Security National Financial Corporation
Annual Report 2023

Plain-text annual report

2023 ANNUAL REP ORT S E C U R I T Y N AT I O N A L FINANCIAL CORPORATION Who We Are... The roots of our company were planted deep in 1965 with the founding of Security National Life Insurance Company. Starting with only $543,000 in assets, in a small rented house in Salt Lake City, Utah, Security National has grown into a strong industry leader in several fields of service. Over the past five decades we have grown consistently through new sales and investment opportunities, and through the acquisition of life insurance companies, funeral homes and cemeteries, as well as the formation and growth of our mortgage operations. Profile Our company operates three main business segments: life insurance, funeral service and mortgage lending. Our company is designed and structured so each segment relates to the others, and contributes to the profitability of the whole. For example, our cemetery and mortuary operations enjoy a high level of public awareness, assisting in the sales and marketing of our insurance and preneed cemetery and funeral products. Our life insurance company in turn invests its assets in high quality mortgage loans. Thus, while each segment is a stand-alone profit center, this horizontal integration is strategically planned to improve profitability. Additionally, our company actively pursues growth through acquisitions of life insurance companies and mortuaries, and through expanding our mortgage operations. net result being that our Mor tgage Segment lost $17,500,000. Despite that loss, I thought our team battled the market conditions extraordinarily well and positioned ourselves to take advantage of a very distraught mor tgage market. I think it worthy to remember that in the three years 2020 to 2022 our Mor tgage Segment produced $98,000,000 of profit, so we think the goal is wor thy of our current effor ts. We remain committed to the task of growth and improved profitability. We view this current economic uncer tainty as a time to improve and expand in all our segments. In this tough mor tgage loan environment we have necessarily greatly slimmed down our office staffs, both pruned and increased our number of producing loan officers, while emphasizing cost efficiencies and metrics. In our Insurance Segment we have increased premium initiated better measurement rates and have metrics for mor tality, persistency, and acquisition costs. In our Memorial Segment we have added key personnel who we believe will drive growth and improve operations. To be sure, growth in this environment is expensive, but is never theless our goal. I thank you for your continued suppor t and I hope to see you at our Annual Meeting. Very truly yours, Scott M. Quist Chairman, Chief Executive Officer, and President Scott M. Quist Chairman of the Board Chief Executive Officer President My Fellow Shareholders: I am pleased to report on the affairs of our Company for the year ended December 31, 2023, and invite you to attend the annual Stockholders Meeting to be held Friday June 21, 2024, in Salt Lake City, Utah at the Company’s offices. 2023 was a year where the financial balance of our company demonstrated itself. With the increasing interest rates and improving premium margins our Insurance Segment had its best operational year ever earning $25,000,000. As death rates stabilized throughout 2023, and as we implemented renewed emphasis on operational efficiencies, our Cemetery and Mor tuary Segment had its best year ever earning nearly $8,500,000. Needless to say, we are very pleased with those results. However, the increased interest rates continued to have a devastating effect on our mor tgage business with volumes falling roughly an additional 35% below 2022’s already decreased markets with the SNFC Board of Directors and Officers Scott M. Quist Chairman of the Board President Chief Executive Officer Director Executive Committee H. Craig Moody President, Moody & Associates Director Executive Committee Audit Committee Compensation Committee Nominating and Corporate Governance Committee Robert G. Hunter M.D. Past Medical Staff President Department Head-Otolaryngology, Head and Neck Surgery Intermountain Medical Center Director Compensation Committee Nominating and Corporate Governance Committee Gilbert A. Fuller Former Executive Vice President, Chief Financial Officer and Secretary, USANA Health Sciences, Inc. Director Executive Committee Audit Committee Compensation Committee Nominating and Corporate Governance Committee John L. Cook Co-Owner & Operator Cook Brothers Painting, Inc. Director Audit Committee Compensation Committee Nominating and Corporate Governance Committee S. Andrew Quist Director President of Mortgage Operations General Counsel Executive Committee Jason G. Overbaugh Director Vice President National Marketing Director of Life Insurance Mia B. Love Former Member - U.S. House of Representatives Former Mayor of Saratoga Springs, UT Former Member - Saratoga Springs City Council Senior Fellow - U.S. Study Center for Politics (Sydney, AU) Regular Political Commentator - CNN Director Audit Committee Compensation Committee Nominating and Corporate Governance Committee Alexandra Mysoor Founder and Chairwoman of Mysoor Industries Founder and Chief Executive Officer of Alix Director Audit Committee Compensation Committee Nominating and Corporate Governance Committee Adam G. Quist Director President of Memorial Services President of Life Insurance Assistant Secretary General Counsel Jeffrey R. Stephens Secretary Senior General Counsel Garrett S. Sill Chief Financial Officer Treasurer Diana C. Olson Vice President Finance Thayne D. Atkinson Vice President Chief Information Officer Richard R. Dahl Vice President Tax Jeffrey P. Adams Controller Matthew G. Bagley General Counsel A History of Growth 1996 - The dedication of Singing Hills Memorial Park 1997 - The acquisition of Crystal Rose Funeral Home and the formation of Adobe Funeral Home 1998 - The acquisition of Southern Security Life (FL) 1999 - The acquisition of Menlo Life policy block 2000 2000 - The organization of Southern Security Mortgage Company 2002 - The acquisition of Gulf National Life policy block and Acadian Life policy block 2004 - The acquisition of Paramount Security Life 2005 - The acquisition of Memorial Insurance Company of America 2007 - The acquisition of C&J Financial and Capital Reserve Life Insurance Company 2008 - The acquisition of Southern Security Life (MS) 2010 2011 - The acquisition of North America Life policy block 2012 - The acquisition of Trans-Western Life and the formation of EverLEND Mortgage Company 2014 - The acquisition of American Funeral Financial 2016 - The acquisition of First Guaranty Insurance Company 2018 - The acquisition of Beta Capital Corporation 2019 - The acquisition of Probst Family Funeral Homes 2019 - The acquisition of Kilpatrick Life Insurance Company 2020 2021 - The merger of EverLEND Mortgage Company with SecurityNational Mortgage Company 2021 - The acquisition of Rivera Family Funeral Homes and Santa Fe Memorial Gardens 2021 - The acquisition of Holbrook Mortuary 2021 - The sale of Memorial Insurance Company of America 2023 - Aquisition and merger of Foxo Life Insurance Company 1965 1965 - The founding of Security National Life Insurance Company 1966 - The acquisition of Grand Canyon Life 1967 - The acquisition of Bankers Trust Life 1969 - The acquisition of American Alliance Life 1970 1970 - The acquisition of Charter Oak Life & Washington Life Assurance 1972 - The acquisition of Columbia Life 1973 - The acquisition of National Capital Life and Memorial Estates Companies 1979 - The organization of Security National Financial Corporation 1980 1981 -The acquisition of American Home Security Life 1984 - The acquisition of Western Investors policy block 1985 - The acquisition of Del Pueblo Life policy block and Cibola Life policy block 1986 - The acquisition of Investors Equity Life 1987 - IPO of Security National Financial Corporation and the acquisition of Southwest American policy block 1989 - The acquisition of Paradise Chapel Funeral Home 1990 1991 - The sale of Investors Equity Life and the acquisition of Deseret Memorial Group 1993 - The formation of SecurityNational Mortgage Company 1994 - The acquisition of Camelback Sunset Funeral Home and Capital Investors Life 1995 - The acquisition of Greer Wilson Funeral Home, Tolleson Funeral Home and Civil Service Employees Life LEADERSHIP TEAM Scott Quist Chief Executive Officer Adam Quist President Jason Overbaugh Vice President National Marketing Director We specialize in affordable and convenient products that “make sense” for you and your family. Let SNL show you a better way. Many of life's big moments are curated events with careful planning and preparation such as birthdays, graduations, or weddings. Yet, there is one major life event, the loss of a loved one, where the date or time cannot be predicted. While time and place are uncertain, we can still make preparations for this inevitable event. Funerals and memorial services can seem like extravagant ceremonies with little benefit. In truth, they are important for those left behind as they give a chance for closure, a chance to start the grieving process, and a way to find understanding and meaning during difficult times. Making arrangements for yourself or a loved one is a gift that alleviates both financial and emotional burdens on those you love most. Guy Winstead Vice President of Sales Preneed, Final Expense, and Loyalty Sales Divisions What is Preneed? A celebration of life. A tribute to family. A treasured memory for loved ones. Your funeral is an expression of your life and a gift to the friends and family you leave behind. By pre-funding this tribute with life insurance from Security National Life you are assured your wishes will be honored. Preneed is the pre-planning and funding of a funeral before one's passing. What is Final Expense? It is an act of caring, and of preparation; ultimately it is an expression of compassion and responsibility for those you leave behind. New responsibilities arise when a life ends. Final Expense insurance provides an affordable and convenient solution to ease your family's stress. The passing of a loved one can be a traumatic event for those left Todd Clendennen Regional Vice President of Sales Preneed Division Jason Richardson Vice President of Sales Home Service Division LEADERSHIP TEAM Marty Rich Vice President Marketing & Sales Support Jon Meredith Director Policy Administration Wendi Beauchaine Chief Underwriter Sara McCulley Director Marketing and Lead Development Jo Clark Director Kilpatrick Life Policy Administration behind. Final Expense insurance provides a way to manage the financial burdens associated with the end of life. Even if you have fully prepared, Final Expense Insurance can provide the safety net to take care of those unexpected items that will allow you to tell your loved ones “It is all taken care of.” What is Home Service? Home Service is a family-oriented organization that cares for and is committed to serving our clients with integrity and respect. We offer a combination of sales and on-going service within the home, including insurance review and premium collections, to provide peace of mind to individuals and families through an affordable funeral plan. The Home Service Division partners with almost 1,000 agents and funeral homes—together serving over 320,000 policyholders. With coverage amounts starting at $1,000 in most states and going up to $30,000, our plans assure that our customers will have the dignity to bury their loved ones without worrying about the costs. Kilpatrick Life Insurance Company Security National Life acquired Kilpatrick Life Insurance Company in 2019. Kilpatrick is based in Shreveport, LA with roots dating back to 1932. Through three generations, the Kilpatrick family oversaw tremendous company growth and expansion. The addition of Kilpatrick Life Insurance to Security National Life was an easy fit with its priority and focus on family. With award winning service, we are proud to join in one mission to serve families across the nation. LEADERSHIP TEAM Scott Quist Chief Executive Officer Andrew Quist President Joel Harward Senior Vice President, Mortgage Production Jacob Banks Chief Financial Officer Mike Brumble Vice President, Risk Management Jeff Orme Chief Compliance Officer We’re Turning Houses into Homes® We’re SecurityNational Mortgage A mortgage company with a rock-solid reputation 2023 presented an extremely difficult environment for the mortgage loan industry. There is no other way of stating it. Interest rates were elevated throughout 2023, but peaked in October at highs not seen since 2000. Furthermore, at the end of the third quarter, over 78% of existing residential mortgage loans had an interest rate below 5%, well below prevailing lending rates. This resulted in a “lock-in” effect which led to the fewest number of existing homes being sold in at least 28 years. Given this backdrop, total industry loan originations decreased 29% in 2023 from 2022 volumes. This was on the heels of a 48% decrease in total industry loan originations from 2021 to 2022, making a 63% decrease over that two-year period. During that same period SecurityNational’s total loan originations decreased 61%, slightly less than the industry-wide decline. SecurityNational funded $2.2 billion in residential mortgage loan originations in 2023, which was our lowest origination volume since 2014. That origination low resulted in only our second annual loss in the past 12 years for the Company. As disappointing as this loss was, much of it can be attributed to investments made to strengthen our position in the industry. We believe that SecurityNational’s foundation of financial stability, market transparency, and expertise in and focus on purchase transactions, provides a perfect platform to expand our presence in the industry in such unsettled and difficult environments. With many competitors retreating from the market or exiting entirely, SecurityNational’s strengths shine more brightly and provide opportunities that few other companies can. Mortgage loan sales professionals are looking for the security and stability that SecurityNational provides and our results attest to this. The Company has more loan officers now than when the Federal Reserve began its recent cycle of interest rate hikes. This increase is in the face of approximately 90,000 loan officers exiting the mortgage loan profession entirely during that same time period. In this time of market contraction SecurityNational has maintained strong recruiting results and we are growing. In 2023 we celebrated SecurityNational’s 30-year anniversary. It is a milestone we are proud of. Three decades in the industry highlights SecurityNational’s ability to thrive in both favorable and difficult economic and interest rate environments. The Company’s longevity demonstrates our dedication to the mortgage loan industry and allows our team of exceptional loan officers to focus on providing a better experience for our borrowers. We’re Turning Houses into Homes® LEADERSHIP TEAM Michael Muirbrook Vice President, Servicing & Audits Karie Wakefield Vice President, Mortgage Fulfillment Tim Yates Vice President, Capital Markets Austin Jacks Chief Marketing Officer Rob Coke Vice President, Appraisal Mark Pasternak Vice President, Operations LOAN VOLUME IN 2023 In 2023 SecurityNational also continued its trend of adding significant talent to its leadership team. The Company hired a new Chief Marketing Officer, a new Director of Strategic Growth (national recruiting) and new leadership for the Company’s technology team which oversees our origination platform. These individuals chose to join SecurityNational from established competitors because of the strength of the SecurityNational brand, adding veteran industry experience with fresh, new perspectives to a long-tenured existing leadership team with a deep understanding of what makes SecurityNational special. This strategic balance allows the Company to combine world-class technology with production processes in crafting an exceptional customer experience from first point-of-contact through loan closing. Strong relationships with Fannie Mae, Freddie Mac, FHA, VA, USDA, and many other secondary market investors, and tailored portfolio products provided by its affiliated companies, ensure that SecurityNational can provide a full complement of mortgage loan products at competitive prices. These products include unique loan offerings to home builders - a specialty of SecurityNational. The Company’s unparalleled marketing and business support group helps keep our sales team front-and- center in a very competitive marketplace. These qualities are just a few of the reasons why mortgage loan professionals are joining SecurityNational each month, sustaining our growth into the future. Although the Company’s reach is nationwide, each branch office is a part of its local community. SecurityNational’s suite of available loan products covers most every residential mortgage loan need, but our employees take extra satisfaction in helping our customers purchase a home, especially their first home. Home ownership is one of the most important financial decisions most people will make during their lifetimes. The process of financing a home purchase is unfamiliar and complicated for many people. SecurityNational is expert in originating mortgage loans for low-to-moderate-income buyers and can match qualifications with a mortgage loan program and resources specifically designed for each applicant’s specific needs. Beyond originating loans, many of the Company’s employees are actively engaged in their cities, towns and neighborhoods feeding the hungry, sheltering the needy or adding a splash of color along with a kind word while cleaning up after a disaster. SecurityNational has industry leading products, processes and financial strength, all of which contribute to the most important result for us - Turning Houses Into Homes. REGIONAL MANAGERS 2023 STATISTICS Svetlana Marinkovic Executive Regional Manager, Summit Region Lisa Newman Executive Regional Manager, East Coast Region Cristie North Executive Regional Manager, Midvale Region 398 Loan Officers SNMC Funding Comparison Year-Over-Year $3.0B $2.5B $2.0B $1.5B $1.0B $500M $0 Purchase Refinance 2022 2023 694M1.963B211.5M2.662BREGIONAL MANAGERS Troy Mannella Executive Regional Manager, Texas Region Dave Pettit Regional Area Manager, Salt Lake Region Jon Reed Executive Regional Manager, Midwest Region LOANS FUNDED 85 Branches 48 States Turning Houses into Homes® LEADERSHIP TEAM Scott Quist Chief Executive Officer Adam Quist President Steven Kehl Chief Operating Officer Jordan Buckner Executive Vice President Josh Atkinson General Sales Director Utah Cemeteries Scott Prine General Sales Director California and New Mexico Cemeteries Providing hope, honor, healing, and happiness to the families we serve. 5 Security National Funeral Home & Cemetery Division KEYS Our Mission Our mission is to provide customers with peace of mind and comfort both while planning for and while experiencing end of life events. We strive to create a workplace culture that inspires our employees to provide incredible customer service. Our driving focus is on our common purpose of providing hope, honor, healing, and happiness. We have identified five keys that guide our customer service culture: Safety, Experience, Efficiency, Empathy, and Everyone. We are committed to treating each family we serve as if it were our own and holding ourselves accountable to the highest standards of conduct. We excel at providing unique and customized experiences for each of the families we have the privilege to care for. Our Goal Our goal is growth. Growth is the natural result of providing excellent service to the families we serve in California, New Mexico, and Utah. Growth also provides our employees with an opportunity to improve their livelihood through career advancement. Since 2014, Security National Funeral Homes and Cemeteries has realized double digit operational net income growth every year, averaging a compound annual growth rate of over 20%. Security National is Utah’s largest funeral and cemetery provider and Rivera is Northern New Mexico’s largest provider of funeral services, with a market share in excess of 40%. We operate the business with a dedicated focus on striving to achieve excellence by becoming brilliant at the basics. We continue to strive to build relationships of trust, clearly define expectations, and implement consistent accountability measures that facilitate a culture of excellence. We continue to focus on attracting great people, developing great people, and keeping great people. Winner: Best of State Six Years in a Row Memorial Mortuaries and Cemeteries is a six time, consecutive “Best of State” award winner for Utah. Affordable Funerals and Cremations is also a two time “Best of State - Budget Funeral Service” winner. Criteria for the awards are based on overall excellence, superiority and quality of a nominee’s products, services or performance, differentiating themselves from their competitors and improving the quality of life for their neighbors. The Best of State Awards were created to recognize outstanding individuals, organizations, and businesses in Utah. By recognizing excellence in the community and sharing examples of success for many worthy endeavors the awards motivate and reward those who strive for excellence in their respective fields. Looking Forward During the year, we made strategic decisions on the following development projects: • We broke ground on a new 190 crypt/297 niche outdoor mausoleum at our Memorial Redwood Cemetery in Utah, with a completion time of May 2024. • We completed a new 120 niche wall addition to the Serenity Mausoleum at our Singing Hills Memorial Park in California. • We are engaged in the due diligence processes for a new outdoor mausoleum at our Singing Hills Memorial Park in California. • We broke ground on a burial garden expansion project at our Santa Fe Memorial Gardens in New Mexico. LEADERSHIP TEAM Brandon Federico Manager of Corporate Real Estate Commercial real estate – a wise investment strategy. Cambry Brady Property Manager Adam Perry Facilities Manager Center 53 Building 1 Security National Real Estate provides property management and leasing services for all companies in the Security National family. Investing in commercial real estate provides predictable returns, steady cashflows, and is a significant investment category for the company. An investment in commercial real estate acts as a hedge against the long- term impact of inflation. Security National seeks long-term, national credit tenants for its Class A office space and includes annual rate increases as a part of all leases. Over time, commercial real estate is likely to appreciate, and due to its fixed nature, Security National is able to carry bank debt, which allows it to leverage its investment dollar. Center 53 Campus Security National is developing approximately 1,000,000 square feet of commercial real estate at the center of the Wasatch Front. The project, Center 53, encompasses over 20 acres in the central valley of Salt Lake City which is only 30 minutes from anywhere along the Wasatch Front. The first building was completed in 2018 and includes an on-site fitness center with cardio and weight stations. Building 1 is fully leased and its current full floor tenants include: R1, SoFi, and MasterCard. Each of the buildings in the campus will have the following features: • Large floor plates with great views of the Salt Lake Valley • Exterior features include natural stone, glass curtain walls and terraneo finish • Large modern lobby with wood walls and large format tile feature walls • Structured parking • Easy access to freeway Center 53 Building 2 Security National Corporate Headquarters Security National completed the second, 6-story Class A office building within its 20-acre office campus in the Fall of 2021. This latest addition serves as Security National’s corporate headquarters. Building 2 is approximately 217,000 square feet and includes numerous energy efficient enhancements, employee amenities, spectacular Salt Lake Valley views, and is fully leased. Security National occupies floors 4, 5, and 6 and R1 – who also occupies the 6th floor of Building 1 – occupies floors 1, 2, and 3. Security National relocated many of its Utah-based operational functions to this new building, which includes Security National Life, Memorial Mortuaries and Cemeteries, and SecurityNational Mortgage, thereby improving efficiency by consolidating several retail mortgage and other subsidiary offices. Wasatch 16 • Purchased in 2012 • 78,000 square feet class A building located in Draper, Utah • Key tenants include Marcore, Aspire Counseling Network, Credit Corp Services, and Journey Team – Microsoft Partner Cabela’s • Purchased in 2018 • 70,000 square feet of retail • Located in Farmington, Utah at Station Park • 25 year lease with Cabela’s Our passion is commercial and residential real estate finance. We are your commercial and residential loan source. Security National Commercial Capital originates interim/bridge loans to enhance the mor tgage banker’s traditional long-term lender relationships with a faster closing, flexible, interim loan product intended to provide a bridge until a proper ty stabilizes and conventional long-term financing can be obtained. These loans are designed to facilitate the purchase, refinance, leveraging or ownership change of good quality, performing commercial real estate. We lend on investor or owner/occupied real estate, including single or multi-tenant office, retail, office, warehouse, and multifamily proper ties. We also provide construction and land development financing that compliments SecurityNational Mor tgage on approved new residential construction and on select commercial construction projects throughout the United States. 