UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 30, 2012, or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _____ to ________

Commission file number: 000-09341

SECURITY NATIONAL FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

UTAH	87-0345941
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5300 South 360 West, Suite 250 Salt Lake City, Utah	84123
(Address of principal executive office)	(Zip Code)
(801) 264-1060 (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 Yes [X] No [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No[X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class A Common Stock, $2.00 par value	9,770,443
Title of Class	Number of Shares Outstanding as of
	November 13, 2012
Class C Common Stock, $.20 par value	10,451,661
Title of Class	Number of Shares Outstanding as of
	November 13, 2012

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer [  ]	Accelerated filer [  ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company)	Smaller reporting company [X]

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2012

TABLE OF CONTENTS

		Page No.
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011 (unaudited)	3-4
	Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended September 30, 2012 and 2011 (unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2012 and 2011 (unaudited)	6
	Condensed Consolidated Statements of Stockholders' Equity as of September 30, 2012 and September 30, 2011 (unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 (unaudited)	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	51
Item 4.	Controls and Procedures	52
	PART II - OTHER INFORMATION
	Other Information	52
	Signature Page	56
	Certifications	57

2

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

Assets	September 30, 2012		December 31, 2011
Investments:
Fixed maturity securities, held to maturity, at amortized cost	$	131,017,591	$	127,579,087
Equity securities, available for sale, at estimated fair value		5,404,888		6,299,392
Mortgage loans on real estate and construction loans, held for investment net of allowances for losses of $4,263,375 and $4,881,173 for 2012 and 2011		83,868,637		115,155,967
Real estate held for investment, net of accumulated depreciation of $4,417,735 and $4,189,641 for 2012 and 2011		3,596,336		3,786,780
Other real estate owned held for investment, net of accumulated depreciation of $2,748,820 and $1,810,238 for 2012 and 2011		59,562,388		46,398,095
Other real estate owned held for sale		5,998,740		5,793,900
Policy and other loans, net of allowances for doubtful accounts of $449,011 and $427,136 for 2012 and 2011		18,443,304		18,463,277
Short-term investments		8,248,217		6,932,023
Accrued investment income		2,501,814		2,323,080
Total investments		318,641,915		332,731,601
Cash and cash equivalents		57,172,185		17,083,604
Mortgage loans sold to investors		75,798,504		77,339,445
Receivables, net		14,692,059		9,934,075
Restricted assets of cemeteries and mortuaries		3,935,062		3,392,497
Cemetery perpetual care trust investments		2,049,165		1,810,185
Receivable from reinsurers		14,401,284		7,484,466
Cemetery land and improvements		11,086,542		11,105,809
Deferred policy and pre-need contract acquisition costs		37,271,008		36,237,069
Property and equipment, net		10,271,152		9,300,185
Value of business acquired		10,251,094		11,020,834
Goodwill		677,039		677,039
Other		4,513,891		3,022,113
Total Assets	$	560,760,900	$	521,138,922

See accompanying notes to condensed consolidated financial statements.

3

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

(Unaudited)

	September 30, 2012			December 31, 2011
Liabilities and Stockholders' Equity
Liabilities
Future life, annuity, and other benefits	$	400,594,188		$	381,595,568
Unearned premium reserve		4,889,796			5,030,443
Bank and other loans payable		22,687,673			25,019,119
Deferred pre-need cemetery and mortuary contract revenues		13,396,419			13,140,483
Cemetery perpetual care obligation		3,091,056			2,983,077
Accounts payable		2,939,381			2,672,479
Other liabilities and accrued expenses		23,628,940			14,456,887
Income taxes		18,784,667			15,010,279
Total liabilities		490,012,120			459,908,335
Stockholders' Equity
Common Stock:
Class A: common stock - $2.00 par value; 20,000,000 shares authorized; issued 9,639,121 shares in 2012 and 9,638,798 shares in 2011		19,278,242			19,277,596
Class B: non-voting common stock - $1.00 par value; 5,000,000 shares authorized; none issued or outstanding		-			-
Class C: convertible common stock - $0.20 par value; 15,000,000 shares authorized; issued 10,132,749 shares in 2012 and 10,135,976 in 2011		2,026,550			2,027,195
Additional paid-in capital		19,577,091			19,487,565
Accumulated other comprehensive income, net of taxes		492,886			654,443
Retained earnings		31,791,885			22,546,623
Treasury stock at cost - 1,060,011 Class A shares in 2012 and 1,198,167 Class A shares in 2011		(2,417,874	)		(2,762,835	)
Total stockholders' equity		70,748,780			61,230,587
Total Liabilities and Stockholders' Equity	$	560,760,900		$	521,138,922

See accompanying notes to condensed consolidated financial statements.

