years Weighted average contractual term of options exercisable at June 30, 2024 4.72 years 5.75 years Aggregated intrinsic value of options outstanding at June 30, 2024 (1) $ 2,083,992 $ 3,255,564 Aggregated intrinsic value of options exercisable at June 30, 2024 (1) $ 2,089,110 $ 3,264,864 (1) The Company used a stock price of $ 7.61 as of June 30, 2024 to derive intrinsic value. (2) Adjusted for the effect of annual stock dividends. 35 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 5) Stock Compensation Plans (Continued) Activity of the stock option plans during the six month period ended June 30, 2023, is summarized as follows: Number of Class A Shares Weighted Average Exercise Price (2) Number of Class C Shares Weighted Average Exercise Price Outstanding at January 1, 2023 976,605 $ 4.56 1,157,203 $ 5.31 Adjustment for the effect of stock dividends 38,266 57,859 Granted 16,000 - Exercised ( 214,989 ) - Cancelled - - Outstanding at June 30, 2023 815,882 $ 4.75 1,215,062 $ 5.31 As of June 30, 2023: Options exercisable 764,632 $ 4.64 1,067,562 $ 5.18 As of June 30, 2023: Available options for future grant 171,386 834,750 Weighted average contractual term of options outstanding at June 30, 2023 4.87 years 6.41 years Weighted average contractual term of options exercisable at June 30, 2023 4.56 years 6.14 years Aggregated intrinsic value of options outstanding at June 30, 2023 (1) $ 3,018,675 $ 3,815,225 Aggregated intrinsic value of options exercisable at June 30, 2023 (1) $ 2,910,455 $ 3,487,200 (1) The Company used a stock price of $ 8.45 as of June 30, 2023 to derive intrinsic value. (2) Adjusted for the effect of annual stock dividends. The total intrinsic value (which is the amount by which the fair value of the underlying stock exceeds the exercise price of an option on the exercise date) of stock options exercised during the six month periods ended June 30, 2024 and 2023 was $ 142,210 and $ 387,561 , respectively. 36 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 5) Stock Compensation Plans (Continued) Restricted Stock Units (“RSUs”) Stock based compensation expense for RSUs issued of $ 882 and nil has been recognized under these plans for the three month periods ended June 30, 2024 and 2023, respectively, and of $ 1,771 and $ 742 has been recognized under these plans for the six month periods ended June 30, 2024 and 2023, respectively, and is included in personnel expenses on the condensed consolidated statements of earnings. The fair value of each RSU granted is determined by the Company’s stock price on the date of the grant. As of June 30, 2024, the total unrecognized compensation expense related to the RSUs issued was $ 1,493 , which is expected to be recognized over the remaining vesting period. Activity of the RSUs during the six month period ended June 30, 2024 is summarized as follows: Schedule of Activity Restricted Stock Units Number of Class A Shares Weighted Average Grant Date Fair Value Non-vested at January 1, 2024 2,245 $ 7.72 Granted - Vested ( 865 ) Non-vested at June 30, 2024 1,380 $ 7.99 Available RSUs for future grant 16,540 Activity of the RSUs during the six month period ended June 30, 2023 is summarized as follows: Number of Class A Shares Weighted Average Grant Date Fair Value Non-vested at January 1, 2023 1,620 $ 6.48 Granted - Vested ( 405 ) Non-vested at March 31, 2023 1,215 $ 6.48 Available RSUs for future grant 18,380 37 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 6) Earnings Per Share Earnings per share amounts have been retroactively adjusted for the effect of annual stock dividends. In accordance with GAAP, the basic and diluted earnings per share amounts were calculated as follows: Schedule of Earnings Per Share, Basic and Diluted 2024 2023 2024 2023 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Numerator: Net earnings $ 7,271,549 $ 6,352,706 $ 14,746,071 $ 7,592,878 Denominator: Basic weighted-average shares outstanding 23,297,455 23,110,818 23,313,768 23,172,477 Effect of dilutive securities: Employee stock options 576,503 591,466 663,136 578,442 Diluted weighted-average shares outstanding 23,873,958 23,702,284 23,976,904 23,750,919 Basic net earnings per share $ 0.31 $ 0.27 $ 0.63 $ 0.33 Diluted net earnings per share $ 0.30 $ 0.27 $ 0.62 $ 0.32 For the six month periods ended June 30, 2024 and 2023, there were 143,456 and 55,125 anti-dilutive stock option shares, respectively, that were not included in the computation of diluted net earnings per common share as their effect would be anti-dilutive. Basic and diluted earnings per share amounts are the same for each class of common stock. The following table summarizes the activity in shares of capital stock. Summary of Activities in Shares of Capital Stock Class A Class C Outstanding shares at December 31, 2022 18,758,031 2,889,859 Exercise of stock options 127,688 - Vesting of restricted stock units 405 - Stock dividends 949,675 141,594 Conversion of Class C to Class A 57,901 ( 57,901 ) Outstanding shares at June 30, 2023 19,893,700 2,973,552 Outstanding shares at December 31, 2023 20,048,002 2,971,854 Common stock, outstanding shares, beginning 20,048,002 2,971,854 Exercise of stock options 32,082 - Vesting of restricted stock units 865 - Stock dividends 1,004,721 148,578 Conversion of Class C to Class A 266 ( 266 ) Outstanding shares at June 30, 2024 21,085,936 3,120,166 Common stock, outstanding shares, ending 21,085,936 3,120,166 38 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 7) Business Segment Information Description of Products and Services by Segment The Company has three reportable business segments: life insurance, cemetery and mortuary, and mortgage. The Company’s life insurance segment consists of life insurance premiums and operating expenses from the sale of insurance products sold by the Company’s independent agency force and net investment income derived from investing policyholders and segment surplus funds. The Company’s cemetery and mortuary segment consists of revenues and operating expenses from the sale of at-need cemetery and mortuary merchandise and services at its mortuaries and cemeteries, pre-need sales of cemetery spaces after collection of 10% or more of the purchase price and the net investment income from investing segment surplus funds. The Company’s mortgage segment consists of fee income and expenses from the origination of residential mortgage loans and interest earned and interest expenses from warehousing loans held for sale. Measurement of Segment Profit or Loss and Segment Assets The accounting policies of the reportable segments are the same as those described in the Significant Accounting Principles of the Form 10-K for the year ended December 31, 2023. Intersegment revenues are recorded at cost plus an agreed upon intercompany profit, and are eliminated upon consolidation. Factors Management Used to Identify the Enterprise’s Reportable Segments The Company’s reportable segments are business units that are managed separately due to the different products provided and the need to report separately to the various regulatory jurisdictions. The Company regularly reviews the quantitative thresholds and other criteria to determine when other business segments may need to be reported. 39 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 7) Business Segment Information (Continued) Schedule of Revenues and Expenses by Reportable Segment Life Insurance Cemetery/ Mortuary Mortgage Intercompany Eliminations Consolidated For the Three Months Ended June 30, 2024 Revenues from external customers $ 47,237,315 $ 8,277,868 $ 30,276,153 $ - $ 85,791,336 Intersegment revenues 1,905,973 84,767 144,989 ( 2,135,729 ) - Segment profit (loss) before income taxes 7,164,715 2,090,520 134,358 - 9,389,593 For the Six Months Ended June 30, 2024 Revenues from external customers $ 97,207,950 $ 17,065,446 $ 52,706,138 $ 166,979,534 Intersegment revenues 3,285,548 169,535 291,595 ( 3,746,678 ) - Segment profit (loss) before income taxes 15,694,224 5,143,941 ( 1,829,261 ) 19,008,904 Identifiable Assets $ 1,356,015,599 $ 102,122,157 $ 96,262,785 $ ( 98,929,803 ) $ 1,455,470,738 Goodwill 2,765,570 2,488,213 - - 5,253,783 Total Assets $ 1,358,781,169 $ 104,610,370 $ 96,262,785 $ ( 98,929,803 ) $ 1,460,724,521 For the Three Months Ended June 30, 2023 Revenues from external customers $ 48,071,089 $ 8,812,508 $ 26,962,562 $ - $ 83,846,159 Intersegment revenues 2,517,490 84,767 135,807 ( 2,738,064 ) - Segment profit (loss) before income taxes 9,158,186 2,828,159 ( 3,837,012 ) - 8,149,333 For the Six Months Ended June 30, 2023 Revenues from external customers $ 93,486,386 $ 16,010,904 $ 53,849,603 $ 163,346,893 Intersegment revenues 4,027,518 168,603 259,506 ( 4,455,627 ) - Segment profit (loss) before income taxes 12,841,921 4,612,751 ( 7,720,451 ) 9,734,221 Identifiable Assets $ 1,284,084,674 $ 89,589,716 $ 114,402,197 $ ( 89,723,622 ) $ 1,398,352,965 Goodwill 2,765,570 2,488,213 - - 5,253,783 Total Assets $ 1,286,850,244 $ 92,077,929 $ 114,402,197 $ ( 89,723,622 ) $ 1,403,606,748 40 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 8) Fair Value of Financial Instruments GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. GAAP also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. Fair value measurements are classified under the following hierarchy: Level 1: Financial assets and financial liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company can access. Level 2: Financial assets and financial liabilities whose values are based on the following: a) Quoted prices for similar assets or liabilities in active markets. b) Quoted prices for identical or similar assets or liabilities in non-active markets; or c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability. Level 3: Financial assets and financial liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs may reflect the Company’s estimates of the assumptions that market participants would use in valuing financial assets and financial liabilities. The Company utilizes a combination of third-party valuation service providers, brokers, and internal valuation models to determine fair value. The following methods and assumptions were used by the Company in estimating the fair value disclosures related to significant financial instruments. The items shown under Level 1 and Level 2 are valued as follows: Fixed Maturity Securities Available for Sale : The fair values of fixed maturity securities are based on quoted market prices, when available. For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services, or in the case of private placements (considered Level 3 financial assets), are estimated by discounting expected future cash flows using a current market value applicable to the coupon rate, credit and maturity of the investments. Equity Securities : The fair values for equity securities are based on quoted market prices. Restricted Assets : A portion of these assets include equity securities and fixed maturity securities that have quoted market prices that are used to determine fair value. Also included are cash and cash equivalents and participations in mortgage loans. The carrying amounts reported in the accompanying condensed consolidated balance sheets for these financial instruments approximate their fair values due to their short-term nature. Cemetery Perpetual Care Trust Investments : A portion of these assets include equity securities and fixed maturity securities that have quoted market prices that are used to determine fair value. Also included are cash and cash equivalents. The carrying amounts reported in the accompanying condensed consolidated balance sheets for these financial instruments approximate their fair values due to their short-term nature. Additionally, there were no transfers between Level 1 and Level 2 in the fair value hierarchy. 