SECURITY NATIONAL FINANCIAL CORP (SNFCA)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

The
Company’s operations over the last several years generally reflect three strategies which the Company expects to continue: (i)
increased attention to “niche” insurance products, such as the Company’s funeral plan policies and traditional whole
life products; (ii) increased emphasis on the funeral home and cemetery business; and (iii) capitalizing on the housing market by originating
mortgage loans.

Insurance
Operations

The
Company’s life insurance business includes funeral plans and interest-sensitive life insurance, as well as other traditional life,
accident and health insurance products. The Company places specific marketing emphasis on funeral plans through pre-need planning.

A
funeral plan is a small face value life insurance policy that generally has face coverage of up to $30,000. The Company believes that
funeral plans represent a marketing niche that is less competitive because most insurance companies do not offer similar coverage. The
purpose of the funeral plan policy is to pay the costs and expenses incurred at the time of a person’s death. On a per thousand-dollar
cost of insurance basis, these policies can be more expensive to the policyholder than many types of non-burial insurance due to their
low face amount, requiring the fixed cost of the policy administration to be distributed over a smaller policy size, and the simplified
underwriting practices that result in higher mortality costs.

The
following table shows the condensed financial results of the insurance operations for the three and six month periods ended June 30,
2026, and 2025. See Note 16 to the condensed consolidated financial statements.

Profitability
for the six-month period ended June 30, 2026 decreased due to (a) a $5,221,000 decrease in net investment income, (b) a $2,405,000 decrease
in insurance premiums and other considerations, (c) a $283,000 decrease in other revenues, and (d) a $62,000 increase in amortization
of deferred policy acquisition costs, which were partially offset by (i) a $2,266,000 increase in gains on investments and other assets,
(ii) a $2,114,000 decrease in policyholder benefits and claims, (iii) a $892,000 decrease in selling, general and administrative expenses,
(iv) a $571,000 decrease in income tax expense, (v) a $113,000 decrease in interest expense, (vi) a $57,000 decrease in intersegment
expenses, and (vii) a $54,000 increase in intersegment revenue.

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Funeral
Home and Cemetery Operations

The
Company sells funeral home services and products through its eleven funeral homes in Utah and four funeral homes in New Mexico. The Company
also sells cemetery services, products and land (burial plots) through its five cemeteries in Utah, one cemetery in San Diego County,
California, and one cemetery in Santa Fe, New Mexico. At-need funeral home and cemetery product sales and services are recognized as
revenue when the services are performed or when the products are delivered. Pre-need funeral home and cemetery product sales and services
are deferred until the merchandise is delivered, or services are performed. Revenue for pre-need cemetery land sales is recognized at
the time of sale, and land is removed from inventory.

The
following table shows the condensed financial results of the funeral home and cemetery operations for the three and six month periods
ended June 30, 2026, and 2025. See Note 16 to the condensed consolidated financial statements.

Profitability
in the six-month period ended June 30, 2026 increased due to (a) a $978,000 increase in gains on investments and other assets, (b) a
$408,000 increase in cemetery pre-need sales, (c) a $306,000 increase in net investment income, (d) a $212,000 increase in funeral home
at-need sales, (e) a $155,000 increase in cemetery at-need sales, (f) a $14,000 decrease in intersegment expenses, and (g) a $2,000 decrease
in cost of goods and services sold, which were partially offset by (i) a $715,000 increase in selling, general and administrative expenses,
primarily attributable to a $461,000 increase in personnel expenses, (ii) a $306,000 increase in income tax expense, (iii) a $184,000
increase in amortization of deferred policy acquisition costs, and (iv) a $19,000 decrease in other revenues.

Mortgage
Operations

The
Company’s wholly owned subsidiary, SecurityNational Mortgage Company (“SecurityNational Mortgage”), is a mortgage lender
incorporated under the laws of the State of Utah and approved and regulated by the Federal Housing Administration (FHA), a department
of the U.S. Department of Housing and Urban Development (HUD), which originates mortgage loans that qualify for government insurance
in the event of default by the borrower, in addition to various conventional mortgage loan products. SecurityNational Mortgage originates
and refinances mortgage loans on a retail basis. Mortgage loans originated or refinanced by SecurityNational Mortgage are funded through
loan purchase agreements with Security National Life, Kilpatrick Life and unaffiliated financial institutions.

SecurityNational
Mortgage receives fees from borrowers that are involved in mortgage loan originations and refinancings, and secondary fees earned from
third party investors that purchase the mortgage loans. Mortgage loans are generally sold with mortgage servicing rights (“MSRs”)
released to third-party investors or retained by SecurityNational Mortgage. SecurityNational Mortgage currently retains the mortgage
servicing rights on approximately 1.59% of its loan origination volume. These mortgage loans are serviced by either SecurityNational
Mortgage or an approved third-party sub-servicer.