3 years (12-month term preferred). We also provide interim bridge financing for SBA-504 loans waiting for debenture funding. We offer flexible fast funding commercial real estate loans while maintaining our fiduciary responsibility to our affiliated life insurance company's insureds by providing secure, higher yielding investments. We provide competitive products and service to borrowers and the desired return to our shareholders. Our target loan size is between $1,000,000 and $4,500,000... Our loans are generated using relationships... Commercial Bridge Lending Our loans are generated using relationships with mor tgage bankers, other life insurance companies, commercial banks, website requests, referrals from past business relationships, commercial lending institutions, Real Estate professionals, Wall Street investors, and through publication adver tising. Our target loan size for bridge loans is between $1,000,000 and $4,500,000, with a maximum term of Residential Construction Lending and Land Development Security National also provides construction and land development that compliments financing SecurityNational Mor tgage on approved new residential construction and on select commercial construction projects throughout the United States. In addition to providing financing for single family homes and development projects, Security National also acquires land for its own development. Improved lots are sold to strategic builder par tners and fur ther compliments SecurityNational Mor tgage in its long term mor tgage originations. To learn more, visit www.sncloans.com for a presentation of commercial loan products offered. Some of our land development and construction loan projects: LEADERSHIP TEAM Shane Wilson Vice President Jeffrey Degraffenried Construction Loan Manager Brian Nelsen Commercial Loan Manager $19.8M Land $8.1M Acquisition & Development $1.4M Residential Bridge $0.6M Interim SBA/ 504 Bridge $38.06M Commercial Bridge /Construction $103.6 M Residential Construction 2023 Commercial and Construction Lending Originations LEADERSHIP TEAM Jamie Meredith Executive Vice President Kathryn Kilgore Vice President of Operations Chuck Gallagher Vice President of Sales Jennifer Oliver Senior Director of Customer Loyalty C&J Financial provides insurance assignment funding to funeral homes and cemeteries across the nation. When firms need dependability, certainty, and transparency, they choose Fast Funding ®. Since 1996, C&J Financial has helped funeral homes and cemeteries eliminate the challenges and cash flow delays in processing insurance death claims. As North America’s #1 provider of assignment funding, we are honored to have assisted more than 800,000 families in providing a dignified funeral for their loved ones and funded $4.8+ Billion to thousands of firms across America. Why Assignment Funding? When a family walks into the funeral home to make arrangements, most funeral directors would prefer the family pay with cash, check, or credit card vs. using their loved one’s life insurance policy. It’s certainly understandable because some life insurance companies can be a hassle to deal with, sometimes taking hours or days to verify benefits, then it’s another 30, 60, 90 days or longer before payment is received. While 56% of Americans have $5000 or less in savings, 6 out of 10 families own some type of life insurance. When asked, most would prefer to use their loved one’s life insurance to cover the funeral expenses. It makes it a cashless event for the family while bridging the gap between what they want and what they can afford. Families that use life insurance spend 31% more, on average, than those that pay with cash, check, or credit card. Insurance relieves the financial burden, allowing them to honor their loved ones how they see fit. This creates a better experience for the family. Despite these advantages, only 16% of families actually pay with life insurance. Why? Many funeral directors don’t want to deal with the challenges and cash flow delays they create. This is where C&J Financial can help. Our purpose is to help families provide a dignified and meaningful service for their loved ones. We accomplish this by eliminating the hassle, headache, and cash flow delays that firms have in processing insurance death claims. With C&J’s Quick Claim process it takes less than 2 minutes to submit assignment information, then our team will contact the insurance company and verify the benefits of the policy. Once the benefits are confirmed and the beneficiary has signed C&J’s assignment, payment is made to the firm. Instead of waiting weeks or months, funds are typically available in just 24-48 hours. It really is that simple. Innovation Funeral Homes Trust Utilizing cutting-edge technology with a simple and easy-to-use experience, C&J's Assignment Funding Management System platform creates better efficiencies for firms, saving them time and money. Our Assignment Funding Management System allows firms to track the processing and status of their claims in real-time, communicate with their Customer Loyalty Representative, and upload documents directly to an assignment. They can also see which claims have been funded, what is needed on their open claims, and when C&J has been paid by the insurance company. Introduced in 2021, our Quick Claim Assignment™ provides the fastest claim submission process in the industry. Insurance-specific paperwork is automatically generated for the beneficiary to sign, taking the guesswork out of what is needed. In most cases, C&J can handle any claimant statements or other documents on behalf of the beneficiary, reducing the amount of paperwork required by the firm. C&J also offers full integration with DocuSign, the most trusted and widely used eSign platform in the world, allowing firms to send the assignment to be signed electronically at no cost. When this option is used, the completed documents are automatically uploaded to the system and firms can track the process in real-time. Innovations like Quick Claim Assignment™ and DocuSign integration can greatly reduce the amount of time funeral homes and cemeteries spend filing their claims. Where We Are Indiana Sales Office License Held d n e g e L Corporate Headquarters Operations First Guaranty Memorial Mortuaries & Cemeteries Security National Life SecurityNational Mortgage No License Held Kilpatrick Life C&J Financial, LLC Where We Are SNFC Corporate Offices Security National Financial Corporation 433 Ascension Way, 6th Floor Salt Lake City, UT 84123 P.O. Box 57250 Salt Lake City, UT 84157-0250 Telephone: (801) 264-1060 Toll Free: (800) 574-7117 Form 10-K Offer If you are a holder or beneficial owner of the company’s stock, the company will send you, upon request and at no charge, a copy of the company’s Annual Report on Form 10-K filed with the Securities & Exchange Commission for the year 2023 (including a list of exhibits). All requests must be made in writing to the Corporate Secretary. Security National Financial Corporation P.O. Box 57250 Salt Lake City, Utah 84157-0250 Stock Transfer Agents Zions First National Bank P.O. Box 30880 Salt Lake City, UT 84130 Former Holders of Preferred Stock and/or Promissory Notes Security National Financial Corporation Attn: Stock Department P.O. Box 57250 Salt Lake City, UT 84157-0250 Certified Public Accountants Deloitte & Touche LLP Salt Lake City, Utah Company E-mail Address: contact@securitynational.com Company Internet Address: www.securitynational.com Life Insurance Offices Security National Life Insurance Company 433 Ascension Way, 6th Floor Salt Lake City, UT 84123 Telephone: (800) 574-7117 Security National Life Insurance Company Home Service Division 1080 River Oaks Drive Suite #B204 Flowood, MS 39232 Telephone: (800) 826-6803 Security National Life Insurance Company Preneed Sales Division 1 Sanctuary Blvd Suite 302 Mandeville, LA 70471 Telephone: (800) 574-7117 Kilpatrick Life Insurance Company Affordable Funerals & Cremations 1818 Marshall St. Shreveport, LA 71101 Telephone: (800) 235-0555 Fast Funding Offices C&J Financial, LLC 200 Market Way Rainbow City, AL 35906 Telephone: (800) 785-0003 Mortuaries & Cemeteries Security National Funeral Homes and Cemeteries Operations 433 Ascension Way, 6th Floor Salt Lake City, UT 84123 Telephone: (801) 268-8771 Memorial Holladay-Cottonwood Mortuary 4670 S. Highland Drive Salt Lake City, UT 84117 Telephone: (801) 278-2801 Memorial Lake Hills Mortuary & Cemetery 10055 S. State Street Sandy, UT 84070 Telephone: (801) 566-1249 Memorial Lake View Mortuary & Cemetery 1640 E. Lakeview Drive Bountiful, UT 84010 Telephone: (801) 298-1564 Memorial Murray Mortuary 5850 S. 900 E. Murray, UT 84121 Telephone: (801) 262-4631 Memorial Mountain View Mortuary & Cemetery 3115 E. 7800 S. Cottonwood Heights, UT 84121 Telephone: (801) 943-0831 Memorial Redwood Mortuary & Cemetery 6500 S. Redwood Road West Jordan, UT 84123 Telephone: (801) 969-3456 Memorial Holladay Cemetery 4900 S. Memory Lane Holladay, UT 84117 Telephone: (801) 278-2803 Singing Hills Memorial Park 2800 Dehesa Road El Cajon, CA 92019 Telephone: (619) 444-3000 4387 South 500 West Murray, UT 84123 Telephone: (801) 287-8233 Affordable Funerals & Cremations St. George Location 157 E. Riverside Drive #3A St. George, UT 84790 Telephone: (435) 680-7035 Heber Valley Funeral Home 288 N. Main Street Heber City, UT 84032 Telephone: (435) 654-5458 Probst Family Funeral Home 79 E. Main Street Midway, UT 84049 Telephone: (435) 654-5959 Holbrook Mortuary 3251 S 2300 E Millcreek, UT 84109 Telephone: (801) 484-2045 Rivera Family Funeral Home 818 Paseo del Pueblo Sur Taos, NM 87571 Telephone: (575) 758-3841 Rivera Family Funeral Home & Crematory 305 Calle Salazar Espanola, NM 87532 Telephone: (505) 753-2288 Rivera Family Funeral Home & Santa Fe Memorial Gardens 417 East Rodeo Rd. Santa Fe, NM 87505 Telephone: (505) 989-7032 Rivera Family Funeral Home 1627 A Central Avenue Los Alamos, NM 87544 Telephone: (505) 663-6880 Mortgage Offices SecurityNational Mortgage Company–Operations 433 Ascension Way, 5th Floor Salt Lake City, UT 84123 Telephone: (801) 264-8111 SecurityNational Mortgage Company–Sales Offices ARIZONA Bullhead City 2636 Hwy 95, Suite 2 Bullhead City, AZ 86442 Telephone: (844) 820-8699 Where We Are Chandler 1490 S. Price Road, Suite 318 Chandler, AZ 85286 Telephone: (844) 820-8699 Mesa 2220 S. Country Club Drive Suite 101 Mesa, AZ 85210 Telephone: (602) 732-3993 Phoenix 5100 N. 99th Ave, Unit 101 & 103 Phoenix, AZ 85037 Telephone: (602) 273-9610 1951 West Camelback Road, Ste 200 Phoenix, AZ 85015 Telephone: (602) 354-7461 10265 West Camelback Road #100 Phoenix, AZ 84037 Telephone: (844) 820-8699 Scottsdale 15169 N Scottsdale Rd Ste 205, Off 3012 & 3013 Scottsdale, AZ 85254 Telephone: (480) 426-0400 10609 N. Hayden Rd., Suite 100 Scottsdale, AZ 85260 Telephone: (480) 237-4670 Yuma 350 West 16th Street, Suite 209 Yuma, AZ 85364 Telephone: (844) 820-8699 CALIFORNIA Orange 625 The City Drive South, Suite 450 Orange, CA 92868 Telephone: (844) 323-4640 West Covina 2934 E. Garvey Ave., South Ste #250-N West Covina, CA 91791 Telephone: (626) 209-2126 Yucca Valley 7398 Fox Trail, Unit B Yucca Valley, CA 92284 Telephone: (760) 853-2600 COLORADO Aurora 5982 S. Zeno Ct. Aurora, CO 80016 Telephone: (844) 820-8699 Colorado Springs 5475 Tech Center Drive, Suite 215 Colorado Springs, CO 80919 Telephone: (844) 323-4640 Denver 7800 East Union Avenue, Suite 550 Denver, CO 80237 Telephone: (844) 323-4640 Edwards 27 Main Street, Suite C-104B Edwards, CO 81632 Telephone: (970) 331-2919 Larkspur 4501 Mohawk Drive Larkspur, CO 80118 Telephone: (844) 820-8699 CONNECTICUT Vernon 15 Lakeview Dr. Vernon, CT 06066 Telephone: (860) 604-1688 FLORIDA DeLand 970 Island Grove Drive DeLand, FL 32724 Ft. Myers 8191 College Parkway #302 Ft. Myers, FL 33919 Telephone: (888) 550-9221 Lake Mary 250 International Pkwy, Ste 118 & 120 Lake Mary, FL 32746 Telephone: (407) 302-8384 Palm Beach Gardens 9123 N. Military Trail, #104B Palm Beach Gardens, FL 33410 Telephone: (866) 827-9558 Pinellas Park 10293 61st Ct Pinellas Park, FL 33782 Punta Gorda 265 E Marion Avenue Punta Gorda, FL 33950 Telephone: (479) 925-5350 Seminole 5666 Seminole Blvd, Suite 106 & 111 Seminole, FL 33772 Telephone: (727) 498-3570 GEORGIA Atlanta 900 Circle 75 Parkway, Suite 175 Atlanta, GA 30339 Telephone: (404) 924-6148 HAWAII Hilo 32 Kinoole Street, Suite 101 Hilo, HI 96720 Telephone: (808) 796-5626 Honolulu 677 Ala Moana Boulevard, Suite 609 Honolulu, HI 96813 Telephone: (808) 809-7990 Kailua 970 North Kalaheo Avenue Suite A-307 Kailua, HI 96734 Telephone: (844) 820-8699 Kapolei 1001 Kamokila Boulevard, Suite 319 Kapolei, HI 96707 Telephone: (808) 427-9960 Lihue 4370 Kukui Grove Street Suite #201 Lihue, HI 96766 Telephone: (808) 823-8050 Wailuku 1885 Main St., Ste 108 Wailuku, HI 96793 Telephone: (808) 736-4424 70 Kanoa St., Suite 104 Wailuku, HI 96793 Telephone: (844) 820-8699 ILLINOIS Bartlett 802 West Bartlett Road Bartlett, IL 60103 Telephone: (844) 820-8699 KENTUCKY Elizabethtown 81 Boulder Drive Elizabethtown, KY 42701 Telephone: (877) 518-9450 LOUISIANA Covington 568 Greenluster Drive Covington, LA 70433 Telephone: (985) 400-5787 MINNESOTA Eagan 860 Blue Gentian Rd Ste 200, Off 205 Eagan, MN 55121 Telephone: (844) 820-8699 MISSOURI Branson 4987 Fall Creek Rd #1 Branson, MO 65616 Telephone: (417) 616-3341 NORTH CAROLINA Charlotte 2015 Ayrsley Town Blvd. Ste 247, Off 247 Charlotte, NC 28273 Telephone: (844) 323-4640 NEVADA Henderson 2546 Findlater St. Henderson, NV 89044 Telephone: (866) 827-9558 2635 St. Rose Parkway, Suite 100 Henderson, NV 89052 Telephone: (702) 487-5626 Las Vegas 1980 Festival Plaza Drive, Suite 850 Las Vegas, NV 89135 Telephone: (702) 562-8733 Mesquite 840 Pinnacle Court, #3, Suite B Mesquite, NV 89027 Telephone: (866) 607-3863 Pahrump 2250 E Postal Dr, Suite 1 Pahrump, NV 89048 Telephone: (844) 820-8699 OHIO Westerville 670 Meridian Way, Suite 146 Westerville, OH 43082 Telephone: (614) 441-9978 OREGON Clackamas 10365 S.E. Sunnyside Road #310 Clackamas, OR 97015 Telephone: (971) 544-7192 Terrebonne 11592 S.W. Roundup Place Terrebonne, OR 97760 Telephone: (541) 615-7804 Tillamook 709 Pacific Ave. Tillamook, OR 97141 Telephone: (503) 880-4018 TENNESSEE Johnson City 144 Alf Taylor Rd Johnson City, TN 37601 Telephone: (423) 741-0008 Kingsport 115 W New Street Kinsgsport, TN 37660 Telephone: (866) 827-9558 Memphis 4646 Poplar Avenue, Office 317 Memphis, TN 38117 Telephone: (407) 302-8384 TEXAS Amarillo 4500 I-40 West, Ste B Amarillo, TX 79106 Telephone: (855) 203-1300 Austin 9737 Great Hills Trail, #200 & 220 Austin, TX 78759 Telephone: (512) 795-5596 Brownsville 1213 E. Alton Gloor Blvd Suite H & I Brownsville, TX 78526 Telephone: (956) 554-0792 Dallas 10000 N. Central Expy, Ste. 400 Off. 453 Dallas, TX 75231 Telephone: (469) 374-9700 El Paso 1600 Lee Trevino, Suite A-1 El Paso, TX 79936 Telephone: (844) 820-8699 Fort Worth 5020 Collinwood Ave, Suite100 Fort Worth, TX 76107 Telephone: (817) 945-2551 Fulshear 5757 Flewellen Oaks Ln, Unit 104 Fulshear, TX 77441 Telephone: (855) 203-1300 30417 Fifth Street, Suite B Fulshear, TX 77441 Telephone: (855) 203-1300 Where We Are Houston 17347 Village Green Dr., Ste. 102 Houston, TX 77040 Telephone: (832) 615-5400 11550 Fuqua, Suite 200 Houston, TX 77034 Telephone: (832) 786-6697 Hurst 462 Mid Cities Boulevard Hurst, TX 76054 Telephone: (214) 444-9250 Irving 106 Decker Court, Suite 310 Irving, TX 75062 Telephone: (855) 203-1300 Katy 23227 Red River Drive Katy, TX 77494 Telephone: (832) 786-6699 Lake Kiowa 722 Kiowa Drive West Lake Kiowa, TX 76240 Telephone: (940) 249-9944 League City 2600 South Shore Blvd Ste 300, Off 324 League City, TX 77573 Telephone: (281) 549-7194 Midland 4908 North Midkiff Road Midland, TX 79705 Telephone: (432) 897-2299 San Antonio 1777 NE Loop 410 Ste 600, Off 622 San Antonio, TX 78217 Telephone: (855) 203-1300 18756 Stone Oak Pkwy Ste 200, Off 238 San Antonio, TX 78258 Telephone: (844) 820-8699 23702 IH-10 West, Suite 105-D San Antonio, TX 78257 Telephone: (855) 203-1300 Stephenville 299 S Columbia Stephenville, TX 76401 Telephone: (844) 820-8699 Where We Are Weatherford 602 S. Main St. # 200 Weatherford, TX 76086 Telephone: (855) 203-1300 UTAH Ephraim 497 S. Main, Suite E Ephraim, UT 84627 Telephone: (435) 283-3000 Mapleton 768 S. 1600 W. Suite B Mapleton, UT 84664 Telephone: (385) 484-7200 Orem 998 N. 1200 W., Suite 104 Orem, UT 84057 Telephone: (801) 901-6200 Sandy 126 West Sego Lily Drive #260 Sandy, UT 84070 Telephone: (801) 571-1313 South Jordan 11240 So. River Heights Drive Suite 100 South Jordan, UT 84095 Telephone: (801) 508-6300 859 W. South Jordan Pkwy Bldg A, Ste 1 South Jordan, UT 84095 Telephone: (877) 518-9450 Stansbury Park 500 East Village Blvd., Unit #110 Stansbury Park, UT 84074 Telephone: (435) 843-5340 WISCONSIN Beloit 645 3rd Street Beloit, WI 53511 Telephone: (844) 820-8699 Kenosha 1508 24th Avenue #23 Kenosha, WI 53140 Telephone: (844) 820-8699 Trevor 27903 99th Street Trevor, WI 53179 Telephone: (262) 997-9444 Waukesha N19W24400 Riverwood Drive Ste 350, Off 315 Waukesha, WI 53188 Telephone: (844) 820-8699 Salt Lake City 2455 East Parleys Way, Suite 150 Sale Lake City, UT 84109 Telephone: (801) 713-4800 WASHINGTON Vancouver 15650 N.E. Fourth Plain Blvd #101 Vancouver, WA 98682 Telephone: (360) 869-7265 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Security National Financial Corporation: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Security National Financial Corporation and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for each of the years then ended, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 1 Future Policy Benefits for Life Insurance Contracts and Amortization of Deferred Policy Acquisition Costs for Insurance Contracts and Value of Business Acquired—Refer to Notes 1 and 21 to the financial statements Critical Audit Matter Description The Company’s management sets assumptions in (1) estimating a liability for life insurance policy benefit payments that will be made in the future (future policy benefits for life insurance contracts), (2) determining amortization of deferred policy acquisition costs for insurance contracts and value of business acquired and (3) performing premium deficiency tests. The most significant assumptions include mortality, lapse, and projected investment yield. Assumptions are determined based upon analysis of Company specific experience, industry standards, adjusted for changes in exposure and other relevant factors. Given the inherent uncertainty of these significant assumptions, auditing the development of such assumptions involved especially subjective judgment. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to management’s judgments regarding the mortality, lapse and projected investment yield assumptions used in the development of future policy benefits for life insurance contracts and the amortization of deferred policy acquisition costs for insurance contracts and value of business acquired, included the following, among others: • With the assistance of our actuarial specialists, we: • evaluated these actuarial assumptions, including testing the accuracy and completeness of the supporting experience studies, • evaluated management’s judgments regarding these assumptions used in the development of future policy benefits for life insurance contracts and the amortization of deferred policy acquisition costs and value of business acquired, • evaluated the results of the Company’s annual premium deficiency tests. Salt Lake City, UT March 29, 2024 We have served as the Company's auditor since 2017. 2 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2023 2022 Assets Investments: Fixed maturity securities, available for sale, at estimated fair value (amortized cost of $390,884,441 and $362,750,511 for 2023 and 2022, respectively; net of allowance for credit losses of $314,549 and nil for 2023 and 2022, respectively) Equity securities at estimated fair value (cost of $10,571,505 and $9,942,265 for 2023 and 2022, respectively) Mortgage loans held for investment (net of allowance for credit losses of $3,818,653 and $1,970,311 for 2023 and 2022, respectively) Real estate held for investment (net of accumulated depreciation of $29,307,791 and $23,793,204 for 2023 and 2022, respectively) Real estate held for sale Other investments and policy loans (net of allowances for credit losses of $1,553,836 and $1,609,951 for 2023 and 2022, respectively) Accrued investment income Total investments Cash and cash equivalents Loans held for sale at estimated fair value Receivables (net of allowance for credit losses of $1,897,887 and $2,229,791 for 2023 and 2022, respectively) Restricted assets (including $9,239,063 and $6,565,552 for 2023 and 2022, respectively, at estimated fair value) Cemetery perpetual care trust investments (including $4,969,005 and $3,859,893 for 2023 and 2022 at estimated fair value) Receivable from reinsurers Cemetery land and improvements Deferred policy and pre-need contract acquisition costs Mortgage servicing rights, net Property and equipment, net Value of business acquired Goodwill Other Total Assets $ 381,535,986 $ 345,858,492 13,636,071 11,682,526 275,616,837 308,123,927 183,419,292 3,028,973 69,404,617 10,170,790 936,812,566 126,941,658 126,549,190 15,335,315 20,028,976 8,082,917 14,857,059 9,163,691 116,351,067 3,461,146 19,175,099 8,467,613 5,253,783 20,072,195 1,430,552,275 $ 191,328,616 11,161,582 70,508,156 10,299,826 948,963,125 120,919,805 141,179,620 28,573,092 18,935,055 7,276,210 15,033,938 9,101,474 108,655,128 3,039,765 20,579,649 9,803,736 5,253,783 23,798,512 1,461,112,892 $ See accompanying notes to consolidated financial statements. 3 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) Liabilities and Stockholders’ Equity Liabilities Future policy benefits and unpaid claims Unearned premium reserve Bank and other loans payable Deferred pre-need cemetery and mortuary contract revenues Cemetery perpetual care obligation Accounts payable Other liabilities and accrued expenses Income taxes Total liabilities Stockholders’ Equity Preferred Stock: Preferred stock - non-voting-$1.00 par value; 5,000,000 shares authorized; none issued or outstanding Common Stock: Class A: common stock - $2.00 par value; 40,000,000 shares authorized; 20,048,002 shares issued and outstanding as of December 31, 2023 and 18,758,031 shares issued and outstanding as of December 31, 2022 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; 2,971,854 shares issued and outstanding as of December 31, 2023 and 2,889,859 shares issued and outstanding as of December 31, 2022 Additional paid-in capital Accumulated other comprehensive loss, net of taxes Retained earnings Treasury stock, at cost - 806,311 Class A shares and 35,717 Class C shares as of December 31, 2023; and 525,870 Class A shares and 34,016 Class C shares as of December 31, 2022 Total stockholders’ equity Total Liabilities and Stockholders’ Equity $ $ December 31, 2023 2022 $ 916,038,616 2,543,822 105,555,137 18,237,246 5,326,196 2,936,968 53,266,090 13,752,981 1,117,657,056 889,327,303 2,773,616 161,712,804 16,226,836 5,099,542 5,361,449 57,113,888 30,710,527 1,168,325,965 - - 40,096,004 37,516,062 - - 5,943,708 72,424,429 (6,885,558) 206,978,373 5,779,718 64,767,769 (13,070,277) 202,160,306 (5,661,737) 312,895,219 1,430,552,275 $ (4,366,651) 292,786,927 1,461,112,892 See accompanying notes to consolidated financial statements. 4 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS Years Ended December 31, 2023 2022 Revenues: Mortgage fee income Insurance premiums and other considerations Net investment income Net mortuary and cemetery sales Gains (losses) on investments and other assets Other Total revenues Benefits and expenses: Death benefits Surrenders and other policy benefits Increase in future policy benefits Amortization of deferred policy and pre-need acquisition costs and value of business acquired Selling, general and administrative expenses: Commissions Personnel Advertising Rent and rent related Depreciation on property and equipment Costs related to funding mortgage loans Other Interest expense Cost of goods and services sold – cemeteries and mortuaries Total benefits and expenses Earnings before income taxes Income tax expense Net earnings Net earnings per Class A equivalent common share (1) Net earnings per Class A equivalent common share - assuming dilution (1) Weighted average Class A equivalent common shares outstanding (1) Weighted average Class A equivalent common shares outstanding-assuming dilution (1) $ $ $ $ 98,147,972 114,658,436 72,343,047 27,864,811 1,837,342 3,645,882 318,497,490 61,390,517 4,612,346 34,008,997 18,024,338 39,929,556 83,141,759 3,710,445 6,857,137 2,351,661 6,440,439 32,058,856 4,865,327 4,805,700 302,197,078 16,300,412 (1,805,354) 14,495,058 0.66 0.64 $ $ $ $ 173,499,681 105,001,640 66,197,592 26,993,855 (857,460) 18,817,020 389,652,328 59,377,962 4,688,470 28,858,969 17,950,202 63,321,092 100,111,523 5,697,998 6,883,013 2,496,906 7,540,041 45,797,753 7,830,443 4,721,094 355,275,466 34,376,862 (8,686,560) 25,690,302 1.16 1.12 22,083,772 22,187,410 22,677,968 23,036,128 (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 consolidated financial statements. 5 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Net earnings Other comprehensive income: Unrealized gains (losses) on fixed maturity securities available for sale Unrealized gains (losses) on restricted assets Unrealized gains (losses) on cemetery perpetual care trust investments Other comprehensive income (loss), before income tax Income tax benefit (expense) Other comprehensive income (loss), net of income tax Comprehensive income (loss) Years Ended December 31, 2023 2022 14,495,058 $ 25,690,302 7,814,324 11,175 2,917 7,828,416 (1,643,697) 6,184,719 20,679,777 $ (39,331,688) (71,035) (20,446) (39,423,169) 8,282,444 (31,140,725) (5,450,423) $ $ See accompanying notes to consolidated financial statements. 6 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Class A Common Stock $ 35,285,444 Class C Common Stock $ 5,733,130 Additional Paid-in Capital $ 57,985,947 Accumulated Other Comprehensive Income (Loss) $ 18,070,448 Retained Earnings $ 184,537,489 Treasury Stock Total $ (1,845,624) $ 299,766,834 - - - 219,174 - - 1,779,108 232,336 37,516,062 - - - - - - 278,924 (232,336) 5,779,718 - - 929,692 (75,742) (187,757) 106,176 6,009,453 - 64,767,769 - (31,140,725) - - - - - - (13,070,277) 25,690,302 - - - - - (8,067,485) - 202,160,306 - - - - 5,249,054 (7,770,081) - - (4,366,651) 25,690,302 (31,140,725) 929,692 143,432 5,061,297 (7,663,905) - - 292,786,927 - - - - 558,354 2,430 - - 1,899,960 119,198 $ 40,096,004 - - - - - - - - 283,188 (119,198) $ 5,943,708 - - - 601,362 (423,967) (2,430) 76,202 583,156 6,822,337 - $ 72,424,429 $ - - 6,184,719 - - - - - - - (671,506) 14,495,058 - - - - - - - - - - - - 2,134,517 (3,429,603) (671,506) 14,495,058 6,184,719 601,362 134,387 - 2,210,719 (2,846,447) - - $ (5,661,737) $ 312,895,219 - - (9,005,485) - (6,885,558) $ 206,978,373 Balance at December 31, 2021 Net earnings Other comprehensive loss Stock based compensation expense Exercise of stock options Sale of treasury stock Purchase of treasury stock Stock dividends Conversion Class C to Class A Balance at December 31, 2022 Adoption of ASU 2016-13 Net earnings Other comprehensive income Stock based compensation expense Exercise of stock options Vesting of restricted stock units Sale of treasury stock Purchase of treasury stock Stock dividends Conversion Class C to Class A Balance at December 31, 2023 See accompanying notes to consolidated financial statements. 7 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Cash flows from operating activities: Net earnings Adjustments to reconcile net earnings to net cash used in operating activities: Losses (gains) on investments and other assets Depreciation Provision for credit losses Net amortization of deferred fees and costs, premiums and discounts Provision for deferred income taxes Policy and pre-need acquisition costs deferred Policy and pre-need acquisition costs amortized Value of business acquired amortized Mortgage servicing rights, additions Amortization of mortgage servicing rights Net gains on the sale of mortgage servicing rights Stock based compensation expense Benefit plans funded with treasury stock Net change in fair value of loans held for sale Originations of loans held for sale Proceeds from sales of loans held for sale Net gains on sales of loans held for sale Change in assets and liabilities: Land and improvements held for sale Future policy benefits and unpaid claims Other operating assets and liabilities Net cash provided by operating activities Cash flows from investing activities: Purchases of fixed maturity securities Sales, calls and maturities of fixed maturity securities Purchase of equity securities Sales of equity securities Purchases of restricted assets Sales, calls and maturities of restricted assets Purchases of cemetery perpetual care trust investments Sales, calls and maturities of cemetery perpetual care trust investments Mortgage loans held for investment, other investments and policy loans made Payments received for mortgage loans held for investment, other investments and policy loans Proceeds from the sale of mortgage servicing rights Purchases of property and equipment Sales of property and equipment Purchases of real estate Sales of real estate Net cash provided by (used in) investing activities Years Ended December 31, 2023 2022 $ 14,495,058 $ 25,690,302 (1,837,342) 8,641,080 1,959,707 (2,140,548) (2,495,489) (24,432,809) 16,724,336 1,300,002 (1,009,312) 587,931 - 601,362 2,210,719 478,460 (2,173,080,584) 2,224,454,040 (40,239,112) (62,217) 29,745,349 (2,025,510) 53,875,121 (70,315,501) 42,966,901 (6,993,289) 6,346,625 (3,065,758) 840,080 (1,083,550) 458,046 (645,581,141) 682,267,677 - (1,109,937) - (22,894,604) 32,772,520 14,608,069 857,460 8,598,072 1,331,887 (1,018,200) (9,954,005) (20,233,669) 16,685,871 1,264,331 (10,243,922) 9,078,706 (34,051,938) 929,692 5,061,297 8,834,797 (3,373,554,484) 3,549,405,402 (74,779,721) (123,597) 27,487,657 (815,484) 130,450,454 (151,581,252) 25,163,141 (4,193,460) 2,804,274 (862,654) - - 1,205,208 (752,301,471) 759,243,828 79,981,150 (1,600,195) 69,248 (20,458,983) 25,369,430 (37,161,736) 8 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Cash flows from financing activities: Investment contract receipts Investment contract withdrawals Proceeds from stock options exercised Purchase of treasury stock Repayment of bank loans Proceeds from bank loans Net change in warehouse line borrowings for loans held for sale Net cash used in financing activities Net change in cash, cash equivalents, restricted cash and restricted cash equivalents Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year Cash, cash equivalents, restricted cash and restricted cash equivalents at end of year Supplemental Disclosure of Cash Flow Information: Cash paid during the year for: Interest Income taxes Non Cash Investing and Financing Activities: Transfer of loans held for sale to mortgage loans held for investment Transfer from mortgage loans held for investment to restricted assets Transfer from mortgage loans held for investment to cemetery perpetual care trust investments Accrued real estate construction costs and retainage Mortgage loans held for investment foreclosed into real estate held for investment Right-of-use assets obtained in exchange for operating lease liabilities Right-of-use assets obtained in exchange for finance lease liabilities Years Ended December 31, 2023 2022 12,572,508 (15,654,593) 134,387 (2,846,447) (69,602,737) 68,500,000 (55,146,726) (62,043,608) 6,439,582 11,730,820 (15,795,677) 143,432 (7,663,905) (50,308,296) 59,618,050 (98,943,607) (101,219,183) (7,930,465) 133,483,817 141,414,282 139,923,399 $ 133,483,817 $ $ 5,136,747 20,406,598 3,017,626 1,625,961 1,611,550 - - 160,348 12,332 7,697,921 729,687 51,691,213 - - 1,025,397 10,998,485 2,054,534 - $ $ $ Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents as shown in the consolidated statements of cash flows is presented in the table below: Cash and cash equivalents Restricted assets Cemetery perpetual care trust investments Total cash, cash equivalents, restricted cash and restricted cash equivalents Years Ended December 31, 2023 2022 126,941,658 $ 10,114,694 2,867,047 139,923,399 $ 120,919,805 10,638,034 1,925,978 133,483,817 $ $ See accompanying notes to consolidated financial statements. 