41 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 8) Fair Value of Financial Instruments (Continued) The items shown under Level 3 are valued as follows: Loans Held for Sale : The Company elected the fair value option for loans held for sale. The fair value is based on quoted market prices, when available. When a quoted market price is not readily available, the Company uses the market price from its last sale of similar assets. Fair value is often difficult to determine in volatile markets and may contain significant unobservable inputs. Loan Commitments and Forward Sale Commitments : The Company’s mortgage segment enters loan commitments with potential borrowers and forward sale commitments to sell loans with third-party investors. The Company also uses a hedging strategy for these transactions. A loan commitment binds the Company to lend funds to a qualified borrower at a specified interest rate and within a specified period, generally up to 30 days after issuance of the loan commitment. Loan commitments are defined to be derivatives under GAAP and are recognized at fair value on the consolidated balance sheets with changes in their fair values recorded in current earnings. The Company estimates the fair value of a loan commitment based on the change in estimated fair value of the underlying mortgage loan, quoted MBS prices, estimates of the fair value of mortgage servicing rights, and an estimate of the probability that the mortgage loan will fund within the terms of the commitment. The change in fair value of the underlying mortgage loan is measured from the date the loan commitment is issued. Following issuance, the value of a mortgage loan commitment can be either positive or negative depending upon the change in value of the underlying mortgage loans. Fallout rates and other factors from the Company’s recent historical data are used to estimate the quantity and value of mortgage loans that will be funded within the terms of the commitments. Impaired Mortgage Loans Held for Investment : The Company believes that the fair value of these nonperforming loans will approximate the unpaid principal balance expected to be recovered based on the fair value of the underlying collateral. For residential and commercial properties, the collateral value is estimated by obtaining an independent appraisal. The appraisal typically considers comparable sales in the area, property condition, and potential rental income that could be generated (particularly for commercial properties). For residential construction loans, the collateral is typically incomplete, so the fair value is estimated as the replacement cost using data from a provider of building cost information to the real estate construction. Impaired Real Estate Held for Investment : The Company believes that in an orderly market, fair value will approximate the replacement cost of a home and the rental income provides a cash flow stream for investment analysis. The Company believes the highest and best use of the properties are as income producing assets since it is the Company’s intent to hold the properties as rental properties, matching the income from the investment in rental properties with the funds required for future estimated policy claims. It should be noted that for replacement cost, when determining the fair value of real estate held for investment, the Company uses a provider of building cost information to the real estate construction industry. For the investment analysis, the Company uses market data based upon its real estate operation experience and projected the present value of the net rental income over seven years. The Company also considers area comparable properties and property conditions when determining fair value. In addition to this analysis performed by the Company, the Company depreciates Real Estate Held for Investment. This depreciation reduces the book value of these properties and lessens the exposure to the Company from further deterioration in real estate values. Mortgage Servicing Rights : The Company initially recognizes Mortgage Servicing Rights (“MSRs”) at their estimated fair values derived from the net cash flows associated with the servicing contracts, where the Company assumes the obligation to service the loan in the sale transaction. 42 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 8) Fair Value of Financial Instruments (Continued) The following tables summarize Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a recurring basis by their classification in the condensed consolidated balance sheet as of June 30, 2024: Schedule of Fair Value Assets and Liabilities Measured on a Recurring Basis Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets accounted for at fair value on a recurring basis Fixed maturity securities available for sale $ 349,358,027 $ - $ 348,120,558 $ 1,237,469 Equity securities 15,019,179 15,019,179 - - Loans held for sale 150,196,416 - - 150,196,416 Restricted assets (1) 1,560,266 - 1,560,266 - Restricted assets (2) 8,546,971 8,546,971 - - Cemetery perpetual care trust investments (1) 603,199 - 603,199 - Cemetery perpetual care trust investments (2) 4,594,630 4,594,630 - - Derivatives - loan commitments (3) 5,623,512 - - 5,623,512 Total assets accounted for at fair value on a recurring basis $ 535,502,200 $ 28,160,780 $ 350,284,023 $ 157,057,397 Liabilities accounted for at fair value on a recurring basis Derivatives - loan commitments (4) ( 3,048,649 ) - - ( 3,048,649 ) Total liabilities accounted for at fair value on a recurring basis $ ( 3,048,649 ) $ - $ - $ ( 3,048,649 ) (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 43 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 8) Fair Value of Financial Instruments (Continued) The following tables summarize Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a recurring basis by their classification in the condensed consolidated balance sheet as of December 31, 2023: Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets accounted for at fair value on a recurring basis Fixed maturity securities available for sale $ 381,535,986 $ - $ 380,297,330 $ 1,238,656 Equity securities 13,636,071 13,636,071 - - Loans held for sale 126,549,190 - - 126,549,190 Restricted assets (1) 1,853,860 - 1,853,860 - Restricted assets (2) 7,385,203 7,385,203 - - Cemetery perpetual care trust investments (1) 641,704 - 641,704 - Cemetery perpetual care trust investments (2) 4,327,301 4,327,301 - - Derivatives - loan commitments (3) 4,995,486 - - 4,995,486 Total assets accounted for at fair value on a recurring basis $ 540,924,801 $ 25,348,575 $ 382,792,894 $ 132,783,332 Liabilities accounted for at fair value on a recurring basis Derivatives - loan commitments (4) $ ( 3,412,224 ) $ - $ - $ ( 3,412,224 ) Total liabilities accounted for at fair value on a recurring basis $ ( 3,412,224 ) $ - $ - $ ( 3,412,224 ) (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 44 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 8) Fair Value of Financial Instruments (Continued) For Level 3 assets and liabilities measured at fair value on a recurring basis as of June 30, 2024, the significant unobservable inputs used in the fair value measurements were as follows: Schedule of Level 3 Assets and Liabilities Measured at Fair Value on Recurring Basis Significant Range of Inputs Fair Value at Valuation Unobservable Minimum Maximum Weighted June 30, 2024 Technique Input(s) Value Value Average Loans held for sale $ 150,196,416 Market approach Investor contract pricing as a percentage of unpaid principal balance 72.0 % 108.0 % 100.0 % Derivatives - loan commitments (net) 2,574,863 Market approach Pull-through rate 65.0 % 100.0 % 85.0 % Initial-Value N/A N/A N/A Servicing 0 bps 135 bps 44 bps Fixed maturity securities available for sale 1,237,469 Broker quotes Pricing quotes $ 99.74 $ 100.00 $ 99.51 For 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: Significant Range of Inputs Fair Value at Valuation Unobservable Minimum Maximum Weighted December 31, 2023 Technique Input(s) Value Value Average Loans held for sale $ 126,549,190 Market approach Investor contract pricing as a percentage of unpaid principal balance 70.0 % 121.0 % 100.0 % Derivatives - loan commitments (net) 1,583,262 Market approach Pull-through rate 70.0 % 99.0 % 86.0 % Initial-Value N/A N/A N/A Servicing 0 bps 119 bps 49 bps Fixed maturity securities available for sale 1,238,656 Broker quotes Pricing quotes $ 98.40 $ 102.46 $ 99.86 45 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 8) Fair Value of Financial Instruments (Continued) The following table is a summary of changes in the condensed consolidated balance sheet line items measured using level 3 inputs for the three month period ended June 30, 2024: Schedule of Changes in Consolidated Balance Sheet Line Items Measured Using Level 3 Inputs Net Loan Commitments Loans Held for Sale Fixed Maturity Securities Available for Sale Balance - March 31, 2024 $ 2,145,040 $ 112,678,958 $ 1,232,187 Originations and purchases - 624,218,401 - Sales, maturities and paydowns - ( 599,685,654 ) - Total gains (losses): Included in earnings 429,823 (1) 12,984,711 (1) - (2) Included in other comprehensive income - - 5,282 Balance - June 30, 2024 $ 2,574,863 $ 150,196,416 $ 1,237,469 (1) As a component of Mortgage fee income on the condensed consolidated statements of earnings (2) As a component of Net investment income on the condensed consolidated statements of earnings The following table is a summary of changes in the condensed consolidated balance sheet line items measured using level 3 inputs for the three month period ended June 30, 2023: Net Loan Commitments Loans Held for Sale Fixed Maturity Securities Available for Sale Balance - March 31, 2023 $ 3,384,829 $ 173,015,404 $ 1,435,519 Originations and purchases - 607,867,445 - Sales, maturities and paydowns - ( 628,567,681 ) - Transfer to mortgage loans held for investment ( 1,150,074 ) Total gains (losses): Included in earnings ( 151,382 )(1) 10,144,966 (1) - (2) Included in other comprehensive income - - ( 3,645 ) Balance - June 30, 2023 $ 3,233,447 $ 161,310,060 $ 1,431,874 (1) As a component of Mortgage fee income on the condensed consolidated statements of earnings (2) As a component of Net investment income on the condensed consolidated statements of earnings 46 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 8) Fair Value of Financial Instruments (Continued) The following table is a summary of changes in the condensed consolidated balance sheet line items measured using level 3 inputs for the six month period ended June 30, 2024: Net Loan Commitments Loans Held for Sale Fixed Maturity Securities Available for Sale Balance - December 31, 2023 $ 1,583,262 $ 126,549,190 $ 1,238,656 Originations and purchases - 1,089,823,515 - Sales, maturities and paydowns - ( 1,085,736,592 ) - Transfer to mortgage loans held for investment - ( 1,867,552 ) - Loans held for sale foreclosed into real estate held for sale ( 858,977 ) Total gains (losses): Included in earnings 991,601 (1) 22,286,832 (1) - (2) Included in other comprehensive income - - ( 1,187 ) Balance - June 30, 2024 $ 2,574,863 $ 150,196,416 $ 1,237,469 (1) As a component of Mortgage fee income on the condensed consolidated statements of earnings (2) As a component of Net investment income on the condensed consolidated statements of earnings The following table is a summary of changes in the condensed consolidated balance sheet line items measured using level 3 inputs for the six month period ended June 30, 2023: Net Loan Commitments Loans Held for Sale Fixed Maturity Securities Available for Sale Balance - December 31, 2022 $ 2,706,877 $ 141,179,620 $ 1,435,519 Originations and purchases - 1,139,735,241 - Sales, maturities and paydowns - ( 1,140,477,623 ) - Transfer to mortgage loans held for investment - ( 1,150,074 ) - Total gains (losses): Included in earnings 526,570 (1) 22,022,896 (1) - (2) Included in other comprehensive income - - ( 3,645 ) Balance - June 30, 2023 $ 3,233,447 $ 161,310,060 $ 1,431,874 (1) As a component of Mortgage fee income on the condensed consolidated statements of earnings (2) As a component of Net investment income on the condensed consolidated statements of earnings The Company did not have any financial assets and financial liabilities measured at fair value on a nonrecurring basis as of June 30, 2024 and as of December 31, 2023. 