4

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues:
Insurance premiums and other considerations	$	12,045,553		$	11,823,557		$	36,915,237		$	36,409,158
Net investment income		5,732,572			5,107,590			17,924,518			14,095,396
Net mortuary and cemetery sales		2,619,605			2,442,221			8,121,244			8,146,824
Realized gains on investments and other assets		222,621			226,480			580,607			1,829,136
Other than temporary impairments on investments		(440,315	)		(30,000	)		(530,315	)		(95,129	)
Mortgage fee income		43,294,916			21,517,970			103,872,556			50,615,851
Other		272,951			236,869			715,490			962,049
Total revenues		63,747,903			41,324,687			167,599,337			111,963,285
Benefits and expenses:
Death benefits		5,914,468			5,303,622			16,024,565			16,588,193
Surrenders and other policy benefits		453,838			398,556			1,566,828			1,425,175
Increase in future policy benefits		4,806,944			5,153,073			15,743,504			14,680,267
Amortization of deferred policy and pre-need acquisition costs and value of business acquired		1,930,760			1,863,959			5,804,495			5,819,497
Selling, general and administrative expenses:
Commissions		23,486,730			13,268,027			58,766,750			30,417,508
Salaries		7,344,712			5,690,438			20,664,919			17,593,130
Provision for loan losses and loss reserve		1,763,090			466,025			3,263,437			1,573,360
Costs related to funding mortgage loans		1,980,512			1,219,729			5,141,164			3,065,563
Other		8,328,740			6,191,082			23,033,728			18,491,242
Interest expense		1,142,428			497,714			2,758,313			1,191,356
Cost of goods and services sold-mortuaries and cemeteries		463,386			437,972			1,334,369			1,464,908
Total benefits and expenses		57,615,608			40,490,197			154,102,072			112,310,199
Earnings (loss) before income taxes		6,132,295			834,490			13,497,265			(346,914	)
Income tax (provision) benefit		(2,142,249	)		(64,168	)		(4,252,003	)		803,630
Net earnings	$	3,990,046		$	770,322		$	9,245,262		$	456,716
Net earnings per Class A Equivalent common share (1)	$	0.42		$	0.08		$	0.97		$	0.05
Net earnings per Class A Equivalent common share-assuming dilution (1)	$	0.38		$	0.08		$	0.97		$	0.05
Weighted-average Class A equivalent common share outstanding (1)		9,585,285			9,390,822			9,540,631			9,258,945
Weighted-average Class A equivalent common shares outstanding-assuming dilution (1)		10,439,161			9,408,180			9,553,397			9,284,488

(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 share basis. Net earnings per common share represent net earnings per equivalent Class A common share. Net earnings per Class C common share is equal to one-tenth (1/10) of such amount.

See accompanying notes to condensed consolidated financial statements.

5

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net earnings	$	3,990,046		$	770,322		$	9,245,262		$	456,716
Other comprehensive income:
Net unrealized gains (losses) on derivative instruments		(2,184,088	)		904,655			(260,238	)		1,355,745
Net unrealized gains (losses) on available for sale securities		82,521			(1,287,086	)		98,681			(1,645,741	)
Other comprehensive loss		(2,101,567	)		(382,431	)		(161,557	)		(289,996	)
Comprehensive income	$	1,888,479		$	387,891		$	9,083,705		$	166,720

See accompanying notes to condensed consolidated financial statements.