9 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 1) Significant Accounting Policies General Overview of Business Security National Financial Corporation and its wholly owned subsidiaries (the “Company”) operate in three reportable business segments: life insurance, cemetery and mortuary, and mortgages. The life insurance segment is engaged in the business of selling and servicing selected lines of life insurance, annuity products and accident and health insurance marketed primarily in the states located in western, mid-western and southern regions of the United States. The cemetery and mortuary segment of the Company consists of eight mortuaries and five cemeteries in Utah, one cemetery in California, and four mortuaries and one cemetery in New Mexico. The mortgage segment is an approved government and conventional lender that originates and underwrites residential and commercial loans for new construction, existing homes, and real estate projects primarily in Florida, Nevada, Texas, and Utah. Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Principles of Consolidation These consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation. Use of Estimates Management of the Company has made several estimates and assumptions related to the reported amounts of assets and liabilities, reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with GAAP. 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. Investments The Company’s management determines the appropriate classifications of investments in fixed maturity securities and equity securities at the acquisition date and re-evaluates the classifications at each balance sheet date. Fixed maturity securities available for sale are carried at estimated fair value. Changes in fair values are reported as unrealized gains or losses and are recorded in accumulated other comprehensive income (loss). Equity securities are carried at estimated fair value. Changes in fair values are reported as unrealized gains or losses and are recorded through net earnings as a component of gains (losses) on investments and other assets. 10 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 1) Significant Accounting Policies (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 consolidated statements of earnings and is recognized when earned. The Company defers related material loan origination fees, net of related direct loan origination costs, and amortizes the net fees over the term of the loans. Origination fees are included in net investment income on the consolidated statements of earnings. Mortgage loans are secured by the underlying property and require an appraisal at the time of underwriting and funding. Generally, the Company 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. Real estate held for investment is carried at cost, less accumulated depreciation provided on a straight-line basis over the estimated useful lives of the properties or is adjusted to a new basis for impairment in value, if any. Included, if any, are foreclosed properties. These properties are recorded at the lower of cost or fair value upon foreclosure. Also, included is residential subdivision land development which is carried at cost. Real estate held for sale is carried at lower of cost or fair value, less estimated costs to sell. Depreciation is not recognized on real estate classified as held for sale. Other investments and policy loans are carried at the aggregate unpaid balances, less allowances for credit losses. Accrued investment income refers to earned income from investments that has not yet been received by the Company. Gains (losses) on investments (except for equity securities carried at fair value through net earnings) arise when investments are sold and are recorded on the trade date and the cost of the securities sold is determined using the specific identification method. The provision (release) for credit losses for fixed maturity securities held for sale are also included in gains (losses) on investments. See Note 2 for more information regarding the Company’s evaluation of credit losses. Cash and Cash Equivalents The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts, which at times exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. Loans Held for Sale Accounting Standards Codification (“ASC”) No. 825, “Financial Instruments”, allows for the option to report certain financial assets and liabilities at fair value initially and at subsequent measurement dates with changes in fair value included in earnings. The option may be applied instrument by instrument, but it is irrevocable. The Company elected the fair value option for loans held for sale. The Company believes the fair value option most closely aligns the timing of the recognition of gains and costs. These loans are intended for sale and the Company believes that fair value is the best indicator of the resolution of these loans. Electing fair value also reduces certain timing differences and better matches changes in the fair value of these assets with changes in the fair value of the related derivatives used for these assets. See Note 3 and Note 17 to Consolidated Financial Statements for additional disclosures regarding loans held for sale. 11 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 1) Significant Accounting Policies (Continued) 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. All revenues and costs are recognized when the mortgage loan is funded and any changes in fair value are shown as a component of mortgage fee income. See Note 3 and Note 17 to Consolidated Financial Statements for additional disclosures regarding loans held for sale. The Company, through its mortgage subsidiaries, sells mortgage loans to third-party investors without recourse unless defects are identified in the representations and warranties made at loan sale. It may be required, however, to repurchase a loan or pay a fee instead of repurchasing under certain events, which include the following: ● Failure to deliver original documents specified by the investor, ● The existence of misrepresentation or fraud in the origination of the loan, ● The loan becomes delinquent due to nonpayment during the first several months after it is sold, ● Early pay-off of a loan, as defined by the agreements, ● Excessive time to settle a loan, ● Investor declines purchase, and ● Discontinued product and expired commitment. Loan purchase commitments generally specify a date 30 to 45 days after delivery upon which the underlying loans should be settled. Depending on market conditions, these commitment settlement dates can be extended at a cost to the Company. It is the Company’s policy to cure any documentation problems regarding such loans at a minimal cost for up to a six-month period and to pursue efforts to enforce loan purchase commitments from third-party investors concerning the loans. The Company believes that six months allows adequate time to remedy any documentation issues, to enforce purchase commitments, and to exhaust other alternatives. Remedial methods include the following: ● Research reasons for rejection, ● Provide additional documents, ● Request investor exceptions, ● Appeal rejection decision to purchase committee, and ● Commit to secondary investors. Once purchase commitments have expired and other alternatives to remedy are exhausted, which could be earlier than the six-month period, the loans are repurchased and transferred to the long-term investment portfolio at the lower of cost or fair value and previously recorded mortgage fee income that was to be received from a third-party investor is written off against the loan loss reserve. Determining Fair Value The cost for loans held for sale is equal to the amount paid to the warehouse bank and the amount originally funded by the Company. Fair value is often difficult to determine and may contain significant unobservable inputs, but is based on the following: ● For loans that are committed, the Company uses the commitment price. ● For loans that are non-committed that have an active market, the Company uses the market price. ● For loans that are non-committed where there is no market but there is a similar product, the Company uses the market value for the similar product. 12 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 1) Significant Accounting Policies (Continued) ● For loans that are non-committed where no active market exists, the Company determines that the unpaid principal balance best approximates the market value, after considering the fair value of the underlying real estate collateral, estimated future cash flows, and the loan interest rate. The appraised value of the real estate underlying the original mortgage loan adds support to the Company’s determination of fair value because if the loan becomes delinquent, the Company has sufficient value to collect the unpaid principal balance or the carrying value of the loan, thus minimizing credit losses. Most loans originated are sold to third-party investors. The amounts expected to be sold to investors are shown on the consolidated balance sheets as loans held for sale. Loan Loss Reserve The loan loss reserve is an estimate of probable losses at the balance sheet date that the Company will realize in the future on loans sold. The Company may be required to reimburse third-party investors for costs associated with early payoff of loans within six months of origination of such loans and to repurchase loans where there is a default in any of the first four monthly payments to the investors or, in lieu of repurchase, to pay a negotiated fee to the investors. The Company’s estimates are based upon historical loss experience and the best estimate of the probable loan loss liabilities. Upon completion of a transfer that satisfies the conditions to be accounted for as a sale, the Company initially measures at fair value liabilities incurred in a sale relating to any guarantee or recourse provisions. The Company accrues a monthly allowance for indemnification losses to investors based on total production. This estimate is based on the Company’s historical experience and is included as a component of mortgage fee income. Subsequent updates to the recorded liability from changes in assumptions are recorded in selling, general and administrative expenses as a component of provision for loan loss reserve. The estimated liability for indemnification losses is included in other liabilities and accrued expenses. The loan loss reserve analysis involves mortgage loans that have been sold to third-party investors, which were believed to have met investor underwriting guidelines at the time of sale, where the Company has received a demand from the investor. There are generally three types of demands: make whole, repurchase, or indemnification. These types of demands are further described as follows: Make whole demand — A make whole demand occurs when an investor forecloses on a property and then sells the property. The make whole amount is calculated as the difference between the original unpaid principal balance, payments received, accrued interest and fees, less the sale proceeds. Repurchase demand — A repurchase demand usually occurs when there is a significant payment default, error in underwriting or detected loan fraud. Indemnification demand — On certain loans the Company has negotiated a set fee that is to be paid in lieu of repurchase. The fee varies by investor and by loan product type. The Company believes the allowance for loan losses and the loan loss reserve represent probable loan losses incurred as of the balance sheet date. Additional information related to the Loan Loss Reserve is included in Note 3. 13 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 1) Significant Accounting Policies (Continued) Restricted Assets Restricted assets are assets held in a trust account for future mortuary services and merchandise. Restricted assets also include escrows held for borrowers and investors under servicing and appraisal agreements relating to mortgage loans, funds held by warehouse banks in accordance with loan purchase agreements and funds held in escrow for certain real estate construction development projects. Additionally, the Company funded its medical benefit safe- harbor limit based on the qualified direct costs and has included this amount as a component of restricted cash. Additional information related to restricted assets is included in Notes 2 and 8 to Consolidated Financial Statements. Cemetery Perpetual Care Trust Investments Cemetery endowment care trusts have been set up for five of the seven cemeteries owned by the Company. Under endowment care arrangements a portion of the price for each lot sold is withheld and invested in a portfolio of investments like those described in the prior paragraph. The earnings stream from the investments is designed to fund future maintenance and upkeep of the cemetery. Additional information related to cemetery perpetual care trust investments is included in Notes 2 and 8 to Consolidated Financial Statements. Cemetery Land and Improvements The development of a cemetery involves not only the initial acquisition of raw land but also the installation of roads, water lines, landscaping, and other costs to establish a marketable cemetery lot. The costs of developing the cemetery are shown as an asset on the balance sheet. The amount on the balance sheet is reduced by the total cost assigned to the development of a particular lot when the criterion for recognizing a sale of that lot is met. Deferred Policy Acquisition Costs and Value of Business Acquired Commissions and other costs, net of commission and expense allowances for reinsurance ceded, that vary with and are primarily related to the production of new insurance business have been deferred. Deferred policy acquisition costs (“DAC”) for traditional life insurance are amortized over the premium paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves. For interest-sensitive insurance products, deferred policy acquisition costs are amortized generally in proportion to the present value of expected gross profits from surrender charges, investment, mortality, and expense margins. This amortization is adjusted when estimates of current or future gross profits to be realized from a group of products are reevaluated. Deferred acquisition costs are written off when policies lapse or are surrendered. When accounting for DAC, the Company considers internal replacements of insurance and investment contracts. An internal replacement is a modification in product benefits, features, rights, or coverage that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to contract, or by the election of a feature or coverage within a contract. Modifications that result in a replacement contract that is substantially changed from the replaced contract are accounted for as an extinguishment of the replaced contract. Unamortized DAC, unearned revenue liabilities and deferred sales inducements from the replaced contract are written-off. Modifications that result in a contract that is substantially unchanged from the replaced contract are accounted for as a continuation of the replaced contract. Value of business acquired (“VOBA”) is the present value of estimated future profits of the acquired business and is amortized like deferred policy acquisition costs. 14 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 1) Significant Accounting Policies (Continued) Premium Deficiency and Loss Recognition Testing At least annually, the Company tests the adequacy of the net benefit reserves (liability for future policy benefits, net of DAC and VOBA) recorded for life insurance and annuity products. The Company tests for recoverability by using the Company’s current best-estimate assumptions as to policyholder mortality, persistency, maintenance expenses and invested asset returns. These tests evaluate whether the present value of future contract-related cash flows will support the capitalized DAC and VOBA assets. These cash flows consist primarily of premium income, less benefits, and expenses. If the current contract liabilities plus the present value of future premiums is greater than the sum of the present values of future policy benefits, commissions, and expenses plus the current DAC and VOBA less unearned premium reserve balances, then the capitalized assets are deemed recoverable. The present values are calculated using the best estimate of the after-tax net investment earned rate. Mortgage Servicing Rights Mortgage Servicing Rights (“MSR”) arise from contractual agreements between the Company and third-party investors (or their agents) when mortgage loans are sold. Under these contracts, the Company is obligated to retain and provide loan servicing functions on loans sold, in exchange for fees and other remuneration. The servicing functions typically performed include, among other responsibilities, collecting and remitting loan payments; responding to borrower inquiries; accounting for principal and interest, holding custodial (impound) funds for payment of property taxes and insurance premiums; counseling delinquent mortgagors; and supervising the acquisition of real estate owned and property dispositions. The total residential mortgage loans serviced for others consist primarily of agency conforming fixed-rate mortgage loans. The value of MSRs is derived from the net cash flows associated with the servicing contracts. The Company receives a servicing fee of generally about 0.25% annually on the remaining outstanding principal balances of the loans. Based on the result of the cash flow analysis, an asset or liability is recorded for mortgage servicing rights. The servicing fees are collected from the monthly payments made by the mortgagors. The Company generally receives other remuneration including rights to various mortgagor-contracted fees such as late charges, and collateral reconveyance charges and the Company is generally entitled to retain the interest earned on funds held pending remittance of mortgagor principal, interest, tax, and insurance payments. Contractual servicing fees and late fees are included in other revenues on the consolidated statements of earnings. The Company’s subsequent accounting for MSRs is based on the class of MSRs. The Company has identified two classes of MSRs: MSRs backed by mortgage loans with an initial term of 30 years and MSRs backed by mortgage loans with an initial term of 15 years. The Company distinguishes between these classes of MSRs due to their differing sensitivities to change in value as the result of changes in the market. After being initially recorded at fair value, MSRs backed by mortgage loans are accounted for using the amortization method. Amortization expense is included in other expenses on the consolidated statements of earnings. MSR amortization is determined by amortizing the MSR balance in proportion to, and over the period of the estimated future net servicing income of the underlying financial assets. Interest rate risk, prepayment risk, and default risk are inherent risks in MSR valuation. Interest rate changes largely drive prepayment rates. Refinance activity generally increases as rates decline. A significant decrease in rates beyond expectation could cause a decline in the value of the MSR. On the contrary, if rates increase borrowers are less likely to refinance or prepay their mortgage, which extends the duration of the loan and MSR values are likely to rise. Because of these risks, discount rates and prepayment speeds are used to estimate the fair value. The Company periodically assesses MSRs for impairment. Impairment occurs when the current fair value of the MSR falls below the asset’s carrying value (carrying value is the amortized cost reduced by any related valuation allowance). If MSRs are impaired, the impairment is recognized in current period earnings and the carrying value of the MSRs is adjusted through a valuation allowance. 15 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 1) Significant Accounting Policies (Continued) 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. When management deems recovery of the value to be unlikely in the foreseeable future, a write-down of the cost of the MSRs for that stratum to its estimated recoverable value is charged to the valuation allowance. Property and Equipment Property and equipment are recorded at cost. Depreciation is calculated principally on the straight-line method over the estimated useful lives of the assets which range from three to forty years. Leasehold improvements paid for by the Company as a lessee are amortized over the lesser of the useful life or remaining lease terms. Long-lived Assets Long-lived assets to be held and used, including property and equipment and real estate held for investment, are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset, and long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. 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. The change in fair value of the underlying mortgage loan is measured from the date the loan commitment is issued and is shown net of expenses. Following issuance, the value of a loan commitment can be either positive or negative depending upon the change in value of the underlying mortgage loans. Fallout rates and other factors from the Company’s recent historical data are used to estimate the quantity and value of mortgage loans that will fund within the terms of the commitments. 16 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 1) Significant Accounting Policies (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 consolidated balance sheets. Call and Put Option Derivatives The Company discontinued its use of selling “out of the money” call options on its equity securities and the use of selling put options as a source of revenue in the first quarter of 2023. The net changes in the fair value of call and put options are shown in current earnings as a component of realized gains (losses) on investments and other assets. Call and put options are shown in other liabilities and accrued expenses on the condensed consolidated balance sheets. Allowances for Credit Losses The Company records allowances for current expected credit losses from fixed maturity securities available for sale, mortgage loans held for investment, other investments, and receivables in accordance with GAAP. The allowances for credit losses are valuation accounts that are reported as a reduction of the financial asset’s cost basis and are measured on a pool basis when similar risk characteristics exist. The Company estimates allowances for credit losses using relevant available information from both internal and external sources. The Company considers its historical loss experience, analyzes current market conditions and forecasts and uses third-party assistance to arrive at current expected credit losses. Amounts are written off against the allowance for credit losses when determined to be uncollectible. See below under Recent Accounting Pronouncements regarding the adoption of ASU 2016-13. See Notes 2 and 4 to Consolidated Financial Statements regarding the Company’s evaluation of allowances for credit losses. Future Policy Benefits and Unpaid Claims Future policy benefit reserves for traditional life insurance are computed using a net level method, including assumptions as to investment yields, mortality, morbidity, withdrawals, and other assumptions based on the life insurance subsidiaries’ experience, modified as necessary to give effect to anticipated trends and to include provisions for possible unfavorable deviations. Such liabilities are, for some plans, graded to equal statutory values or cash values at or prior to maturity, which are deemed a reasonable equivalent for GAAP. The range of assumed interest rates for all traditional life insurance policy reserves was 4% to 10%. Benefit reserves for traditional limited-payment life insurance policies include the deferred portion of the premiums received during the premium-paying period. Deferred premiums are recognized as income over the life of the policies. Policy benefit claims are charged to expense in the period the claims are incurred. Increases in future policy benefits are charged to expense. Future policy benefit reserves for interest-sensitive insurance products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges. Policy benefits and claims that are charged to expense include benefit claims incurred in the period more than related policy account balances. Interest credit rates for interest-sensitive insurance products ranged from 3% to 6.5%. The Company records an unpaid claims liability for claims in the course of settlement equal to the death benefit amount less any reinsurance recoverable amount for claims reported. There is also an unpaid claims liability for claims incurred but not reported. This liability is based on the historical experience of the net amount of claims that were reported in reporting periods subsequent to the reporting period when claims were incurred. 