47 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 8) Fair Value of Financial Instruments (Continued) Fair Value of Financial Instruments Carried at Other Than Fair Value ASC 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. The 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 June 30, 2024 and December 31, 2023. The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows as of June 30, 2024: Schedule of Financial Instruments Carried at Other Than Fair Value Carrying Value Level 1 Level 2 Level 3 Total Estimated Fair Value Assets Mortgage loans held for investment Residential $ 100,537,622 $ - $ - $ 99,598,873 $ 99,598,873 Residential construction 111,709,170 - - 111,709,170 111,709,170 Commercial 72,096,739 - - 71,457,137 71,457,137 Mortgage loans held for investment, net $ 284,343,531 $ - $ - $ 282,765,180 $ 282,765,180 Policy loans 13,472,198 - - 13,472,198 13,472,198 Insurance assignments, net (1) 46,871,366 - - 46,871,366 46,871,366 Restricted assets (2) 637,783 - - 637,783 637,783 Cemetery perpetual care trust investments (2) 2,030,930 - - 2,030,930 2,030,930 Mortgage servicing rights, net 3,172,109 - - 4,667,158 4,667,158 Liabilities Bank and other loans payable $ ( 103,540,666 ) $ - $ - $ ( 84,778,875 ) $ ( 84,778,875 ) Policyholder account balances (3) ( 38,842,923 ) - - ( 40,844,813 ) ( 40,844,813 ) Future policy benefits - annuities (3) ( 106,166,278 ) - - ( 104,501,993 ) ( 104,501,993 ) (1) Included in other investments and policy loans on the condensed consolidated balance sheets (2) Mortgage loans held for investment (3) Included in future policy benefits and unpaid claims on the condensed consolidated balance sheets 48 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 8) Fair Value of Financial Instruments (Continued) The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows as of December 31, 2023: Carrying Value Level 1 Level 2 Level 3 Total Estimated Fair Value Assets Mortgage loans held for investment Residential $ 99,519,750 $ - $ - $ 96,998,106 $ 96,998,106 Residential construction 103,529,896 - - 103,529,896 103,529,896 Commercial 72,567,191 - - 72,149,530 72,149,530 Mortgage loans held for investment, net $ 275,616,837 $ - $ - $ 272,677,532 $ 272,677,532 Policy loans 13,264,183 - - 13,264,183 13,264,183 Insurance assignments, net (1) 44,051,486 - - 44,051,486 44,051,486 Restricted assets (2) 675,219 - - 675,219 675,219 Cemetery perpetual care trust investments (2) 246,865 - - 246,865 246,865 Mortgage servicing rights, net 3,461,146 - - 4,543,657 4,543,657 Liabilities Bank and other loans payable $ ( 105,555,137 ) $ - $ - $ ( 105,555,137 ) $ ( 105,555,137 ) Policyholder account balances (3) ( 39,245,123 ) - - ( 48,920,691 ) ( 48,920,691 ) Future policy benefits - annuities (3) ( 106,285,010 ) - - ( 102,177,585 ) ( 102,177,585 ) (1) Included in other investments and policy loans on the consolidated balance sheets (2) Mortgage loans held for investment (3) Included in future policy benefits and unpaid claims on the consolidated balance sheets The methods, assumptions and significant valuation techniques and inputs used to estimate the fair value of these financial instruments are summarized as follows: Mortgage Loans Held for Investment : The estimated fair value of the Company’s mortgage loans held for investment is determined using various methods. The Company’s mortgage loans are grouped into three categories: Residential, Residential Construction and Commercial. When estimating the expected future cash flows, it is assumed that all loans will be held to maturity, and any loans that are non-performing are evaluated individually for impairment. Residential – The estimated fair value is determined through a combination of discounted cash flows (estimating expected future cash flows of payments and discounting them using current interest rates from single-family mortgages) and considering pricing of similar loans that were sold recently. Residential Construction – These loans are primarily short in maturity. Accordingly, the estimated fair value is determined to be the carrying value. Commercial – The estimated fair value is determined by estimating expected future cash flows of payments and discounting them using current interest rates for commercial mortgages. Policy Loans : The carrying amounts reported in the accompanying condensed consolidated balance sheet for these financial instruments approximate their fair values because they are fully collateralized by the cash surrender value of the underlying insurance policies. Insurance Assignments, Net : These investments are primarily short in maturity, accordingly, the carrying amounts reported in the accompanying condensed consolidated balance sheet for these financial instruments approximate their fair values. 49 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 8) Fair Value of Financial Instruments (Continued) Bank and Other Loans Payable : The carrying amounts reported in the accompanying condensed consolidated balance sheet for warehouse lines of credit approximate their fair values due to their relatively short-term maturities and variable interest rates. The estimated fair value for bank loans collateralized by real estate is determined by estimating future cash flows of payments and discounting them using current market rates. Policyholder Account Balances and Future Policy Benefits-Annuities : Future policy benefit reserves for interest-sensitive insurance products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges. Policy benefits and claims that are charged to expense include benefit claims incurred in the period of more than related policy account balances. Interest crediting rates for interest-sensitive insurance products ranged from 1.5 % to 6.5 %. The fair values for these investment-type insurance contracts are estimated based on the present value of liability cash flows. The fair values for the Company’s insurance contracts other than investment-type contracts are not required to be disclosed. However, the fair values of liabilities under all insurance contracts are taken into consideration in the Company’s overall management of interest rate risk, such that the Company’s exposure to changing interest rates is minimized through the matching of investment maturities with amounts due under insurance contracts. 9) Derivative Instruments Mortgage Banking Derivatives Loan Commitments The Company is exposed to price risk due to the potential impact of changes in interest rates on the values of loan commitments from the time a loan commitment is made to an applicant to the time the loan that would result from the exercise of that loan commitment is funded. Managing price risk is complicated by the fact that the ultimate percentage of loan commitments that will be exercised (i.e., the number of loans that will be funded) fluctuates. The probability that a loan will not be funded, or the loan application is denied or withdrawn within the terms of the commitment is driven by several factors, particularly the change, if any, in mortgage rates following the issuance of the loan commitment. In general, the probability of funding increases if mortgage rates rise and decreases if mortgage rates fall. This is due primarily to the relative attractiveness of current mortgage rates compared to the applicant’s committed rate. The probability that a loan will not be funded within the terms of the mortgage loan commitment also is influenced by the source of the applications (retail, broker or correspondent channels), proximity to rate lock expiration, purpose for the loan (purchase or refinance), product type and the application approval status. The Company has developed fallout estimates using historical data that 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. The Company estimates the fair value of a loan commitment based on the change in estimated fair value of the underlying mortgage loan, quoted mortgage-backed securities (“MBS”) prices, estimates of the fair value of mortgage servicing rights, and an estimate of the probability that the mortgage loan will fund within the terms of the commitment net of estimated commission expense. The change in fair value of the underlying mortgage loan is measured from the date the loan commitment is issued and is shown net of related expenses. Following issuance, the value of a loan commitment can be either positive or negative depending upon the change in value of the underlying mortgage loans. Fallout rates and other factors from the Company’s recent historical data are used to estimate the quantity and value of mortgage loans that will be funded within the terms of the commitments. 50 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 9) Derivative Instruments (Continued) Forward Sale Commitments The Company utilizes forward commitments to economically hedge the price risk associated with its outstanding mortgage loan commitments. A forward commitment protects the Company from losses on sales of the loans arising from exercise of the loan commitments. Management expects these types of commitments will experience changes in fair value opposite to changes in fair value of the loan commitments, thereby reducing earnings volatility related to the recognition in earnings of changes in the values of the commitments. The net changes in fair value of loan commitments and forward sale commitments are shown in current earnings as a component of mortgage fee income on the consolidated statements of earnings. Mortgage banking derivatives are shown in other assets and other liabilities and accrued expenses on the condensed consolidated balance sheets. The following table shows the fair value and notional amounts of derivative instruments: Schedule of Derivative Assets at Fair Value June 30, 2024 December 31, 2023 Balance Sheet Location Notional Amount Asset Fair Value Liability Fair Value Notional Amount Asset Fair Value Liability Fair Value Derivatives not designated as hedging instruments: Loan commitments Other assets and Other liabilities $ 229,458,247 $ 5,623,512 $ 3,048,649 $ 161,832,250 $ 4,995,486 $ 3,412,224 Total $ 229,458,247 $ 5,623,512 $ 3,048,649 $ 161,832,250 $ 4,995,486 $ 3,412,224 The table below presents the gains (losses) on derivatives. There were no gains or losses reclassified from accumulated other comprehensive income into income or gains or losses recognized in income on derivatives ineffective portion, or any amounts excluded from effective testing. Schedule of Gains and Losses on Derivatives Net Amount Gain (Loss) Net Amount Gain (Loss) Three Months Ended June 30, Six Months Ended June 30, Derivative Classification 2024 2023 2024 2023 Loan commitments Mortgage fee income $ 429,823 $ ( 151,382 ) $ 991,601 $ 526,570 51 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 10) Reinsurance, Commitments and Contingencies Reinsurance The Company follows the procedure of reinsuring risks of more than a specified limit, which ranges from $ 25,000 to $ 100,000 on newly issued policies. The Company has also assumed various reinsurance agreements through acquisition of various life companies. 