Edgar Filing: SECURITY NATIONAL FINANCIAL CORP

including principal and interest, collateralized by real

property, with a book value of approximately $803,000,

due September 2010.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

SCHEDULE 14A

(Rule 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

Filed by Registrant [X ]

Filed by a Party other than the Registrant o

Check the appropriate box:

[

]

Preliminary Proxy Statement

[

]

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(3)(2))

[ X]

Definitive Proxy Statement

[ ]	Definitive Additional Materials

[ ]	Soliciting Material Pursuant to §240.14a-12

SECURITY NATIONAL FINANCIAL CORPORATION

(Name of Registrant as Specified In Its Charter)

_________________________________________

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the Appropriate box):

[X ]

No fee required.

[ ]	Fee computed on table below per Securities Exchange Act Rules 15a-6(i)(4) and 0-11.

[ ]	Fee paid previously with preliminary materials.

(1)	Title of each class of securities to which transaction applies:
(2)	Aggregate number of securities to which transaction applies:
(3)	Per unit price or other underlying value of transaction computed pursuant to Securities Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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o	Check box if any part of the fee is offset as provided by Securities Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

(1)	Amount Previously Paid:
(2)	Form, Schedule or Registration Statement No.:
(3)	Filing Party:
(4)	Date Filed:

SECURITY NATIONAL FINANCIAL CORPORATION

5300 South 360 West, Suite 250

Salt Lake City, Utah 84123

June 8, 2007

Dear Stockholder:

On behalf of the Board of Directors, it is my pleasure to invite you to attend the Annual Meeting of Stockholders of Security National Financial Corporation (the "Company") to be held on Friday, July 13, 2007, at 10:00 a.m., Mountain Daylight Time, at Valley Center Towers, 5373 South Green Street, Conference Room 105, Salt Lake City, Utah.

The formal notice of the Annual Meeting and the Proxy Statement have been made a part of this invitation. Also enclosed is a copy of the Company’s Annual Report for the year ended December 31, 2006.

The matters to be addressed at the meeting will include (1) the election of seven directors; (2) the approval of the amendment to the 2003 Stock Option Plan to authorize an additional 400,000 shares of Class A common stock and an additional 1,000,000 shares of Class C common Stock to be made available for issuance under the plan; (3) the approval of the adoption of the 2006 Director Stock Option Plan for the outside directors and the reserving of 100,000 shares of Class A common stock for issuance thereunder; and (4) the ratification of the appointment of Hansen, Barnett & Maxwell, P.C. as the Company's independent registered public accountants for the fiscal year ending December 31, 2007. I will also report on the Company’s business activities and answer any stockholder questions.

The Board of Directors recommends that you vote FOR election of the director nominees , FOR the amendment to the 2003 Stock Option Plan to authorize additional shares for issuance thereunder, FOR approval of the 2006 Director Stock Option Plan and to authorize shares for issuance thereunder, and FOR ratification of appointment of the independent registered public accountants. Please refer to the Proxy Statement for detailed information on each of the proposals and the Annual Meeting.

Your vote is very important. We hope you will take a few minutes to review the Proxy Statement and complete, sign, date and return your Proxy Card in the envelope provided, even if you plan to attend the meeting. Please note that sending us your Proxy will not prevent you from voting in person at the meeting, should you wish to do so.

Thank you for your support of Security National Financial Corporation. We look forward to seeing you at the Annual Meeting.

Sincerely yours,

/s/

George R. Quist

	George R. Quist
	Chairman of the Board and
		Chief Executive Officer

SECURITY NATIONAL FINANCIAL CORPORATION

5300 South 360 West, Suite 250

Salt Lake City, Utah 84123

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD JULY 13, 2007

Dear Stockholders:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Security National Financial Corporation (the "Company"), a Utah corporation, will be held on Friday, July 13, 2007, at Valley Center Towers, 5373 South Green Street, Conference Room 105, Salt Lake City, Utah, at 10:00 a.m., Mountain Daylight Time, to consider and act upon the following:

To elect a Board of Directors consisting of seven directors (two directors to be elected exclusively by the Class A common stockholders voting separately as a class and the remaining five directors to be elected by the Class A and Class C common stockholders voting together) to serve until the next Annual Meeting of Stockholders and until their successors are elected and qualified;

2.	To amend the Company's 2003 Stock Option Plan to authorize an additional 400,000 shares of Class A common stock and an additional 1,000,000 shares of Class C common stock to be made available for issuance thereunder;

3.	To approve the adoption of the 2006 Director Stock Option Plan for the outside directors and to reserve 100,000 shares of Class A common stock for issuance thereunder;

4.	To ratify the appointment of Hansen, Barnett & Maxwell, P.C. as the Company's independent registered public accountants for the fiscal year ending December 31, 2007; and

5.	To transact such other business as may properly come before the Annual Meeting or any adjournment thereof.

The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.

The Board of Directors has fixed the close of business on May 25, 2007, as the record date for determining stockholders entitled to notice of and to vote at the Annual Meeting and any adjournment thereof. A list of such stockholders will be available for examination by a stockholder for any purpose relevant to the meeting during ordinary business hours at the offices of the Company at 5300 South 360 West, Suite 250, Salt Lake City, Utah during the 20 days prior to the meeting.

If you do not expect to attend the meeting in person, it is important that your shares be represented. Please use the enclosed proxy card to vote on the matters to be considered at the meeting, sign and date the proxy card and mail it promptly in the enclosed envelope, which requires no postage if mailed in the United States. You may revoke your proxy at any time before the meeting by written notice to such effect, by submitting a subsequently dated proxy or by attending the meeting and voting in person. If your shares are held in “street name,” you should instruct your broker how to vote in accordance with your voting instruction form.

By order of the Board of Directors,

/s/

G. Robert Quist

		G. Robert Quist
	First Vice President and Secretary

June 8, 2007

Salt Lake City, Utah

SECURITY NATIONAL FINANCIAL CORPORATION

5300 South 360 West, Suite 250

Salt Lake City, Utah 84123

PROXY STATEMENT

For Annual Meeting of Stockholders

To Be Held on July 13, 2007

GENERAL INFORMATION

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Security National Financial Corporation (the "Company") for use at the Annual Meeting of Stockholders to be held on Friday, July 13, 2007 at Valley Center Towers, 5373 South Green Street, Conference Room 105, Salt Lake City, Utah, at 10:00 a.m., Mountain Daylight Time, or at any adjournment or postponements thereof (the "Annual Meeting"). The shares covered by the enclosed Proxy, if such is properly executed and received by the Board of Directors prior to the meeting, will be voted in favor of the proposals to be considered at the Annual Meeting, and in favor of the election of the nominees to the Board of Directors (two nominees to be elected by the Class A common stockholders voting separately as a class and five nominees to be elected by the Class A and Class C common stockholders voting together) as listed unless such Proxy specifies otherwise, or the authority to vote in the election of directors is withheld.

A Proxy may be revoked at any time before it is exercised by giving written notice to the Secretary of the Company at 5300 South 360 West, Suite 250, Salt Lake City, Utah 84123, Attention: G. Robert Quist, by submitting in writing a Proxy bearing a later date, or by attending the Annual Meeting and voting in person. Stockholders may vote their shares in person if they attend the Annual Meeting, even if they have executed and returned a Proxy. This Proxy Statement and accompanying Proxy Card are being mailed to stockholders on or about June 8, 2007.

If a stockholder wishes to assign a proxy to someone other than the Directors' Proxy Committee, all three names appearing on the Proxy Card must be crossed out and the name(s) of another person or persons (not more than three) inserted. The signed card must be presented at the meeting by the person(s) representing the shareholder.

The cost of this solicitation will be borne by the Company. The Company may reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding solicitation materials to such beneficial owners. Proxies may also be solicited by certain of the Company's directors, officers, and regular employees, without additional compensation.

The matters to be brought before the Annual Meeting are (1) to elect directors to serve for the ensuing year; (2) to approve the amendment to the 2003 Stock Option Plan to authorize an additional 400,000 shares of Class A common stock and an additional 1,000,000 shares of Class C common stock to be made available for issuance under the plan; (3) to approve the adoption of the 2006 Director Stock Option Plan for the outside directors and the reserving of 100,000 shares of Class A common stock for issuance thereunder; (4) to ratify the appointment of Hansen, Barnett & Maxwell, P.C. as the Company's independent registered public accountants for the fiscal year ending December 31, 2007; and (5) to transact such other business as may properly come before the Annual Meeting.