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Mortgage
rates have followed the US Treasury yields in response to inflation and slowing new home sales. As expected, the lack of mortgage rate
reductions has resulted in a decrease in loan originations classified as ‘refinance.’ Higher than anticipated mortgage rates
have also had a negative effect on loan originations classified as ‘purchases’ although not as significant as those in the
refinance classification.

For
the three and six month periods ended June 30, 2026, and 2025, SecurityNational Mortgage originated 3,011 loans ($1,036,088,000 total
loan volume principal amount) and 3,375 loans ($1,134,783,000 total loan volume principal amount), respectively.

The
following table shows the condensed financial results of the mortgage operations for the three and six month periods ended June 30, 2026,
and 2025. See Note 16 to the condensed consolidated financial statements.

Losses
for the six-month period ended June 30, 2026 decreased due to (a) a $4,189,000 decrease in personnel expenses, (b) a $3,579,000 decrease
in commissions, (c) a $412,000 increase in the fair value of loan commitments, (d) a $332,000 decrease in rent and rent related expenses,
(e) a $254,000 decrease in advertising expenses, (f) a $201,000 decrease in interest expense, (g) a $63,000 decrease in depreciation
on property and equipment, (h) a $61,000 increase in net investment income, and (i) a $23,000 decrease in costs related to funding mortgage
loans, which were partially offset by (i) a $3,830,000 decrease in secondary gains from investors, (ii) a $1,507,000 decrease in the
fair value of loans held for sale, (iii) a $788,000 decrease in income tax benefit, (iv) a $291,000 increase in data processing and IT
related expenses, (v) a $161,000 increase in other expenses, (vi) an $82,000 decrease in income from loan originations, (vii) a $69,000
increase in intersegment expenses, (viii) a $57,000 decrease in intersegment revenues, (ix) a $42,000 decrease in gains on investments
and other assets, and (x) a $36,000 decrease in other revenues.

Consolidated
Results of Operatio

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Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The
Company’s operations over the last several years generally reflect three strategies which the Company expects to continue: (i)
increased attention to “niche” insurance products, such as the Company’s funeral plan policies and traditional whole
life products; (ii) increased emphasis on cemetery and mortuary business; and (iii) capitalizing on the housing market by originating
mortgage loans.

Insurance
Operations

The
following table shows the condensed financial results for the Company’s insurance operations for 2025, and 2024. See Note 20 of
the Notes to Consolidated Financial Statements. See Note 1 of the Notes to Consolidated Financial Statements regarding the adoption of
ASU 2018-12.

Profitability
for 2025 increased due to (a) a $8,124,000 increase in net investment income, (b) a $1,174,000 increase in gains on investments and other
assets, (c) a $340,000 increase in other revenues, (d) a $219,000 decrease in intersegment expenses, and (e) a $101,000 increase in insurance
premiums and other considerations, which were partially offset by (i) a $6,134,000 increase in selling, general and administrative expenses,
(ii) a $711,000 increase in amortization of deferred policy acquisition costs, (iii) a $621,000 increase in income tax expense, (iv)
a $276,000 decrease in intersegment revenue, (v) a $205,000 increase in policyholder benefits and claims, and (vi) a $7,000 increase
in interest expense.

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Cemetery
and Mortuary Operations

The
following table shows the condensed financial results for the Company’s cemetery and mortuary operations for 2025, and 2024. See
Note 20 of the Notes to Consolidated Financial Statements.

Profitability
in 2025 decreased due to (a) a $888,000 decrease in cemetery pre-need sales, (b) a $570,000 increase in selling, general and administrative
expenses, (c) a $223,000 decrease in net investment income, (d) an $8,000 increase in income tax expense, and (e) a $2,000 increase in
interest expense, which were partially offset by (i) a $526,000 increase in mortuary at-need sales, (ii) a $474,000 increase in gains
on investments and other assets, (iii) a $377,000 increase in other revenues, (iv) a $143,000 decrease in costs of goods and services
sold, (v) a $63,000 decrease in amortization of deferred policy acquisition costs, (vi) a $29,000 increase in cemetery at-need sales,
and (vii) a $29,000 decrease in intersegment expenses.

Mortgage
Operations

The
Company’s wholly owned subsidiary, SecurityNational Mortgage, is a mortgage lender incorporated under the laws of the State of
Utah and approved and regulated by the Federal Housing Administration (FHA), a department of the U.S. Department of Housing and Urban
Development (HUD), which originates mortgage loans that qualify for government insurance in the event of default by the borrower, in
addition to various conventional mortgage loan products. SecurityNational Mortgage originates and refinances mortgage loans on a retail
basis. Mortgage loans originated or refinanced by SecurityNational Mortgage are funded through loan purchase agreements with the Company,
Security National Life, Kilpatrick Life, and unaffiliated financial institutions.