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 is also a reinsurer of insurance with other companies. Mortgage Loan Loss Settlements Future loan losses can be extremely difficult to estimate. However, the Company believes that the Company’s reserve methodology and its current practice of property preservation allow it to estimate its potential losses on loans sold. See Note 4 to the condensed consolidated financial statements for additional information about the Company’s loan loss reserve. Debt Covenants for Mortgage Warehouse Lines of Credit The Company, through its subsidiary SecurityNational Mortgage Company (“SecurityNational Mortgage”), has a line of credit with Texas Capital Bank N.A. 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 Credit”). 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 four-quarter basis. The 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 June 20, 2025 . 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. The Company, through its subsidiary SecurityNational Mortgage, has a line of credit with Western Alliance Bank. This agreement allows SecurityNational Mortgage to borrow up to $ 35,000,000 for the sole purpose of funding mortgage loans (the “Western Alliance Bank Warehouse Line of Credit”). The agreement charges interest at the 1-Month SOFR rate plus 2.0% and matures on June 20, 2025 . The Company is required to comply with covenants for adjusted tangible net worth, unrestricted cash balance, and minimum combined pre-tax income of at least $ 1.00 on a quarterly basis. 52 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 10) Reinsurance, Commitments and Contingencies (Continued) The 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 June 30, 2024, 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 $ 6,617,000 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. Debt Covenants for Revolving Lines of Credit and Bank Loans The 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 June 30, 2024, the Company was in compliance with all these debt covenants. Other Contingencies and Commitments The Company has commitments to fund existing construction and land development loans pursuant to the various loan agreements. As of June 30, 2024, the Company’s commitments were approximately $ 169,193,000 for these loans, of which $ 113,325,774 had been funded. The 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. The 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. The Company is a defendant in various other legal actions arising from the normal conduct of business. 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 analysis 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. 53 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 11) Mortgage Servicing Rights The Company initially records its MSRs at fair value as discussed in Note 8. After being initially recorded at fair value, MSRs backed by mortgage loans are accounted for using the amortization method. Amortization expense is included in other expenses on the consolidated statements of earnings. MSR amortization is determined by amortizing the MSR balance in proportion to, and over the period of the estimated future net servicing income of the underlying financial assets. The Company periodically assesses MSRs for impairment. Impairment occurs when the current fair value of the MSR falls below the asset’s carrying value (carrying value is the amortized cost reduced by any related valuation allowance). If MSRs are impaired, the impairment is recognized in current-period earnings and the carrying value of the MSRs is adjusted through a valuation allowance. The Company periodically reviews the various loan strata to determine whether the value of the MSRs in each stratum is impaired and likely to recover. If the Company 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. The following table presents the MSR activity: Schedule of Mortgage Servicing Rights As of June 30, 2024 As of December 31, 2023 Amortized cost: Balance before valuation allowance at beginning of year $ 3,461,146 $ 3,039,765 MSR additions resulting from loan sales (1) 30,606 1,009,312 Amortization (2) ( 319,643 ) ( 587,931 ) Sale of MSRs - - Application of valuation allowance to write down MSRs with other than temporary impairment - - Balance before valuation allowance at end of period $ 3,172,109 $ 3,461,146 Valuation allowance for impairment of MSRs: Balance at beginning of year $ - $ - Additions - - Application of valuation allowance to write down MSRs with other than temporary impairment - - Balance at end of period $ - $ - Mortgage servicing rights, net $ 3,172,109 $ 3,461,146 Estimated fair value of MSRs at end of period $ 4,667,158 $ 4,543,657 (1) Included in mortgage fee income on the condensed consolidated statements of earnings (2) Included in other expenses on the condensed consolidated statements of earnings 54 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 11) Mortgage Servicing Rights (Continued) The table below summarizes the Company’s estimate of future amortization of its existing MSRs carried at amortized cost. This projection was developed using the Company’s assumptions in its June 30, 2024 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. Schedule of Finite-Lived Intangible Assets, Future Amortization Expense, Mortgage Servicing Rights Estimated MSR Amortization 2024 630,403 2025 503,024 2026 408,681 2027 325,593 2028 259,506 Thereafter 1,044,902 Total $ 3,172,109 The Company collected the following contractual servicing fee income and late fee income as reported in other revenues on the condensed consolidated statement of earnings. Schedule of Other Revenues 2024 2023 2024 2023 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Contractual servicing fees $ 241,944 $ 233,218 $ 498,606 $ 643,618 Late fees 53,004 14,008 76,212 63,321 Total $ 294,948 $ 247,226 $ 574,818 $ 706,939 The following is a summary of the unpaid principal balances (“UPB”) of the servicing portfolio. Summary of Unpaid Principal Balances of the Servicing Portfolio As of June 30, 2024 As of December 31, 2023 Servicing UPB $ 396,558,128 $ 414,147,436 The following key assumptions were used in determining MSR value: Schedule of Assumptions Used in Determining MSR Value Prepayment Speeds Average Life (Years) Discount Rate June 30, 2024 9.20 8.12 12.11 December 31, 2023 9.70 7.79 11.85 55 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 12) Income Taxes The Company’s overall effective tax rate for the three month periods ended June 30, 2024 and 2023 was 22.6 % and 22.0 %, respectively, which resulted in a provision for income taxes of $ 2,118,044 and $ 1,796,627 , respectively, and for the six month periods ended June 30, 2024 and 2023 was 22.4 % and 22.0 %, respectively, which resulted in a provision for income taxes of $ 4,262,833 and $ 2,141,343 , respectively. The Company’s effective tax rate is higher than the U.S. federal statutory rate of 21 % due to, among other factors, state income taxes as offset by certain state income tax benefits, along with certain permanent tax adjustments such as meals and entertainment and stock-based compensation. The increase in the effective tax rate when compared to the prior year was primarily due to the Company’s state income tax provision. Interim income taxes are based on an estimated annualized effective tax rate applied to the respective quarterly periods, adjusted for discrete tax items in the period in which they occur. Although the Company believes its tax estimates are reasonable, the Company can make no assurance that the final tax outcome of these matters will not be different from that which it has reflected in its historical income tax provisions and accruals. 13) Revenues from Contracts with Customers The Company reports revenues from contracts with customers pursuant to ASC No. 606, Revenue from Contracts with Customers . Information about Performance Obligations and Contract Balances The Company’s cemetery and mortuary segment sells a variety of goods and services to customers in both at-need and pre-need situations. Due to the timing of the fulfillment of the obligation, revenue is deferred until that obligation is fulfilled. The Company’s three types of future obligations are as follows: Pre-need Merchandise and Service Revenue : All pre-need merchandise and service revenue is deferred, and the funds are placed in trust until the need arises, the merchandise is received, or the service is performed. The trust is then relieved, and the revenue and commissions are recognized. At-need Specialty Merchandise Revenue : At-need specialty merchandise revenue consists of customizable merchandise ordered from a manufacturer such as markers and bases. When specialty merchandise is ordered, it can take time to manufacture and deliver the product. Revenue is deferred until the at-need merchandise is received. Deferred Pre-need Land Revenue : Deferred pre-need revenue and corresponding commissions are deferred until 10% of the funds are received from the customer through regular monthly payments. Deferred pre-need land revenue is not placed in trust. Complete payment of the contract does not constitute fulfillment of the performance obligation. Goods or services are deferred until such a time the service is performed or merchandise is received. Pre-need contracts are required to be paid in full prior to a customer using a good or service from a pre-need contract. Goods and services from pre-need contracts can be transferred when paid in full from one owner to another. In such cases, the Company will act as an agent in transferring the requested goods and services. The transfer of goods and services does not fulfill an obligation and revenue remains deferred. 56 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 13) Revenues from Contracts with Customers (Continued) The opening and closing balances of the Company’s receivables, contract assets and contract liabilities are as follows: Schedule of Opening and Closing Balances of Receivables, Contract Assets and Contract Liabilities Contract Balances Receivables (1) Contract Asset Contract Liability Opening (January 1, 2024) $ 6,321,573 $ - $ 18,237,246 Closing (June 30, 2024) 6,784,501 - 18,917,596 Increase/(decrease) 462,928 - 680,350 Contract Balances Receivables (1) Contract Asset Contract Liability Opening (January 1, 2023) $ 5,392,779 $ - $ 16,226,836 Closing (December 31, 2023) 6,321,573 - 18,237,246 Increase/(decrease) 928,794 - 2,010,410 (1) Included in Receivables, net on the condensed consolidated balance sheets The amount of revenue recognized and included in the opening contract liability balance for the three month periods ended June 30, 2024 and 2023 was $ 1,429,381 and $ 1,116,566 , respectively, and for the six month periods ended June 30, 2024 and 2023 was $ 2,935,495 and $ 2,236,898 , respectively. The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. Disaggregation of Revenue The following table disaggregates revenue for the Company’s cemetery and mortuary contracts: Schedule of Revenues of the Cemetery and Mortuary Contracts 2024 2023 2024 2023 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Major goods/service lines At-need $ 4,864,380 $ 4,999,450 $ 10,274,680 $ 10,153,486 Pre-need 2,904,567 2,169,264 4,442,758 3,486,657 Net mortuary and cemetery sales $ 7,768,947 $ 7,168,714 $ 14,717,438 $ 13,640,143 Timing of Revenue Recognition Goods transferred at a point in time $ 5,032,430 $ 4,528,969 $ 9,222,652 $ 8,558,635 Services transferred at a point in time 2,736,517 2,639,745 5,494,786 5,081,508 Net mortuary and cemetery sales $ 7,768,947 $ 7,168,714 $ 14,717,438 $ 13,640,143 57 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 13) Revenues from Contracts with Customers (Continued) The following table reconciles revenues from cemetery and mortuary contracts to Note 7 – Business Segment Information for the Cemetery/Mortuary Segment for the periods presented: Schedule of Reconciliation of Revenues from Cemetery and Mortuary Contracts to Business Segment Information 2024 2023 2024 2023 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net