RECORD DATE AND VOTING INFORMATION

Only holders of record of common stock at the close of business on May 25, 2007, will be entitled to vote at the Annual Meeting. As of May 25, 2007, there were issued and outstanding 6,356,105 shares of Class A common stock, $2.00 par value per share and 6,966,849 shares of Class C common stock, $.20 par value per share, resulting in a total of 13,322,954 shares of both Class A and Class C common shares. A majority of the outstanding shares (or 6,661,478 shares) of common stock will constitute a quorum for the transaction of business at the meeting. A list of our stockholders will be available for review at the Company’s executive offices during regular business hours for a period of 20 days before the Annual Meeting.

The holders of each class of common stock of the Company are entitled to one vote per share. Cumulative voting is not permitted in the election of directors.

After carefully reading and considering the information contained in this Proxy Statement, each holder of the Company’s common stock should complete, date and sign the Proxy Card and mail the Proxy Card in the enclosed return envelope as soon as possible so that those shares of the Company’s common stock can be voted at the Annual Meeting, even if the holders plan to attend the Annual Meeting in person.

Proxies received at any time before the Annual Meeting, and not revoked or superseded before being voted, will be voted at the Annual Meeting. If a Proxy indicates a specification, it will be in accordance with the specification. If no specification is indicated, the Proxy will be voted for approval of the election of the directors recommended by the Board of Directors, for approval of the amendment to the 2003 to Stock Option Plan to authorize an additional 400,000 shares of Class A common stock and an additional 1,000,000 shares of Class C common stock to be made available for issuance thereunder, for approval of the adoption of the 2006 Director Stock Option Plan for the outside directors and the reserving of 100,000 shares of Class A common stock for issuance thereunder, for the ratification of the appointment of Hansen, Barnett & Maxwell, P.C. as the Company’s independent registered public accountants for the fiscal year ending December 31, 2007 and, in the discretion of the persons named in the Proxy, with respect to the other business that may properly come before the meeting or any adjournments of the meeting. You may also vote in person by ballot at the Annual Meeting.

The Company's Articles of Incorporation provide that the Class A common stockholders and Class C common stockholders have different voting rights in the election of directors. The Class A common stockholders voting separately as a class will be entitled to vote for two of the seven directors to be elected (the nominees to be voted upon by the Class A common stockholders separately consist of Messrs. J. Lynn Beckstead, Jr. and H. Craig Moody).

The remaining five directors will be elected by the Class A and Class C common stockholders voting together (the nominees to be so voted upon consist of Messrs. Charles L. Crittenden, Robert G. Hunter, M.D., George R. Quist, Scott M. Quist, and Norman G. Wilbur). For the other business to be conducted at the Annual Meeting, the Class A and Class C common stockholders will vote together, one vote per share. Class A common stockholders will receive a different form of Proxy than the Class C common stockholders.

Your vote is important. Please complete and return the Proxy Card so your shares can be represented at the Annual Meeting, even if you plan to attend in person.

ELECTION OF DIRECTORS

PROPOSAL 1

The Nominees

The Company’s Board of Directors consists of seven directors. All directors are elected annually to serve until the next annual meeting of stockholders and until their respective successors are duly elected and qualified, or until their earlier resignation or removal. The nominees for the upcoming election of directors include four independent directors, as defined in the applicable rules for companies traded on the Nasdaq Stock Market, and three members of the Company’s senior management. All of the nominees for director have served as directors since the 2006 Annual Meeting.

The nominees to be elected by the holders of Class A common stock are as follows:

	Name		Age		Director Since		Position(s) with the Company
J. Lynn Beckstead, Jr.		53		2002		Vice President of Mortgage Operations and Director
H. Craig Moody		55		1995		Director

The nominees for election by the holders of Class A and Class C common stock, voting together, are as follows:

	Name		Age		Director Since		Position(s) with the Company
Charles L. Crittenden		87		1979		Director
Robert G. Hunter, M.D.		47		1998		Director
George R. Quist		86		1979		Chairman of the Board and Chief Executive Officer
Scott M. Quist		54		1986		President, Chief Operating Officer and Director
Norman G. Wilbur		68		1998		Director

The following is a description of the business experience of each of the nominees and directors.

George R. Quist has been Chairman of the Board and Chief Executive Officer of the Company since 1979. Mr. Quist served as President of the Company from 1979 until 2002. From 1960 to 1964, Mr. Quist was Executive Vice President and Treasurer of Pacific Guardian Life Insurance Company. From 1946 to 1960, he was an agent, District Manager and Associate General Agent for various insurance companies. Mr. Quist also served from 1981 to 1982 as the President of The National Association of Life Companies, a trade association of 642 life insurance companies, and from 1982 to 1983 as its Chairman of the Board.

Scott M. Quist has been President of the Company since 2002, its Chief Operating Officer since 2001, and a director since 1986. Mr. Quist served as First Vice President of the Company from 1986 to 2002. From 1980 to 1982, Mr. Quist was a tax specialist with Peat, Marwick, Mitchell, & Co., in Dallas, Texas. From 1986 to 1991, he was Treasurer and a director of The National Association of Life Companies, a trade association of 642 insurance companies until its merger with the American Council of Life Companies. Mr. Quist has been a member of the Board of Governors of the Forum 500 Section (representing small insurance companies) of the American Council of Life Insurance. He has also served as a regional director of Key Bank of Utah since November 1993. Mr. Quist is currently a director and a past president of the National Alliance of Life Companies, a trade association of over 200 life companies.

J. Lynn Beckstead Jr. has been Vice President of Mortgage Operations and a director of the Company since 2002. In addition, Mr. Beckstead is President of SecurityNational Mortgage Company, an affiliate of the Company, having served in this position since 1993. From 1990 to 1993, Mr. Beckstead was Vice President and a director of Republic Mortgage Corporation. From 1983 to 1990, Mr. Beckstead was Vice President and a director of Richards Woodbury Mortgage Corporation. From 1980 to 1983, he was a principal broker for Boardwalk Properties. From 1978 to 1980, Mr. Beckstead was a residential loan officer for Medallion Mortgage Company. From 1977 to 1978, he was a residential construction loan manager of Citizens Bank.

Charles L. Crittenden has been a director of the Company since 1979. Mr. Crittenden has been sole stockholder of Crittenden Paint & Glass Company since 1958. He is also an owner of Crittenden Enterprises, a real estate development company, and Chairman of the Board of Linco, Inc.

Robert G. Hunter, M.D. has been a director of the Company since 1998. Dr. Hunter is currently a practicing physician in private practice. Dr. Hunter created the statewide E.N.T. Organization (Rocky Mountain E.N.T., Inc.) where he is currently a member of the Executive Committee. He is also Chairman of Surgery at Cottonwood Hospital, a delegate to the Utah Medical Association and a delegate representing the State of Utah to the American Medical Association, and a member of several medical advisory boards.

H. Craig Moody has been a director of the Company since 1995. Mr. Moody is owner of Moody & Associates, a political consulting and real estate company. He is a former Speaker and House Majority Leader of the House of Representatives of the State of Utah.

Norman G. Wilbur has been a director of the Company since 1998. Mr. Wilbur worked for J.C. Penny's regional offices in budget and analysis. His final position was Manager of Planning and Reporting for J.C. Penney's stores. After 36 years with J.C. Penny's, he took an option of an early retirement in 1997. Mr. Wilbur is a past board member of Habitat for Humanity in Plano, Texas.

The Board of Directors recommends that stockholders vote "FOR" the election of each of the director nominees.

The Board of Directors, Board Committees and Meetings

The Company's Bylaws provide that the Board of Directors shall consist of not less than three nor more than eleven members. The term of office of each director is for a period of one year or until the election and qualification of his successor. A director is not required to be a resident of the State of Utah but must be a stockholder of the Company. The Board of Directors held a total of four meetings during the fiscal year ended December 31, 2006. No directors attended fewer than 75% of all meetings of the Board of Directors during the 2006 fiscal year.

The size of the Board of Directors of the Company for the coming year is seven members. A majority of the Board of Directors must qualify as "independent" as that term is defined in Rule 4200 of the listing standards of the Nasdaq Stock Market. The Board of Directors has affirmatively determined that four of the seven members of the Board of Directors, Messrs. Charles L. Crittenden, Robert G. Hunter, M.D., H. Craig Moody and Norman G. Wilbur, are independent under the listing standards of the Nasdaq Stock Market.