6

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Class A  Common Stock		Class C Common  Stock			Additional Paid-in Capital			Accumulated Other Comprehensive  Income (Loss)			Retained Earnings			Treasury Stock			Total
Balance at December 31, 2010	$	18,357,890	$	1,932,031		$	19,689,993		$	1,188,246		$	21,907,579		$	(3,147,271	)	$	59,928,468
Net earnings		-		-			-			-			456,716			-			456,716
Other comprehensive loss		-		-			-			(289,996	)		-			-			(289,996	)
Grant of stock options		-		-			193,032			-			-			-			193,032
Sale of treasury stock		-		-			(45,303	)		-			-			255,218			209,915
Stock dividends		218		2			(29	)		-			(191	)		-			-
Conversion Class C to Class A		1,370		(1,371	)		1			-			-			-			-
Balance at September 30, 2011	$	18,359,478	$	1,930,662		$	19,837,694		$	898,250		$	22,364,104		$	(2,892,053	)	$	60,498,135
Balance at December 31, 2011	$	19,277,596	$	2,027,195		$	19,487,565		$	654,443		$	22,546,623		$	(2,762,835	)	$	61,230,587
Net earnings		-		-			-			-			9,245,262			-			9,245,262
Other comprehensive loss		-		-			-			(161,557	)		-			-			(161,557	)
Grant of stock options		-		-			187,510			-			-			-			187,510
Sale of treasury stock		-		-			(97,983	)		-			-			344,961			246,978
Conversion Class C to Class A		646		(645	)		(1	)		-			-			-			-
Balance at September 30, 2012	$	19,278,242	$	2,026,550		$	19,577,091		$	492,886		$	31,791,885		$	(2,417,874	)	$	70,748,780

See accompanying notes to condensed consolidated financial statements.

7

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2012			2011
Cash flows from operating activities:
Net cash provided by operating activities	$	34,508,526		$	18,747,200
Cash flows from investing activities:
Securities held to maturity:
Purchase-fixed maturity securities		(10,022,393	)		(46,815,511	)
Calls and maturities - fixed maturity securities		6,721,257			10,003,703
Securities available for sale:
Purchase - equity securities		(1,077,129	)		(4,531,858	)
Sales - equity securities		2,318,410			3,961,997
Purchase of short-term investments		(11,921,131	)		(47,770,901	)
Sales of short-term investments		10,604,937			46,348,579
Purchase of restricted assets		(511,969	)		(214,064	)
Changes in assets for perpetual care trusts		(196,621	)		(198,090	)
Amount received for perpetual care trusts		107,979			72,463
Mortgage, policy, and other loans made		(87,585,273	)		(98,585,760	)
Payments received for mortgage, policy and other loans		104,728,438			78,249,928
Purchase of property and equipment		(1,880,302	)		(474,301	)
Disposal of property and equipment		14,769			2,295,329
Purchase of real estate		(81,095	)		(416,580	)
Sale of real estate		401,443			4,255,993
Cash received for reinsurance with North America Life		-			12,990,444
Cash paid for purchase of subsidiaries, net of cash received		(180,591	)		-
Net cash provided by (used in) investing activities		11,440,729			(40,828,629	)
Cash flows from financing activities:
Annuity contract receipts		6,713,474			6,096,392
Annuity contract withdrawals		(10,257,481	)		(10,603,426	)
Repayment of bank loans on notes and contracts		(1,069,127	)		(1,580,448	)
Proceeds from borrowing on bank loans		152,460			3,615,085
Change in line of credit borrowings		(1,400,000	)		8,000,000
Net cash provided by (used in) financing activities		(5,860,674	)		5,527,603
Net change in cash and cash equivalents		40,088,581			(16,553,826	)
Cash and cash equivalents at beginning of period		17,083,604			39,556,503
Cash and cash equivalents at end of period	$	57,172,185		$	23,002,677
Non Cash Investing and Financing Activities
Mortgage loans foreclosed into real estate	$	15,200,527		$	7,680,063

See accompanying notes to condensed consolidated financial statements.

8

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2012 (Unaudited)

1)         Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Articles 8 and 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements of the Company and notes thereto for the year ended December 31, 2011, included in the Company’s Annual Report on Form 10-K (file number 000-09341). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

The estimates susceptible to significant change are those used in determining the liability for future policy benefits and claims, those used in determining valuation allowances for mortgage loans on real estate and construction loans held for investment, those used in determining loan loss reserve, and those used in determining the estimated future costs for pre-need sales. Although some variability is inherent in these estimates, management believes the amounts provided are fairly stated in all material respects.

Certain 2011 amounts have been reclassified to bring them into conformity with the 2012 presentation.

2)       Recent Accounting Pronouncements

Disclosures about Offsetting Assets and Liabilities – In December 2011, the Financial Accounting Standards Board ("FASB") issued authoritative guidance related to balance sheet offsetting. The new guidance requires disclosures about assets and liabilities that are offset or have the potential to be offset. These disclosures are intended to address differences in the asset and liability offsetting requirements under U.S. GAAP and International Financial Reporting Standards (“IFRS”). This new guidance will be effective for us for interim and annual reporting periods beginning January 1, 2013, with retrospective application required. The adoption of this guidance is not expected to have a material impact on the Company’s results of operations or financial position.