mortuary and cemetery sales $ 7,768,947 $ 7,168,714 $ 14,717,438 $ 13,640,143 Gains on investments and other assets ( 202,810 ) 197,579 379,352 251,510 Net investment income 574,957 1,343,274 1,659,149 1,944,765 Other revenues 136,774 102,941 309,507 174,486 Revenues from external customers 8,277,868 8,812,508 17,065,446 16,010,904 14) Receivables Receivables consist of the following: Schedule of Receivables As of June 30, 2024 As of December 31, 2023 Contracts with customers $ 6,784,501 $ 6,321,573 Receivables from sales agents 3,533,612 3,252,840 Other 5,415,118 7,658,789 Total receivables 15,733,231 17,233,202 Allowance for credit losses ( 1,770,911 ) ( 1,897,887 ) Net receivables $ 13,962,320 $ 15,335,315 The Company records an allowance for credit losses for its receivables in accordance with GAAP. See Note 2 regarding the adoption of ASU 2016-13. The following table presents a roll forward of the allowance for credit losses as of the dates indicated: Schedule of Allowance Credit Losses Three Months Ended Beginning balance - March 31, 2024 $ 1,755,553 Change in provision for credit losses (1) 31,494 Charge-offs ( 16,136 ) Ending balance - June 30, 2024 $ 1,770,911 Beginning balance - March 31, 2023 $ 1,867,124 Change in provision for credit losses (1) ( 332,644 ) Charge-offs ( 41,546 ) Ending balance - June 30, 2023 $ 1,492,934 (1) Included in other expenses on the condensed consolidated statements of earnings The following table presents a roll forward of the allowance for credit losses as of the dates indicated: Six Months Ended Beginning balance - January 1, 2024 $ 1,897,887 Change in provision for credit losses (1) ( 87,003 ) Charge-offs ( 39,973 ) Ending balance - June 30, 2024 $ 1,770,911 Beginning balance - January 1, 2023 $ 2,229,791 Change in provision for credit losses (1) ( 651,308 ) Charge-offs ( 85,549 ) Ending balance - June 30, 2023 $ 1,492,934 (1) Included in other expenses on the condensed consolidated statements of earnings 58 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 15) Cemetery Perpetual Care Trust Investments and Obligation and Restricted Assets Cemetery Perpetual Care Trust Investments and Obligation State law requires the Company to pay into endowment care trusts a portion of the proceeds from the sale of certain cemetery property interment rights for cemeteries that have established an endowment care trust. These endowment care trusts are defined as Variable Interest Entities pursuant to GAAP. The Company is the primary beneficiary of these trusts, as it absorbs both the losses and any expenses associated with the trusts. The Company has consolidated cemetery endowment care trust investments with a corresponding amount recorded as Cemetery Perpetual Care Obligation in the accompanying consolidated balance sheets . The components of the cemetery perpetual care investments and obligation as of June 30, 2024, are as follows: Schedule of Investments Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Estimated Fair Value June 30, 2024: Fixed maturity securities, available for sale, at estimated fair value: U.S. Treasury securities and obligations of U.S. Government agencies $ 443,508 $ 1,481 $ ( 1,975 ) $ - $ 443,014 Obligations of states and political subdivisions 167,073 20 ( 6,908 ) - 160,185 Total fixed maturity securities available for sale $ 610,581 $ 1,501 $ ( 8,883 ) $ - $ 603,199 Equity securities at estimated fair value: Common stock: Industrial, miscellaneous and all other $ 3,739,763 $ 1,059,494 $ ( 204,627 ) $ 4,594,630 Total equity securities at estimated fair value $ 3,739,763 $ 1,059,494 $ ( 204,627 ) $ 4,594,630 Mortgage loans held for investment at amortized cost: Residential construction $ 115,000 Commercial 1,920,000 Less: Allowance for credit losses ( 4,070 ) Total mortgage loans held for investment $ 2,030,930 Accrued investment income $ 20,248 Cash and cash equivalents $ 1,203,075 Total cemetery perpetual care trust investments $ 8,452,082 Cemetery perpetual care obligation $ ( 5,487,676 ) Trust investments in excess of trust obligations $ 2,964,406 59 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 15) Cemetery Perpetual Care Trust Investments and Obligations and Restricted Assets (Continued) The components of the cemetery perpetual care investments and obligation as of December 31, 2023, are as follows: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value December 31, 2023: Fixed maturity securities, available for sale, at estimated fair value: U.S. Treasury securities and obligations of U.S. Government agencies $ 477,797 $ 302 $ ( 574 ) $ 477,525 Obligations of states and political subdivisions 115,792 - ( 5,114 ) 110,678 Corporate securities including public utilities 53,672 - ( 171 ) 53,501 Total fixed maturity securities available for sale $ 647,261 $ 302 $ ( 5,859 ) $ 641,704 Equity securities at estimated fair value: Common stock: Industrial, miscellaneous and all other $ 3,614,392 $ 859,680 $ ( 146,771 ) $ 4,327,301 Total equity securities at estimated fair value $ 3,614,392 $ 859,680 $ ( 146,771 ) $ 4,327,301 Mortgage loans held for investment at amortized cost: Residential construction $ 247,360 Less: Allowance for credit losses ( 495 ) Total mortgage loans held for investment $ 246,865 Cash and cash equivalents $ 2,867,047 Total cemetery perpetual care trust investments $ 8,082,917 Cemetery perpetual care obligation $ ( 5,326,196 ) Trust investments in excess of trust obligations $ 2,756,721 Fixed Maturity Securities The table below summarizes unrealized losses on fixed maturity securities available for sale that were carried at estimated fair value as of June 30, 2024 and December 31, 2023. 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 Unrealized Losses for Less than Twelve Months Fair Value Unrealized Losses for More than Twelve Months Fair Value Total Unrealized Loss Fair Value June 30, 2024 U.S. Treasury securities and obligations of U.S. Government agencies $ 1,975 $ 144,156 $ - $ - $ 1,975 $ 144,156 Obligations of states and political subdivisions - - 6,908 120,165 6,908 120,165 Totals $ 1,975 $ 144,156 $ 6,908 $ 120,165 $ 8,883 $ 264,321 December 31, 2023 U.S. Treasury securities and obligations of U.S. Government agencies $ 574 $ 143,448 $ - $ - $ 574 $ 143,448 Obligations of states and political subdivisions - - 5,114 110,678 5,114 110,678 Corporate securities including public utilities - - 171 53,501 171 53,501 Totals $ 574 $ 143,448 $ 5,285 $ 164,179 $ 5,859 $ 307,627 60 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 15) Cemetery Perpetual Care Trust Investments and Obligations and Restricted Assets (Continued) Relevant holdings were comprised of three securities with fair values aggregating 96.7 % of the aggregate amortized cost as of June 30, 2024. Relevant holdings were comprised of four securities with fair values aggregating 98.1 % of aggregate amortized cost as of December 31, 2023. No credit losses have been recognized for the three and six month periods ended June 30, 2024 and 2023, since the increase in unrealized losses is primarily a result of increases in interest rates. See Note 3 for additional information regarding the Company’s evaluation of the allowance for credit losses for fixed maturity securities available for sale. The table below presents the amortized cost and estimated fair value of fixed maturity securities available for sale as of June 30, 2024, 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 Amortized Estimated Fair Cost Value Due in 1 year $ 297,377 $ 298,857 Due in 2-5 years 260,123 252,508 Due in 5-10 years - - Due in more than 10 years 53,081 51,834 Total $ 610,581 $ 603,199 61 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 15) Cemetery Perpetual Care Trust Investments and Obligations and Restricted Assets (Continued) Restricted Assets The Company has also established certain restricted assets to provide for future merchandise and service obligations incurred in connection with its pre-need sales for its cemetery and mortuary segment. Restricted cash also represents escrows held for borrowers and investors under servicing and appraisal agreements relating to mortgage loans, funds held by warehouse banks in accordance with loan purchase agreements and funds held in escrow for certain real estate construction development projects. Additionally, the Company elected to maintain its medical benefit fund without change from the prior year and has included this amount as a component of restricted cash. These restricted cash items are for the Company’s life insurance and mortgage segments. Restricted assets as of June 30, 2024, are summarized as follows: Schedule of Restricted Assets in Cemetery and Mortuary Endowment Care and Pre need Merchandise Funds Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Estimated Fair Value June 30, 2024: Fixed maturity securities, available for sale, at estimated fair value: U.S. Treasury securities and obligations of U.S. Government agencies $ 796,855 $ 3,235 $ ( 3,440 ) $ - $ 796,650 Obligations of states and political subdivisions 551,620 6 ( 6,935 ) - 544,691 Corporate securities including public utilities 221,710 23 ( 2,808 ) - 218,925 Total fixed maturity securities available for sale $ 1,570,185 $ 3,264 $ ( 13,183 ) $ - $ 1,560,266 Equity securities at estimated fair value: Common stock: Industrial, miscellaneous and all other $ 7,435,400 $ 1,487,896 $ ( 376,325 ) $ 8,546,971 Total equity securities at estimated fair value $ 7,435,400 $ 1,487,896 $ ( 376,325 ) $ 8,546,971 Mortgage loans held for investment at amortized cost: Residential construction $ 639,061 Less: Allowance for credit losses ( 1,278 ) Total mortgage loans held for investment $ 637,783 Accrued investment income $ 5,908 Cash and cash equivalents (1) $ 11,849,488 Total restricted assets $ 22,600,416 (1) Including cash and cash equivalents of $ 8,178,110 for the life insurance and mortgage segments. 62 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 15) Cemetery Perpetual Care Trust Investments and Obligations and Restricted Assets (Continued) Restricted assets as of December 31, 2023, are summarized as follows: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value December 31, 2023: Fixed maturity securities, available for sale, at estimated fair value: U.S. Treasury securities and obligations of U.S. Government agencies $ 932,737 $ 1,433 $ ( 1,000 ) $ 933,170 Obligations of states and political subdivisions 652,770 305 ( 4,542 ) 648,533 Corporate securities including public utilities 274,688 209 ( 2,740 ) 272,157 Total fixed maturity securities available for sale $ 1,860,195 $ 1,947 $ ( 8,282 ) $ 1,853,860 Equity securities at estimated fair value: Common stock: Industrial, miscellaneous and all other $ 6,516,044 $ 1,117,155 $ ( 247,996 ) $ 7,385,203 Total equity securities at estimated fair value $ 6,516,044 $ 1,117,155 $ ( 247,996 ) $ 7,385,203 Mortgage loans held for investment at amortized cost: Residential construction $ 676,572 Less: Allowance for credit losses ( 1,353 ) Total mortgage loans held for investment $ 675,219 Cash and cash equivalents (1) $ 10,114,694 Total restricted assets $ 20,028,976 (1) Including cash and cash equivalents of $ 6,930,930 for the life insurance and mortgage segments. Fixed Maturity Securities The table below summarizes unrealized losses on fixed maturity securities available for sale that were carried at estimated fair value as of June 30, 2024 and December 31, 2023. 