Unless authority is withheld by your Proxy, it is intended that the common stock represented by your Proxy will be voted for the respective nominees listed above. If any nominee should not serve for any reason, the Proxy will be voted for such person as shall be designated by the Board of Directors to replace such nominee. The Board of Directors has no reason to expect that any nominee will be unable to serve. There is no arrangement between any of the nominees and any other person or persons pursuant to which he was or is to be selected as a director. There is no family relationship between or among any of the nominees, except that Scott M. Quist is the son of George R. Quist.

There are four committees of the Board of Directors, which meet periodically during the year: the Audit Committee, the Compensation Committee, the Executive Committee, and the Nominating and Corporate Governance Committee.

The Audit Committee directs the auditing activities of the Company's internal auditors and outside public accounting firm and approves the services of the outside public accounting firm. The Audit Committee consists of Messrs. Charles L. Crittenden, H. Craig Moody and Norman G. Wilbur (Chairman of the committee). During 2006, the Audit Committee met on three occasions.

The Compensation Committee is responsible for recommending to the Board of Directors for approval the annual compensation of each executive officer of the Company and the executive officers of the Company's subsidiaries, developing policy in the areas of compensation and fringe benefits, contributions under the Employee Stock Ownership Plan, contributions under the 401(k) Retirement Savings Plan, Deferred Compensation Plan, granting of options under the stock option plans, and creating other employee compensation plans. The Compensation Committee consists of Messrs. Charles L. Crittenden (Chairman of the committee), Robert G. Hunter, M.D., H. Craig Moody and Norman G. Wilbur. During 2006, the Compensation Committee met on one occasion.

The Executive Committee reviews Company policy, major investment activities and other pertinent transactions of the Company. The Executive Committee consists of Messrs. George R. Quist, Scott M. Quist, and H. Craig Moody. During 2006, the Executive Committee met on two occasions

The Nominating and Corporate Governance Committee identifies individuals qualified to become board members consistent with criteria approved by the board, recommends to the board the persons to be nominated by the board for election as directors at a meeting of stockholders, and develops and recommends to the board a set of corporate governance principles. The Nominating and Corporate Governance Committee consists of Messrs. Charles L. Crittenden, Robert G. Hunter, M.D., H. Craig Moody (Chairman of the committee), and Norman G. Wilbur. The Nominating and Corporate Governance Committee is composed solely of independent directors, as defined in the listing standards of the Nasdaq Stock Market. During 2006, the Nominating and Corporate Governance Committee met on one occasion.

Director Nominating Process

The process for identifying and evaluating nominees for directors include the following steps: (1) the Nominating and Corporate Governance Committee, Chairman of the Board or other board members identify a need to fill vacancies or add newly created directorships; (2) the Chairman of the Nominating and Corporate Governance Committee initiates a search and seeks input from board members and senior management and, if necessary, obtains advice from legal or other advisors (but does not hire an outside search firm); (3) director candidates, including any candidates properly proposed by stockholders in accordance with the Company's Bylaws, are identified and presented to the Nominating and Corporate Governance Committee; (4) initial interviews with candidates are conducted by the Chairman of the Nominating and Corporate Governance Committee; (5) the Nominating and Corporate Governance Committee meets to consider and approve final candidate(s) and conduct further interviews as necessary; and (6) the Nominating and Corporate Governance Committee makes recommendations to the board for inclusion in the slate of directors at the annual meeting. The evaluation process will be the same whether the nominee is recommended by a stockholder or by a member of the Board of Directors.

The Nominating and Corporate Governance Committee will consider nominees proposed by stockholders. To recommend a perspective nominee for the Nominating and Corporate Governance Committee's consideration, stockholders may submit the candidate's name and qualifications to: G. Robert Quist, First Vice President and Secretary, Security National Financial Corporation, 5300 South 360 West, Suite 250, Salt Lake City, Utah 84123. Recommendations from stockholders for nominees must be received by Mr. Quist not later than the date set forth under "Deadline for Receipt of Stockholder's Proposals for Annual Meeting to be Held in July 2008" below.

The Nominating and Corporate Governance Committee operates pursuant to a written charter. The full text of the charter is published on the Company's website at www.securitynational.com. Stockholders may also obtain a copy of the charter without charge by writing to: G. Robert Quist, First Vice President and Secretary, Security National Financial Corporation, 5300 South 360 West, Suite 250, Salt Lake City, Utah 84123.

Meetings of Non-Management Directors

The Company's independent directors meet regularly in executive session without management. The Board of Directors has designated a lead director to preside at executive sessions of independent directors. Mr. H. Craig Moody is currently the lead director.

Stockholder Communications with the Board of Directors

Stockholders who wish to communicate with the Board of Directors or a particular director may send a letter to G. Robert Quist, First Vice President and Secretary, Security National Financial Corporation, 5300 South 360 West, Suite 250, Salt Lake City, Utah 84123. The mailing envelope must contain a clear notation indicating that the enclosed letter is a "Stockholder-Board Communication" or "Stockholder-Director Communication." All such letters must identify the author as a stockholder and clearly state whether the intended recipients are all members of the board or just certain specified individual directors. The Secretary will make copies of all such letters and circulate them to the appropriate director or directors.

Executive Officers

The following table sets forth certain information with respect to the executive officers of the Company (the business biographies for George R. Quist, Scott M. Quist and J. Lynn Beckstead, Jr. are set forth above):

	Name		Age		Title
George R. Quist¹		86		Chairman of the Board and Chief Executive Officer
Scott M. Quist¹		54		President, Chief Operating Officer and Director
Stephen M. Sill		61		Vice President, Treasurer and Chief Financial Officer
G. Robert Quist¹		55		First Vice President and Secretary
J. Lynn Beckstead, Jr.		53		Vice President of Mortgage Operations and Director
Christie Q. Overbaugh¹		58		Senior Vice President of Internal Operations

¹ George R. Quist is the father of Scott M. Quist, G. Robert Quist and Christie Q. Overbaugh

Stephen M. Sill has been Vice President, Treasurer and Chief Financial Officer of the Company since 2002. From 1997 to 2002, Mr. Sill was Vice President and Controller of the Company. From 1994 to 1997, Mr. Sill was Vice President and Controller of Security National Life Insurance Company. From 1989 to 1993, he was Controller of Flying J. Inc. From 1978 to 1989, Mr. Sill was Senior Vice President and Controller of Surety Life Insurance Company. From 1975 to 1978, he was Vice President and Controller of Sambo's Restaurant, Inc. From 1974 to 1975, Mr. Sill was Director of Reporting for Northwest Pipeline Corporation. From 1970 to 1974, he was an auditor with Arthur Andersen & Co. Mr. Sill is a past president and a former director of the Insurance Accounting and Systems Association, a national association of over 1,300 insurance companies and associate members.

G. Robert Quist has been First Vice President and Secretary of the Company since 2002. Mr. Quist has served as President of Memorial Estates since 2005 and its Vice President from 1982 to 2005. He began working for Memorial Estates in 1978. Mr. Quist has also served as First Vice President of Singing Hills Memorial Park since 1996. In addition, since 1987 Mr. Quist has served as President and a director of Big Willow Water Company and as Secretary-Treasurer and a director of the Utah Cemetery Association. From 1987 to 1988, Mr. Quist was a director of Investors Equity Life Insurance Company of Hawaii.

Christie Q. Overbaugh has been Senior Vice President of Internal Operations of the Company since June 2006, and a Vice President of the Company from 1998 to June 2006. Ms. Overbaugh has also served as Vice President of Underwriting for Security National Life Insurance Company since 1998. From 1986 to 1991, she was Chief Underwriter for Investors Equity Life Insurance Company of Hawaii and Security National Life Insurance Company. From 1990 to 1991, Ms. Overbaugh was President of the Utah Home Office Underwriters Association. Ms. Overbaugh is currently a member of the Utah Home Office Underwriters Association and an Associate Member of LOMA (Life Office Management Association).

The Board of Directors of the Company has a written procedure that requires disclosure to the board of any material interest or any affiliation on the part of any of its officers, directors or employees that is in conflict or may be in conflict with the interests of the Company.

No director, officer or 5% stockholder of the Company or its subsidiaries, or any affiliate thereof has had any transactions with the Company or its subsidiaries during 2006 or 2005.

Corporate Governance

Corporate Governance Guidelines. The Board of Directors has adopted the Security National Financial Corporation Corporate Governance Guidelines. These guidelines outline the functions of the board, director qualifications and responsibilities, and various processes and procedures designed to insure effective and responsive governance. The guidelines are reviewed from time to time in response to regulatory requirements and best practices and are revised accordingly. The full text of the guidelines is published on the Company's website at www.securitynational.com. A copy of the Corporate Governance Guidelines may also be obtained at no charge by written request to the attention of G. Robert Quist, First Vice President and Secretary, Security National Financial Corporation, 5300 South 360 West, Suite 250, Salt Lake City, Utah 84123.