SecurityNational
Mortgage receives fees from borrowers that are involved in mortgage loan originations and refinancings, and secondary fees earned from
third party investors that purchase the mortgage loans. Mortgage loans are generally sold with mortgage servicing rights (“MSRs”)
released to third-party investors or retained by SecurityNational Mortgage. SecurityNational Mortgage currently retains the MSRs on approximately
0.85% of its loan origination volume. These mortgage loans are serviced by either SecurityNational Mortgage or an approved third-party
sub-servicer.

Mortgage
rates have followed the US Treasury yields in response to inflation and slowing new home sales. As expected, the lack of mortgage rate
reductions has resulted in a decrease in loan originations classified as ‘refinance.’ Higher than anticipated mortgage rates
have also had a negative effect on loan originations classified as ‘purchases’ although not as significant as those in the
refinance classification.

For
2025, and 2024, SecurityNational Mortgage originated 6,844 loans ($2,296,055,000 total volume) and 7,269 loans ($2,295,830,000 total
volume), respectively.

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The
following table shows the condensed financial results for the Company’s mortgage operations for 2025, and 2024. See Note 20 of
the Notes to Consolidated Financial Statements.

Losses
in 2025 compared to 2024 decreased due to (a) a $5,462,000 increase in secondary gains from investors, (b) a $3,076,000 decrease in personnel
expenses, (c) a $1,302,000 decrease in rent and rent related expenses, (d) a $1,046,000 increase in gains on investments and other assets,
(e) a $248,000 decrease in intersegment expenses, and (f) a $13,000 decrease in depreciation on property and equipment, which were partially
offset by (i) a $2,254,000 decrease in the fair value of loans held for sale, (ii) a $1,563,000 decrease in the fair value of loan commitments,
(iii) a $1,379,000 decrease in other revenues, (iv) a $994,000 decrease in income from loan originations, (v) an $845,000 increase in
commissions, (vi) an $833,000 increase in other expenses, (vii) a $488,000 increase in costs related to funding mortgage loans, (viii)
a $390,000 increase in advertising expenses, (iv) a $374,000 increase in income tax expense, (x) a $287,000 decrease in net investment
income, (xi) a $255,000 increase in interest expense, (xii) a $220,000 decrease in intersegment revenues, and (xiii) a $187,000 increase
in data processing and IT related expenses.

Critical
Accounting Policies and Estimates

The
Company’s significant accounting policies are fundamental to understanding its results of operations and financial condition as
they require that the Company use estimates and assumptions that may affect the value of its assets or liabilities and financial results.
See Note 1 – Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements for further information.

Two
of these policies, discussed below, relate to critical estimates because they require management to make difficult, subjective and complex
judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under
different conditions or using different assumptions. Actual results could differ from those estimates.

The
Company’s Management and the Audit Committee of the Board of Directors have reviewed and approved the accounting policies associated
with these critical estimates.

Future
Policy Benefits

A
liability for future policy benefits is accrued as premium revenue is recognized, which is the present value of expected future
policy benefits to be paid to or on behalf of policyholders less the present value of expected future net premiums to be collected
from policyholders. This liability is calculated using a discount rate assumption that is an upper-medium grade fixed-income
instrument yield as provided by Bloomberg’s Evaluated Pricing (“BVAL”) methodology. This discount rate for a
particular cohort is locked-in when that cohort is closed to new contracts and is used for purposes of interest accretion for the
future policy benefits liability and is reflected in policyholder benefits and claims on the consolidated statements of earnings. The current rate as of each reporting date is used to calculate an adjusted future
policy benefit liability and is recognized through accumulated other comprehensive income (“AOCI”). Other assumptions include best-estimate
mortality and lapse rates that are based on the company’s historical experience, industry data, and other factors; also
estimates of expected non-level costs, such as termination or settlement costs. Routine policy maintenance costs are not included.
These assumptions are reviewed at least annually. Any changes to these assumptions will be reflected in policyholder benefits and
claims on the consolidated statements of earnings. The DPL equals accumulated deferrals (prior to and including the valuation
date) minus accumulated amortization, where “deferrals” equals the difference between gross and net premium, and
“amortization” equals the product of the measure of in force policies (units in force) and an amortization ratio which
is updated at the same time as the net premium ratio.

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Deferred
Acquisition Costs and Value of Business Acquired

Commissions
and other acquisition costs, net of commission and expense allowances for reinsurance ceded, that vary with and are primarily related
to the production of new insurance business that have been incurred are deferred. For traditional long-duration life insurance products,
deferred policy acquisition costs (“DAC”) are amortized on a constant-level basis established on a cohort-grouped contract
basis over the expected term of the related contracts, with the amortization basis being units in force using assumptions consistent
with those used in computing the liability for future policy benefits. For policyholder account balance insurance products, DAC is amortized
using the policy counts for annuities and units in-for

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