9

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2012 (Unaudited)

3)           Investments

The Company’s investments in fixed maturity securities held-to-maturity and equity securities available for sale as of September 30, 2012 are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized  Losses			Estimated Fair Value
September 30, 2012:
Fixed maturity securities held to maturity carried at amortized cost:
Bonds:
U.S. Treasury securities and obligations of U.S. Government agencies	$	2,607,083	$	548,554	$	-		$	3,155,637
Obligations of states and political subdivisions		2,040,113		267,896		(6,119	)		2,301,890
Corporate securities including public utilities		119,561,259		16,644,289		(648,386	)		135,557,162
Mortgage-backed securities		5,298,258		344,811		(111,241	)		5,531,828
Redeemable preferred stock		1,510,878		79,742		(2,000	)		1,588,620
Total fixed maturity securities held to maturity	$	131,017,591	$	17,885,292	$	(767,746	)	$	148,135,137

10

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2012 (Unaudited)

3)           Investments (Continued)

	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
September 30, 2012:
Equity securities available for sale at estimated fair value:
Non-redeemable preferred stock	$	20,281		$	394	$	(1,100	)	$	19,575
Common stock:
Industrial, miscellaneous and all other		6,295,937			339,392		(1,250,016	)		5,385,313
Total equity securities available for sale at estimated fair value	$	6,316,218		$	339,786	$	(1,251,116	)	$	5,404,888
Mortgage loans on real estate and construction loans held for investment at amortized cost:
Residential	$	50,133,436
Residential construction		5,589,673
Commercial		32,408,903
Less: Allowance for loan losses		(4,263,375	)
Total mortgage loans on real estate and construction loans held for investment	$	83,868,637
Real estate held for investment - net of depreciation	$	3,596,336
Other real estate owned held for investment - net of  depreciation		59,562,388
Other real estate owned held for sale		5,998,740
Total real estate	$	69,157,464
Policy and other loans at amortized cost - net of allowance for doubtful accounts	$	18,443,304
Short-term investments at amortized cost	$	8,248,217

11

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2012 (Unaudited)

3)           Investments (Continued)

The Company’s investments in fixed maturity securities held to maturity and equity securities available for sale as of December 31, 2011 are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
December 31, 2011:
Fixed maturity securities held to maturity carried at amortized cost:
Bonds:
U.S. Treasury securities and obligations of U.S. Government agencies	$	2,820,159	$	551,740	$	-		$	3,371,899
Obligations of states and political subdivisions		3,024,425		309,986		(13,156	)		3,321,255
Corporate securities including public utilities		113,648,447		10,075,071		(2,268,146	)		121,455,372
Mortgage-backed securities		6,575,178		354,286		(356,900	)		6,572,564
Redeemable preferred stock		1,510,878		72,639		(129,200	)		1,454,317
Total fixed maturity securities held to maturity	$	127,579,087	$	11,363,722	$	(2,767,402	)	$	136,175,407

12

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2012 (Unaudited)

3)           Investments (Continued)

	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
December 31, 2011:
Equity securities available for sale at estimated fair value:
Non-redeemable preferred stock	$	20,281		$	-	$	(1,843	)	$	18,438
Common stock:
Industrial, miscellaneous and all other		7,250,991			363,387		(1,333,424	)		6,280,954
Total equity securities available for sale at estimated fair value	$	7,271,272		$	363,387	$	(1,335,267	)	$	6,299,392
Mortgage loans on real estate and construction loans held for investment at amortized cost:
Residential	$	54,344,327
Residential construction		17,259,666
Commercial		48,433,147
Less: Allowance for loan losses		(4,881,173	)
Total mortgage loans on real estate and construction loans held for investment	$	115,155,967
Real estate held for investment - net of depreciation	$	3,786,780
Other real estate owned held for investment - net of depreciation		46,398,095
Other real estate owned held for sale		5,793,900
Total real estate	$	55,978,775
Policy and other loans at amortized cost - net of allowance for doubtful accounts	$	18,463,277
Short-term investments at amortized cost	$	6,932,023

13

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2012 (Unaudited)

3)           Investments (Continued)

Fixed Maturity Securities

The following tables summarize unrealized losses on fixed maturity securities, which are carried at amortized cost, at September 30, 2012 and December 31, 2011. The unrealized losses were primarily related to interest rate fluctuations. The tables set forth unrealized losses by duration and number of investment positions, together with the fair value of the related fixed maturity securities:

	Unrealized Losses for Less than Twelve Months		No. of  Investment  Positions		Unrealized Losses  for More than Twelve Months		No. of  Investment  Positions		Total Unrealized  Loss
At September 30, 2012
Obligations of states and political subdivisions	$	-		-	$	6,119		2	$	6,119
Corporate securities including public utilities		129,509		23		518,877		11		648,386
Mortgage-backed securities		-		-		111,241		4		111,241
Redeemable preferred stock		-		-		2,000		1		2,000
Total unrealized losses	$	129,509		23	$	638,237		18	$	767,746
Fair Value	$	4,701,177			$	7,091,113			$	11,792,290
At December 31, 2011
Obligations of states and political subdivisions	$	-		-	$	13,156		2	$	13,156
Corporate securities including public utilities		1,544,224		47		723,922		12		2,268,146
Mortgage-backed securities		161,300		3		195,600		1		356,900
Redeemable preferred stock		800		1		128,400		1		129,200
Total unrealized losses	$	1,706,324		51	$	1,061,078		16	$	2,767,402
Fair Value	$	24,249,533			$	3,762,892			$	28,012,425

As of September 30, 2012, the average market value of the related fixed maturities was 93.9% of amortized cost and the average market value was 91.0% of amortized cost as of December 31, 2011. During the nine months ended September 30, 2012 and 2011 an other than temporary decline in fair value resulted in the recognition of credit losses on fixed maturity securities of $135,000 and $95,129, respectively.

On a quarterly basis, the Company reviews its available-for-sale fixed investment securities related to corporate securities and other public utilities, consisting of bonds and preferred stocks that are in a loss position. The review involves an analysis of the securities in relation to historical values, and projected earnings and revenue growth rates. Based on the analysis, a determination is made whether a security will likely recover from the loss position within a reasonable period of time. If it is unlikely that the investment will recover from the loss position, the loss is considered to be other than temporary, the security is written down to the impaired value and an impairment loss is recognized. No other than temporary impairment loss was considered to exist for these fixed maturity securities as of September 30, 2012 and 2011.

14

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2012 (Unaudited)

3)           Investments (Continued)

Equity Securities

The following tables summarize unrealized losses on equity securities that were carried at estimated fair value based on quoted trading prices at September 30, 2012 and December 31, 2011. The unrealized losses were primarily the result of decreases in fair value due to overall equity market declines. The tables set forth unrealized losses by duration and number of investment positions, together with the fair value of the related equity securities available-for-sale in a loss position:

	Unrealized Losses  for Less than  Twelve Months		No. of Investment Positions		Unrealized Losses  for More than Twelve Months		No. of  Investment  Positions		Total Unrealized  Losses
At September 30, 2012
Non-redeemable preferred stock	$	-		-	$	1,100		1	$	1,100
Industrial, miscellaneous and all other		148,049		36		1,101,967		50		1,250,016
Total unrealized losses	$	148,049		36	$	1,103,067		51	$	1,251,116
Fair Value	$	1,390,452			$	1,638,714			$	3,029,166
At December 31, 2011
Non-redeemable preferred stock	$	-		-	$	1,843		2	$	1,843
Industrial, miscellaneous and all other		955,400		79		378,024		14		1,333,424
Total unrealized losses	$	955,400		79	$	379,867		16	$	1,335,267
Fair Value	$	2,857,082			$	560,529			$	3,417,611

As of September 30, 2012, the average market value of the equity securities available for sale was 70.8% of the original investment and the average market value was 71.9% of the original investment as of December 31, 2011. The intent of the Company is to retain equity securities for a period of time sufficient to allow for the recovery in fair value. However, the Company may sell equity securities during a period in which the fair value has declined below the amount of the original investment. In certain situations new factors, including changes in the business environment, can change the Company’s previous intent to continue holding a security. During the nine months ended September 30, 2012 and 2011, there was no other than temporary decline in fair value.

On a quarterly basis, the Company reviews its investment in industrial, miscellaneous and all other equity securities that are in a loss position. The review involves an analysis of the securities in relation to historical values, price earnings ratios, projected earnings and revenue growth rates. Based on the analysis a determination is made whether a security will likely recover from the loss position within a reasonable period of time. If it is unlikely that the investment will recover from the loss position, the loss is considered to be other than temporary, the security is written down to the impaired value and an impairment loss is recognized. No other than temporary impairment loss was considered to exist for these equity securities as of September 30, 2012 and 2011.