Code of Business Conduct. All of the Company's officers, employees and directors are required to comply with the Company's Code of Business Conduct and Ethics to help insure that the Company's business is conducted in accordance with appropriate standards of ethical behavior. The Company's Code of Business Conduct and Ethics covers all areas of professional conduct, including customer relationships, conflicts of interest, insider trading, financial disclosures, intellectual property and confidential information, as well as requiring adherence to all laws and regulations applicable to the Company's business. Employees are required to report any violations or suspected violations of the Code. The Code includes an anti-retaliation statement. The full text of the Code of Business Conduct and Ethics is published on the Company's website at www.securitynational.com. A copy of the Code of Business Conduct and Ethics may also be obtained at no charge by written request to the attention of G. Robert Quist, First Vice President and Secretary, Security National Financial Corporation, 5300 South 360 West, Suite 250, Salt Lake City, Utah 84123.

COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

Executive Officer Compensation

The following table sets forth, for each of the last three fiscal years, the compensation received by the named executive officers comprised of all individuals who served as the Company's Chief Executive Officer or Chief Financial Officer at any time during 2006, and the Company's three other most highly compensated executive officers who were serving as executive officers at the end of 2006 (collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

Name and

Principal Position

Year

Salary$

Bonus($)

Stock

Awards($)

Option

Awards($)

Non-Equity Incentive Plan Compen-sation($)

Change in Pension

Value and Non-qualified Deferred Compen-

sation Earnings($)(2)

All Other Compen-

sation($)(3)

Total($)

George R. Quist(1)

Chairman of the

Board and Chief

Executive Officer

2006

2005

2004

$203,013

186,300

165,600

$40,000

35,000

50,000

$21,967

21,340

21,341

$ 7,053

7,053

8,233

$272,033

249,693

245,174

Scott M. Quist(1)

President and Chief

Operating Officer

2006

2005

2004

$275,400

246,900

215,900

$75,000

75,000

$24,150

23,978

23,001

$16,034

27,711

18,972

$390,584

373,589

332,873

Stephen M. Sill

Vice President,

Treasurer and Chief

Financial Officer

2006

2005

2004

$120,292

115,063

102,855

$ 3,000

6,000

$13,922

12,518

11,134

$ 7,493

7,484

4,150

$144,707

141,065

124,139

J. Lynn Beckstead, Jr.

Vice President of

Mortgage Operations

2006

2005

2004

$246,292

220,306

195,796

$ 6,000

24,000

85,000

$21,945

21,735

21,000

$ 4,450

4,441

4,750

$278,687

270,482

306,546

G. Robert Quist(1)

First Vice President

and Secretary

2006

2005

2004

$126,221

115,063

104,814

$10,000

6,000

$12,209

10,205

10,161

$ 7,373

5,239

2,950

$155,803

136,507

117,925

______________________

(1)	George R. Quist is the father of Scott M. Quist and G. Robert Quist.

(2)	The amounts indicated under “Change in Pension Value and Non-qualified Deferred Compensation Earnings” consist of amounts contributed by the Company into a trust for the benefit of the Named Executive Officers under the Security National Financial Corporation Deferred Compensation Plan.

(3)

The amounts indicated under “All Other Annual Compensation” consist of (a) payments related to the operation of automobiles by the Named Executive Officers. Such amounts were for George R. Quist $2,400 for each of the years 2006, 2005 and 2004; Scott M. Quist $7,200 for each of the years 2006, 2005 and 2004; Stephen M. Sill $3,600 for each of the years 2006, 2005 and 2004; G. Robert Quist $4,525 for 2006, $2,400 for each of the years 2005 and 2004. However, such payments do not include the furnishing of an automobile by the Company to George R. Quist, Scott M. Quist, J. Lynn Beckstead Jr., and G. Robert Quist, nor the payment of insurance and property taxes with respect to the automobiles operated by the Named Executive Officers (b) insurance premiums paid by the Company with respect to a group life insurance plan for the benefit of the Named Executive Officers (for the years 2006, 2005 and 2004, such amounts were for George R. Quist $9, $9 and $17, respectively; for Scott M. Quist, G. Robert Quist, Stephen M. Sill and J. Lynn Beckstead, Jr., $250, $241, and $550 each, respectively); (c) life insurance premiums paid by the Company for the benefit of George R. Quist ($4,644 for each of the years 2006, 2005 and 2004); Scott M. Quist ($8,584 for the year 2006, $20,270 for the year 2005, and $11,222 for 2004); J. Lynn Beckstead, Jr. $4,200 for each of the years 2006, 2005 and 2004); G. Robert Quist, ($2,598 for each of the years 2006 and 2005), and Stephen M. Sill ($3,643, for each of the years 2006 and 2005) respectively; (d) the amounts under “All Other Compensation” includes the no-interest loan in the amount of $172,000 that the Company made to George R. Quist on April 29, 1998 to exercise stock options granted to him. As of January 1, 2004 and January 1, 2005, the outstanding balance on the loan was $37,540 and $1,540, respectively. The final payment on the loan was made on January 25, 2005.

SUPPLEMENTAL ALL OTHER COMPENSATION TABLE

Name

Year

Perks

and

Other

Personal

Benefits

Tax

Reimburse-

ments

Discounted

Securities

Purchases

Payments/

Accruals

on Termin-

ation Plans

Registrant

Contribu-

tions to

Defined

Contribu-

tion

Plans

Insurance

Premiums

Dividends

Earnings

on Stock

or Option

Awards

Other(1)

George R. Quist

2006

2005

2004

$2,400

2,400

$4,653

4,653

4,661

$1,172(1)

Scott M. Quist

Stephen M. Sill

J. Lynn

Beckstead, Jr.

G. Robert Quist

2006

2005

2004

2006

2005

2004

2006

2005

2004

2006

2005

2004

$7,200

7,200

$3,600

3,600

$4,525

2,400

$ 8,834

20,511

11,772

$ 3,893

3,884

550

$ 4,450

4,441

4,750

$ 2,848

2,839

550

(1)

Represents compensation in the form of a non-interest loan in the amount of $172,000 that the Company made to George R. Quist on April 29, 1998 to exercise stock options granted to him. As of January 1, 2004 and January 1, 2005, the outstanding balance on the loan was $37,500 and $1,540, respectively. The final payment was made on January 25, 2005.

GRANTS OF PLAN-BASED AWARDS

The following table sets forth all plan-based awards granted to the Named Executive Officers.

Estimated Future Payouts Under

Non-Equity Incentive Plan

Awards

Estimated Future Payouts

Under Equity Incentive Plan

Awards

Name

Grant

Date

Threshold ($)

Target

($)

Maximum

($)

Threshold

(#)

Target

(#)

Maximum

($)

All Other

Stock

Awards:

Number of

Shares of

Stock or

Units

(#)

All Other

Option

Awards:

Number of

Securities

Under-

lying

Options

(#)

Exercise

or Base

Price of

Option

Awards

($/Sh)

Grant

Date Fair

Value of

Stock and

Options

Awards

($)

George R.

Quist

07/16/04

12/10/04

03/25/05

50,000

70,000

$3.96

3.55

3.86

$1.71

1.71

1.92

Scott M.

Quist

03/21/03

07/16/04

12/10/04

03/25/05

70,000

50,000

70,000

$5.90

3.60

3.23

3.51

$2.63

1.71

1.92

Stephen M. Sill

J. Lynn Beckstead, Jr

03/21/03

12/10/04

03/25/05

15,000

5,000

35,000

$5.90

3.23

3.51

$2.63

1.71

1.92

G. Robert

Quist

03/21/03

12/10/04

03/25/05

35,000

10,000

30,000

$5.90

3.23

3.51

$2.63

1.71

1.92

OUTSTANDING EQUITY AWARDS AT FISCAL 2006 YEAR END

The following table sets forth all outstanding equity awards held by Named Executive Officers as of December 31, 2006.

Option Awards Stock Awards

Name

Number of Securities

Underlying

Unexercised

Options

(#)

Exercisable

Number of

Securities

Underlying

Unexercised

Options:

(#)

Unexer-

cisable

Equity

Incentive

Pan Awards

Number of

Securities

Underlying

Unexercised

Unearned

Options

(#)

Option

Exercise

Price

($)

Option

Expiration

Date

Number of

Shares or

Units of

Stock

Held That

Have Not

Vested(#)

Market

Value of

Shares or

Units of

Stock

That Have

Not

Vested

($)

Equity

Incentive

Plan

Awards

Number of

Unearned

Shares,

Units or

Other

Rights

That Have

Not

Vested

(#)

Equity

Incentive

Plan

Awards:

Market or

Payout

Value of

Unearned

Shares,

Units or

Other

Rights That

Have Not

Vested

($)

George R.