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 Unrealized Losses for Less than Twelve Months Fair Value Unrealized Losses for More than Twelve Months Fair Value Total Unrealized Loss Fair Value June 30, 2024 U.S. Treasury securities and obligations of U.S. Government agencies $ 3,440 $ 251,111 $ - $ - $ 3,440 $ 251,111 Obligations of states and political subdivisions 2,161 230,634 4,774 289,322 6,935 519,956 Corporate securities including public utilities 81 25,331 2,727 168,571 2,808 193,902 Totals $ 5,682 $ 507,076 $ 7,501 $ 457,893 $ 13,183 $ 964,969 December 31, 2023 U.S. Treasury securities and obligations of U.S. Government agencies $ 1,000 $ 249,877 $ - $ - $ 1,000 $ 249,877 Obligations of states and political subdivisions - - 4,542 451,985 4,542 451,985 Corporate securities including public utilities - - 2,740 221,334 2,740 221,334 Totals $ 1,000 $ 249,877 $ 7,282 $ 673,319 $ 8,282 $ 923,196 63 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 15) Cemetery Perpetual Care Trust Investments and Obligations and Restricted Assets (Continued) Relevant holdings were comprised of 14 securities with fair values aggregating 98.7 % of the aggregate amortized cost as of June 30, 2024. Relevant holdings were comprised of 12 securities with fair values aggregating 99.1 % of the aggregate amortized cost as of December 31, 2023. No credit losses have been recognized for the three and six month periods ended June 30, 2024 and 2023, 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. The table below presents the amortized cost and estimated fair value of fixed maturity securities available for sale as of June 30, 2024, 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 Amortized Estimated Fair Cost Value Due in 1 year $ 542,305 $ 545,540 Due in 2-5 years 362,834 356,778 Due in 5-10 years 101,523 100,716 Due in more than 10 years 563,523 557,232 Total $ 1,570,185 $ 1,560,266 See Notes 3 and 8 for additional information regarding restricted assets and cemetery perpetual care trust investments. 64 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2024 (Unaudited) 16) Accumulated Other Comprehensive Income (loss) The following table summarizes the changes in accumulated other comprehensive income (loss): Schedule of Changes in Accumulated Other Comprehensive Income 2024 2023 2024 2023 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Unrealized gains (losses) on fixed maturity securities available for sale $ ( 654,164 ) $ ( 4,913,327 ) $ ( 1,689,264 ) $ 523,602 Amounts reclassified into net earnings 3,675 ( 79,850 ) ( 92,876 ) ( 298,750 ) Net unrealized gains (losses) before taxes ( 650,489 ) ( 4,993,177 ) ( 1,782,140 ) 224,852 Tax (expense) benefit 135,422 1,048,567 373,973 ( 47,219 ) Net ( 515,067 ) ( 3,944,610 ) ( 1,408,167 ) 177,633 Unrealized losses on restricted assets (1) ( 1,694 ) ( 6,189 ) ( 3,583 ) ( 2,056 ) Tax benefit 422 1,542 893 512 Net ( 1,272 ) ( 4,647 ) ( 2,690 ) ( 1,544 ) Unrealized losses on cemetery perpetual care trust investments (1) ( 1,052 ) ( 3,738 ) ( 1,825 ) ( 812 ) Tax benefit 262 943 455 229 Net ( 790 ) ( 2,795 ) ( 1,370 ) ( 583 ) Other comprehensive income (loss) changes $ ( 517,129 ) $ ( 3,952,052 ) $ ( 1,412,227 ) $ 175,506 (1) Fixed maturity securities available for sale The following table presents the accumulated balances of other comprehensive income (loss) as of June 30, 2024: Schedule of Accumulated Balances of Other Comprehensive Income Beginning Balance December 31, 2023 Change for the period Ending Balance June 30, 2024 Unrealized losses on fixed maturity securities available for sale $ ( 6,876,629 ) $ ( 1,408,167 ) $ ( 8,284,796 ) Unrealized losses on restricted assets (1) ( 4,757 ) ( 2,690 ) ( 7,447 ) Unrealized losses on cemetery perpetual care trust investments (1) ( 4,172 ) ( 1,370 ) ( 5,542 ) Other comprehensive loss $ ( 6,885,558 ) $ ( 1,412,227 ) $ ( 8,297,785 ) (1) Fixed maturity securities available for sale The following table presents the accumulated balances of other comprehensive income (loss) as of December 31, 2023: Beginning Balance December 31, 2022 Change for the period Ending Balance December 31, 2023 Unrealized gains (losses) on fixed maturity securities available for sale $ ( 13,050,767 ) $ 6,174,138 $ ( 6,876,629 ) Unrealized gains (losses) on restricted assets (1) ( 13,148 ) 8,391 ( 4,757 ) Unrealized gains (losses) on cemetery perpetual care trust investments (1) ( 6,362 ) 2,190 ( 4,172 ) Other comprehensive income (loss) $ ( 13,070,277 ) $ 6,184,719 $ ( 6,885,558 ) (1) Fixed maturity securities available for sale 65 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Overview The Company’s operations over the last several years generally reflect three strategies which the Company expects to continue: (i) increased attention to “niche” insurance products, such as the Company’s funeral plan policies and traditional whole life products; (ii) increased emphasis on the cemetery and mortuary business; and (iii) capitalizing on an improving housing market by originating mortgage loans. Insurance Operations The Company’s life insurance business includes funeral plans and interest-sensitive life insurance, as well as other traditional life, accident and health insurance products. The Company places specific marketing emphasis on funeral plans through pre-need planning. A funeral plan is a small face value life insurance policy that generally has face coverage of up to $30,000. The Company believes that funeral plans represent a marketing niche that is less competitive because most insurance companies do not offer similar coverage. The purpose of the funeral plan policy is to pay the costs and expenses incurred at the time of a person’s death. On a per thousand-dollar cost of insurance basis, these policies can be more expensive to the policyholder than many types of non-burial insurance due to their low face amount, requiring the fixed cost of the policy administration to be distributed over a smaller policy size, and the simplified underwriting practices that result in higher mortality costs. The following table shows the condensed financial results of the insurance operations for the three and six month periods ended June 30, 2024 and 2023. See Note 7 to the condensed consolidated financial statements. Three months ended June 30, (in thousands of dollars) Six months ended June 30, (in thousands of dollars) 2024 2023 % Increase (Decrease) 2024 2023 % Increase (Decrease) Revenues from external customers Insurance premiums $ 29,961 $ 28,813 4 % $ 59,813 $ 56,781 5 % Mortgage fee income - 22 (100 %) - 66 (100 %) Net investment income 17,184 18,420 (7 %) 35,796 35,175 2 % Gains (losses) on investments and other assets (211 ) 458 (146 %) 878 515 70 % Other 303 358 (15 %) 721 949 (24 %) Total $ 47,237 $ 48,071 (2 %) $ 97,208 $ 93,486 4 % Intersegment revenue $ 1,906 $ 2,517 (24 %) $ 3,286 $ 4,028 (18 %) Earnings before income taxes $ 7,165 $ 9,158 (22 %) $ 15,694 $ 12,842 22 % Profitability for the six month period ended June 30, 2024 increased due to (a) a $3,032,000 increase in insurance premiums and other considerations, (b) a $2,174,000 decrease in death, surrenders and other policy benefits, (c) a $621,000 increase in net investment income, (d) a $480,000 decrease in interest expense, (e) a $363,000 increase in gains on investments and other assets, and (f) a $255,000 decrease in amortization of deferred policy acquisition costs, which were partially offset by (i) a $2,004,000 increase in future policy benefits, (ii) a $1,001,000 increase in selling, general and administrative expenses, (iii) a $742,000 decrease in intersegment revenue, (iv) a $228,000 decrease in other revenues, (v) a $66,000 decrease in mortgage fee income, and (vi) a $32,000 increase in intersegment interest expense and other expenses. 66 Cemetery and Mortuary Operations The Company sells mortuary services and products through its nine mortuaries in Utah and three mortuaries in New Mexico. The Company also sells cemetery products and services through its five cemeteries in Utah, one cemetery in San Diego County, California, and one cemetery in Santa Fe, New Mexico. At-need product sales and services are recognized as revenue when the services are performed or when the products are delivered. Pre-need cemetery product sales are deferred until the merchandise is delivered and services performed. Recognition of revenue for cemetery land sales occurs when 10% of the purchase price is received. The following table shows the condensed financial results of the cemetery and mortuary operations for the three and six month periods ended June 30, 2024 and 2023. See Note 7 to the condensed consolidated financial statements. Three months ended June 30, (in thousands of dollars) Six months ended June 30, (in thousands of dollars) 2024 2023 % Increase (Decrease) 2024 2023 % Increase (Decrease) Revenues from external customers Mortuary revenues $ 3,125 $ 3,125 0 % $ 6,539 $ 6,400 2 % Cemetery revenues 4,644 4,044 15 % 8,178 7,240 13 % Net investment income 575 1,343 (57 %) 1,659 1,945 (15 %) Gains on investments and other assets (203 ) 198 (203 %) 379 252 50 % Other 137 103 33 % 310 174 78 % Total $ 8,278 $ 8,813 (6 %) $ 17,065 $ 16,011 7 % Earnings before income taxes $ 2,091 $ 2,828 (26 %) $ 5,144 $ 4,613 12 % Profitability in the six month period ended June 30, 2024 increased due to (a) a $956,000 increase in cemetery pre-need sales, (b) a $139,000 increase in mortuary at-need sales, (c) a $135,000 increase in other revenues, (d) a $128,000 increase in gains on investments and other assets, (e) a $7,000 decrease in intersegment interest expense and other expenses, and (f) a $1,000 increase in intersegment revenues, which were partially offset by (i) a $293,000 increase in selling, general and administrative expenses, (ii) a $286,000 decrease in net investment income, (iii) a $166,000 increase in amortization of deferred policy acquisition costs, (iv) an $72,000 increase in cost of goods and services sold, and (v) a $18,000 decrease in cemetery at-need sales. Mortgage Operations The Company’s wholly owned subsidiary, SecurityNational Mortgage Company (“SecurityNational Mortgage), is a mortgage lender incorporated under the laws of the State of Utah and approved and regulated by the Federal Housing Administration (FHA), a department of the U.S. Department of Housing and Urban Development (HUD), which originates mortgages loans that qualify for government insurance in the event of default by the borrower, in addition to various conventional mortgage loan products. SecurityNational Mortgage originates and refinances mortgage loans on a retail basis. Mortgage loans originated or refinanced by the SecurityNational Mortgage are funded through loan purchase agreements with Security National Life, Kilpatrick Life and unaffiliated financial institutions. SecurityNational Mortgage receives fees from borrowers that are involved in mortgage loan originations and refinancings, and secondary fees earned from third party investors that purchase the mortgage loans. Mortgage loans are generally sold with mortgage servicing rights (“MSRs”) released to third-party investors or retained by SecurityNational Mortgage. SecurityNational Mortgage currently retains the mortgage servicing rights on approximately 0.28% of its loan origination volume. These mortgage loans are serviced by either SecurityNational Mortgage or an approved third-party sub-servicer. Mortgage rates have followed the US Treasury yields up in response to the increased inflation and the expectation that the Federal Reserve will continue to raise rates in the near term. As expected, the rapid increase in mortgage rates has resulted in a decrease in loan originations classified as ‘refinance.’ Higher mortgage rates have also had a negative effect on loan originations classified as ‘purchases,’ although not as significant as those in the refinance classification. For the six month periods ended June 30, 2024 and 2023, SecurityNational Mortgage originated 3,494 loans ($1,089,824,000 total volume) and 3,738 loans ($1,139,735,000 total volume), respectively. 