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 fair values for equity securities are based on quoted market prices.

The amortized cost and estimated fair value of fixed maturity securities at September 30, 2012, by contractual maturity, are shown below. 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.

15

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2012 (Unaudited)

3)           Investments (Continued)

	Amortized Cost		Estimated Fair Value
Held to Maturity:
Due in 2012	$	300,706	$	301,899
Due in 2013 through 2016		17,444,315		19,009,264
Due in 2017 through 2021		50,211,439		56,777,245
Due after 2021		56,251,995		64,926,282
Mortgage-backed securities		5,298,258		5,531,828
Redeemable preferred stock		1,510,878		1,588,620
Total held to maturity	$	131,017,591	$	148,135,138

The amortized cost and estimated fair value of available for sale securities at September 30, 2012, by contractual maturity, are shown below. 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. Equities are valued using the specific identification method.

	Amortized Cost		Estimated Fair Value
Available for Sale:
Due in 2012 through 2015	$	-	$	-
Due in 2013 through 2016		-		-
Due in 2017 through 2021		-		-
Due after 2021		-		-
Non-redeemable preferred stock		20,281		19,575
Common stock		6,295,937		5,385,313
Total available for sale	$	6,316,218	$	5,404,888

The Company’s realized gains and losses, other than temporary impairments from investments and other assets, are summarized as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Fixed maturity securities held to maturity:
Gross realized gains	$	266,801		$	80,069		$	404,056		$	400,026
Gross realized losses		(1,292	)		(11,086	)		(1,626	)		(142,907	)
Other than temporary impairments		(45,000	)		(30,000	)		(135,000	)		(95,129	)
Securities available for sale:
Gross realized gains		139,352			48,680			291,932			503,804
Gross realized losses		-			(30	)		(5,705	)		(34,834	)
Other than temporary impairments		-			-			-			-
Other assets:
Gross realized gains		27,244			146,253			114,114			1,182,905
Gross realized losses		(209,484	)		(37,406	)		(222,163	)		(79,858	)
Other than temporary impairments		(395,315	)		-			(395,315	)		-
Total	$	(217,694	)	$	196,480		$	50,292		$	1,734,007

The net carrying amount of held to maturity securities sold was $1,976,273 and $12,341,156 for the nine months ended September 30, 2012 and the year ended December 31, 2011, respectively.  The net realized gain related to these sales was $273,447 and $462,267 for the nine months ended September 30, 2012 and the year ended December 31, 2011, respectively. Certain circumstances lead to these decisions to sell. In 2012 and 2011, the Company sold certain held to maturity bonds in gain positions to reduce its risk in certain industries or companies.

16

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2012 (Unaudited)

3)           Investments (Continued)

There were no investments, aggregated by issuer, in excess of 10% of shareholders’ equity (before net unrealized gains and losses on available-for-sale securities) at September 30, 2012, other than investments issued or guaranteed by the United States Government.

Major categories of net investment income are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Fixed maturity securities	$	1,949,666		$	2,033,778		$	5,803,282		$	5,773,035
Equity securities		65,839			70,589			197,563			197,480
Mortgage loans on real estate		1,566,734			1,839,705			5,700,159			4,881,213
Real estate		1,058,147			787,465			3,018,346			1,496,912
Policy and other loans		192,198			195,843			610,472			619,972
Short-term investments,  principally gains on sale of mortgage loans and other		2,172,955			1,509,731			6,216,686			4,423,576
Gross investment income		7,005,539			6,437,111			21,546,508			17,392,188
Investment expenses		(1,272,967	)		(1,329,521	)		(3,621,990	)		(3,296,792	)
Net investment income	$	5,732,572		$	5,107,590		$	17,924,518		$	14,095,396

Net investment income includes income earned by the restricted assets of the cemeteries and mortuaries of $247,844 and $240,240 for nine months ended September 30, 2012 and 2011, respectively.

Net investment income on real estate consists primarily of rental revenue received under short-term leases.

Investment expenses consist primarily of depreciation, property taxes, operating expenses of real estate and an estimated portion of administrative expenses relating to investment activities.

Securities on deposit for regulatory authorities as required by law amounted to $9,549,475 at September 30, 2012 and $9,593,318 at December 31, 2011. The restricted securities are included in various assets under investments on the accompanying condensed consolidated balance sheets.