Quist(1)

Scott M.

Quist(1)

Stephen M. Sill

J. Lynn

Beckstead, Jr.

G. Robert

Quist

170,000

240,000

55,000

75,000

$3.55-3.96

$3.23-5.90

2009-2010

2014-2015

2013-2015

(1)	Includes options to purchase 1,102,500 shares of Class C common stock. The Class C common shares are convertible to Class A common shares on the basis of ten shares of Class C common stock to one share of Class A common stock.

OPTION EXERCISES AND STOCK VESTED FOR FISCAL 2006

The following table sets forth all stock options exercised and value received upon exercise, and all stock awards vested and value realized upon vesting, by the Named Executive Officers during for fiscal 2006.

Option Awards

Stock Awards

Name

Number of

Shares Acquired

on Exercise

(#)

Value Realized

on Exercise

($)

Number of

Shares Acquired

on Vesting

(#)

Value Realized

on Vesting

($)

George R. Quist

Scott M. Quist

Stephen M. Sill

J. Lynn Beckstead, Jr.

G. Robert Quist

51,051

8,379

$171,557

44,744

PENSION BENEFITS FOR FISCAL 2006

The following table sets forth the present value as of December 31, 2006, of the benefit of the Named Executive Officers under a defined benefit pension plan.

Name

Plan Name

Number of

Years

Credited

Service

(#)

Present Value of

Accumulated

Benefit

($)

Payments During

Last Fiscal Year

($)

George R. Quist

Scott M. Quist

Stephen M. Sill

J. Lynn Beckstead, Jr.

G. Robert Quist

None

Retirement Plans

On December 8, 1988, the Company entered into a deferred compensation plan with George R. Quist, the Chairman and Chief Executive Officer of the Company. The plan was later amended on three occasions with the third amendment effective February 1, 2001. Under the terms of the plan as amended, upon the retirement of Mr. Quist, the Company is required to pay him ten annual installments in the amount of $60,000. Retirement is defined in the plan as the age of 70, or a later retirement age, as specified by the Board of Directors. The $60,000 annual payments are to be adjusted for inflation in accordance with the United States Consumer Price Index for each year after January 1, 2002. If Mr. Quist’s employment is terminated by reason of disability or death before he reaches retirement age, the Company is to make the ten annual payments to Mr. Quist, in the event of disability, or to his designated beneficiary, in the event of death.

The plan also provides that the Board of Directors may, in its discretion, pay the amounts due under the plan in a single, lump-sum payment. In the event that Mr. Quist dies before the ten annual payments are made, the unpaid balance will continue to be paid to his designated beneficiary. The plan further requires the Company to furnish an automobile for Mr. Quist’s use and to pay all reasonable expenses incurred in connection with its use for a ten year period, and to provide Mr. Quist with a hospitalization policy with similar benefits to those provided to him the day before his retirement or disability. However, in the event Mr. Quist’s employment with the Company is terminated for any reason other than retirement, death, or disability, the entire amount of deferred compensation payments under the plan shall be forfeited by him. The Company accrued $37,000 and $34,000 in fiscal 2006 and 2005, respectively, to cover the present value of anticipated retirement benefits under the employment agreement, which was $419,000 as of December 31, 2006.

Employment Agreements

On July 16, 2004, the Company entered into an employment agreement with Scott M. Quist, its President and Chief Operating Officer. The agreement is effective as of December 4, 2003 and has a five-year term, but the Company has agreed to renew the agreement on December 4, 2008 and 2013 for additional five-year terms, provided Mr. Quist performs his duties with usual and customary care and diligence. Under the terms of the agreement, Mr. Quist is to devote his full time to the Company serving as its President and Chief Operating Officer at not less than his current salary and benefits. The Company also agrees to maintain a group term life insurance policy of not less than $1,000,000 on Mr. Quist’s life and a whole life insurance policy in the amount of $500,000 on Mr. Quist’s life. In the event of disability, Mr. Quist’s salary would be continued for up to five years at 75% of its current level.

In the event of a sale or merger of the Company and Mr. Quist is not retained in his current position, the Company would be obligated to continue paying Mr. Quist’s current compensation and benefits for seven years following the merger or sale. The agreement further provides that Mr. Quist 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 ten years in annual installments in the amount equal to 75% of his then current rate of compensation. However, in the event that Mr. Quist dies prior to receiving all retirement benefits thereunder, the remaining benefits are to be paid to his heirs. The Company accrued $79,900 and $37,800 in fiscal 2006 and 2005, respectively, to cover the present value of anticipated retirement benefits under the employment agreement, which was $486,000 as of December 31, 2006.

On December 4, 2003, the Company, through its subsidiary SecurityNational Mortgage Company, entered into an employment agreement with J. Lynn Beckstead, Jr., Vice President of Mortgage Operations and President of SecurityNational Mortgage Company. The agreement has a five-year term, but the Company has agreed to renew the agreement on December 4, 2008 and 2013 for additional five-year terms, provided Mr. Beckstead performs his duties with usual and customary care and diligence. Under the terms of the agreement, Mr. Beckstead is to devote his full time to the Company serving as President of SecurityNational Mortgage Company at not less than his current salary and benefits, and to include $350,000 of life insurance protection. In the event of disability, Mr. Beckstead’s salary would be continued for up to five years at 50% of its current level.

In the event of a sale or merger of the Company, and Mr. Beckstead was not retained in his current position, the Company would be obligated to continue paying Mr. Beckstead’s current compensation and benefits for five years following the merger or sale. The agreement further provides that Mr. Beckstead is entitled to receive annual retirement benefits beginning (i) one month from the date of his retirement (to commence no sooner than age 62½) (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 ten years in annual installments in the amount equal to one-half of his then current annual salary. However, in the event that Mr. Beckstead dies prior to receiving all retirement benefits thereunder, the remaining benefits are to be paid to his heirs. The Company accrued $44,900 and $46,300 in 2006 and 2005, respectively, to cover the present value of the retirement benefits of the employment agreement, which was $273,000 as of December 31, 2006.

Director Compensation

Directors of the Company (but not including directors who are employees) are currently paid a director’s fee of $13,200 per year by the Company for their services and are reimbursed for their expenses in attending board and committee meetings. An additional fee of $750 is paid to each audit committee member for each audit committee meeting attended in 2006. Each director is provided with an annual grant of stock options to purchase 1,000 shares of Class A Common Stock, which occurred under the 2000 Director Stock Option Plan for years 2000 to 2005 and under the 2006 Director Stock Option Plan for year 2006.

DIRECTOR COMPENSATION FOR FISCAL 2006

The following table sets forth the compensation of the Company's non-employee directors for fiscal 2006.

Name

Fees

Earned or

Paid In

Cash

($)

Stock

Awards

($)

Option

Awards

($)

Non-Equity

Incentive Plan

Compensation

($)

Change in

Pension Value

and

Nonqualified

Deferred

Compensation

Earnings

All Other

Compensation

($)

Total

($)

Charles L. Crittenden

Robert G. Hunter

H. Craig Moody

Norman G. Wilbur

$14,700

13,200

14,700

$1,920

1,920

$16,620

15,120

16,620

Employee 401(k) Retirement Savings Plan

In 1995, the Company's Board of Directors adopted a 401(k) Retirement Savings Plan. Under the terms of the 401(k) plan, effective as of January 1, 1995, the Company may make discretionary employer matching contributions to its employees who choose to participate in the plan. The plan allows the board to determine the amount of the contribution at the end of each year. The Board adopted a contribution formula specifying that such discretionary employer matching contributions would equal 50% of the participating employee's contribution to the plan to purchase Company stock up to a maximum discretionary employee contribution of ½ of 1% of a participating employee's compensation, as defined by the plan.

All persons who have completed at least one year's service with the Company and satisfy other plan requirements are eligible to participate in the 401(k) plan. All Company matching contributions are invested in the Company's Class A common stock. The Company's matching contributions for 2006, 2005 and 2004 were approximately $8,656, $5,142 and $5,746, respectively. Also, the Company may contribute at the discretion of the Company's Board of Directors an Employer Profit Sharing Contribution to the 401(k) plan. The Employer Profit Sharing Contribution shall be divided among three different classes of participants in the plan based upon the participant's title in the Company. All amounts contributed to the plan are deposited into a trust fund administered by an independent trustee. The Company's contributions to the plan for 2006, 2005 and 2004, were $162,584, $135,589 and $128,949, respectively.