17 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 1) Significant Accounting Policies (Continued) Participating Insurance Participating business constituted 2% of insurance in force for the years ended 2023 and 2022. The provision for policyholders’ dividends included in policyholder obligations is based on dividend scales anticipated by management. The amounts to be paid are determined by the Board of Directors. The expense recognized for policyholder dividends is included in surrenders and other policy benefits on the consolidated statements of earnings. Recognition of Insurance Premiums and Other Considerations Premiums and other consideration for traditional life insurance products (which include those products with fixed and guaranteed premiums and benefits and consist principally of whole life insurance policies, limited payment life insurance policies, and certain annuities with life contingencies) are recognized as revenues when due from policyholders. Premiums and other consideration for interest-sensitive insurance policies (which include universal life policies, interest-sensitive life policies, deferred annuities, and annuities without life contingencies) are recognized when earned and consist of amounts assessed against policyholder account balances during the period for policy administration charges and surrender charges. Reinsurance The Company follows the procedure of reinsuring risks of more than $100,000 to provide for greater diversification of business to allow management to control exposure to potential losses arising from large risks and provide additional capacity for growth. The Company remains liable for amounts ceded in the event the reinsurers are unable to meet their obligations. The Company entered into coinsurance agreements with unaffiliated insurance companies under which the Company assumed 100% of the risk for certain life insurance policies and certain other policy-related liabilities of the insurance company. Reinsurance premiums, commissions, expense reimbursements, and reserves related to reinsured business are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Expense allowances received in connection with reinsurance ceded are accounted for as a reduction of the related policy acquisition costs and are deferred and amortized accordingly. Pre-need Sales and Costs Pre-need contract sales of funeral services and caskets - revenue and costs associated with the sales of pre-need funeral services and caskets are deferred until the performance obligations are fulfilled (services are performed or the caskets are delivered). Sales of cemetery interment rights (cemetery burial property) - revenue and costs associated with the sale of cemetery interment rights are deferred until 10% of the sales price has been collected. Pre-need contract sales of cemetery merchandise (primarily markers and vaults) - revenue and costs associated with the sale of pre-need cemetery merchandise is deferred until the merchandise is delivered to the Company. Pre-need contract sales of cemetery services (primarily merchandise delivery, installation fees and burial opening and closing fees) - revenue and costs associated with the sales of pre-need cemetery services are deferred until the services are performed. Prearranged funeral and pre-need cemetery customer acquisition costs - costs incurred related to obtaining new pre-need contract cemetery and prearranged funeral services, which include only costs that vary with and are primarily related to the acquisition of new pre-need cemetery and prearranged funeral services, are deferred until the merchandise is delivered or services are performed. 18 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 1) Significant Accounting Policies (Continued) Revenues and costs for at-need sales are recorded when a valid contract exists, the services are performed, collection is reasonably assured and there are no significant performance obligations remaining. The Company, through its cemetery and mortuary operations, provides guaranteed funeral arrangements wherein a prospective customer can receive future goods and services at guaranteed prices. To accomplish this, the Company, through its life insurance operations, sells to the customer an increasing benefit life insurance policy that is assigned to the mortuaries. If, at the time of need, the policyholder/potential mortuary customer utilizes one of the Company’s facilities, the guaranteed funeral arrangement contract that has been assigned will provide the funeral goods and services at the contracted price. The increasing life insurance policy will cover the difference between the original contract prices and current prices. Risks may arise if the difference cannot be fully met by the life insurance policy. However, management believes that given current inflation rates and related price increases of goods and services, the risk of exposure is minimal. Goodwill Previous acquisitions have been accounted for as purchases under which assets acquired and liabilities assumed were recorded at their fair values with the excess purchase price recognized as goodwill. The Company evaluates annually or when changes in circumstances warrant the recoverability of goodwill and if there is a decrease in value, the related impairment is recognized as a charge against income. Other Intangibles Other intangibles are recognized apart from goodwill whenever an acquired intangible asset arises from contractual or other legal rights, or whenever it is capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented, or exchanged, either individually or in combination with a related contract, asset, or liability. The Company engages a third-party valuation firm to analyze the value of the intangible assets that result from significant acquisitions. The value of the intangible assets that result from these acquisitions are included in Other Assets and are determined using the income approach, relying on a relief from the royalty method. Income Taxes Income taxes include taxes currently payable plus deferred taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the temporary differences in the financial reporting basis and tax basis of assets and liabilities and operating loss carry-forwards. Deferred tax assets are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. Liabilities are established for uncertain tax positions expected to be taken in income tax returns when such positions are judged to meet the “more-likely-than-not” threshold based on the technical merits of the positions. Estimated interest and penalties related to uncertain tax penalties are included as a component of income tax expense. 19 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 1) Significant Accounting Policies (Continued) Earnings Per Common Share The Company computes earnings per share, which requires a presentation of basic and diluted earnings per share. Basic earnings per equivalent Class A common share are computed by dividing net earnings by the weighted-average number of Class A common shares outstanding during each year presented, after the effect of the assumed conversion of Class C common stock to Class A common stock. Diluted earnings per share is computed by dividing net earnings by the weighted-average number of common shares outstanding during the year used to compute basic earnings per share plus dilutive potential incremental shares by application of the treasury stock method. Basic and diluted earnings per share amounts have been adjusted retroactively for the effect of annual stock dividends. Stock Based Compensation The cost of employee services received in exchange for an award of equity instruments is recognized in the financial statements and is measured based on the fair value on the grant date of the award. The fair value of stock options is calculated using the Black Scholes Option Pricing Model. Stock option compensation expense is recognized over the period during which an employee is required to provide service in exchange for the award and is included in personnel expenses on the consolidated statements of earnings. Concentration of Credit Risk For a description of the concentration risk regarding available for sale debt securities, mortgage loans held for investment and real estate held for investment, refer to Note 2, and for receivables from reinsurers, refer to Note 10 of the Notes to Consolidated Financial Statements. Advertising The Company expenses advertising costs as incurred. 20 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 1) Significant Accounting Policies (Continued) 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. Mortgage loans held for investment: Residential Residential construction Commercial Total Restricted assets - mortgage loans held for investment: Residential construction Cemetery perpetual care trust investments - mortgage loans held for investment: Residential construction Grand Total Accounting Standards Issued But Not Yet Adopted $ Amount (192,607) 301,830 555,807 665,030 3,463 3,013 671,506 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. 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. 21 21 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) Investments 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) $ Obligations of states and political subdivisions 6,524,083 500 (319,260) - - $ 110,378,730 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 Total equity securities at estimated fair value Mortgage loans held for investment at amortized cost: Residential Residential construction Commercial Less: Unamortized deferred loan fees, net Less: Allowance for credit losses Less: Net discounts Total mortgage loans held for investment Real estate held for investment - net of accumulated depreciation: Residential Commercial Total real estate held for investment Real estate held for sale: Residential Commercial Total real estate held for sale Other investments and policy loans at amortized cost: Policy loans Insurance assignments Federal Home Loan Bank stock (2) Other investments Less: Allowance for credit losses Total policy loans and other investments Accrued investment income $ $ 10,571,505 10,571,505 $ $ 3,504,141 3,504,141 $ $ (439,575) (439,575) $ $ 13,636,071 13,636,071 $ 103,153,587 104,052,748 74,176,538 (1,623,226) (3,818,653) (324,157) $ 275,616,837 $ 40,924,865 142,494,427 $ 183,419,292 $ $ $ $ $ - 3,028,973 3,028,973 13,264,183 45,605,322 2,279,800 9,809,148 (1,553,836) 69,404,617 10,170,790 22 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) Investments 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: estimated fair value: Fixed maturity securities, available for sale, at 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 Industrial, miscellaneous and all other 10,571,505 3,504,141 (439,575) Total equity securities at estimated fair value 10,571,505 3,504,141 (439,575) $ $ $ $ $ $ $ $ 13,636,071 13,636,071 Equity securities at estimated fair value: Common stock: Mortgage loans held for investment at amortized cost: Residential Residential construction Commercial Less: Unamortized deferred loan fees, net Less: Allowance for credit losses Less: Net discounts Total mortgage loans held for investment Real estate held for investment - net of accumulated $ 103,153,587 104,052,748 74,176,538 (1,623,226) (3,818,653) (324,157) $ 275,616,837 $ 40,924,865 142,494,427 $ 183,419,292 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 - 3,028,973 $ depreciation: Residential Commercial Total real estate held for investment Real estate held for sale: Residential Commercial Total real estate held for sale 2) Investments (Continued) $ 3,028,973 The Company’s investments as of December 31, 2022 are summarized as follows: Other investments and policy loans at amortized cost: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Policy loans Insurance assignments Federal Home Loan Bank stock (2) Other investments Less: Allowance for credit losses $ 13,264,183 45,605,322 2,279,800 9,809,148 (1,553,836) December 31, 2022: Fixed maturity securities, available for sale, at estimated fair value: U.S. Treasury securities and obligations of U.S. Government agencies Total policy loans and other investments $ 69,404,617 $ 93,182,210 $ 180,643 $ (2,685,277) $ 90,677,576 Accrued investment income Obligations of states and political subdivisions $ 10,170,790 6,675,071 13,869 (458,137) 6,230,803 Corporate securities including public utilities Total investments $ 936,812,566 229,141,544 1,909,630 (11,930,773) 219,120,401 Mortgage-backed securities 33,501,686 168,700 (4,100,674) 29,569,712 (1) Gross unrealized losses are net of allowance for credit losses Redeemable preferred stock (2) Includes $530,900 of Membership stock and $1,748,900 of Activity stock due to short-term advances and letters of credit. 250,000 10,000 - 260,000 Total fixed maturity securities available for sale $ 362,750,511 $ 2,282,842 $ (19,174,861) $ 345,858,492 Equity securities at estimated fair value: Common stock: Industrial, miscellaneous and all other Total equity securities at estimated fair value Mortgage loans held for investment at amortized cost: Residential Residential construction Commercial Less: Unamortized deferred loan fees, net Less: Allowance for loan losses Less: Net discounts Total mortgage loans held for investment Real estate held for investment - net of accumulated depreciation: Residential Commercial Total real estate held for investment Real estate held for sale: Residential Commercial Total real estate held for sale Other investments and policy loans at amortized cost: Policy loans Insurance assignments Federal Home Loan Bank stock (1) Other investments Less: Allowance for doubtful accounts Total policy loans and other investments Accrued investment income Total investments $ $ $ $ $ $ $ $ $ $ $ $ 9,942,265 9,942,265 $ $ 2,688,375 2,688,375 $ $ (948,114) (948,114) $ $ 11,682,526 11,682,526 93,355,623 172,516,125 46,311,955 (1,746,605) (1,970,311) (342,860) 308,123,927 38,437,960 152,890,656 191,328,616 11,010,029 151,553 11,161,582 13,095,473 46,942,536 2,600,300 9,479,798 (1,609,951) 70,508,156 23 10,299,826 948,963,125 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) Investments (Continued) The Company’s investments as of December 31, 2022 are summarized as follows: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value December 31, 2022: Fixed maturity securities, available for sale, at estimated fair value: U.S. Treasury securities and obligations of U.S. Government agencies $ 93,182,210 $ 180,643 $ (2,685,277) $ 90,677,576 Obligations of states and political subdivisions 6,675,071 13,869 (458,137) 6,230,803 Corporate securities including public utilities 229,141,544 1,909,630 (11,930,773) 219,120,401 Mortgage-backed securities Redeemable preferred stock 33,501,686 168,700 (4,100,674) 29,569,712 250,000 10,000 - 260,000 Total fixed maturity securities available for sale $ 362,750,511 $ 2,282,842 $ (19,174,861) $ 345,858,492 Equity securities at estimated fair value: Common stock: Industrial, miscellaneous and all other Total equity securities at estimated fair value Mortgage loans held for investment at amortized cost: Residential Residential construction Commercial Less: Unamortized deferred loan fees, net Less: Allowance for loan losses Less: Net discounts Total mortgage loans held for investment Real estate held for investment - net of accumulated depreciation: Residential Commercial Total real estate held for investment Real estate held for sale: Residential Commercial Total real estate held for sale Other investments and policy loans at amortized cost: Policy loans Insurance assignments Federal Home Loan Bank stock (1) Other investments Less: Allowance for doubtful accounts Total policy loans and other investments Accrued investment income Total investments $ $ $ $ $ $ $ $ $ $ $ $ 9,942,265 9,942,265 $ $ 2,688,375 2,688,375 $ $ (948,114) (948,114) $ $ 11,682,526 11,682,526 93,355,623 172,516,125 46,311,955 (1,746,605) (1,970,311) (342,860) 308,123,927 38,437,960 152,890,656 191,328,616 11,010,029 151,553 11,161,582 13,095,473 46,942,536 2,600,300 9,479,798 (1,609,951) 70,508,156 24 10,299,826 948,963,125 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) Investments (Continued) The Company’s investments as of December 31, 2022 are summarized as follows: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value December 31, 2022: Fixed maturity securities, available for sale, at estimated fair value: U.S. Treasury securities and obligations of U.S. Government agencies $ 93,182,210 $ 180,643 $ (2,685,277) $ 90,677,576 Obligations of states and political subdivisions 6,675,071 13,869 (458,137) 6,230,803 Corporate securities including public utilities 229,141,544 1,909,630 (11,930,773) 219,120,401 Mortgage-backed securities Redeemable preferred stock 33,501,686 168,700 (4,100,674) 29,569,712 250,000 10,000 - 260,000 Total fixed maturity securities available for sale $ 362,750,511 $ 2,282,842 $ (19,174,861) $ 345,858,492 Industrial, miscellaneous and all other 9,942,265 2,688,375 (948,114) 11,682,526 Total equity securities at estimated fair value 9,942,265 2,688,375 (948,114) 11,682,526 $ $ $ $ $ $ Equity securities at estimated fair value: Common stock: Mortgage loans held for investment at amortized cost: Residential Residential construction Commercial Less: Unamortized deferred loan fees, net Less: Allowance for loan losses Less: Net discounts Total mortgage loans held for investment Real estate held for investment - net of accumulated depreciation: Residential Commercial Total real estate held for investment Real estate held for sale: Residential Commercial Total real estate held for sale $ $ $ $ $ $ $ $ 93,355,623 172,516,125 46,311,955 (1,746,605) (1,970,311) (342,860) 308,123,927 38,437,960 152,890,656 191,328,616 11,010,029 151,553 11,161,582 Other investments and policy loans at amortized cost: Policy loans Insurance assignments Federal Home Loan Bank stock (1) Other investments Less: Allowance for doubtful accounts 2) Investments (Continued) $ SECURITY NATIONAL FINANCIAL CORPORATION 13,095,473 AND SUBSIDIARIES 46,942,536 Notes to Consolidated Financial Statements 2,600,300 Years Ended December 31, 2023 and 2022 9,479,798 (1,609,951) Total policy loans and other investments The Company’s investments as of December 31, 2022 are summarized as follows: 70,508,156 $ Accrued investment income Total investments December 31, 2022: Fixed maturity securities, available for sale, at estimated fair value: U.S. Treasury securities and obligations of U.S. Government agencies $ 10,299,826 Amortized Cost 948,963,125 $ Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (1) Includes $938,500 of Membership stock and $1,661,800 of Activity stock due to short-term advances and letters of credit. $ 93,182,210 $ 180,643 $ (2,685,277) $ 90,677,576 Obligations of states and political subdivisions 6,675,071 13,869 (458,137) 6,230,803 Corporate securities including public utilities 229,141,544 1,909,630 (11,930,773) 219,120,401 Mortgage-backed securities Redeemable preferred stock 33,501,686 168,700 (4,100,674) 29,569,712 250,000 10,000 - 260,000 Total fixed maturity securities available for sale $ 362,750,511 $ 2,282,842 $ (19,174,861) $ 345,858,492 Equity securities at estimated fair value: Common stock: Industrial, miscellaneous and all other Total equity securities at estimated fair value Mortgage loans held for investment at amortized cost: Residential Residential construction Commercial Less: Unamortized deferred loan fees, net Less: Allowance for loan losses Less: Net discounts Total mortgage loans held for investment Real estate held for investment - net of accumulated depreciation: Residential Commercial Total real estate held for investment Real estate held for sale: Residential Commercial Total real estate held for sale Other investments and policy loans at amortized cost: Policy loans Insurance assignments Federal Home Loan Bank stock (1) Other investments Less: Allowance for doubtful accounts Total policy loans and other investments Accrued investment income Total investments $ $ $ $ $ $ $ $ $ $ $ $ 9,942,265 9,942,265 $ $ 2,688,375 2,688,375 $ $ (948,114) (948,114) $ $ 11,682,526 11,682,526 93,355,623 172,516,125 46,311,955 (1,746,605) (1,970,311) (342,860) 308,123,927 38,437,960 152,890,656 191,328,616 11,010,029 151,553 11,161,582 13,095,473 46,942,536 2,600,300 9,479,798 (1,609,951) 70,508,156 25 10,299,826 948,963,125 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) 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 December 31, 2023, other than investments issued or guaranteed by the United States Government. Fixed Maturity Securities The table below summarizes unrealized losses on fixed maturities securities available for sale that were carried at estimated fair value as of December 31, 2023 and 2022. The fair values of fixed maturity securities are based on quoted market prices, when 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 tables set forth unrealized losses by duration with the fair value of the related fixed maturity securities. At December 31, 2023 U.S. Treasury securities and obligations of U.S. Government agencies Obligations of states and political subdivisions Corporate securities including public utilities Mortgage and other asset-backed securities Total unrealized losses At December 31, 2022 U.S. Treasury securities and obligations of U.S. Government agencies Obligations of states and political subdivisions Corporate securities including public utilities Mortgage and other asset-backed securities Total unrealized losses Unrealized Losses for Less than Twelve Months Fair Value Unrealized Losses for More than Twelve Months Total Unrealized Loss Fair Value Fair Value $ $ 29,394 11,105 529,660 29,799 599,958 $ 9,436,090 470,325 32,507,773 2,260,445 $ 44,674,633 $ 1,387,054 308,155 6,615,847 4,673,106 $ 12,984,162 $ 70,885,403 5,284,498 107,556,216 22,184,174 $ 205,910,291 $ 1,416,448 319,260 7,145,507 4,702,905 $ 13,584,120 $ 80,321,493 5,754,823 140,063,989 24,444,619 $ 250,584,924 $ 2,685,277 378,067 10,935,114 2,884,731 $ 16,883,189 $ 79,400,753 5,467,910 162,995,969 19,909,907 $ 267,774,539 $ - 80,070 995,659 1,215,943 $ 2,291,672 $ - 429,020 5,781,822 6,978,745 $ 13,189,587 $ 2,685,277 458,137 11,930,773 4,100,674 $ 19,174,861 $ 79,400,753 5,896,930 168,777,791 26,888,652 $ 280,964,126 Relevant holdings were comprised of 606 securities with fair values aggregating 94.9% of the aggregated amortized cost as of December 31, 2023. Relevant holdings were comprised of 713 securities with fair values aggregating 93.6% of the aggregated amortized cost as of December 31, 2022. Credit loss provision (release) of $325,314 and nil have been recognized for 2023 and 2022, respectively. Credit losses are included in gains (losses) on investments and other assets on the condensed consolidated statements of earnings. Other unrealized losses for which no credit loss was recognized are primarily the result of increases in interest rates. 26 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) Investments (Continued) Evaluation of Allowance for Credit Losses See Note 1 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. 27 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) 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 98.2% and 97.7% of its fixed maturity securities rated investment grade as of December 31, 2023 and 2022, respectively. The following table summarizes the credit quality, by NAIC designation, of the Company’s fixed maturity securities available for sale, excluding redeemable preferred stock. NAIC Designation 1 2 3 4 5 6 Total December 31, 2023 December 31, 2022 Amortized Cost 221,933,425 $ 161,062,016 6,418,829 982,290 236,648 1,233 390,634,441 $ $ $ Estimated Fair Value 216,975,288 157,346,803 5,953,542 948,478 51,875 - 381,275,986 $ $ Amortized Cost 197,753,818 $ 156,261,804 7,080,305 1,377,541 25,736 1,307 362,500,511 $ Estimated Fair Value 189,691,540 148,073,873 6,635,786 1,157,454 39,155 684 345,598,492 The following tables presents a roll forward of the Company’s allowance for credit losses on fixed maturity securities available for sale: U.S. Treasury Securities And Obligations of U.S. Government Agencies Year Ended December 31, 2023 Obligations of states and political subdivisions Corporate securities including public utilities Mortgage- backed securities Total Beginning balance - December 31, 2022 $ - $ Additions for credit losses not previously recorded Change in allowance on securities with previous allowance Reductions for securities sold during the period Reductions for securities with credit losses due to intent to sell Write-offs charged against the allowance Recoveries of amounts previously written off Ending Balance - December 31, 2023 $ - - - - - - - $ - - - - - - - - $ - $ - $ - 261,500 57,764 (10,764) - - - 6,049 - - - - - 267,549 57,764 (10,764) - - - $ 308,500 $ 6,049 $ 314,549 28 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) Investments (Continued) The following table presents a roll forward of the Company’s cumulative other than temporary credit impairments (“OTTI”) recognized in earnings on fixed maturity securities available for sale which was required to be presented prior to the adoption of ASU 2016-13: Balance of credit-related OTTI at January 1 Additions for credit impairments recognized on: Securities not previously impaired Securities previously impaired Reductions for credit impairments previously recognized on: Securities that matured or were sold during the period (realized) Securities due to an increase in expected cash flows 2022 $ 264,977 - - (39,502) - Balance of credit-related OTTI at December 31 $ 225,475 The following table presents the amortized cost and estimated fair value of fixed maturity securities available for sale at December 31, 2023, by contractual maturity. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Due in 1 year Due in 2-5 years Due in 5-10 years Due in more than 10 years Mortgage-backed securities Redeemable preferred stock Total Amortized Cost Estimated Fair Value - $ 168,831,608 95,804,878 85,638,077 40,359,878 250,000 390,884,441 $ - 166,186,132 95,031,727 83,900,556 36,157,571 260,000 381,535,986 $ $ Information regarding sales of fixed maturity securities available for sale is presented as follows. Proceeds from sales Gross realized gains Gross realized losses Years Ended December 31, 2022 2023 $ 2,557,074 $ 11,508 (57,861) 3,091,105 24,281 (32,976) 29 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) 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: Fixed maturity securities available for sale at estimated fair value Other investments Cash and cash equivalents Total assets on deposit Years Ended December 31, 2022 2023 $ $ 6,206,650 $ 400,000 1,909,215 8,515,865 $ 8,817,959 - 2,214,206 11,032,165 Assets held in trust related to third-party reinsurance agreements were as follows: Fixed maturity securities available for sale at estimated fair value Cash and cash equivalents Total assets on deposit Years Ended December 31, 2022 2023 $ $ 27,903,952 $ 2,101,052 30,005,004 $ 27,955,297 1,866,453 29,821,750 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. See Note 7 of the Notes to the Consolidated Financial Statements for more information about the FHLB. Fixed maturity securities available for sale at estimated fair value Total assets pledged as collateral Real Estate Held for Investment and Held for Sale Years Ended December 31, 2022 2023 $ $ 93,903,089 $ 93,903,089 $ 93,034,880 93,034,880 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 segments in the form of acquisition, development, and mortgage foreclosures. The Company reports real estate held for investment and held for sale pursuant to the accounting policy discussed in Note 1 of the Notes to Consolidated Financial Statements. Commercial Real Estate Held for Investment and Held for Sale The Company owns and manages commercial real estate assets as a means of generating investment income. These assets are acquired in accordance with the Company’s goals and objectives for risk-adjusted returns. Due diligence is conducted on each asset using internal and third-party resources. The geographic locations and asset classes of investments are determined by senior management under the direction of the Board of Directors. 30 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) 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 nine commercial properties in three 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 $124,381,467 and $129,330,119 as of December 31, 2023 and 2022, respectively. The associated bank loan carrying values totaled $97,807,614 and $97,112,131 as of December 31, 2023 and 2022, respectively. During 2023 and 2022, the Company did not record any impairment losses on commercial real estate held for investment or held for sale. Impairment losses, if any, are included in gains (losses) on investments and other assets on the consolidated statements of earnings. During 2023 and 2022, the Company recorded depreciation expense on commercial real estate held for investment of $6,278,828 and $6,090,575, 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: Net Book Value December 31, Total Square Footage December 31, 2023 2022 $142,475,177 $147,627,946 2,380,847 2,881,863 19,250 - 2023 625,920 1,622 - 2022 625,920 31,778 19,694 $142,494,427 $152,890,656 627,542 677,392 Utah (1) Louisiana Mississippi (2) (1) Includes Center53 (2) This property was moved to held for sale Operating leases arise from the leasing of the Company’s commercial real estate held for investment. Initial lease terms generally range from three to ten years. 