67 The following table shows the condensed financial results of the mortgage operations for the three and six month periods ended June 30, 2024 and 2023. See Note 7 to the condensed consolidated financial statements. Three months ended June 30, (in thousands of dollars) Six months ended June 30, (in thousands of dollars) 2024 2023 % Increase (Decrease) 2024 2023 % Increase (Decrease) Revenues from external customers Secondary gains from investors $ 18,675 $ 19,276 (3 %) $ 33,405 $ 37,193 (10 %) Income from loan originations 9,318 8,334 12 % 16,158 14,889 9 % Change in fair value of loans held for sale 1,197 (1,402 ) 185 % 896 (607 ) 248 % Change in fair value of loan commitments 430 (151 ) 385 % 992 527 88 % Net investment income 286 409 (30 %) 536 827 (35 %) Gains on investments and other assets 36 161 (78 %) 35 161 (78 %) Other 335 336 0 % 684 860 (20 %) Total $ 30,277 $ 26,963 12 % $ 52,706 $ 53,850 (2 %) Earnings (loss) before income taxes $ 134 $ (3,837 ) 103 % $ (1,829 ) $ (7,720 ) 76 % Profitability for the six month period ended June 30, 2024 increased due to (a) a $3,430,000 decrease in personnel expenses, (b) a $2,001,000 decrease in other expenses, (c) a $1,503,000 increase in the fair value of loans held for sale, (d) a $1,211,000 increase in income from loan originations, (e) a $936,000 decrease in rent and rent related expenses, (f) a $734,000 decrease in intersegment interest expense and other expenses, (g) a $701,000 decrease in costs related to funding mortgage loans, (h) a $465,000 increase in the fair value of loan commitments (i) a $291,000 decrease in advertising expenses, (j) a $287,000 decrease in interest expense, (k) a $32,000 increase in intersegment revenues, and (l) a $24,000 decrease in depreciation on property and equipment, which were partially offset by (i) a $3,854,000 decrease in secondary gains from investors, (ii) a $1,403,000 increase in commissions, (iii) a $291,000 decrease in net investment income, and (iv) a $176,000 decrease in other revenues. Consolidated Results of Operations Three month period ended June 30, 2024, Compared to Three month period ended June 30, 2023 Total revenues increased by $1,945,000, or 2.3%, to $85,791,000 for the three month period ended June 30, 2024, from $83,846,000 for the comparable period in 2023. Contributing to this increase in total revenues was a $3,541,000 increase in mortgage fee income, a $1,147,000 increase in insurance premiums and other considerations, and a $600,000 increase in net mortuary and cemetery sales, which were partially offset by a $2,127,000 decrease in net investment income, a $1,194,000 decrease in gains on investments and other assets, and a $22,000 decrease in other revenues. Mortgage fee income increased by $3,541,000, or 13.6%, to $29,620,000, for the three month period ended June 30, 2024, from $26,079,000 for the comparable period in 2023. This increase was primarily due to a $2,599,000 increase in the fair value of loans held for sale, a $985,000 increase in loan fees and interest income net of a decrease in the provision for loan loss reserve, a $581,000 increase in the fair value of loan commitments, which was partially offset by a $624,000 decrease in secondary gains from mortgage loans sold to third-party investors into the secondary market due to the decline in origination activity because of increasing interest rates. Insurance premiums and other considerations increased by $1,147,000, or 4.0%, to $29,960,000 for the three month period ended June 30, 2024, from $28,813,000 for the comparable period in 2023. This increase was primarily due to an increase of $1,020,000 in first year premiums and an increase of $127,000 in renewal premiums. Net investment income decreased by $2,127,000, or 10.5%, to $18,045,000 for the three month period ended June 30, 2024, from $20,172,000 for the comparable period in 2023. This decrease was primarily attributable to a $2,446,000 decrease in mortgage loan interest, a $1,613,000 decrease in real estate income, a $18,000 decrease in policy loan interest, and a $12,000 decrease in other investment income, which were partially offset by a $936,000 increase in interest on cash and cash equivalents, a $424,000 increase in insurance assignment income, a $364,000 decrease in investment expenses, a $202,000 increase in fixed maturity securities income, and a $36,000 increase in equity securities income. 68 Net mortuary and cemetery sales increased by $600,000, or 8.4%, to $7,769,000 for the three month period ended June 30, 2024, from $7,169,000 for the comparable period in 2023. This increase was primarily due to a $735,000 increase in cemetery pre-need sales, which was partially offset by a $135,000 decrease in cemetery at-need sales. Gains (losses) on investments and other assets decreased by $1,194,000, or 146.2%, to $377,000 in net losses for the three month period ended June 30, 2024, from $817,000 in net gains for the comparable period in 2023. This decrease in gains on investments and other assets was primarily due to a $953,000 decrease in gains on equity securities mostly attributable to decreases in the fair value of these equity securities, a $203,000 decrease in gains on other assets, and a $122,000 decrease in gains on real estate, which were partially offset by an $84,000 increase in gains on fixed maturity securities. Total benefits and expenses were $76,402,000, or 89.1% of total revenues, for the three month period ended June 30, 2024, as compared to $75,697,000, or 90.3% of total revenues, for the comparable period in 2023. Death benefits, surrenders and other policy benefits, and future policy benefits decreased by an aggregate of $580,000 or 2.3%, to $24,326,000 for the three month period ended June 30, 2024, from $24,906,000 for the comparable period in 2023. This decrease was primarily the result of a $1,385,000 decrease in death benefits, which were partially offset by a $713,000 increase in future policy benefits and a $92,000 increase in surrender and other policy benefits. Amortization of deferred policy and pre-need acquisition costs and value of business acquired increased by $50,000, or 1.2%, to $4,301,000 for the three month period ended June 30, 2024, from $4,251,000 for the comparable period in 2023. This increase was primarily due to an increase in the average outstanding balance of deferred policy and pre-need acquisition costs. Selling, general and administrative expenses increased by $1,592,000, or 3.6%, to $45,465,000 for the three month period ended June 30, 2024, from $43,873,000 for the comparable period in 2023. This increase was primarily the result of a $2,717,000 increase in commissions, a $294,000 increase in personnel expenses, which were partially offset by a $534,000 decrease in rent and rent related expenses, a $404,000 decrease in other expenses, a $307,000 decrease in costs related to funding mortgage loans, and a $180,000 decrease in advertising expense. Interest expense decreased by $341,000, or 24.1%, to $1,074,000 for the three month period ended June 30, 2024, from $1,415,000 for the comparable period in 2023. This decrease was primarily due to a decrease of $19,000 in interest expense on mortgage warehouse lines of credit for loans held for sale and a decrease of $322,000 in interest expense on bank loans. Six month period ended June 30, 2024, Compared to Six month period ended June 30, 2023 Total revenues increased by $3,633,000, or 2.2%, to $166,980,000 for the six month period ended June 30, 2024, from $163,347,000 for the comparable period in 2023. Contributing to this increase in total revenues was a $3,032,000 increase in insurance premiums and other considerations, a $1,077,000 increase in net mortuary and cemetery sales, a $365,000 increase in gains on investments and other assets, and a $45,000 increase in net investment income,, which were partially offset by a $617,000 decrease in mortgage fee income and a $269,000 decrease in other revenues. Mortgage fee income decreased by $617,000, or 1.2%, to $51,451,000, for the six month period ended June 30, 2024, from $52,068,000 for the comparable period in 2023. This decrease was primarily due to a $3,854,000 decrease in secondary gains from mortgage loans sold to third-party investors into the secondary market due to the decline in origination activity because of increasing interest rates, which was partially offset by a $1,503,000 increase in the fair value of loans held for sale, a $1,269,000 increase in loan fees and interest income net of a decrease in the provision for loan loss reserve, and a $465,000 increase in the fair value of loan commitments. 69 Insurance premiums and other considerations increased by $3,032,000, or 5.3%, to $59,813,000 for the six month period ended June 30, 2024, from $56,781,000 for the comparable period in 2023. This increase was primarily due to an increase of $2,678,000 in first year premiums and an increase of $354,000 in renewal premiums. Net investment income increased by $45,000, or 0.1%, to $37,991,000 for the six month period ended June 30, 2024, from $37,947,000 for the comparable period in 2023. This increase was primarily attributable to a $1,839,000 increase in interest on cash and cash equivalents, a $733,000 increase in insurance assignment income, a $593,000 increase in fixed maturity securities income, a $258,000 decrease in investment expenses, an $83,000 increase in policy loan interest, a $63,000 increase in equity securities income, and a $58,000 increase in other investment income, which were partially offset by a $2,119,000 decrease in mortgage loan interest and a $1,463,000 decrease in real estate income. Net mortuary and cemetery sales increased by $1,077,000, or 7.9%, to $14,717,000 for the six month period ended June 30, 2024, from $13,640,000 for the comparable period in 2023. This increase was primarily due to a $956,000 increase in cemetery pre-need sales and a $139,000 increase in mortuary at-need sales, which were partially offset by an $18,000 decrease in cemetery at-need sales. Gains (losses) on investments and other assets increased by $364,000, or 39.3%, to $1,292,000 for the six month period ended June 30, 2024, from $928,000 for the comparable period in 2023. This increase in gains on investments and other assets was primarily due to a $250,000 increase in gains on equity securities mostly attributable to increases in the fair value of these equity securities, a $206,000 increase in gains on fixed maturity securities, and a $128,000 increase in gains on real estate, which were partially offset by a $220,000 decrease in gains on other assets. Other revenues decreased by $269,000, or 13.6%, to $1,715,000 for the six month period ended June 30, 2024, from $1,984,000 for the comparable period in 2023. This decrease was primarily attributable to a decrease of $132,000 in servicing fee revenue due to a decrease in the retention of mortgage servicing rights. Total benefits and expenses were $147,971,000, or 88.6% of total revenues, for the six month period ended June 30, 2024, as compared to $153,613,000, or 94.0% of total revenues, for the comparable period in 2023. Death benefits, surrenders and other policy benefits, and future policy benefits decreased by an aggregate of $170,000 or 0.3%, to $50,602,000 for the six month period ended June 30, 2024, from $50,772,000 for the comparable period in 2023. This decrease was primarily the result of a $2,350,000 decrease in death benefits, which were partially offset by a $2,004,000 increase in future policy benefits and a $176,000 increase in surrender and other policy benefits. Amortization of deferred policy and pre-need acquisition costs and value of business acquired decreased by $90,000, or 1.0%, to $9,045,000 for the six month period ended June 30, 2024, from $9,135,000 for the comparable period in 2023. This decrease was primarily due to increased payment consistency from premium-paying products. Selling, general and administrative expenses decreased by $4,688,000, or 5.3%, to $83,713,000 for the six month period ended June 30, 2024, from $88,401,000 for the comparable period in 2023. This decrease was primarily the result of a $1,899,000 decrease in other expenses, a $1,813,000 decrease in personnel expenses, a $909,000 decrease in rent and rent related expenses, a $701,000 decrease in costs related to funding mortgage loans, and a $395,000 decrease in advertising expense, which were partially offset by a $1,025,000 increase in commissions. Interest expense decreased by $767,000, or 26.7%, to $2,101,000 for the six month period ended June 30, 2024, from $2,868,000 for the comparable period in 2023. This decrease was primarily due to a decrease of $288,000 in interest expense on mortgage warehouse lines of credit for loans held for sale and a decrease of $479,000 in interest expense on bank loans. 