Employee Stock Ownership Plan

Effective January 1, 1980, the Company adopted an employee stock ownership plan (the "Ownership Plan") for the benefit of career employees of the Company and its subsidiaries. The following is a description of the Ownership Plan, and is qualified in its entirety by the Ownership Plan, a copy of which is available for inspection at the Company's offices.

Under the Ownership Plan, the Company has discretionary power to make contributions on behalf of all eligible employees into a trust created under the Ownership Plan. Employees become eligible to participate in the Ownership Plan when they have attained the age of 19 and have completed one year of service (a twelve-month period in which the Employee completes at least 1,040 hours of service). The Company's contributions under the Ownership Plan are allocated to eligible employees on the same ratio that each eligible employee's compensation bears to total compensation for all eligible employees during each year. To date, the Ownership Plan has approximately 335 participants and had $138,286 contributions payable to the Plan in 2006. Benefits under the Ownership Plan vest as follows: 20% after the third year of eligible service by an employee, an additional 20% in the fourth, fifth, sixth and seventh years of eligible service by an employee.

Benefits under the Ownership Plan will be paid out in one lump sum or in installments in the event the employee becomes disabled, reaches the age of 65, or is terminated by the Company and demonstrates financial hardship. The Ownership Plan Committee, however, retains discretion to determine the final method of payment. Finally, the Company reserves the right to amend or terminate the Ownership Plan at any time. The trustees of the trust fund under the Ownership Plan are George R. Quist, Scott M. Quist and Robert G. Hunter, who each serve as a director of the Company.

Deferred Compensation Plan

In 2001, the Company's Board of Directors adopted a Deferred Compensation Plan. Under the terms of the Deferred Compensation 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's contribution for 2006, 2005 and 2004 was $125,558, $141,710 and $123,249, respectively.

NONQUALIFIED DEFERRED COMPENSATION FOR FISCAL 2006

The following table sets forth contributions to the deferred compensation account of the Named Executive Officers in fiscal 2006 and the aggregate balance of deferred compensation of the Named Executive Officers as of December 31, 2006.

Name

Executive

Contributions

In Last FY

($)

Registrant

Contributions

In Last FY

($)

Aggregate

Earnings in Last

($)

Aggregate Withdrawals/

Distributions

($)

Aggregate

Balance at Last

FYE

($)

George R. Quist

Scott M. Quist

Stephen M. Sill

J. Lynn Beckstead, Jr.

G. Robert Quist

$21,967

24,150

13,922

21,945

12,209

$226,947

252,874

72,754

118,223

111,480

2000 Director Stock Option Plan

On October 16, 2000, the Company adopted the 2000 Directors Stock Option Plan (the "Director Plan") effective November 1, 2000. The Director Plan provides for the grant by the Company of options to purchase up to an aggregate of 50,000 shares of Class A common stock for issuance thereunder. The Director Plan provides that each member of the Company's Board of Directors who is not an employee or paid consultant of the Company automatically is eligible to receive options to purchase the Company's Class A common stock under the Director Plan.

Effective as of November 1, 2000, and on each anniversary date thereof during the term of the Director Plan, each outside director shall automatically receive an option to purchase 1,000 shares of Class A common stock. In addition, each new outside director who shall first join the Board after the effective date shall be granted an option to purchase 1,000 shares upon the date which such person first becomes an outside director and an annual grant of an option to purchase 1,000 shares on each anniversary date thereof during the term of the Director Plan. The options granted to outside directors shall vest in their entirety on the first anniversary date of the grant. The primary purposes of the Director Plan are to enhance the Company's ability to attract and retain well-qualified persons for service as directors and to provide incentives to such directors to continue their association with the Company.

In the event of a merger of the Company with or into another company, or a consolidation, acquisition of stock or assets or other change in control transaction involving the Company, each option becomes exercisable in full, unless such option is assumed by the successor corporation. In the event the transaction is not approved by a majority of the continuing directors (as defined in the Director Plan), each option becomes fully vested and exercisable in full immediately prior to the consummation of such transaction, whether or not assumed by the successor corporation. The Director Plan terminated on November 1, 2006 and the 2006 Director Stock Option Plan was adopted by the Board of Directors on December 7, 2006.

2003 Stock Option Plan

On July 11, 2003, the Company adopted the Security National Financial Corporation 2003 Stock Incentive Plan (the “2003 Plan”), which reserved 500,000 shares of Class A common stock and 1,000,000 shares of Class C common stock for issuance thereunder. The 2003 Plan was approved by the Board of Directors on May 9, 2003, and by the stockholders at the annual meeting of the stockholders held on July 11, 2003. The 2003 Plan allows the Company to grant options and issue shares as a means of providing equity incentives to key personnel, giving them a proprietary interest in the Company and its success and progress.

The 2003 Plan provides for the grant of options and the award or sale of stock to officers, directors, and employees of the Company. Both “incentive stock options”, as defined under Section 422A of the Internal Revenue Code of 1986 and “non-qualified options” may be granted under the 2003 Plan. The exercise prices for the options granted are equal to or greater than the fair market value of the stock subject to such options as of the date of grant, as determined by the Company’s Board of Directors. The options granted under the 2003 Plan are to reward certain officers and key employees who have been employed by the Company for a number of years and to help the Company retain these officers by providing them with an additional incentive to contribute to the success of the Company.

The 2003 Plan is to be administered by the Board of Directors or by a committee designated by the board. The terms of options granted or stock awards or sales affected under the 2003 Plan are to be determined by the Board of Directors or its committee. The plan provides that if the shares of common stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of common stock as a stock dividend on its outstanding common stock, the number of shares of common stock deliverable upon the exercise of options shall be increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price to reflect such subdivision, combination or stock dividend. In addition, the number of shares of common stock reserved for purposes of the plan shall be adjusted by the same proportion. No options may be exercised for a term of more than ten years from the date of grant.

Options intended as incentive stock options may be issued only to employees, and must meet certain conditions imposed by the code, including a requirement that the option exercise price be no less than then fair market value of the option shares on the date of grant. The 2003 Plan provides that the exercise price for non-qualified options will not be less than at least 50% of the fair market value of the stock subject to such option as of the date of grant of such options, as determined by the Company’s Board of Directors.

The 2003 Plan has a term of ten years. The Board of Directors may amend or terminate the 2003 Plan at any time, subject to approval of certain modifications to the 2003 Plan by the shareholders of the Company as may be required by law or the 2003 Plan.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s executive officers, directors and persons who own more than 10% of a registered class of the Company’s equity securities to file reports of ownership and periodic changes in ownership of the Company’s common stock with the Securities and Exchange Commission. Such persons are also required to furnish the Company with copies of all Section 16(a) reports they file.

Based solely on its review of the copies of stock reports received by it with respect to fiscal 2006, or written representations from certain reporting persons, the Company believes that its directors, officers and greater than 10% beneficial owners complied with all Section 16(a) filing requirements applicable to them, except George R. Quist, Chairman and Chief Executive Officer, Stephen M. Sill, Vice President, Treasurer and Chief Financial Officer, and Robert G. Hunter, H. Craig Moody, and Norman G. Wilbur, directors of the Company, through an oversight, each filed one late Form 4 report disclosing the exercise of stock options.

Certain Relationships and Related 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 be in conflict with the interests of the Company.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth security ownership information of the Company's Class A and Class C common stock as of March 31, 2007, (i) for persons who own beneficially more than 5% of the Company's outstanding Class A or Class C common stock, (ii) each director of the Company, and (iii) for all executive officers and directors of the Company as a group.