31 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) Investments (Continued) The following is a maturity analysis of the annual undiscounted cash flows of the operating lease payments expected to be received. 2024 2025 2026 2027 2028 Thereafter Total $ $ 11,816,339 11,843,124 10,695,017 9,198,450 9,009,534 46,371,762 98,934,226 The Company’s commercial real estate held for sale is summarized as follows: Mississippi (1) Net Book Value December 31, Total Square Footage December 31, 2023 3,028,973 3,028,973 $ $ $ $ 2022 2023 2022 151,553 151,553 19,694 19,694 - - (1) Consists of approximately 93 acres of undeveloped land for $151,553 for 2023 and 2022. The remaining property for $2,877,420 was sold in February 2024 for a gain of approximately $250,000. These properties are 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 2023 and 2022, the Company recorded impairment losses on residential real estate held for sale of nil and $94,000, respectively. Impairment losses, if any, are included in gains (losses) on investments and other assets on the consolidated statements of earnings. During 2023 and 2022, the Company recorded depreciation expense on residential real estate held for investment of $10,592 and $10,592, respectively. Residential real estate held for investment is stated at cost and is depreciated over the estimated useful life, primarily using the straight-line method. Depreciation is included in net investment income on the consolidated statements of earnings. 32 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) Investments (Continued) The Company’s residential real estate held for investment is summarized as follows: Utah (1) Net Book Value December 31, 2023 2022 $ 40,924,865 $ 38,437,960 $ 40,924,865 $ 38,437,960 (1) Includes multiple residential subdivision development projects The following table presents additional information regarding the Company’s residential subdivision development in Utah. Lots available for sale Lots to be developed Ending Balance December 31, 2023 42 1,145 40,739,201 $ 2022 80 1,131 38,241,705 $ The Company’s residential real estate held for sale is summarized as follows: Net Book Value December 31, 2023 2022 - $ 11,010,029(1) - $ 11,010,029 $ $ Utah (1) All sold in 2023 The net book value of foreclosed residential real estate included in residential real estate held for investment or sale was nil and $11,010,029 as of December 31, 2023 and 2022, respectively. 33 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) Investments (Continued) Real Estate Owned and Occupied by the Company The primary business units of the Company occupy a portion of the commercial real estate owned by the Company. As of December 31, 2023, real estate owned and occupied by the Company is summarized as follows: Approximate Square Footage Square Footage Occupied by the Company 221,000 19,694 12,274 8,059 1,560 1,737 50% 28% 100% 100% 100% 100% Location 433 Ascension Way, Floors 4, 5 and 6, Salt Lake City, UT - Center53 Building 2 (1) 1044 River Oaks Dr., Flowood, MS (1) (3) 1818 Marshall Street, Shreveport, LA (2) 909 Foisy Street, Alexandria, LA (2) (4) 812 Sheppard Street, Minden, LA (2) (5) 1550 N 3rd Street, Jena, LA (2) (3) Business Segment Corporate Offices, Life Insurance, Cemetery/Mortuary Operations, and Mortgage Operations and Sales Life Insurance Operations Life Insurance Operations Life Insurance Sales Life Insurance Sales Life Insurance Sales (1) Included in real estate held for investment on the consolidated balance sheets (2) Included in property and equipment on the consolidated balance sheets (3) Listed for sale and sold during the first quarter of 2024 (4) Listed for sale and currently under contract (5) Listed for sale Mortgage Loans Held for Investment The Company reports mortgage loans held for investment pursuant to the accounting policy discussed in Note 1 of the Notes to Consolidated Financial Statements. Concentrations of credit risk arise when several mortgage loan debtors have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. Although the Company has a diversified mortgage loan portfolio consisting of residential mortgages, commercial loans and residential construction loans and requires collateral on all real estate exposures, a substantial portion of the relevant debtors’ ability to honor obligations is dependent upon the economic stability of the geographic region in which the debtors do business or are employed. As of December 31, 2023, the Company had 44%, 11%, 10%, 7% and 6%, of its mortgage loans from borrowers located in the states of Utah, Florida, California, Texas, and Arizona, respectively. As of December 31, 2022, the Company had 64%, 10%, 5% and 5% of its mortgage loans from borrowers located in the states of Utah, Florida, California, and Texas, respectively. Evaluation of Allowance for Credit Losses See Note 1 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. 34 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) Investments (Continued) 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 $237,000 and $226,000 as of December 31, 2023 and 2022, 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. 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. 35 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) Investments (Continued) Residential construction mortgage loans are evaluated for credit loss by considering historical activity and current housing market trends to arrive at a per loan basis point allowance that is recognized at loan origination and for subsequent draws. The per loan basis point is reviewed at least annually or as loan losses or market trends require. The following table presents a roll forward of the allowance for credit losses as of the dates indicated: December 31, 2023 Allowance for credit losses: Beginning balance - January 1, 2023 Adoption of ASU 2016-13 (1) Change in provision for credit losses (2) Charge-offs Ending balance - December 31, 2023 December 31, 2022 Allowance for credit losses: Beginning balance - January 1, 2022 Change in provision for credit losses (2) Charge-offs Ending balance - December 31, 2022 Commercial Residential Residential Construction Total $ $ $ $ 187,129 555,807 476,717 - 1,219,653 187,129 - - 187,129 $ $ $ $ 1,739,980 (192,607) 843,521 - 2,390,894 1,469,571 270,409 - 1,739,980 $ $ $ $ 43,202 301,830 (136,926) - 208,106 43,202 - - 43,202 $ $ $ $ 1,970,311 665,030 1,183,312 - 3,818,653 1,699,902 270,409 - 1,970,311 (1) See Note 1 of the notes to the consolidated financial statements (2) Included in other expenses on the consolidated statements of earnings 36 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) Investments (Continued) The following table presents the aging of mortgage loans held for investment by loan type. December 31, 2023 30-59 days past due 60-89 days past due Over 90 days past due (1) In process of foreclosure (1) Total past due Current Total mortgage loans Allowance for credit losses Unamortized deferred loan fees, net Unamortized discounts, net Net mortgage loans held for investment December 31, 2022 30-59 days past due 60-89 days past due Over 90 days past due (1) In process of foreclosure (1) Total past due Current Total mortgage loans Allowance for credit losses Unamortized deferred loan fees, net Unamortized discounts, net Net mortgage loans held for investment Commercial Residential Residential Construction $ $ $ $ - - 405,000 1,241,508 1,646,508 72,530,030 74,176,538 (1,219,653) (172,989) (216,705) 72,567,191 1,000,000 - - 405,000 1,405,000 44,906,955 46,311,955 (187,129) (199,765) (230,987) 45,694,074 $ $ $ $ 3,387,673 3,472,760 3,480,931 1,021,790 11,363,154 91,790,433 103,153,587 (2,390,894) (1,135,491) (107,452) 99,519,750 3,553,390 814,184 1,286,211 876,174 6,529,959 86,825,664 93,355,623 (1,739,980) (1,212,994) (111,873) 90,290,776 $ $ $ $ - - - - - 104,052,748 104,052,748 (208,106) (314,746) - 103,529,896 - - - - - 172,516,125 172,516,125 (43,202) (333,846) - 172,139,077 $ $ $ $ Total 3,387,673 3,472,760 3,885,931 2,263,298 13,009,662 268,373,211 281,382,873 (3,818,653) (1,623,226) (324,157) 275,616,837 4,553,390 814,184 1,286,211 1,281,174 7,934,959 304,248,744 312,183,703 (1,970,311) (1,746,605) (342,860) 308,123,927 (1) Interest income is not recognized on loans which are more than 90 days past due or in foreclosure. 37 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) Investments (Continued) Credit Quality Indicators The Company evaluates and monitors the credit quality of its commercial loans by analyzing LTV and DSCR. Monitoring a commercial mortgage loan increases when the loan is delinquent or earlier if there is an indication of impairment. 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% 65% to 80% Greater than 80% Total DSCR >1.20x 1.00x - 1.20x <1.00x Total $ 34,304,954 1,523,926 - $ 13,555,737 5,115,231 - $ 3,778,248 1,050,000 405,000 $ - 4,913,313 - $ 2,964,740 - - $ 6,565,389 - - $ 61,169,068 12,602,470 405,000 82.46% 16.99% 0.55% $ 35,828,880 $ 18,670,968 $ 5,233,248 $ 4,913,313 $ 2,964,740 $ 6,565,389 $ 74,176,538 100.00% $ 20,990,000 8,338,880 6,500,000 $ 1,000,000 8,496,127 9,174,841(1) $ 700,000 3,483,248 1,050,000 $ 4,913,313 - - $ 2,964,740 - - $ 2,612,625 3,952,764 - $ 33,180,678 24,271,019 16,724,841 44.73% 32.72% 22.55% $ 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 38 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) 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 December 31, 2023: Credit Quality Indicator 2023 2022 2021 2020 2019 Prior Total % of Total Performance Indicators: Performing Non-performing (1) $ 15,337,828 - $ 53,875,389 2,202,114 $ 7,156,934 365,061 $ 7,453,796 613,101 $ 2,786,562 - $ 12,040,357 1,322,445 $ 98,650,866 4,502,721 95.63% 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% 65% to 80% Greater than 80% $ 3,280,144 10,962,770 1,094,914 $ 7,049,522 44,371,320 4,656,661 $ 1,843,286 4,269,894 1,408,815 $ 1,746,970 4,222,170 2,097,757 $ 446,675 2,339,887 - $ 5,206,095 5,711,440 2,445,267 $ 19,572,692 71,877,481 11,703,414 18.97% 69.68% 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% 39 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) 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 December 31, 2023: Credit Quality Indicator 2023 2022 2021 Total % of Total Performance Indicators: Performing Non-performing Total LTV: Less than 65% 65% to 80% Greater than 80% Total Principal Amounts Due $ $ $ 60,311,679 - 60,311,679 40,215,360 20,096,319 - $ $ $ 16,624,182 - 16,624,182 8,732,500 7,891,682 - $ $ $ 27,116,887 - $ 104,052,748 - 27,116,887 $ 104,052,748 20,442,302 6,674,585 - $ 69,390,162 34,662,586 - 100.00% 0.00% 100.00% 66.69% 33.31% 0.00% $ 60,311,679 $ 16,624,182 $ 27,116,887 $ 104,052,748 100.00% The following table presents the amortized cost and contractual payments on mortgage loans held for investment by category as of December 31, 2023. Expected principal payments may differ from contractual obligations because certain borrowers may elect to pay off mortgage obligations with or without early payment penalties. Residential Residential Construction Commercial Total Total 103,153,587 104,052,748 74,176,538 281,382,873 $ $ $ $ Principal Amounts Due in 1 Year Principal Amounts Due in 2-5 Years Principal Amounts Due Thereafter 2,554,380 88,880,893 39,562,489 130,997,762 $ $ 9,231,545 15,171,855 19,457,975 43,861,375 $ $ 91,367,662 - 15,156,074 106,523,736 40 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) 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: 30-59 days past due 60-89 days past due Over 90 days past due Total past due Current Total insurance assignments Allowance for credit losses Net insurance assignments Years Ended December 31, 2022 2023 10,621,443 10,829,629 $ 3,997,484 3,709,754 5,813,013 4,329,468 20,431,941 18,868,851 26,510,594 26,736,471 46,942,536 45,605,322 (1,609,951) (1,553,836) 45,332,585 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 1 regarding the adoption of ASU 2016-13. The following table presents a roll forward of the allowance for credit losses for insurance assignments: Beginning balance - January 1, 2023 Change in provision for credit losses (1) Charge-offs Ending balance - December 31, 2023 Beginning balance - January 1, 2022 Change in provision for credit losses (1) Charge-offs Ending balance - December 31, 2022 (1) Included in other expenses on the consolidated statements of earnings Allowance 1,609,951 891,959 (948,074) 1,553,836 1,686,218 889,480 (965,747) 1,609,951 $ $ $ $ 41 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) Investments (Continued) Investment Related Earnings The following table presents the net realized gains and losses from sales, calls, and maturities, unrealized gains and losses on equity securities from investments and other assets. Fixed maturity securities available for sale: Gross realized gains Gross realized losses Net credit loss (provision) release Equity securities: Gains (losses) on securities sold Unrealized gains (losses) on securities held at the end of the period Real estate held for investment and sale: Gross realized gains Gross realized losses Other assets, including call and put option derivatives: Gross realized gains Gross realized losses Total Years Ended December 31 2023 2022 $ 67,686 (106,760) (325,314) 205,949 (43,776) - 254,917 (10,519) 1,782,219 (2,109,556) 197,194 (71,792) 1,239,332 (825,593) 214,349 (175,157) 1,837,342 $ 686,703 - (857,460) $ $ The net realized gains and losses on the sale of securities are recorded on the trade date, and the cost of the securities sold is determined using the specific identification method. 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 $730,000 in net gains and $817,000 in net losses for 2023 and 2022, respectively. 42 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 2) Investments (Continued) Major categories of net investment income were as follows: Fixed maturity securities available for sale Equity securities Mortgage loans held for investment Real estate held for investment and sale Policy loans Insurance assignments Other investments Cash and cash equivalents Gross investment income Investment expenses Net investment income Years Ended December 31 2023 2022 $ $ 16,871,558 $ 616,989 33,242,094 14,786,017 816,711 18,118,391 617,420 4,250,029 89,319,209 (16,976,162) 72,343,047 $ 12,395,764 511,118 34,949,763 14,563,269 932,362 18,112,840 518,865 1,666,945 83,650,926 (17,453,334) 66,197,592 Net investment income includes income earned by the restricted assets and cemetery perpetual care trust investments of the cemeteries and mortuaries of $2,365,378 and $2,404,277 for 2023 and 2022, respectively. 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: Fixed maturity securities available for sale Equity securities Mortgage loans held for investment Real estate held for investment Policy Loans Cash and cash equivalents Total accrued investment income 3) Loans Held for Sale Years Ended December 31, 2023 2022 3,984,695 $ 20,451 2,661,092 3,486,115 - 18,437 10,170,790 $ 3,563,767 14,496 3,220,709 3,455,305 37,951 7,598 10,299,826 $ $ 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 consolidated statement of earnings. Included in loans held for sale are loans in the process of foreclosure with an aggregate unpaid principal balance of $1,636,090 and nil as of December 31, 2023 and 2022, respectively. See Note 17 of the Notes to Consolidated Financial Statements for additional disclosures regarding loans held for sale. 43 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 3) Loans Held for Sale (Continued) The following table presents the aggregate fair value and the aggregate unpaid principal balance of loans held for sale. Aggregate fair value Unpaid principal balance Unrealized loss Mortgage Fee Income December 31, $ 2023 126,549,190 127,185,867 (636,677) $ 2022 141,179,620 141,337,811 (158,191) 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: Loan fees Interest income Secondary gains Change in fair value of loan commitments Change in fair value of loans held for sale Provision for loan loss reserve Mortgage fee income Years Ended December 31 2023 2022 21,724,456 $ 9,547,741 68,505,014 (1,123,615) (478,460) (27,164) 98,147,972 $ 24,184,972 9,666,149 153,870,807(1) (4,308,638) (8,834,797) (1,078,812) 173,499,681 $ $ (1) Includes a net gain of $34,051,938 for the sale of mortgage servicing rights 44 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 3) Loans Held for Sale (Continued) 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: Beginning Balance Provision for current loan originations (1) Charge-offs, net of recaptured amounts Ending Balance (1) Included in Mortgage fee income December 31, 2023 2022 1,725,667 27,164 (1,205,598) 547,233 $ $ 2,447,139 1,078,812 (1,800,284) 1,725,667 $ $ The Company maintains reserves for estimated losses on current production volumes. For 2023, $27,164 in reserves were added at a rate of 4.3 basis points per loan, the equivalent of $430 per $1,000,000 in loans originated. This is a decrease over 2022, when $1,078,812 in reserves were added at a rate of 3.19 basis points per loan originated, the equivalent of $319 per $1,000,000 in loans originated. The Company monitors market data and trends, economic conditions (including forecasts) and its own experience to maintain adequate loss reserves on current production. 45 4) Receivables Receivables consist of the following: Contracts with customers Receivables from sales agents Other Total receivables Allowance for credit losses Net receivables SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 December 31, 2023 2022 $ $ 6,321,573 3,252,840 7,658,789 17,233,202 (1,897,887) 15,335,315 $ $ 5,392,779 2,209,185 23,200,919 30,802,883 (2,229,791) 28,573,092 The Company records an allowance for credit losses for its receivables in accordance with GAAP. See Note 1 regarding the adoption of ASU 2016-13. The following table presents a roll forward of the allowance for credit losses: Beginning balance - January 1, 2023 Change in provision for credit losses (1) Charge-offs Ending balance - December 31, 2023 Beginning balance - January 1, 2022 Change in provision for credit losses (1) Charge-offs Ending balance - December 31, 2022 (1) Included in other expenses on the condensed consolidated statements of earnings Allowance 2,229,791 (110,935) (220,969) 1,897,887 1,800,725 799,888 (370,822) 2,229,791 $ $ $ $ 46 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 5) Value of Business Acquired, Goodwill and Other Intangible Assets Information regarding value of business acquired was as follows: Balance at beginning of year Value of business acquired Imputed interest at 7% included in earnings Amortization included in earnings Shadow amortization included in other comprehensive income Net amortization Balance at end of year December 31, 2023 2022 9,803,736 - 626,666(1) (1,926,668)(1) (36,121) (1,336,123) 8,467,613 $ $ 8,421,432 2,136,085 642,919(1) (1,907,250)(1) 510,550 (753,781) 9,803,736 $ $ (1) Included in Amortization of deferred policy and pre-need acquisition costs and value of business acquired on the consolidated statements of earnings Presuming no additional acquisitions, net amortization charged to income is expected to approximate the following: 2024 2025 2026 2027 2028 Thereafter Total $ $ 1,219,496 1,112,965 1,030,635 957,074 833,216 3,314,227 8,467,613 Actual amortization may vary based on changes in assumptions or experience. As of December 31, 2023, value of business acquired is being amortized over a weighted average life of 5.1 years. 47 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 5) Value of Business Acquired, Goodwill and Other Intangible Assets (Continued) Information regarding goodwill by segment was as follows: Balance at January 1, 2022: Goodwill Accumulated impairment Total goodwill, net Acquisition Balance at December 31, 2022: Goodwill Accumulated impairment Total goodwill, net Acquisition Balance at December 31, 2023: Goodwill Accumulated impairment Total goodwill, net Life Insurance Cemetery/ Mortuary Total $ 2,765,570 - 2,765,570 $ 2,488,213 - 2,488,213 5,253,783 - 5,253,783 - - - 2,765,570 - 2,765,570 2,488,213 - 2,488,213 5,253,783 - 5,253,783 - - - 2,765,570 - 2,765,570 $ 2,488,213 - 2,488,213 $ 5,253,783 - 5,253,783 $ $ Goodwill is not amortized but is tested annually for impairment. The annual impairment tests resulted in no impairment of goodwill for 2023 and 2022. 48 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 5) Value of Business Acquired, Goodwill and Other Intangible Assets (Continued) The carrying value of the Company’s other intangible assets were as follows which is included in other assets: Useful Life 15 years 15 years 15 years 15 years December 31, 2023 2022 $ $ 2,100,000 210,000 610,000 890,000 (807,333) 3,002,667 $ $ 2,100,000 210,000 610,000 890,000 (553,333) 3,256,667 Intangible asset - trade name (1) Intangible assets - other (1) Intangible asset - trade name (2) Intangible asset - customer lists (3) Less accumulated amortization Balance at end of year (1) Rivera Funerals, Cremations and Memorial Gardens (2) Kilpatrick Life (3) Beta Capital Corp Amortization expense for 2023 and 2022 was $254,000 and $256,000, respectively, and is included in other expenses on the consolidated statements of earnings. The following table summarizes the Company’s estimate of future amortization for the other intangible assets: 2024 2025 2026 2027 2028 Thereafter Total $ $ 254,000 254,000 254,000 254,000 254,000 1,732,667 3,002,667 49 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 6) Property and Equipment Property and equipment is summarized below: Land and buildings Furniture and equipment Less accumulated depreciation Total December 31, 2023 16,567,819 $ 16,315,061 32,882,880 (13,707,781) 19,175,099 $ 2022 16,545,799 17,567,906 34,113,705 (13,534,056) 20,579,649 $ $ Depreciation expense for 2023 and 2022 was $2,351,661 and $2,496,906, respectively. Property and equipment are stated at cost and are depreciated over their estimated useful lives, primarily using the straight-line method. The Company recognized an impairment loss of $122,229 in 2023 on a property held by the life segment. This property is listed for sale and currently under contract. Impairment losses are included in gains (losses) on the consolidated statements of earnings. 50 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 7) Bank and Other Loans Payable Bank and other loans payable are summarized as follows: Prime rate note payable in monthly installments of $75,108 including principal and interest, collateralized by shares of Security National Life Insurance Company stock, paid in full in June 2023. 3.85% fixed note payable in monthly installments of $243,781 including principal and interest, collateralized by real property with a book value of approximately $62,977,000, due June 2032. 3.30% fixed note payable in monthly installments of $179,562 including principal and interest, collateralized by real property with a book value of approximately $44,811,000, due April 2031. December 31, 2023 2022 $ - $ 1,690,892 50,129,255 48,613,833 38,478,359 39,298,298 4.7865% fixed interest only note payable in monthly installments, collateralized by real property with a book value of approximately $16,594,000, due June 2028. 9,200,000 9,200,000 1 month SOFR rate plus 2.1% loan purchase agreement with a warehouse line availability of $100,000,000, expired December 2023 due to the lender exiting the market place. 1 month SOFR rate plus 2% loan purchase agreement with a warehouse line availability of $100,000,000, matures November 2024. 1 month SOFR rate plus 2.5% loan purchase agreement with a warehouse line availability of $75,000,000, expired December 2023 due to the lender exiting the market place. 1 month SOFR rate plus 2.1% loan purchase agreement with a warehouse line availability of $15,000,000, matures May 2024. Finance lease liabilities Total bank and other loans - 17,978,527 114,518 29,768,762 - 15,131,410 7,617,455 15,550 - 31,082 105,555,137 161,712,804 Less current installments Bank and other loans, excluding current installments $ (9,543,052) 96,012,085 $ (65,560,608) 96,152,196 51 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 7) Bank and Other Loans Payable (Continued) Sources of Liquidity Federal Home Loan Bank Membership The Federal Home Loan Banks (“the FHLBs”) are a group of cooperatives that lending institutions use to finance housing and economic development in local communities. The Company is a member of the FHLB based in Des Moines, Iowa and based in Dallas, Texas. As a member of the FHLB, the Company is required to maintain a minimum investment in capital stock of the FHLB and may pledge collateral to the bank for advances of funds to be used in its operations. Federal Home Loan Bank of Des Moines As of December 31, 2023, the amount available for borrowings from the FHLB of Des Moines was approximately $77,324,238, compared with $80,312,445 as of December 31, 2022. United States Treasury fixed maturity securities with an estimated fair value of $88,400,026 as of December 31, 2023 have been pledged at the FHLB of Des Moines as collateral for current and potential borrowings compared with $86,338,880 at December 31, 2022. As of December 31, 2023 and 2022, the Company had no outstanding FHLB borrowings. As of December 31, 2023, the Company’s total investment in FHLB stock was $453,600 compared with $856,800 as of December 31, 2022. As of December 31, 2023, the Company was contingently liable under standby letters of credit aggregating $5,823,496. These letters of credit are to be used to cover any contingency related to additional risk assessments pertaining to the Company’s captive insurance program for $443,758 and for bonding of residential land development for $5,379,738. Federal Home Loan Bank of Dallas As of December 31, 2023, the amount available for borrowings from the FHLB of Dallas was approximately $5,104,610, compared with $5,719,671 as of December 31, 2022. Mortgage-Backed fixed maturity securities with an estimated fair value of $5,503,063 as of December 31, 2023 have been pledged at the FHLB of Dallas as collateral for current and potential borrowings compared with $6,696,100 at December 31, 2022. As of December 31, 2023 and 2022, the Company had no outstanding FHLB borrowings. As of December 31, 2023, the Company’s total investment in FHLB stock was $1,826,200 compared with $1,743,500 as of December 31, 2022. Revolving Lines of Credit The Company has a $2,000,000 revolving line-of-credit with a bank with interest payable at the Prime rate plus 0.75% with a 3% prime floor, secured by the capital stock of Security National Life and maturing March 31, 2024, renewable annually. As of December 31, 2023, the Company was contingently liable under standby letters of credit aggregating $38,290, to be used as collateral for residential subdivision land development. The standby letters of credit will draw on the line of credit if necessary. The Company does not expect any material losses to result from the issuance of the standby letters of credit. As of December 31, 2023, there were no amounts outstanding under the revolving line-of-credit. The Company also has a $2,500,000 revolving line-of-credit with a bank with interest payable at the daily simple SOFR plus 2.35%, which includes a mandatory .10% credit spread adjustment, maturing March 31, 2024. As of December 31, 2023, the Company was contingently liable under standby letters of credit aggregating $1,250,000, to be used as collateral for SecurityNational Mortgage’s state licensing. The standby letters of credit will draw on the line of credit if necessary. The Company does not expect any material losses to result from the issuance of the standby letters of credit. As of December 31, 2023, there were no amounts outstanding under the revolving line-of-credit. 52 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 7) Bank and Other Loans Payable (Continued) Debt Covenants for Mortgage Warehouse Lines of Credit The Company, through its subsidiary 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 May 26, 2024. The Company is required to comply with covenants for adjusted tangible net worth, unrestricted cash balance, and minimum combined pre-tax income (excluding any changes in the fair value of mortgage servicing rights) of at least $1.00 on a rolling twelve months. 