Mortgage Loans

Mortgage loans consist of first and second mortgages. The mortgage loans bear interest at rates ranging from 2.0% to 10.5% per annum, maturity dates range from three months to 30 years and are secured by real estate. Concentrations of credit risk arise when a number of mortgage loan debtors have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. Although the Company has a diversified mortgage loan portfolio consisting of residential mortgages, commercial loans and residential construction loans and requires collateral on all real estate exposures, a substantial portion of its debtors’ ability to honor obligations is reliant on the economic stability of the geographic region in which the debtors live or do business. At September 30, 2012, the Company had 27%, 19% and 12% of its mortgage loans from borrowers located in the states of Utah, California and Florida, respectively. The mortgage loans on real estate balances on the consolidated balance sheet are reflected net of an allowance for loan losses of $4,263,375 and $4,881,173 at September 30, 2012 and December 31, 2011, respectively.

The Company establishes a valuation allowance for credit losses in its portfolio.

17

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2012 (Unaudited)

3)           Investments (Continued)

The following is a summary of the allowance for loan losses as a contra-asset account for the periods presented:

Allowance for Credit Losses and Recorded Investment in Mortgage Loans
	Commercial		Residential			Residential Construction			Total
September 30, 2012
Allowance for credit losses:
Beginning balance - January 1, 2012	$	-	$	4,338,805		$	542,368		$	4,881,173
Charge-offs		-		(364,127	)		(490,886	)		(855,013	)
Provision		-		237,215			-			237,215
Ending balance -September 30, 2012	$	-	$	4,211,893		$	51,482		$	4,263,375
Ending balance: individually evaluated for impairment	$	-	$	866,394		$	23,557		$	889,951
Ending balance: collectively evaluated for impairment	$	-	$	3,345,499		$	27,925		$	3,373,424
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-		$	-		$	-
Mortgage loans:
Ending balance	$	32,408,903	$	50,133,436		$	5,589,673		$	88,132,012
Ending balance: individually evaluated for impairment	$	761,652	$	5,329,240		$	1,559,358		$	7,650,250
Ending balance: collectively evaluated for impairment	$	31,647,251	$	44,804,196		$	4,030,315		$	80,481,762
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-		$	-		$	-
December 31, 2011
Allowance for credit losses:
Beginning balance - January 1, 2011	$	-	$	6,212,072		$	858,370		$	7,070,442
Charge-offs		-		(2,994,715	)		(430,274	)		(3,424,989	)
Provision		-		1,121,448			114,272			1,235,720
Ending balance - December 31, 2011	$	-	$	4,338,805		$	542,368		$	4,881,173
Ending balance: individually evaluated for impairment	$	-	$	738,975		$	250,524		$	989,499
Ending balance: collectively evaluated for impairment	$	-	$	3,599,830		$	291,844		$	3,891,674
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-		$	-		$	-
Mortgage loans:
Ending balance	$	48,433,147	$	54,344,327		$	17,259,666		$	120,037,140

18

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2012 (Unaudited)

3)           Investments (Continued)

The following is a summary of the aging of mortgage loans for the periods presented:

Age Analysis of Past Due Mortgage Loans
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days 1)		In Foreclosure 1)		Total Past Due		Current		Total Mortgage Loans		Allowance for Loan Losses			Net Mortgage Loans
September 30, 2012
Commercial	$	-	$	-	$	125,554	$	761,652	$	887,206	$	31,521,697	$	32,408,903	$	-		$	32,408,903
Residential		1,773,999		2,354,104		3,978,403		5,329,240		13,435,746		36,697,690		50,133,436		(4,211,893	)		45,921,543
Residential   Construction		-		-		974,758		1,559,358		2,534,116		3,055,557		5,589,673		(51,482	)		5,538,191
Total	$	1,773,999	$	2,354,104	$	5,078,715	$	7,650,250	$	16,857,068	$	71,274,944	$	88,132,012	$	(4,263,375	)	$	83,868,637
December 31, 2011
Commercial	$	-	$	-	$	1,053,500	$	2,758,235	$	3,811,735	$	44,621,412	$	48,433,147	$	-		$	48,433,147
Residential		2,478,084		2,058,261		5,500,340		4,611,995		14,648,680		39,695,647		54,344,327		(4,338,805	)		50,005,522
Residential   Construction		859,651		682,532		309,651