70 Liquidity and Capital Resources The Company’s life insurance subsidiaries and cemetery and mortuary subsidiaries realize cash flow from premiums, contract payments and sales on personal services rendered for cemetery and mortuary business, from interest and dividends on invested assets, and from the proceeds from the sale or maturity of investments. The mortgage subsidiaries realize cash flow from fees generated by originating and refinancing mortgage loans and fees from mortgage loans held for sale that are sold to investors into the secondary market. It should be noted that current conditions in the financial markets and economy may affect the realization of these expected cash flows. The Company considers these sources of cash flow to be adequate to fund future policyholder and cemetery and mortuary liabilities, which generally are long-term, and adequate to pay current policyholder claims, annuity payments, expenses related to the issuance of new policies, the maintenance of existing policies, debt service, and to meet current operating expenses. As of June 30, 2024, the Company’s subsidiary SecurityNational Mortgage was not in compliance with the net income covenants under its Warehouse Lines of Credit and has received or is in the process of receiving waivers from the warehouse banks. In the unlikely event SecurityNational Mortgage is required to repay the outstanding advances of approximately $6,617,000 on the Warehouse Line of Credit that has not provided a covenant waiver, SecurityNational Mortgage 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 done an internal analysis of the 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. During the six month periods ended June 30, 2024 and 2023, the Company’s operations provided cash of approximately $8,104,000 and of approximately $2,181,000, respectively. The increase in cash provided by operations was due primarily to increased proceeds from the sale of mortgage loans held for sale. The Company expects to pay out liabilities under its funeral plans over the long term given the nature of those plans. Funeral plans are small face value life insurance policies that payout upon a person’s death to cover funeral burial costs; policyholders generally keep these policies in force until, and do not surrender prior to, death. Because of the long-term nature of these liabilities, the Company can hold to maturity or for the targeted investment period its corresponding bond, real estate, and mortgage loan investments, thus reducing the risk of liquidating these long-term investments because of any sudden changes in their fair values. The Company attempts to match the duration of invested assets with its policyholder and cemetery and mortuary liabilities. The Company may sell investments other than those held to maturity in the portfolio to help in this timing matching. The Company purchases short-term investments on a temporary basis to meet the expected short-term requirements of the Company’s insurance products. The Company’s investment philosophy is intended to provide a rate of return for the expected duration of its cemetery and mortuary policies that will exceed the accruing of liabilities under those policies regardless of future interest rate movements. The Company’s investment policy is also to invest predominantly in fixed maturity securities, real estate, mortgage loans, and warehousing of mortgage loans. The warehoused mortgage loans are typically held for sale on a short-term basis before selling the loans to investors in accordance with the requirements and laws governing the Company’s life insurance subsidiaries. Bonds owned by the insurance subsidiaries amounted to $330,052,000 (at estimated fair value) and $362,663,000 (at estimated fair value) as of June 30, 2024 and December 31, 2023, respectively. This represented 35.9% and 38.7% of the total investments of the Company as of June 30, 2024 and December 31, 2023, respectively. Generally, all bonds owned by the life insurance subsidiaries are rated by the National Association of Insurance Commissioners. Under this rating system, there are six categories used for rating bonds. As of June 30, 2024, 2.0% (or $6,561,000) and as of December 31, 2023, 1.8% (or $6,954,000) of the Company’s total bond investments were invested in bonds in rating categories three through six, which are considered non-investment grade. The Company’s life insurance subsidiaries are subject to risk-based capital guidelines established by statutory regulators requiring minimum capital levels based on the perceived risk of assets, liabilities, disintermediation, and business risk. As of June 30, 2024 and December 31, 2023, the life insurance subsidiaries were in compliance with the regulatory criteria. 71 The Company’s total capitalization of stockholders’ equity, bank and other loans payable was $429,307,000 as of June 30, 2024, as compared to $418,450,000 as of December 31, 2023. This increase was primarily due to an increase of $12,871,000 in stockholders’ equity as partially offset by a decrease of $2,014,000 in bank loans and other loans payable. Stockholders’ equity as a percent of total capitalization was 75.9% and 74.8% as of June 30, 2024 and December 31, 2023, respectively. Lapse rates measure the amount of insurance terminated during a particular period. The Company’s lapse rate for life insurance in 2023 was 4.4% as compared to a lapse rate of 4.3% for 2022. The 2024 lapse rate to date has been approximately the same as 2023. The combined statutory capital and surplus of the Company’s life insurance subsidiaries was $114,667,000 and $107,385,000 as of June 30, 2024, and December 31, 2023, respectively. The life insurance subsidiaries cannot pay a dividend to their parent company without the approval of state insurance regulatory authorities. Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a smaller reporting company, the Company is not required to provide information typically disclosed under this item. Item 4. Controls and Procedures. Disclosure Controls and Procedures As of June 30, 2024, the Company carried out an evaluation under the supervision and with the participation of its Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed in the Securities and Exchange Commission (SEC) reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time period specified by the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. The executive officers have concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2024, and that the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, the Company’s financial condition, results of operations, and cash flows for the periods presented in conformity with United States Generally Accepted Accounting Principles (GAAP). Changes in Internal Control over Financial Reporting There have not been any significant changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Part II - Other Information Item 1. Legal Proceedings . The Company is not a party to any material legal proceedings outside the ordinary course of business or to any other legal proceedings, which if adversely determined, would be expected to have a material adverse effect on its financial condition or results of operation. Item 1A. Risk Factors. As a smaller reporting company, the Company is not required to provide information typically disclosed under this item. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Recent Sales of Unregistered Securities and Use of Proceeds from Registered Securities None. 72 Issuer Purchases of Equity Securities On April 15, 2024 the Company executed a 10b5-1 agreement with a broker to repurchase shares of the Company’s Class A Common Stock. Under the terms of the agreement, the broker is permitted to repurchase up to $1,000,000 of the Company’s Class A Common Stock. Purchases commenced May 15, 2024. The agreement is subject to the daily time, price and volume conditions of Rule 10b-18. The agreement expires on December 31, 2024. The following table shows the Company’s repurchase activity during the three month period ended June 30, 2024 under the 10b5-1 agreement. Period (a) Total Number of Class A Shares Purchased (b) Average Price Paid per Class A Share (1) (c) Total Number of Class A Shares Purchased as Part of Publicly Announced Plan or Program (d) Maximum Number (or Approximate Dollar Value) of Class A Shares that May Yet Be Purchased Under the Plan or Program (2) 4/1/2024-4/30/2024 - $ - - 318,043 5/1/2024-5/31/2024 51,387 7.99 - 266,656 6/1/2024-6/30/2024 72,044 8.18 - 194,612 Total 123,431 $ 8.08 - 194,612 (1) Includes fees and commissions paid on stock repurchases. (2) In September 2018, the Board of Directors of the Company approved a Stock Repurchase Plan that authorized the repurchase of 300,000 shares of the Company’s Class A Common Stock in the open market. The Company amended the Stock Repurchase Plan on December 4, 2020. The amendment authorized the repurchase of a total of 1,000,000 shares of the Company’s Class A Common Stock in the open market. Any repurchased shares of Class A common stock are to be held as treasury shares to be used as the Company’s employer matching contribution to the Employee 401(k) Retirement Savings Plan and for shares held in the Deferred Compensation Plan. Item 3. Defaults Upon Senior Securities. None. Item 4. Mine Safety Disclosures. None. Item 5. Other Information. Disclosure of Trading Arrangements During the three months ended June 30, 2024, no Section 16 officers or directors of the Company adopted , modified , or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (each as defined in Item 408 of Regulation S-K of the Exchange Act). 73 Item 6. Exhibits, Financial Statements Schedules, and Reports on Form 8-K. (a)(1) Financial Statements See “Table of Contents – Part I – Financial Information” under page 2 above. (a)(2) Financial Statement Schedules None All other schedules to the consolidated financial statements required by Article 7 of Regulation S-X are not required under the related instructions or are inapplicable and therefore have been omitted. (a)(3) Exhibits The following Exhibits are filed herewith pursuant to Rule 601 of Regulation S-K or are incorporated by reference to previous filings. 3.1 Amended and Restated Articles of Incorporation (1) 3.2 Amended and Restated Bylaws (2) 21 Subsidiaries of the Registrant. 31.1 Certification pursuant to 18 U.S.C. Section 1350, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification pursuant to 18 U.S.C. Section 1350, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) (1) Incorporated by reference from Report on Form 10-K, as filed on March 31, 2017 (2) Incorporated by reference from Report on Form 10-Q, as filed on May 15, 2019 74 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REGISTRANT SECURITY NATIONAL FINANCIAL CORPORATION Registrant Dated: August 14, 2024 /s/ Scott M. Quist Scott M. Quist Chairman, President and Chief Executive Officer (Principal Executive Officer) Dated: August 14, 2024 /s/ Garrett S. Sill Garrett S. Sill Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) 75