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 December 31, 2023, the Company was not in compliance with the net income covenant of the warehouse lines of credit and its operating cash flow covenant for its standby letter of credit with its primary bank. SecurityNational Mortgage has received or is in the process of receiving waivers under the warehouse lines of credit from the warehouse banks. In the unlikely event the Company is required to repay the outstanding advances of approximately $7,732,000 on the warehouse line of credit that has not provided a covenant waiver, the Company has sufficient cash and borrowing capacity on the warehouse lines of credit that have provided covenant waivers to fund its origination activities. The Company has performed an internal analysis of its funding capacities of both internal and external sources and has determined that there are sufficient funds to continue its business model. The Company continues to negotiate other warehouse lines of credit with other lenders. 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 December 31, 2023, the Company was in compliance with all these debt covenants. 53 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 7) Bank and Other Loans Payable (Continued) The following tabulation shows the combined maturities of bank and other loans payable: 2024 2025 2026 2027 2028 Thereafter Total $ $ 9,543,052 1,881,631 1,952,430 2,026,547 11,296,737 78,854,740 105,555,137 Interest expense in 2023 and 2022 was $4,865,327 and $7,830,443, respectively. 54 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 8) 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 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 Obligations of states and political subdivisions Corporate securities including public utilities Total fixed maturity securities available for sale Equity securities at estimated fair value: Common stock: Industrial, miscellaneous and all other Total equity securities at estimated fair value Mortgage loans held for investment at amortized cost: Residential construction Less: Allowance for credit losses Total mortgage loans held for investment Cash and cash equivalents Total cemetery perpetual care trust investments Cemetery perpetual care obligation Trust investments in excess of trust obligations $ $ $ $ $ $ $ $ $ $ $ 477,797 115,792 53,672 $ 302 - - $ (574) (5,114) (171) 477,525 110,678 53,501 647,261 $ 302 $ (5,859) $ 641,704 3,614,392 3,614,392 $ $ 859,680 859,680 $ $ (146,771) $ (146,771) $ 4,327,301 4,327,301 247,360 (495) 246,865 2,867,047 8,082,917 (5,326,196) 2,756,721 55 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 8) Cemetery Perpetual Care Trust Investments and Obligation and Restricted Assets (Continued) The components of the cemetery perpetual care investments and obligation as of December 31, 2022 are as follows: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value December 31, 2022: Fixed maturity securities, available for sale, at estimated fair value: U.S. Treasury securities and obligations of U.S. Government agencies Obligations of states and political subdivisions Total fixed maturity securities available for sale Equity securities at estimated fair value: Common stock: Industrial, miscellaneous and all other Total equity securities at estimated fair value Mortgage loans held for investment at amortized cost: Residential construction Real estate held for investment: Residential Cash and cash equivalents Total cemetery perpetual care trust investments Cemetery perpetual care obligation Trust investments in excess of trust obligations Fixed Maturity Securities $ $ $ $ $ $ $ $ $ $ 89,004 174,201 263,205 3,195,942 3,195,942 $ $ $ $ 42 - 42 584,383 584,383 $ $ $ $ (38) (8,478) $ 89,008 165,723 (8,516) $ 254,731 (175,163) $ (175,163) $ 3,605,162 3,605,162 1,506,517 (16,178) 1,925,978 7,276,210 (5,099,542) 2,176,668 The table below summarizes unrealized losses on fixed maturity securities available for sale that were carried at estimated fair value as of December 31, 2023 and 2022. The unrealized losses were primarily related to interest rate fluctuations. The tables set forth unrealized losses by duration with the fair value of the related fixed maturity securities: At December 31, 2023 U.S. Treasury securities and obligations of U.S. Government agencies Obligations of states and political subdivisions Corporate securities including public utilities Total unrealized losses At December 31, 2022 U.S. Treasury securities and obligations of U.S. Government agencies Obligations of states and political subdivisions Total unrealized losses Unrealized Losses for Less than Twelve Months Fair Value Unrealized Losses for More than Twelve Months Fair Value Total Unrealized Loss Fair Value $ $ $ $ 574 - - 574 $143,448 - - $143,448 38 1,845 1,883 $ 59,392 94,612 $154,004 $ $ $ $ - 5,114 171 5,285 $ - 110,678 53,501 $164,179 - 6,633 6,633 $ - 71,112 $ 71,112 $ $ $ $ 574 5,114 171 5,859 $143,448 110,678 53,501 $307,627 38 8,478 8,516 $ 59,392 165,724 $ 225,116 Relevant holdings were comprised of four securities with fair values aggregating 98.1% of aggregate amortized cost as of December 31, 2023. There were 56 five securities with fair values aggregating 96.4% of aggregate amortized cost as of December 31, 2022. No credit losses have been recognized for 2023 and 2022, since the increase in unrealized losses is primarily a result of increases in interest rates. See Note 2 for additional information regarding the Company’s evaluation of the allowance for credit losses for fixed maturity securities available for sale. SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 8) Cemetery Perpetual Care Trust Investments and Obligation and Restricted Assets (Continued) The components of the cemetery perpetual care investments and obligation as of December 31, 2022 are as follows: Amortized Cost Gains Losses Value Gross Unrealized Gross Unrealized Estimated Fair (38) $ (8,478) 89,008 165,723 (8,516) $ 254,731 89,004 174,201 263,205 $ $ $ $ 42 - 42 $ $ $ $ 3,195,942 3,195,942 584,383 584,383 (175,163) $ (175,163) $ 3,605,162 3,605,162 December 31, 2022: estimated fair value: Fixed maturity securities, available for sale, at U.S. Treasury securities and obligations of U.S. Government agencies Obligations of states and political subdivisions Total fixed maturity securities available for sale Equity securities at estimated fair value: Common stock: Industrial, miscellaneous and all other Total equity securities at estimated fair value Mortgage loans held for investment at amortized cost: Residential construction Real estate held for investment: Residential Cash and cash equivalents Total cemetery perpetual care trust investments Cemetery perpetual care obligation Trust investments in excess of trust obligations Fixed Maturity Securities $ $ $ $ $ $ $ $ $ $ 1,506,517 (16,178) 1,925,978 7,276,210 (5,099,542) 2,176,668 The table below summarizes unrealized losses on fixed maturity securities available for sale that were carried at estimated fair value as of December 31, 2023 and 2022. The unrealized losses were primarily related to interest rate fluctuations. The tables set forth unrealized losses by duration with the fair value of the related fixed maturity securities: At December 31, 2023 Government agencies U.S. Treasury securities and obligations of U.S. Obligations of states and political subdivisions Corporate securities including public utilities Total unrealized losses Unrealized Losses for Less than Twelve Months Fair Value Unrealized Losses for More than Twelve Months Fair Value Unrealized Total Loss Fair Value $ $ 574 - - 574 $143,448 - - $143,448 $ $ - $ - $ 5,114 171 5,285 110,678 53,501 $164,179 $ 574 5,114 171 5,859 $143,448 110,678 53,501 $307,627 At December 31, 2022 U.S. Treasury securities and obligations of U.S. - Government agencies 6,633 Obligations of states and political subdivisions Total unrealized losses 6,633 8) Cemetery Perpetual Care Trust Investments and Obligation and Restricted Assets (Continued) SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements $ 59,392 Years Ended December 31, 2023 and 2022 94,612 $154,004 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Relevant holdings were comprised of four securities with fair values aggregating 98.1% of aggregate amortized cost as of December 31, 2023. There were Notes to Consolidated Financial Statements The table below presents the amortized cost and estimated fair value of fixed maturity securities available for sale as of December 31, 2023, by contractual five securities with fair values aggregating 96.4% of aggregate amortized cost as of December 31, 2022. No credit losses have been recognized for 2023 Years Ended December 31, 2023 and 2022 maturity. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or and 2022, since the increase in unrealized losses is primarily a result of increases in interest rates. See Note 2 for additional information regarding the without call or prepayment penalties. Company’s evaluation of the allowance for credit losses for fixed maturity securities available for sale. 8) Cemetery Perpetual Care Trust Investments and Obligation and Restricted Assets (Continued) - 71,112 $ 71,112 $ 59,392 165,724 $ 225,116 38 1,845 1,883 38 8,478 8,516 $ $ $ $ $ $ $ Amortized The table below presents the amortized cost and estimated fair value of fixed maturity securities available for sale as of December 31, 2023, by contractual Cost maturity. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or Due in 1 year without call or prepayment penalties. Due in 2-5 years Due in 5-10 years Due in more than 10 years Estimated Fair Value $ Total Due in 1 year Due in 2-5 years Restricted Assets Due in 5-10 years Due in more than 10 years 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. Total $ Amortized Cost Estimated Fair Value $ $ 333,775 $ 259,814 - 53,672 647,261 $ 333,775 $ 259,814 - 53,672 647,261 $ 334,077 254,126 - 53,501 641,704 334,077 254,126 - 53,501 641,704 Restricted Assets 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. The Company has also established certain restricted assets to provide for future merchandise and service obligations incurred in connection with its pre- 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 need sales for its cemetery and mortuary segment. restricted cash. These restricted cash items are for the Company’s life insurance and mortgage segments. Restricted cash also represents escrows held for borrowers and investors under servicing and appraisal agreements relating to mortgage loans, funds held by Restricted assets as of December 31, 2023 are summarized as follows: 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. December 31, 2023: Restricted assets as of December 31, 2023 are summarized as follows: Fixed maturity securities, available for sale, at estimated fair value: Gross Unrealized Losses Gross Unrealized Gains Estimated Fair Value Amortized Cost December 31, 2023: Fixed maturity securities, available for sale, at estimated fair value: U.S. Treasury securities and obligations of U.S. Government agencies Obligations of states and political subdivisions Corporate securities including public utilities Total fixed maturity securities available for U.S. Treasury securities and obligations of U.S. sale Government agencies Obligations of states and political subdivisions Corporate securities including public utilities Total fixed maturity securities available for sale Equity securities at estimated fair value: Common stock: Industrial, miscellaneous and all other Total equity securities at estimated fair value Equity securities at estimated fair value: Mortgage loans held for investment at amortized Common stock: cost: Industrial, miscellaneous and all other Residential construction Total equity securities at estimated fair value Less: Allowance for credit losses Total mortgage loans held for investment Mortgage loans held for investment at amortized cost: Cash and cash equivalents (1) Residential construction Less: Allowance for credit losses Total restricted assets Total mortgage loans held for investment Amortized Cost $ 932,737 652,770 274,688 Gross Unrealized Gains $ 1,433 305 209 Gross Unrealized Losses $ (1,000) $ (4,542) (2,740) Estimated Fair Value 933,170 648,533 272,157 1,947 1,433 305 209 1,117,155 1,947 1,117,155 1,117,155 1,117,155 $ $ $ $ $ $ $ (8,282) $ (1,000) $ (4,542) (2,740) (247,996) $ (8,282) $ (247,996) $ 1,853,860 933,170 648,533 272,157 7,385,203 1,853,860 7,385,203 (247,996) $ (247,996) $ 7,385,203 7,385,203 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1,860,195 932,737 652,770 274,688 6,516,044 1,860,195 6,516,044 6,516,044 676,572 6,516,044 (1,353) 675,219 10,114,694 676,572 (1,353) 20,028,976 675,219 (1) Including cash and cash equivalents of $6,930,933 for the life insurance and mortgage segments. Cash and cash equivalents (1) 10,114,694 $ Total restricted assets $ 20,028,976 (1) Including cash and cash equivalents of $6,930,933 for the life insurance and mortgage segments. 57 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 8) Cemetery Perpetual Care Trust Investments and Obligation and Restricted Assets (Continued) Restricted assets as of December 31, 2022 are summarized as follows: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value December 31, 2022: Fixed maturity securities, available for sale, at estimated fair value: Obligations of states and political subdivisions $ Corporate securities including public utilities Total fixed maturity securities available for sale $ 1,033,047 201,771 1,234,818 Equity securities at estimated fair value: Common stock: Industrial, miscellaneous and all other Total equity securities at estimated fair value Mortgage loans held for investment at amortized cost: Residential construction Cash and cash equivalents (1) Total restricted assets $ $ $ $ $ 4,955,360 4,955,360 1,731,469 10,638,034 18,935,055 $ $ $ $ 866 - 866 703,049 703,049 $ $ $ $ (15,360) $ (3,016) 1,018,553 198,755 (18,376) $ 1,217,308 (310,165) $ (310,165) $ 5,348,244 5,348,244 (1) Including cash and cash equivalents of $8,527,620 for the life insurance and mortgage segments. A surplus note receivable in the amount of $4,000,000 at December 31, 2023 and 2022, from Security National Life, was eliminated in consolidation. 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 December 31, 2023 and 2022. The unrealized losses were primarily related to interest rate fluctuations. The tables set forth unrealized losses by duration with the fair value of the related fixed maturity securities. At December 31, 2023 U.S. Treasury securities and obligations of U.S. Government agencies Obligations of states and political subdivisions Corporate securities including public utilities Total unrealized losses At December 31, 2022 Obligations of states and political subdivisions Corporate securities including public utilities Total unrealized losses Unrealized Losses for Less than Twelve Months Unrealized Losses for More than Twelve Months Fair Value Total Unrealized Loss Fair Value Fair Value $ $ $ $ 1,000 - - 1,000 $ 249,877 - - $ 249,877 11,891 3,016 14,907 $ 760,255 198,755 $ 959,010 $ $ $ $ - 4,542 2,740 7,282 $ - 451,985 221,334 $ 673,319 3,469 - 3,469 $ $ 58,072 - 58,072 $ $ $ $ 1,000 4,542 2,740 8,282 $ 249,877 451,985 221,334 $ 923,196 15,360 3,016 18,376 $ 818,327 198,755 $ 1,017,082 58 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 8) Cemetery Perpetual Care Trust Investments and Obligation and Restricted Assets (Continued) Relevant holdings were comprised of 12 securities with fair values aggregating 99.1% of aggregate amortized cost as of December 31, 2023. Relevant holdings were comprised of 17 securities with fair values aggregating of 98.2% of aggregate amortized cost at December 31, 2022. No credit losses have been recognized for 2023 and 2022, since the increase in unrealized losses is primarily a result of increases in interest rates. 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 December 31, 2023, by contractual maturity. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Due in 1 year Due in 2-5 years Due in 5-10 years Due in more than 10 years Total Amortized Cost Estimated Fair Value 681,860 $ 462,189 147,422 568,724 1,860,195 $ 683,293 457,618 147,121 565,828 1,853,860 $ $ See Notes 1, 2 and 17 for additional information regarding restricted assets and cemetery perpetual care trust investments. 59 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 9) Income Taxes The Company’s income tax liability is summarized as follows: Current Deferred Total December 31, 2023 246,437 13,506,544 13,752,981 $ $ 2022 16,352,190 14,358,337 30,710,527 $ $ Significant components of the Company’s deferred tax assets and liabilities are approximately as follows: Assets Future policy benefits Loan loss reserve Unearned premium Net operating loss Deferred compensation Tax on unrealized appreciation Other Less: Valuation allowance Total deferred tax assets Liabilities Deferred policy acquisition costs Basis difference in property, equipment and real estate Value of business acquired Deferred gains Trusts Total deferred tax liabilities Net deferred tax liability December 31, 2023 2022 $ $ 14,902,816 142,281 534,203 1,050,770 2,138,385 491,271 917,335 - 20,177,061 18,478,562 11,054,092 1,778,199 1,308,365 1,064,387 33,683,605 13,506,544 $ $ 14,605,453 448,673 582,459 237,855 2,166,593 2,590,726 601,335 (1,506,144) 19,726,950 17,511,778 11,959,391 2,058,785 1,490,946 1,064,387 34,085,287 14,358,337 The valuation allowance relates to differences between recorded deferred tax assets and liabilities and ultimate anticipated realization. 60 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 9) Income Taxes (Continued) The Company’s income tax expense is summarized as follows: Current Federal State Deferred Federal State Total December 31, 2023 2022 $ $ 4,091,306 209,537 4,300,843 (2,139,124) (356,365) (2,495,489) 1,805,354 $ $ 15,346,331 3,294,234 18,640,565 (7,400,620) (2,553,385) (9,954,005) 8,686,560 The reconciliation of income tax expense at the U.S. federal statutory rates is as follows: Computed expense at statutory rate State tax expense (benefit), net of federal tax benefit Change in valuation allowance Other, net Income tax expense December 31, 2023 2022 $ $ 3,423,086 (115,994) (1,506,144) 4,406 1,805,354 $ $ 7,219,141 585,269 623,609 258,541 8,686,560 The Company’s overall effective tax rate for 2023 and 2022 was 11.1% and 25.3% respectively. The Company’s effective tax rates differ from the U.S. federal statutory rate of 21% partially due to its provision for state income taxes and a decrease to the valuation allowance related to Kilpatrick Life Insurance Company. The decrease in the effective tax rate when compared to the prior year is partially due to a decrease to the valuation allowance in the current period when compared to the prior period year. As of December 31, 2023, the Company had no significant unrecognized tax benefits. As of December 31, 2023, the Company does not expect any material changes to the estimated amount of unrecognized tax benefits in the next twelve months. Federal and state income tax returns for 2020 through 2023 are subject to examination by taxing authorities. Net Operating Losses and Tax Credit Carryforwards: Year of Expiration 2024 2025 2026 2027 2028 Thereafter up through 2038 Indefinite carryforwards $ $ - - - - - 903,042 2,396,389 3,299,431 61 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 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 and has assets held in trust related to certain agreements. The Company is ultimately liable for these reinsured amounts in the event such reinsurers are unable to pay their portion of the claims. The Company evaluates the financial condition of reinsurers and monitors the concentration of credit risk. The Company had a significant concentration of credit risk with a single reinsurer of 94.0% and 93.7% of ceded life insurance in force as of December 31, 2023 and 2022, respectively. This represented approximately 8.8% and 11.3% of the Company’s total life insurance in force as of December 31, 2023 and 2022, respectively. See Financial Statement Schedule IV for information regarding life insurance in force and premiums for reinsurance. 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 potential losses on loans sold. See Note 3 for additional information about the Company’s loan loss reserve. Non-Cancelable Leases The Company leases office space and equipment under various non-cancelable agreements. See Note 23 regarding leases. Other Contingencies and Commitments The Company has commitments to fund existing construction and land development loans pursuant to the various loan agreements. As of December 31, 2023, the Company’s commitments were approximately $146,953,000 for these loans, of which $104,977,000 had been funded. 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 representations concerning the likelihood of unfavorable outcomes, no amounts have been accrued for the above claims in the consolidated financial statements. The Company is not a party to any other material legal proceedings outside the ordinary course of business or to any other legal proceedings, which, if adversely determined, would have a material adverse effect on its financial condition or results of operations. 62 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 11) Retirement Plans The Company has three 401(k) savings plans covering all eligible employees which include employer participation in accordance with the provisions of Section 401(k) of the Internal Revenue Code. The plans allow participants to make pretax contributions up to a maximum of $22,500 and $20,500 for the years 2023 and 2022, respectively or the statutory limits. The Company matched 100% of up to 3% of an employee’s total annual compensation and matched 50% of 4% to 5% of an employee’s annual compensation. The match was in Company stock. The Company’s contribution for 2023 and 2022 was $1,819,275 and $2,573,956, respectively under the plan. The Company has a Non-Qualified Deferred Compensation Plan. Under the terms of the Plan, the Company will provide deferred compensation for a select group of management or highly compensated employees, within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended. The Board has appointed a Committee of the Company to be the Plan Administrator and to determine the employees who are eligible to participate in the plan. The employees who participate may elect to defer a portion of their compensation into the plan. The Company may contribute into the plan at the discretion of the Company’s Board of Directors. The Company did not make any contributions for 2023 and 2022. Effective December 2, 2022, the Board members approved a motion to extend the Chief Executive Officer’s employment agreement, dated December 4, 2012, for an additional two-year term ending December 2024. In the event of disability, the Chief Executive Officer’s salary would be continued for up to five years at 75% of its current level of compensation. In the event of a sale or merger of the Company and the Chief Executive Officer is not retained in his current position, the Company would be obligated to continue paying the Chief Executive Officer’s current compensation and benefits for seven years following the merger or sale. The agreement further provides that the Chief Executive Officer is entitled to receive annual retirement benefits beginning (i) one month from the date of his retirement (to commence no sooner than age 65), (ii) five years following complete disability, or (iii) upon termination of his employment without cause. These retirement benefits are to be paid for a period of twenty years in annual installments in the amount equal to 75% of his then current level of compensation. If the Chief Executive Officer dies prior to receiving all retirement benefits thereunder, the remaining benefits are to be paid to his heirs. The Company expensed nil and nil during 2023 and 2022, respectively, to cover the present value of anticipated retirement benefits under the employment agreement. The liability accrued was $7,556,363 and $7,556,363 as of December 31, 2023 and 2022, respectively. The Company, through its wholly owned subsidiary, SecurityNational Mortgage, also has an employment agreement with its former Vice President of Mortgage Operations and President of SecurityNational Mortgage, who retired from the Company on December 31, 2015. Under the terms of the employment agreement, this individual is entitled to receive retirement benefits from the Company for a period of ten years in an amount equal to 50% of his rate of compensation at the time of his retirement, which was $267,685 for the year ended December 31, 2015. Such retirement payments are paid monthly during the ten-year period. If this individual dies prior to receiving all his retirement benefits under his employment agreement, the remaining benefits will be made to his heirs. The company paid $133,843 and $133,843 in retirement compensation to this individual during 2023 and 2022, respectively. The liability accrued was $267,686 and $401,529 as of December 31, 2023 and 2022, respectively and is included in other liabilities and accrued expenses on the consolidated balance sheets. 63 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 12) Capital Stock The Company has one class of preferred stock of $1.00 par value, 5,000,000 shares authorized, of which none are issued. The preferred stock is non-voting. The Company has two classes of common stock with shares outstanding, Class A common shares and Class C common shares. Class C shares have 10 votes per share on all matters except for the election of one third of the directors who are elected solely by the Class A shares. Class C shares are convertible into Class A shares at any time on a one-to-one ratio. Stockholders of both Class A and Class C common stock have received 5% stock dividends in the years 1990 through 2019, a 7.5% stock dividend in the year 2020, and a 5% stock dividend in the years 2021 through 2023, as authorized by the Company’s Board of Directors. The Company has Class B common stock of $1.00 par value, 5,000,000 shares authorized, of which none are issued. Class B shares are non-voting stock except to any proposed amendment to the Articles of Incorporation which would affect Class B common stock. The following table summarizes the activity in shares of capital stock. Outstanding shares at December 31, 2021 Exercise of stock options Stock dividends Conversion of Class C to Class A Class A 17,642,722 Class C 2,866,565 109,587 889,554 116,168 - 139,462 (116,168) Outstanding shares at December 31, 2022 18,758,031 2,889,859 Exercise of stock options Vesting of restricted stock units Stock dividends Conversion of Class C to Class A 279,177 1,215 949,980 59,599 - - 141,594 (59,599) Outstanding shares at December 31, 2023 20,048,002 2,971,854 64 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 12) Capital Stock (Continued) Earnings per share amounts have been retroactively adjusted for the effect of annual stock dividends. In accordance with GAAP, the basic and diluted earnings per share amounts were calculated as follows: Numerator: Net earnings Denominator: Years Ended December 31, 2022 2023 $ 14,495,058 $ 25,690,302 Denominator for basic earnings per share-weighted-average shares 22,083,772 22,187,410 Effect of dilutive securities Employee stock options Unvested restricted stock units Dilutive potential common shares 594,196 - 594,196 848,323 395 848,718 Denominator for diluted earnings per share-adjusted weighted- average shares and assumed conversions 22,677,968 23,036,128 Basic earnings per share Diluted earnings per share $ $ 0.66 $ 0.64 $ 1.16 1.12 For 2023 and 2022, there were nil and 339,150 of anti-dilutive employee stock option shares, respectively, that were not included in the computation of diluted net earnings per common share as their effect would be anti-dilutive. Basic and diluted earnings per share amounts are the same for each class of common stock. 