											Class A and
			Class A				Class C					Class C
		Common Stock				Common Stock				Common Stock
Name and Address	Amount Beneficially Owned			Percent of Class	Amount Beneficially Owned			Percent of Class	Amount Beneficially Owned				Percent of Class
George R. and Shirley C. Quist Family Partnership, Ltd. (2)	522,817			7.4%	3,702,953			45.6%	4,225,770				27.8%
Employee Stock Ownership Plan (3)	657,115			9.3%	1,712,228			21.1%	2,369,343				15.7%
George R. Quist (4)(5)(7)(8)	527,014			7.4%	518,816			6.4%	1,045,830				6.9%
Scott M. Quist (4)(7)(9)	482,805			6.8%	1,441,056			17.7%	1,923,861				12.6%
Associated Investors (10)	102,310			1.4%	722,812			8.9%	825,122				5.4%
G. Robert Quist (6)(11)	141,836			2.0%	257,608			3.2%	399,464				2.6%
J. Lynn Beckstead, Jr., (6)(12)	174,586			2.5%	--			--	174,586				1.1%
Stephen M. Sill (6)	77,180			1.1%	--			--	77,180				0.5%
Christie Q. Overbaugh (13)	94,534			1.3%	116,315			1.4%	210,849				1.4%
Robert G. Hunter, M.D., (4)(14)	8,996			*	--			--	8,996				*
Norman G. Wilbur (15)	7,534			*	--			--	7,534				*
Charles L. Crittenden (16)	8,789			*	--			--	8,789				*
H. Craig Moody (17)	7,231			*	--			--	7,231				*
All directors and executive officers (10 persons) (4)(5)(6)(7)	2,053,342			29.0%	6,036,748			74.3%	8,090,090				53.2%

•

Less than 1%

(1)	Unless otherwise indicated, the address of each listed stockholder is c/o Security National Financial Corporation, 5300 South 360 West, Suite 250, Salt Lake City, Utah 84123.

(2)	This stock is owned by the George R. and Shirley C. Quist Family Partnership, Ltd., of which George R. Quist is the general partner.

(3)	The trustees of the Employee Stock Ownership Plan (ESOP) are George R. Quist, Scott M. Quist, and Robert G. Hunter who exercise shared voting and investment powers.

(4)

Does not include 657,115 shares of Class A common stock and 1,712,228 shares of Class C common stock owned by the Company’s Employee Stock Ownership Plan (ESOP), of which George R Quist, Scott M. Quist and Robert G. Hunter are the trustees and accordingly, exercise shared voting and investment powers with respect to such shares.

(5)	Does not include 102,310 shares of Class A common stock and 722,812 shares of Class C common stock owned by Associated Investors, a Utah general partnership, of which George R. Quist is the managing partner and, accordingly, exercises sole voting and investment powers with respect to such shares.

(6)

Does not include 374,574 shares of Class A common stock owned by the Company’s 401(k) Retirement Savings Plan, of which G. Robert Quist, J. Lynn Beckstead, and Stephen M. Sill are members of the investment committee and, accordingly, exercise shared voting and investment powers with respect to such shares.

(7)	Does not include 236,656 shares of Class A common stock owned by the Company’s Deferred Compensation Plan, of which George R. Quist and Scott M. Quist are members of the investment committee and, accordingly, exercise shared voting and investment powers with respect to such shares.

(8)	Includes options to purchase 192,938 shares of Class A common stock granted to George R. Quist that are currently exercisable or will become exercisable within 60 days of March 31, 2007.

(9)	Includes options to purchase 162,260 shares of Class A common stock and 1,157,625 shares of Class C common stock granted to Scott M. Quist that are currently exercisable or will become exercisable within 60 days of March 31, 2007.

(10)	The managing partner of Associated Investors is George R. Quist, who exercises sole voting and investment powers.

(11)	Includes options to purchase 42,543 shares of Class A common stock granted to G. Robert Quist that are currently exercisable or will become exercisable within 60 days of March 31, 2007.

(12)	Includes options to purchase 62,608 shares of Class A common stock granted to Mr. Beckstead that are currently exercisable or will become exercisable within 60 days of March 31, 2007.

(13)	Includes options to purchase 30,732 shares of Class A common stock granted to Ms. Overbaugh that are currently exercisable or will become exercisable within 60 days of March 31, 2007.

(14)	Includes options to purchase 4,753 shares of Class A common stock granted to Mr. Hunter that are currently exercisable or will become exercisable within 60 days of March 31, 2007.

(15)	Includes options to purchase 4,753 shares of Class A common stock granted to Mr. Wilbur that are currently exercisable or will become exercisable within 60 days of March 31, 2007.

(16)	Includes options to purchase 3,477 shares of Class A common stock granted to Mr. Crittenden that are currently exercisable or will become exercisable within 60 days of March 31, 2007.

(17)	Includes options to purchase 4,753 shares of Class A common stock granted to Mr. Moody that are currently exercisable or will become exercisable within 60 days of March 31, 2007.

The Company’s officers and directors, as a group, own beneficially approximately 53.2% of the outstanding shares of the Company’s Class A and Class C common stock.

REPORT OF THE COMPENSATION COMMITTEE

Under rules established by the Securities and Exchange Commission (the “Commission”), the Company is required to provide certain data and information in regard to the compensation and benefits provided to its Chief Executive Officer, Chief Financial Officer, and the three other most highly compensated executive officers. In fulfillment of this requirement, the Compensation Committee, at the direction of the Board of Directors, has prepared the following report for inclusion in this Proxy Statement.

Executive Compensation Philosophy. The Compensation Committee of the Board of Directors is composed of four directors, all of whom are independent, outside directors. The Compensation Committee is responsible for setting and administering the policies and programs that govern both annual compensation and stock ownership programs for the executive officers of the Company. The Company’s executive compensation policy is based on principles designed to ensure that an appropriate relationship exists between executive pay and corporate performance, while at the same time motivating and retaining executive officers.

Executive Compensation Components. The key components of the Company’s compensation program are base salary, an annual incentive award, and equity participation. These components are administered with the goal of providing total compensation that is competitive in the marketplace, rewards successful financial performance and aligns executive officers’ interests with those of stockholders. The Compensation Committee reviews each component of executive compensation on an annual basis.

Base Salary. Base salaries for executive officers are set at levels believed by the Compensation Committee to be sufficient to attract and retain qualified executive officers. Base pay increases are provided to executive officers based on an evaluation of each executive’s performance, as well as the performance of the Company as a whole. In establishing base salaries, the Compensation Committee not only considers the financial performance of the Company, but also the success of the executive officers in developing and executing the Company’s strategic plans, developing management employees and exercising leadership. The Compensation Committee believes that executive officer base salaries for 2006 were reasonable as compared to amounts paid by companies of similar size.

Annual Incentive. The Compensation Committee believes that a significant proportion of total cash compensation for executive officers should be subject to attainment of specific Company financial performance. This approach creates a direct incentive for executive officers to achieve desired performance goals and places a significant percentage of each executive officer’s compensation at risk. Consequently, each year the Compensation Committee establishes potential bonuses for executive officers based on the Company’s achievement of certain financial performance. The Compensation Committee believes that executive officer annual bonuses for 2006 were reasonable as compared to amounts paid by companies of similar size.

Stock Options. The Compensation Committee believes that equity participation is a key component of its executive compensation program. Stock options are granted to executive officers primarily based on the officer’s actual and potential contribution to the Company’s growth and profitability and competitive marketplace practices. Option grants are designed to retain executive officers and motivate them to enhance stockholder value by aligning the financial interests of executive officers with those of stockholders. Stock options also provide an effective incentive for management to create stockholder value over the long term since the full benefit of the compensation package cannot be realized unless an appreciation in the price of the Company’s Class A common stock occurs over a number of years.

Compensation of Chief Executive Officer. Consistent with the executive compensation policy and components described above, the Compensation Committee determined the salary, bonus and stock options received by George R. Quist, the Chairman of the Board and Chief Executive Officer of the Company, for services rendered in 2006. Mr. Quist received a base salary of $203,013 for 2006. Under the Compensation Committee’s rules, the Chief Executive Officer may not be present during voting or deliberations related to his compensation.

COMPENSATION COMMITTEE

Charles L. Crittenden, Chairman

Robert G. Hunter, M.D.

H. Craig Moody

Norman G. Wilbur

REPORT OF THE AUDIT COMMITTEE

The Company has an Audit Committee consisting of three non-management directors, Charles L. Crittenden, H. Craig Moody, and Norman G. Wilbur. Each member of the Audit Committee is considered independent and qualified in accordance with applicable independent director and audit committee listing standards. The Company's Board of Directors has adopted a written charter for the Audit Committee.

During the year 2006 the Audit Committee met three times. The Audit Committee has met with management and discussed the Company's internal controls, the quality of the Company's financial reporting, the results of internal and external audit examinations, and the audited financial statements. In addition, the Audit Committee met with the Company's independent registered public accountants, Hansen, Barnett & Maxwell, P.C. and discussed all matters required to be discussed by the auditors with the Audit Committee under Statement on Auditing Standards No. 61 (communication with audit committees). The Audit Committee reviewed and discussed with the auditors their annual written report on their independence from the Company and its management, which is made under Independence Standards Board Standard No. 1 (independence discussions with audit committees), and considered with the auditors whether the provision of financial information systems design and implementation and other non-audit services provided by them to the Company during 2006 was compatible with the auditors' independence.