65 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 13) 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 $601,058 and $929,321 has been recognized under these plans for 2023 and 2022, respectively, and is included in personnel expenses on the consolidated statements of earnings. As of December 31, 2023, the total unrecognized compensation expense related to the stock options issued was $677,948, which is expected to be recognized over the remaining vesting period. The fair value of each stock option granted is estimated on the date of grant using the Black Scholes Option Pricing Model. The Company estimates the expected life of the options using the simplified method. Future volatility is estimated based upon the weighted historical volatility of the Company’s Class A common stock over a period equal to the expected life of the options. The risk-free interest rate for the expected life of the options is based upon the Federal Reserve Board’s daily interest rates in effect at the time of the grant. The following table summarizes the assumptions used in estimating the fair value of each stock option granted along with the weighted-average fair value of the stock options granted. Weighted- Average Fair Value of Each Option $ $ $ $ 1.88 1.65 1.70 1.48 Plan All Plans All Plans All Plans All Plans Assumptions Expected Dividend Yield (1) Underlying stock FMV Weighted- Average Volatility Weighted- Average Risk-Free Interest Rate 5% $ 7.99 36.76% 4.14% Weighted- Average Expected Life (years) 4.9 5% $ 7.10 36.73% 3.64% 5.31 5% $ 7.37 36.79% 3.40% 5.31 5% $ 6.48 37.03% 3.69% 4.88 Grant Date December 1, 2023 January 30, 2023 January 18, 2023 December 2, 2022 (1) Stock dividend 66 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 13) Stock Compensation Plans (Continued) Activity of the stock option plans is summarized as follows: Outstanding at January 1, 2022 Adjustment for the effect of stock dividends Granted Exercised Cancelled Number of Class A Shares 1,024,351 Weighted Average Exercise Price $ 4.38 Number of Class C Shares 821,146 Weighted Average Exercise Price $ 5.26 47,780 82,500 (176,435) (1,591) 41,057 295,000 - - Outstanding at December 31, 2022 976,605 $ 4.56 1,157,203 $ 5.31 Adjustment for the effect of stock dividends Granted Exercised Cancelled Outstanding at December 31, 2023 Exercisable at end of year Available options for future grant 38,266 106,500 (286,965) (836) 833,570 739,070 $ $ 92,820 57,859 305,000 - - 1,520,062 1,215,062 $ $ 529,750 5.22 4.87 5.86 5.31 Weighted average contractual term of options outstanding at December 31, 2023 Weighted average contractual term of options exercisable at December 31, 2023 Aggregated intrinsic value of options outstanding at December 31, 2023 (1) Aggregated intrinsic value of options exercisable at December 31, 2023 (1) $ $ 5.25 years 4.66 years 3,149,704 3,049,987 6.50 years 5.90 years 4,765,559 4,483,509 $ $ (1) The Company used a stock price of $9.00 as of December 31, 2023 to derive intrinsic value. The total intrinsic value (which is the amount by which the fair value of the underlying stock exceeds the exercise price of an option on the exercise date) of stock options exercised during 2023 and 2022 was $657,354 and $619,064, respectively. 67 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 13) Stock Compensation Plans (Continued) Restricted Stock Units (“RSUs”) Stock based compensation expense for RSUs issued of $304 and $371 has been recognized under these plans for the 2023 and 2022, respectively, and is included in personnel expenses on the consolidated statements of earnings. As of December 31, 2023, the total unrecognized compensation expense related to the RSUs issued was $3,263, which is expected to be recognized over the remaining vesting period. Activity of the RSUs is summarized as follows: Non-vested at December 31, 2022 Granted Vested Number of Class A Shares Weighted Average Grant Date Fair Value 1,620 $ 1,840 (1,215) 6.48 Non-vested at December 31, 2023 2,245 $ 7.72 Available RSUs for future grant 16,540 68 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 14) Statutory Financial Information and Dividend Limitations The Company’s insurance subsidiaries prepare their statutory-basis financial statements in conformity with accounting practices prescribed or permitted by the insurance department of the applicable state of domicile. Prescribed statutory accounting practices include a variety of publications of the NAIC, as well as state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The states in which the Company’s life insurance subsidiaries are domiciled require the preparation of statutory-basis financial statements in conformity with the NAIC Accounting Practices and Procedures Manual, subject to any deviations prescribed or permitted by the applicable insurance commissioner and/or director. Statutory accounting practices differ from GAAP primarily since they require charging policy acquisition and certain sales inducement costs to expense as incurred, establishing life insurance reserves based on different actuarial assumptions, and valuing certain investments and establishing deferred taxes on a different basis. Statutory net income and capital and surplus of the Company’s insurance subsidiaries, determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities are as follows: Amounts by insurance subsidiary: Security National Life Insurance Company Kilpatrick Life Insurance Company First Guaranty Insurance Company Southern Security Life Insurance Company, Inc. Trans-Western Life Insurance Company Total Statutory Net Income Years Ended December 31, 2023 2022 Statutory Capital and Surplus December 31, 2023 2022 $ $ 7,419,511 2,967,779 958,497 35 15 11,345,837 $ $ 9,126,955 2,373,682 1,007,026 (2,691) 4,008 12,508,980 $ $ 76,330,794 20,535,591 8,427,355 1,578,322 512,570 107,384,632 $ $ 66,753,938 17,300,717 8,107,405 1,579,971 512,555 94,254,586 The Utah, Louisiana, Mississippi, and Texas Insurance Departments impose minimum risk-based capital (“RBC”) requirements that were developed by the NAIC on insurance enterprises. The formulas for determining the RBC specify various factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio (the Ratio) of the enterprise’s regulatory total adjusted capital, as defined by the NAIC, to its authorized control level, as defined by the NAIC. Enterprises below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. The life insurance subsidiaries each have a ratio that is greater than the first level of regulatory action as of December 31, 2023. The Company does not have any guarantees to maintain the capital and surplus of any affiliates except for the Company’s agreement to provide additional capital to Security National Life Insurance Company in the event risk-based capital drops below 350% of the authorized control level. Generally, the net assets of the life insurance subsidiaries available for transfer to the Company are limited to the amounts of the life insurance subsidiaries net assets, as determined in accordance with statutory accounting practices, that exceed minimum statutory capital requirements. Additional requirements must be met depending on the state, and payments of such amounts as dividends are subject to approval by regulatory authorities. 69 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 14) Statutory Financial Information and Dividend Limitations (Continued) Under the Utah Insurance Code, Security National Life Insurance Company is permitted to pay stockholder dividends, or otherwise make distributions, to the Company subject to certain limitations. Security National Life Insurance Company must ensure that its surplus held for policyholders is reasonable in relation to its outstanding liabilities and adequate to its financial needs after payment of any such dividend or distribution. Furthermore, where any dividend or distribution, together with all other dividends and distributions made within the preceding 12 months, exceeds the lesser of (i) 10% of its surplus held for policyholders as of the next preceding December 31; or (ii) its net gain from operations, not including realized capital gains, for the 12-month period ending the next preceding December 31, such dividend or distribution constitutes “extraordinary” under Utah law and Security National Life Insurance Company would be required to file notice of its intention to declare such a dividend or make such a distribution with the Utah Commissioner and the Utah Commissioner must either approve the distribution or dividend or not disapprove the dividend or distribution within 30 days’ of the notice filing. Based on Security National Life Insurance Company’s surplus held for policyholders and net gain from operations as of December 31, 2023, the maximum aggregate amount of dividends and distributions that it could pay or make in 2024 and which would not constitute an “extraordinary” dividend or distribution under Utah law and would therefore not require notice and approval or lack of disproval from the Utah Commissioner, would be approximately $7,357,000. Under the Louisiana Insurance Code, First Guaranty Insurance Company and Kilpatrick Life Insurance Company are permitted to pay stockholder dividends, or otherwise make distributions, to the Company subject to certain limitations. First Guaranty Insurance Company and Kilpatrick Life Insurance Company must ensure that its surplus held for policyholders is reasonable in relation to its outstanding liabilities and adequate to its financial needs after payment of any such dividend or distribution. Furthermore, where any dividend or distribution, together with all other dividends and distributions made within the preceding 12 months, exceeds the lesser of (i) 10% of its surplus held for policyholders as of the next preceding December 31; or (ii) its net gain from operations, not including realized capital gains, for the 12-month period ending the next preceding December 31, such dividend or distribution constitutes “extraordinary” under Louisiana law and First Guaranty Insurance Company and Kilpatrick Life Insurance Company would be required to file notice of its intention to declare such a dividend or make such a distribution with the Louisiana Commissioner and the Louisiana Commissioner must either approve the distribution or dividend or not disapprove the dividend or distribution within 30 days’ of the notice filing. Based on First Guaranty Insurance Company’s and Kilpatrick Life Insurance Company’s surplus held for policyholders and net gain from operations as of December 31, 2023, the maximum aggregate amount of dividends and distributions that it could pay or make in 2024 and which would not constitute an “extraordinary” dividend or distribution under Louisiana law and would therefore not require notice and approval or lack of disproval from the Louisiana Commissioner, would be approximately $742,000 for First Guaranty Insurance Company and $1,973,000 for Kilpatrick Life Insurance Company. 70 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 15) 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 policyholder and segment surplus funds. The Company’s cemetery and mortuary segment consists of revenues and operating expenses from the sale of at-need cemetery and mortuary merchandise and services at its mortuaries and cemeteries, pre-need sales of cemetery spaces after collection of 10% or more of the purchase price and the net investment income from investing segment surplus funds. The Company’s mortgage segment consists of fee income and expenses from the originations of residential mortgage loans and interest earned and interest expenses from warehousing pre-sold loans before the funds are received from financial institutional investors. Measurement of Segment Profit or Loss and Segment Assets The accounting policies of the reportable segments are the same as those described in the Significant Accounting Principles. Intersegment revenues are recorded at cost plus an agreed upon intercompany profit and are eliminated upon consolidation. Factors Management Used to Identify the Enterprise’s Reportable Segments The Company’s reportable segments are business units that are managed separately due to the different products provided and the need to report separately to the various regulatory jurisdictions. The Company regularly reviews the quantitative thresholds and other criteria to determine when other business segments may need to be reported. 71 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 15) Business Segment Information (Continued) Revenues: From external sources: Revenue from customers Net investment income Gains (losses) on investments and other assets Other revenues Intersegment revenues: Net investment income Total revenues Expenses: Death, surrenders and other policy benefits Increase in future policy benefits Amortization of deferred policy and pre-need acquisition costs and value of business acquired Selling, general and administrative expenses: Commissions Personnel Advertising Rent and rent related Depreciation on property and equipment Provision for loan loss reserve Cost related to funding mortgage loans Intersegment Other Interest expense: Intersegment Other Costs of goods and services sold-mortuaries and cemeteries Total benefits and expenses Earnings (loss) before income taxes Income tax benefit (expense) Net earnings (loss) Identifiable assets Goodwill Year Ended December 31, 2023 Life Insurance Cemetery/ Mortuary Mortgage Intercompany Eliminations Consolidated $ 114,735,304 67,811,926 962,824 1,666,020 $ 27,864,811 2,951,577 717,312 404,256 $ 98,071,104 1,579,544 157,206 1,575,606 - - - - $ 240,671,219 72,343,047 1,837,342 3,645,882 8,203,306 193,379,380 340,001 32,277,957 531,406 101,914,866 (9,074,713) (9,074,713) - 318,497,490 66,002,863 34,008,997 - - 17,485,699 538,639 3,963,185 26,769,211 638,071 414,564 880,116 - - 310,689 12,991,888 560,718 4,081,348 - 168,107,349 25,272,031 (3,655,148) 21,616,883 $ $ $ 1,325,287,933 $ 2,765,570 $ $ $ $ 1,777,071 9,722,659 663,113 159,877 812,641 - - 143,652 4,961,320 247,664 955 4,805,700 23,833,291 8,444,666 (2,131,289) 6,313,377 95,059,724 2,488,213 - - - 34,189,300 46,649,889 2,409,261 6,282,696 658,904 - 6,440,439 1,930,370 14,105,648 5,881,620 783,024 - 119,331,151 $ (17,416,285) 3,981,083 $ (13,435,202) $ $ - - - - - - - - - - (2,384,711) - (6,690,002) - - (9,074,713) - - - 66,002,863 34,008,997 18,024,338 39,929,556 83,141,759 3,710,445 6,857,137 2,351,661 - 6,440,439 - 32,058,856 - 4,865,327 4,805,700 302,197,078 16,300,412 (1,805,354) 14,495,058 $ $ $ $ 97,018,754 $ (93,063,440) $ 1,424,302,971 - $ - $ 5,253,783 72 15) Business Segment Information (Continued) Revenues: From external sources: Revenue from customers Net investment income Gains (losses) on investments and other assets Other revenues Intersegment revenues: Net investment income Total revenues Expenses: Death, surrenders and other policy benefits Increase in future policy benefits Amortization of deferred policy and pre-need acquisition costs and value of business acquired Selling, general and administrative expenses: Commissions Personnel Advertising Rent and rent related Depreciation on property and equipment Provision for loan loss reserve Cost related to funding mortgage loans Intersegment Other Interest expense: Intersegment Other Costs of goods and services sold-mortuaries and cemeteries Total benefits and expenses Earnings before income taxes Income tax expense Net earnings Identifiable assets Goodwill SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 Year Ended December 31, 2022 Life Insurance Cemetery/ Mortuary Mortgage Intercompany Eliminations Consolidated $ 105,144,646 62,565,021 (459,462) 1,932,402 $ 26,993,855 2,444,599 (796,096) 305,073 $ 173,356,675 1,187,972 398,098 16,579,545 - - - - $ 305,495,176 66,197,592 (857,460) 18,817,020 6,601,132 175,783,739 451,139 29,398,570 356,574 191,878,864 (7,408,845) (7,408,845) - 389,652,328 64,066,432 28,858,969 - - 17,352,803 597,399 4,097,680 26,285,207 1,649,273 384,908 1,036,521 - - 232,915 13,190,827 462,753 3,969,905 1,372,200 9,305,429 628,114 163,182 759,415 - - 160,690 5,321,730 274,911 710 - - - 57,851,212 64,520,887 3,420,611 6,334,923 700,970 - 7,540,041 1,795,507 27,285,196 4,482,069 3,859,828 4,721,094 23,304,874 6,093,696 (1,523,954) 4,569,742 - 177,791,244 14,087,620 (3,127,627) 10,959,993 $ $ $ $ - - - - - - - - - - (2,189,112) - (5,219,733) - - (7,408,845) - - - 64,066,432 28,858,969 17,950,202 63,321,092 100,111,523 5,697,998 6,883,013 2,496,906 - 7,540,041 - 45,797,753 - 7,830,443 4,721,094 355,275,466 34,376,862 (8,686,560) 25,690,302 $ $ 82,320,929 $ 219,872,163 $ (93,174,569) $ 1,455,859,109 2,488,213 $ - $ - $ 5,253,783 - 161,588,193 14,195,546 (4,034,979) 10,160,567 $ $ $ 1,246,840,586 $ 2,765,570 $ $ $ $ 73 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 16) Related Party Transactions The Company’s Board of Directors has a written procedure, which requires disclosure to the Board of any material interest or any affiliation on the part of any of its officers, directors or employees that is in conflict or may conflict with the interests of the Company. The Company and its Board of Directors are unaware of any related party transactions that require disclosure as of December 31, 2023. 17) 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. 74 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 17) Fair Value of Financial Instruments (Continued) Restricted Assets: A portion of these assets include equity securities and fixed maturity securities available for sale that have quoted market prices that are used to determine fair value. Also included are cash and cash equivalents and participations in mortgage loans. The carrying amounts reported in the accompanying consolidated balance sheets for these financial instruments approximate their fair values due to their short-term nature. Cemetery Perpetual Care Trust Investments: A portion of these assets include equity securities and fixed maturity securities available for sale that have quoted market prices that are used to determine fair value. Also included are cash and cash equivalents. The carrying amounts reported in the accompanying consolidated balance sheets for these financial instruments approximate their fair values due to their short-term nature Call and Put Options: The Company uses quoted market prices to value its call and put options. Additionally, there were no transfers between Level 1 and Level 2 in the fair value hierarchy. The items shown under Level 3 are valued as follows: 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 and may contain significant unobservable inputs. Loan Commitments and Forward Sale Commitments: The Company’s mortgage segment enters into loan commitments with potential borrowers and forward sale commitments to sell loans to third-party investors. 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 fund within the terms of the commitments. Impaired Mortgage Loans Held for Investment: The Company believes that the fair value of these nonperforming loans will approximate the unpaid principal balance expected to be recovered based on the fair value of the underlying collateral. For residential and commercial properties, the collateral value is estimated by obtaining an independent appraisal. The appraisal typically considers area comparable properties and property condition as well as potential rental income that could be generated (particularly for commercial properties). For residential construction loans, the collateral is typically incomplete, so fair value is estimated as the replacement cost using data from a provider of building cost information to the real estate construction. 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. 75 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 17) Fair Value of Financial Instruments (Continued) It should be noted that for replacement cost, when determining the fair value of real estate held for investment, the Company uses a provider of building cost information to the real estate construction industry. For the investment analysis, the Company used market data based upon its real estate operation experience and projected the present value of the net rental income over seven years. The Company also considers area comparable properties and property condition when determining fair value. In addition to this analysis performed by the Company, the Company depreciates Real Estate Held for Investment. This depreciation reduces the book value of these properties and lessens the exposure to the Company from further deterioration in real estate values. Mortgage Servicing Rights: The Company initially recognizes MSRs at their estimated fair values derived from the net cash flows associated with the servicing contracts, where the Company assumes the obligation to service the loan in the sale transaction. The following table summarizes Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a recurring basis by their classification in the consolidated balance sheet as of December 31, 2023. Assets accounted for at fair value on a recurring basis Fixed maturity securities available for sale Equity securities Loans held for sale Restricted assets (1) Restricted assets (2) Cemetery perpetual care trust investments (1) Cemetery perpetual care trust investments (2) Derivatives - loan commitments (3) Total assets accounted for at fair value on a recurring basis Liabilities accounted for at fair value on a recurring basis Derivatives - loan commitments (4) Total liabilities accounted for at fair value on a recurring basis $ $ $ $ Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) $ $ - 13,636,071 - - 7,385,203 - 4,327,301 - $ 380,297,330 - - 1,853,860 - 641,704 - - 1,238,656 - 126,549,190 - - - - 4,995,486 Total 381,535,986 13,636,071 126,549,190 1,853,860 7,385,203 641,704 4,327,301 4,995,486 540,924,801 $ 25,348,575 $ 382,792,894 $ 132,783,332 (3,412,224) (3,412,224) $ $ - - $ $ - - $ $ (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 76 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 17) Fair Value of Financial Instruments (Continued) The following table summarizes Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a recurring basis by their classification in the consolidated balance sheet as of December 31, 2022. Assets accounted for at fair value on a recurring basis Fixed maturity securities available for sale Equity securities Loans held for sale Restricted assets (1) Restricted assets (2) Cemetery perpetual care trust investments (1) Cemetery perpetual care trust investments (2) Derivatives - loan commitments (3) Total assets accounted for at fair value on a recurring basis Liabilities accounted for at fair value on a recurring basis Derivatives - call options (4) Derivatives - put options (4) Derivatives - loan commitments (4) Total liabilities accounted for at fair value on a recurring basis $ $ $ $ Total 345,858,492 11,682,526 141,179,620 1,217,308 5,348,244 254,731 3,605,162 4,089,856 513,235,939 (29,715) (13,888) (1,382,979) $ $ $ Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) $ - 11,682,526 - - 5,348,244 - 3,605,162 - $ 344,422,973 - - 1,217,308 - 254,731 - - 1,435,519 - 141,179,620 - - - - 4,089,856 20,635,932 $ 345,895,012 $ 146,704,995 $ (29,715) (13,888) - - - - - $ $ - - (1,382,979) (1,382,979) (1,426,582) $ (43,603) $ (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 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: Fair Value at 12/31/2023 Valuation Technique Loans held for sale $ 126,549,190 Market approach Derivatives - loan commitments (net) 1,583,262 Market approach Significant Unobservable Input(s) Investor contract pricing as a percentage of unpaid principal balance Range of Inputs Minimum Maximum Value Value Weighted Average 70.0% 121.0% 100.0% Pull-through rate Initial-Value Servicing 70.0% N/A 0 bps 99.0% N/A 119 bps 86.0% N/A 49 bps Fixed maturity securities available for sale 1,238,656 Broker quotes Pricing quotes $ 98.40 $ 102.46 $ 99.86 77 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 17) Fair Value of Financial Instruments (Continued) For Level 3 assets and liabilities measured at fair value on a recurring basis as of December 31, 2022, the significant unobservable inputs used in the fair value measurements were as follows: Fair Value at 12/31/2022 Valuation Technique Loans held for sale $ 141,179,620 Market approach Derivatives - loan commitments (net) 2,706,877 Market approach Significant Unobservable Input(s) Investor contract pricing as a percentage of unpaid principal balance Range of Inputs Minimum Maximum Value Value Weighted Average 69.9% 106.1% 99.8% Pull-through rate Initial-Value Servicing 65.0% N/A 0 bps 95.0% N/A 153 bps 82.2% N/A 73 bps Fixed maturity securities available for sale 1,435,519 Broker quotes Pricing quotes $ 100.00 $ 111.11 $ 104.97 The following table is a summary of changes in the consolidated balance sheet line items measured using level 3 inputs: Balance - December 31, 2022 Originations/purchases Sales, maturities and paydowns Transfer to mortgage loans held for investment Total gains (losses): Included in earnings Included in other comprehensive income Balance - December 31, 2023 Net Derivatives Loan Commitments Loans Held for Sale Fixed Maturity Securities Available for Sale $ $ $ 2,706,877 - - - $ 141,179,620 2,173,080,584 (2,224,454,040) (3,017,626) ) (1,123,615 (1) - 39,760,652(1) - 1,435,519 - (129,521) - ) (2) (108 (67,234) 1,583,262 $ 126,549,190 $ 1,238,656 (1) As a component of mortgage fee income on the consolidated statements of earnings (2) As a component of net investment income on the consolidated statements of earnings The following table is a summary of changes in the consolidated balance sheet line items measured using level 3 inputs: Balance - December 31, 2021 Originations/purchases Sales, maturities and paydowns Transfer to mortgage loans held for investment Total gains (losses): Included in earnings Included in other comprehensive income Balance - December 31, 2022 Net Derivatives Loan Commitments Loans Held for Sale Fixed Maturity Securities Available for Sale $ $ $ 7,015,515 - - - $ 302,776,827 3,373,554,484 (3,549,405,402) (51,691,213) ) (1) (4,308,638 - 65,944,924 (1) - 2,023,348 - (528,980) - 1,957 (2) (60,806) 2,706,877 $ 141,179,620 $ 1,435,519 (1) As a component of mortgage fee income on the consolidated statements of earnings (2) As a component of net investment income on the consolidated statements of earnings 78 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 17) Fair Value of Financial Instruments (Continued) The Company did not have any financial assets and financial liabilities measured at fair value on a nonrecurring basis as of December 31, 2023. The following table summarizes Level 1, 2 and 3 financial assets and financial liabilities measured at fair value on a nonrecurring basis by their classification in the consolidated balance sheet as of December 31, 2022. Assets accounted for at fair value on a nonrecurring basis Impaired mortgage loans held for investment Total assets accounted for at fair value on a nonrecurring basis Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total $ $ 794,224 794,224 $ $ - - $ $ - - $ $ 794,224 794,224 79 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 17) 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 December 31, 2023 and 2022. 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: Assets Mortgage loans held for investment Residential Residential construction Commercial Mortgage loans held for investment, net Policy loans Insurance assignments, net (1) Restricted assets (2) Cemetery perpetual care trust investments (2) Mortgage servicing rights, net Liabilities Bank and other loans payable Policyholder account balances (3) Future policy benefits - annuities (3) Carrying Value Level 1 Level 2 Level 3 Total Estimated Fair Value $ 99,519,750 103,529,896 72,567,191 $ 275,616,837 13,264,183 44,051,486 675,219 246,865 3,461,146 $ (105,555,137) (39,245,123) (106,285,010) $ $ $ $ $ $ - - - - - - - - - - - - - - - - - - - - - - - - $ 96,998,106 103,529,896 72,149,530 $ 272,677,532 13,264,183 44,051,486 675,219 246,865 4,543,657 $ 96,998,106 103,529,896 72,149,530 $ 272,677,532 13,264,183 44,051,486 675,219 246,865 4,543,657 $ (105,555,137) (48,920,691) (102,177,585) $ (105,555,137) (48,920,691) (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 80 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 17) 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, 2022: Assets Mortgage loans held for investment Residential Residential construction Commercial Mortgage loans held for investment, net Policy loans Insurance assignments, net (1) Restricted assets (2) Cemetery perpetual care trust investments (2) Mortgage servicing rights, net Liabilities Bank and other loans payable Policyholder account balances (3) Future policy benefits - annuities (3) Carrying Value Level 1 Level 2 Level 3 Total Estimated Fair Value $ 90,290,776 172,139,077 45,694,074 $ 308,123,927 13,095,473 45,332,585 1,731,469 1,506,517 3,039,765 $ (161,712,804) (41,146,171) (106,637,094) $ $ $ $ $ $ - - - - - - - - - - - - - - - - - - - - - - - - $ 88,575,293 172,139,077 44,079,537 $ 304,793,907 13,095,473 45,332,585 1,731,469 1,506,517 3,927,877 $ 88,575,293 172,139,077 44,079,537 $ 304,793,907 13,095,473 45,332,585 1,731,469 1,506,517 3,927,877 $ (161,712,804) (42,181,089) (126,078,031) $ (161,712,804) (42,181,089) (126,078,031) (1) Included in other investments and policy loans on the consolidated balance sheets (2) Mortgage loans held for investment (3) Included in future policy benefits and unpaid claims on the consolidated balance sheets The methods, assumptions and significant valuation techniques and inputs used to estimate the fair value of 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 of mortgage loans is determined through a combination of discounted cash flows (estimating expected future cash flows of payments and discounting them using current interest rates from single family mortgages) and considering pricing of similar loans that were sold recently. Residential Construction — These loans are primarily short in maturity. Accordingly, the estimated fair value is determined to be the carrying value. Commercial — The estimated fair value is determined by estimating expected future cash flows of payments and discounting them using current interest rates for commercial mortgages. Policy Loans: The carrying amounts reported in the accompanying consolidated balance sheet for these financial instruments approximate their fair values because they are fully collateralized by the cash surrender value of the underlying insurance policies. Insurance Assignments, Net: These investments are short in maturity. Accordingly, the carrying amounts reported in the accompanying consolidated balance sheet for these financial instruments approximate their fair values. 81 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 17) Fair Value of Financial Instruments (Continued) Bank and Other Loans Payable: The carrying amounts reported in the accompanying consolidated balance sheet for the warehouse lines of credit approximate their fair values due to their relatively short-term maturities and variable interest rates. The carrying amounts reported in the accompanying consolidated balance sheet for the bank loans collateralized by real estate approximate their fair values due to the non-assumable fixed rates. 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 more than related policy account balances. Interest credit 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. 18) Accumulated Other Comprehensive Income (loss) The following summarizes the changes in accumulated other comprehensive income (loss): Unrealized gains (losses) on fixed maturity securities available for sale Amounts reclassified into net earnings Net unrealized gains (losses) before taxes Tax benefit (expense) Net Unrealized gains (losses) on restricted assets (1) Tax benefit (expense) Net Unrealized gains (losses) on cemetery perpetual care trust investments (1) Tax benefit (expense) Net Other comprehensive income (loss) changes $ $ (1) Fixed maturity securities available for sale December 31 2023 2022 7,853,398 (39,074) 7,814,324 (1,640,186) 6,174,138 11,175 (2,784) 8,391 2,917 (727) 2,190 6,184,719 $ $ (39,493,861) 162,173 (39,331,688) 8,259,656 (31,072,032) (71,035) 17,695 (53,340) (20,446) 5,093 (15,353) (31,140,725) 82 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 18) Accumulated Other Comprehensive Income (loss) (Continued) The following is the accumulated balances of other comprehensive income (loss) as of December 31, 2023: Unrealized gains (losses) on fixed maturity securities available for sale Unrealized gains (losses) on restricted assets (1) Unrealized gains (losses) on cemetery perpetual care trust investments (1) Other comprehensive income (loss) (1) Fixed maturity securities available for sale Beginning Balance December 31, 2022 Change for the period $ $ (13,050,767) (13,148) (6,362) (13,070,277) $ $ 6,174,138 8,391 2,190 6,184,719 The following is the accumulated balances of other comprehensive income (loss) as of December 31, 2022: Unrealized gains (losses) on fixed maturity securities available for sale Unrealized gains (losses) on restricted assets (1) Unrealized gains (losses) on cemetery perpetual care trust investments (1) Other comprehensive income (loss) (1) Fixed maturity securities available for sale Beginning Balance December 31, 2021 Change for the period $ $ 18,021,265 40,192 8,991 18,070,448 $ $ (31,072,032) (53,340) (15,353) (31,140,725) Ending Balance December 31, 2023 (6,876,629) (4,757) (4,172) (6,885,558) Ending Balance December 31, 2022 (13,050,767) (13,148) (6,362) (13,070,277) $ $ $ $ 83 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 19) Derivative Instruments The Company reports derivative instruments pursuant to the accounting policy discussed in Note 1 of the Notes to Consolidated Financial Statements. The following table shows the fair value and notional amounts of derivative instruments. Balance Sheet Location Notional Amount December 31, 2023 Asset Fair Value Liability Fair Value Notional Amount December 31, 2022 Asset Fair Value Liability Fair Value Derivatives not designated as hedging instruments: Loan commitments Call options Put options Total Other assets and Other liabilities Other liabilities Other liabilities $ 161,832,250 - - $ 161,832,250 $ $ 4,995,486 — — 4,995,486 $ $ 3,412,224 - - 3,412,224 $ 453,371,808 868,600 654,500 $ 454,894,908 $ $ 4,089,856 — — 4,089,856 $ $ 1,382,979 29,715 13,888 1,426,582 The following table presents the gains (losses) on derivatives. There were no gains or losses reclassified from accumulated other comprehensive income into income or gains or losses recognized in income on derivatives ineffective portion or any amounts excluded from effective testing. Loan commitments Mortgage fee income Derivative Classification Call and put options Gains on investments and other assets Years ended December 31, 2023 2022 (1,123,615) $ (4,308,638) 49,963 $ 202,886 $ $ 84 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 20) Mortgage Servicing Rights The Company reports MSRs pursuant to the accounting policy discussed in Note 1 of the Notes to Consolidated Financial Statements. The following table presents the MSR activity. Amortized cost: Balance before valuation allowance at beginning of year MSR additions resulting from loan sales Amortization (1) Sale of MSRs Application of valuation allowance to write down MSRs with other than temporary impairment Balance before valuation allowance at year end 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 year end Mortgage servicing rights, net Estimated fair value of MSRs at year end (1) Included in other expenses on the consolidated statements of earnings December 31, 2023 2022 3,039,765 1,009,312 (587,931) - - 3,461,146 - - - - 3,461,146 4,543,657 $ $ $ $ $ $ 53,060,455 10,243,922 (9,078,706) (51,185,906) - 3,039,765 - - - - 3,039,765 3,927,877 $ $ $ $ $ $ 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 December 31, 2023 valuation of MSRs. The assumptions used in the following table are likely to change as market conditions, portfolio composition and borrower behavior change, causing both actual and projected amortization levels to change over time. 2024 2025 2026 2027 2028 Thereafter Total Estimated MSR Amortization $ $ 390,131 342,170 306,597 271,773 242,596 1,907,879 3,461,146 85 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 20) Mortgage Servicing Rights (Continued) The Company collected the following contractual servicing fee income and late fee income as reported in other revenues on the consolidated statements of earnings. Contractual servicing fees Late fees Total Years Ended December 31, 2022 2023 15,792,105 398,754 16,190,859 1,144,540 $ 97,300 1,241,840 $ $ $ The following is a summary of the unpaid principal balances (“UPB”) of the servicing portfolio. Servicing UPB December 31, 2023 2022 $ 414,147,436 $ 360,023,384 The following key assumptions were used in determining MSR value. December 31, 2023 December 31, 2022 Prepayment Speeds Average Life(Years) Discount Rate 9.70 8.12 7.79 8.49 11.85 11.95 On October 31, 2022, the Company sold certain of its MSRs. The MSRs related to mortgage loans previously originated by the Company in aggregate unpaid principal amount of approximately $7.02 billion. As a result of the sale, the book value of the Company’s MSRs decreased $51,185,906 and generated a gain of $34,051,938 included in mortgage fee income on the consolidated statements of earnings. Substantially all the consideration was received by the Company with the remainder subject to certain holdbacks during transfer of the MSRs. The Company completed the physical transfer of files prior to its deadline. The holdbacks were received in 2023. 86 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 21) Future Policy Benefits and Unpaid Claims The Company reports future policy benefits and unpaid claims pursuant to the accounting policy discussed in Note 1 of the Notes to Consolidated Financial Statements. The following table provides information regarding future policy benefits and unpaid claims and the related receivable from reinsurers. Life Annuities Policyholder account balances Accident and health Other policyholder funds Reported but unpaid claims Incurred but not reported claims $ December 31, $ 2023 756,936,902 106,285,010 39,245,123 572,689 4,411,108 3,525,774 5,062,010 2022 726,462,594 106,637,094 41,146,171 603,526 4,279,218 5,651,030 4,547,670 Gross future policy benefits and unpaid claims $ 916,038,616 $ 889,327,303 Receivable from reinsurers Life Annuities Accident and health Reported but unpaid claims Incurred but not reported claims Total receivable from reinsurers 10,478,863 4,238,934 77,917 48,345 13,000 10,600,613 4,225,873 79,467 110,985 17,000 14,857,059 15,033,938 Net future policy benefits and unpaid claims Net unpaid claims $ $ 901,181,557 8,526,439 $ $ 874,293,365 10,070,715 The following table provides a roll forward of the Company’s liability for reported but unpaid claims and incurred but not reported claims, net of the related receivable from reinsurers. Balance at 12/31/2021 Incurred Settled Balance at 12/31/2022 Incurred Settled Balance at 12/31/2023 Life 8,015,101 59,377,962(1) (57,988,800) 9,404,263 61,390,517(1) (62,665,619) 8,129,161 $ $ Annuities 678,378 13,987,576(2) (14,016,502) 649,452 12,669,463(2) (12,939,637) 379,278 $ $ $ $ Accident and Health 104,504 40,744(3) (128,248) 17,000 30,408(3) (29,408) 18,000 $ $ Total 8,797,983 73,406,282 (72,133,550) 10,070,715 74,090,388 (75,634,664) 8,526,439 (1) See death benefits on the consolidated statements of earnings (2) Included in increase in future benefits on the consolidated statements of earnings (3) Included in surrender and other policy benefits on the consolidated statements of earnings 87 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 22) Revenues from Contracts with Customers The Company reports revenues from contracts with customers pursuant to ASC No. 606, Revenue from Contracts with Customers. Contracts with Customers Information about Performance Obligations and Contract Balances The Company’s cemetery and mortuary segment sells a variety of goods and services to customers in both at-need and pre-need situations. Due to the timing of the fulfillment of the obligation, revenue is deferred until that obligation is fulfilled. The total contract liability for future obligations is included in deferred pre-need cemetery and mortuary contract revenues on the consolidated balance sheets and, as of December 31, 2023 and 2022, the balances were $18,237,246 and $16,226,836, respectively. The Company’s three types of future obligations are as follows: Pre-need Merchandise and Service Revenue: All pre-need merchandise and service revenue is deferred, and the funds are placed in trust until the need arises, the merchandise is received or the service is performed. The trust is then relieved, and the revenue and commissions are recognized. As of December 31, 2023 and 2022, the balances were $17,424,764 and $15,289,901, respectively. 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. As of December 31, 2023 and 2022, the balances were $812,482 and $936,935, respectively. Deferred revenue for at-need specialty revenue is not placed in trust. Deferred Pre-need Land Revenue: Deferred pre-need revenue and corresponding commissions are deferred until 10% of the funds are received from the customer through regular monthly payments. As of December 31, 2023 and 2022, the balances were nil and nil, respectively. Deferred pre-need land revenue is not placed in trust. Complete payment of the contract does not constitute fulfillment of the performance obligation. Goods or services are deferred until such 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. A transfer of goods and services does not fulfill an obligation and revenue remains deferred. 88 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 22) Revenues from Contracts with Customers (Continued) The opening and closing balances of the Company’s receivables, contract assets and contract liabilities are as follows: Opening (1/1/2023) Closing (12/31/2023) Increase/(decrease) Opening (1/1/2022) Increase/(decrease) Closing (12/31/2022) $ $ Receivables (1) Contract Balances Contract Asset $ 5,392,779 6,321,573 928,794 Receivables (1) Contract Balances Contract Asset $ 5,298,636 5,392,779 94,143 Contract Liability 16,226,836 18,237,246 2,010,410 Contract Liability 14,508,022 16,226,836 1,718,814 $ $ - - - - - - (1) Included in Receivables, net on the consolidated balance sheets 89 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 22) Revenues from Contracts with Customers (Continued) The following table disaggregates the opening and closing balances of the Company’s contract balances. Pre-need merchandise and services At-need specialty merchandise Pre-need land sales Opening (1/1/2023) Pre-need merchandise and services At-need specialty merchandise Pre-need land sales Closing (12/31/2023) Pre-need merchandise and services At-need specialty merchandise Pre-need land sales Opening (1/1/2022) Pre-need merchandise and services At-need specialty merchandise Pre-need land sales Closing (12/31/2022) Contract Balances Contract Asset Contract Liability - - - - - - - - $ $ $ $ 15,289,901 936,935 - 16,226,836 17,424,764 812,482 - 18,237,246 Contract Balances Contract Asset Contract Liability - - - - - - - - $ $ $ $ 13,722,348 785,674 - 14,508,022 15,289,901 936,935 - 16,226,836 $ $ $ $ $ $ $ $ 90 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 22) Revenues from Contracts with Customers (Continued) The amount of revenue recognized for 2023 and 2022 that was included in the opening contract liability balance was $4,539,540 and $4,588,290, respectively. 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. Major goods/service lines At-need Pre-need Timing of Revenue Recognition Goods transferred at a point in time Services transferred at a point in time Significant Judgments and Estimates Years Ended December 31 2022 2023 $ $ $ $ 19,957,735 7,907,076 27,864,811 17,560,899 10,303,912 27,864,811 $ $ $ $ 21,283,237 5,710,618 26,993,855 16,412,963 10,580,892 26,993,855 The Company’s cemetery and mortuary segment recognizes revenue on future performance obligations when goods are delivered and when services are performed and is not determined by the terms or payments of the contract as long as any good or service is paid in full prior to delivery. Prices are determined based on the market at the time a contract is created. Goods or services are not partially completed. There are no significant judgements, estimations, or allocation methods for when revenue should be recognized. Practical Expedients The Company has not elected to use any of the practical expedients under ASC 606. Contract Costs The Company’s cemetery and mortuary segment defers certain costs associated with obtaining a contract on future obligations. Pre-need Merchandise and Service Revenue: Pre-need merchandise and service revenues are deferred until the goods or services are delivered. Recognition can be years until the obligations are satisfied. Commissions and other costs are capitalized and deferred until the obligation is satisfied. Other costs include rent on pre-need offices and training rooms, and call center costs. Costs that are allocated based on a percentage include family service advisor compensation, bonuses, utilities, and supplies that are all used to procure a pre-need sale. At-need Specialty Merchandise Revenue: At-need specialty merchandise is ordered from a third-party manufacturer. Generally, at-need specialty merchandise is ordered and received within 90 days of order. These orders are also short-term in nature and are deferred until the product is received from the manufacturer and the obligation is satisfied. 91 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 22) Revenues from Contracts with Customers (Continued) Deferred Pre-need Land Revenue: Revenue is recognized on pre-need land sales when the customer has paid at least 10% toward the land price. In cases where customers pay less than 10% the revenue and associated commissions are deferred until such a time when 10% of the contract price is received. The following table disaggregates contract costs that are included in the deferred policy and pre-need contract acquisition costs on the consolidated balances sheets. Pre-need merchandise and services At-need specialty merchandise Pre-need land sales 23) Leases Years Ended December 31 2022 2023 3,951,267 $ 23,090 - 3,974,357 $ 3,780,173 35,371 - 3,815,544 $ $ A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period in exchange for consideration. The Company determines if a contract is a lease at the inception of the contract. At the commencement date of a lease, the Company measures the lease liability at the present value of the lease payments over the lease term, discounted using the discount rate for the lease. The Company uses the rate implicit in the lease, if available, otherwise the Company uses its incremental borrowing rate. Also, at the commencement date of a lease, the Company measures the cost of the related right-of-use asset which consists of the amount of the initial measurement of the lease liability, any lease payments made to the lessor at or before the commencement date, minus any lease incentives received and any initial direct costs incurred by the Company. Information about the Nature of Leases and Subleases The Company leases office space and equipment from third parties under various non-cancelable agreements. The Company has operating leases for office space for its segments in areas where it conducts business. The Company subleases some of this office space. The Company also has finance leases for certain equipment, such as copy machines and postage machines. The Company does not have any lease agreements with variable lease payments. The Company has not included any options to extend or terminate leases in the recognition of the right-of-use assets or lease liabilities because of the uncertainty that they will be exercised. No residual value guarantees have been provided to the Company. The Company does not have any restrictions or covenants imposed by leases. Leases that have not Commenced The Company does not have any leases that have not commenced that create significant rights or obligations for the Company. Related Party Lease Transactions The Company does not have any related party lease transactions that require disclosure as of December 31, 2023. 92 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 23) Leases (Continued) Short-term Leases The Company made an accounting policy election not to apply the recognition requirements of ASC 842 to short-term leases, which are leases that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying assets that the lessee is reasonably certain to exercise. Significant Judgments and Assumptions The Company does not use any significant judgments or assumptions regarding the determination of whether a contract contains a lease; the allocation of the consideration in a contract between lease and nonlease components; or the determination of the discount rates for the leases. The following table presents the Company’s total lease cost recognized in earnings, amounts capitalized as right-of-use assets and cash flows from lease transactions. Lease Cost Finance lease cost: Amortization of right-of-use assets (1) Interest on lease liabilities (2) Operating lease cost (3) Short-term lease cost (3)(4) Sublease income (3) Total lease cost Other Information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases Operating cash flows from finance leases Financing cash flows from finance leases Right-of-use assets obtained in exchange for lease liabilities: Operating leases Finance leases Weighted-average remaining lease term (in years) Finance leases Operating leases Weighted-average discount rate Finance leases Operating leases $ $ $ $ Years Ended December 31 2023 2022 25,573 1,713 3,914,954 1,874,556 (323,272) 5,493,524 4,007,919 1,713 27,868 160,348 12,332 $ $ $ $ 3.29 2.88 6.81% 4.54% 30,163 2,773 4,498,894 1,135,003 (209,455) 5,457,378 4,250,630 2,773 31,685 2,054,534 - 1.25 3.46 5.78% 4.50% (1) Included in Depreciation on property and equipment on the consolidated statements of earnings (2) Included in Interest expense on the consolidated statements of earnings (3) Included in Rent and rent related expenses on the consolidated statements of earnings (4) Includes leases with a term of 12 months or less 93 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022 23) Leases (Continued) The following table presents the maturity analysis of the Company’s lease liabilities. Lease payments due in: 2024 2025 2026 2027 2028 Thereafter Total undiscounted lease payments Less: Discount on cash flows Present value of lease liabilities Finance Leases Operating Leases $ $ 7,187 3,525 2,833 2,833 1,181 - 17,559 (2,009) 15,550 $ $ 3,187,826 2,073,045 1,443,598 340,112 128,854 195,695 7,369,130 (480,588) 6,888,542 The following table presents the Company’s right-of-use assets and lease liabilities. Balance Sheet Location 2023 2022 Year Ended December 31, Operating Leases Right-of-use assets Lease liabilities Finance Leases Right-of-use assets Accumulated amortization Right-of-use assets, net Other assets Other liabilities and accrued expenses Property and equipment, net Lease liabilities Bank and other loans payable $ $ $ $ $ 6,374,336 6,888,542 130,367 (115,565) 14,802 15,550 $ $ $ $ $ 9,987,699 10,596,471 228,221 (200,178) 28,043 31,082 The Company is also a lessor and has operating lease agreements with various tenants that lease its commercial properties. See Note 2 for information about the Company’s real estate held for investment. 94 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Market for the Registrant’s Common Stock, Related Stockholder Matters, and Issuer Purchases of Equity Securities The Company’s Class A common stock trades on The Nasdaq Global Select Market under the symbol “SNFCA.” As of March 26, 2024, the closing stock price of the Class A common stock was $7.62 per share. As of March 26, 2024, there were 1,747 registered stockholders of record of the Company’s Class A common stock and 42 registered stockholders of record of the Company’s Class C common stock. Because many of the Company’s shares of Class A common stock are held by brokers and other institutions on behalf of the stockholders, the Company is unable to estimate the total number of stockholders represented by these record holders. The following were the high and low market closing stock prices for the Class A common stock by quarter as reported by NASDAQ since January 1, 2022: Period (Calendar Year) 2022 First Quarter Second Quarter Third Quarter Fourth Quarter 2023 First Quarter Second Quarter Third Quarter Fourth Quarter 2024 First Quarter (through March 26, 2024) Price Range (1) High Low $ $ $ $ $ $ $ $ $ 9.39 $ 9.40 $ 8.20 $ 7.21 $ 7.19 $ 8.45 $ 8.83 $ 9.60 $ 9.04 $ 8.13 7.46 5.93 5.81 5.71 6.03 7.58 6.89 7.62 (1) Stock prices have been adjusted retroactively for the effect of annual stock dividends. The Class C common stock is not registered or traded on a national exchange. See Note 12 of the Notes to Consolidated Financial Statements. The Company has never paid a cash dividend on its Class A or Class C common stock. The Company currently anticipates that all its earnings will be retained for use in the operation and expansion of its business and does not intend to pay any cash dividends on its Class A or Class C common stock in the foreseeable future. Any future determination as to cash dividends will depend upon the earnings and financial position of the Company and such other factors as the Board of Directors may deem appropriate. The Company paid a 5% stock dividend on Class A and Class C common stock each year from 1990 through 2019, a 7.5% stock dividend for the year 2020, and a 5.0% stock dividend for the years 2021 through 2023. On December 27, 2022, 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 shares of the Company’s Class A Common Stock. The agreement is subject to the daily time, price, and volume conditions of Rule 10b-18. The agreement expired December 31, 2023. The following table shows the Company’s repurchase activity of its common stock during the three-month period ended December 31, 2023 under the 10b5-1 agreement. Period 10/1/2023-10/31/2023 11/1/2023-11/30/2023 12/1/2023-12/31/2023 Total (c) Total Number of Class A Shares Purchased as Part of Publicly Announced Plan or Program - - - (d) Maximum Number of Class A Shares that May Yet Be Purchased Under the Plan or Program (2) 318,043 318,043 318,043 - 318,043 - - - - (a) Total Number of Class A Shares Purchased (b) Average Price Paid per Class A Share (1) - - - - $ $ $ $ 95 SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Market for the Registrant’s Common Stock, Related Stockholder Matters, and Issuer Purchases of Equity Securities (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. The graph below compares the cumulative total stockholder return of the Company’s Class A common stock with the cumulative total return on the Standard & Poor’s 500 Stock Index and the Standard & Poor’s Insurance Index for the period from December 31, 2019 through December 31, 2023. The graph assumes that the value of the investment in the Company’s Class A common stock and in each of the indexes was $100 as of December 31, 2019 and that all dividends were reinvested. The comparisons in the graph below are based on historical data and are not intended to forecast the possible future performance of the Company’s Class A common stock. SNFC S & P 500 S & P Insurance 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 100 100 100 153 116 126 177 148 158 148 119 171 191 148 183 The stock performance graph set forth above is required by the Securities and Exchange Commission and shall not be deemed to be incorporated by reference by any general statement incorporating by reference this Form 10-K into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed soliciting material or filed under such acts. 96 Security National Financial Corporation 433 Ascension Way, 6th Floor Salt Lake City, UT 84123 www.SecurityNational.com 

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