In performing these functions, the Audit Committee acts only in an oversight capacity. In its oversight role, the Audit Committee relies on the work and assurances of the Company's management, which is responsible for the integrity of the Company's internal controls and its financial statements and reports, and the Company's independent auditors, who are responsible for performing an independent audit of the Company's financial statements in accordance with generally accepted auditing standards and for issuing a report on these financial statements.

Pursuant to the reviews and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2006, for filing with the Securities and Exchange Commission.

AUDIT COMMITTEE

Norman G. Wilbur, Chairman

Charles L. Crittenden

H. Craig Moody

APPROVAL OF AMENDMENT TO THE 2003 STOCK OPTION PLAN

PROPOSAL 2

The Board of Directors adopted on December 7, 2006, subject to the approval by the shareholders, an amendment to the Company's 2003 Stock Option Plan. The amendment increases from 549,182 to 949,182 the number of shares of the Company's Class A common stock available for issuance under the 2003 Stock Option Plan, and from 1,157,811 to 2,157,811 the number of shares of the Company's Class C common stock available for issuance thereunder. The Company has in the past used, and intends in the future to use, stock options as incentive devices to motivate and compensate its salaried officers and other key employees, and believes that equity incentives represented by stock options enhances the Company’s ability in attracting and retaining the best possible persons for positions of significant responsibility by providing its officers and other key employees with additional incentives to contribute to the Company’s success.

Management further believes that the availability of such equity incentives has served, and will continue to serve, an important part in the implementation of the Company’s acquisition strategy. As of March 31, 2007, options to purchase 93,150 shares of Class A common stock and no shares of Class C common stock have been exercised under the 2003 plan; as of such date, options to purchase 434,646 shares of Class A common stock and 1,157,625 shares of Class C common stock were outstanding under the 2003 Stock Option Plan. Accordingly, options to purchase only 72,407 shares of Class A common stock and 57,881 shares of Class C common stock remain available for future grants under the 2003 Stock Option Plan as of such date.

The Board of Directors recommends that the shareholders vote "FOR" approval of the amendment to the 2003 Stock Option Plan

APPROVAL OF 2006 DIRECTOR STOCK OPTION PLAN

PROPOSAL 3

On December 7, 2006, the Board of Directors adopted the 2006 Director Stock Option Plan (the “2006 Director Plan”), effective December 7, 2006. This section, which summarizes the material terms of the 2006 Director Plan, is qualified in its entirety by reference to the 2006 Director Plan itself as set forth in Appendix A. The 2006 Director Plan provides for the grant by the Company of options to purchase up to an aggregate of 100,000 shares of Class A common stock for issuance thereunder. The 2006 Director Plan provides that each member of the Company’s Board of Directors who is not an employee or paid consultant of the Company is automatically eligible to receive options to purchase the Class A common stock under the 2006 Director Plan.

Effective as of December 7, 2006, and on each anniversary date thereof during the term of the 2006 Director Plan, each outside director shall automatically receive an option to purchase 1,000 shares of Class A common stock. In addition, each new outside director who shall first join the Board after the effective date shall be granted an option to purchase 1,000 shares upon the date which such person first becomes an outside director and an annual grant of an option to purchase 1,000 shares on each anniversary date thereof during the term of the 2006 Director Plan. The options granted to outside directors shall vest in their entirety by the first anniversary date of the grant. The primary purposes of the 2006 Director Plan are to enhance the Company’s ability to attract and retain well-qualified persons for service as directors and to provide incentives to such directors to continue their association with the Company.

In the event of a merger of the Company with or into another company, or a consolidation, acquisition of stock or assets or other change in control transaction involving the Company, each option becomes exercisable in full, unless such option is assumed by the successor corporation. In the event the transaction is not approved by a majority of the “Continuing Directors” (as defined in the 2006 Director Plan), each option becomes fully vested and exercisable in full immediately prior to the consummation of such transaction, whether or not assumed by the successor corporation.

The Board of Directors recommends that stockholders vote "FOR" adoption of the 2006 Director Stock Option Plan and the reservation of 100,000 shares of Class A common stock for issuance thereunder.

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

PROPOSAL 4

The independent public accounting firm of Hansen, Barnett & Maxwell, P.C. has been the Company's independent registered public accountants since May 20, 2005. The Audit Committee has recommended and the Board of Directors has appointed Hansen, Barnett & Maxwell, P.C. for purposes of auditing the consolidated financial statements of the Company for the fiscal year ending December 31, 2007. It is anticipated that representatives of Hansen, Barnett & Maxwell, P.C. will be present at the Annual Meeting and will be provided an opportunity to make a statement if they desire, and to be available to respond to appropriate questions.

The Board of Directors recommends that stockholders vote "FOR" ratification of the appointment of Hansen, Barnett & Maxwell, P.C. as the Company's independent registered public accountants for fiscal year ending December 31, 2007.

AUDIT FEES, FINANCIAL INFORMATION SYSTEMS DESIGN

AND IMPLEMENTATION FEES AND ALL OTHER FEES

Fees for the year 2006 for the annual audit of the financial statements and employee benefit plans and related quarterly reviews by the Company’s independent registered public accountants were $340,300. There were $14,800 in other fees during 2006.

OTHER MATTERS

The Company knows of no other matters to be brought before the Annual Meeting, but if other matters properly come before the meeting, it is the intention of the persons named in the enclosed form of Proxy to vote the shares they represent in accordance with their judgment.

ANNUAL REPORT AND FINANCIAL STATEMENTS

Stockholders are referred to the Company's annual report, including financial statements, for the fiscal year ended December 31, 2006. The annual report is incorporated in this Proxy Statement and is not to be considered part of the soliciting material. The Company will provide, without charge to each stockholder upon written request, a copy of the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2006 Such requests should be directed to G. Robert Quist, First Vice President and Secretary, at P.O. Box 57250, Salt Lake City, Utah 84157-0250.

DEADLINE FOR RECEIPT OF STOCKHOLDER'S PROPOSALS

FOR ANNUAL MEETING TO BE HELD IN JULY 2008

Any proposal by a stockholder to be presented at the Company's next Annual Meeting of Stockholders expected to be held in July 2008 must be received at the offices of the Company, P.O. Box 57250, Salt Lake City, Utah 84157-0250, no later than March 31, 2008.

By order of the Board of Directors,

/s/ G. Robert Quist

G. Robert Quist

First Vice President and Secretary

June 8, 2007

Salt Lake City, Utah

Appendix A

SECURITY NATIONAL FINANCIAL CORPORATION

2006 Director Stock Option Plan

1. PURCHASE OF THE PLAN. The purpose of this 2006 Director Stock Option Plan is to attract and retain the best available personal to serve as Outside Directors of the Company.

All options granted hereunder shall be “non-statutory stock options.”

DEFINITIONS. A used herein, the following definitions shall apply:

(a)

“BOARD” means the Board of Directors of the Company.

(b) “CHANGE IN CONTROL” means (i) the acquisition, directly or indirectly, by any person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the beneficial ownership of more than fifty percent (50%) of the outstanding securities of the Company; (ii) a merger or consolidation in which the Company is not the surviving entity except for a transaction the principal purpose of which is to change the state in which the Company is incorporated; (iii) the sale, transfer or other disposition of all or substantially all of the assets of the Company; (iv) a complete liquidation or dissolution of the Company or (v) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such a merger.

(c)

“CODE” means the Internal Revenue Code of 1986, as amended.

(d)

“COMMON STOCK” means the Class A Common Stock of the Company.

(e)

“COMPANY” means Security National Financial Corporation, a Utah corporation.

(f) “CONTINUOUS STATUS AS A DIRECTOR” means the absence of any interruption of termination of service as a Director.

(g)

“DIRECTOR” means a member of the Board

(h) “EMPLOYEE” means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director’s fee by the Company shall not be sufficient in and of itself to constitute “employment” by the Company.

(i)

“EXCHANGE ACT” means the Securities Exchange Act of 1934, as amended.

(j) “FAIR MARKET VALUE” means, as of any date, the value of Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers. Inc. Automated Quotation (“Nasdaq”) Systems, the Fair Market Value of a Share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in Common Stock) on the last market trading day prior to the day of determination, as reported by the Wall Street Journal or such other source as the Board deems reliable;

(ii) If the Common Stock is quoted on the Nasdaq System ( but not on the National Market System thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked priced for the Common Stock on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; or

(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board.

(k)

“OPTION” means a stock option granted pursuant to the Plan.

(l)

“OPTIONED STOCK” means the Common Stock subject to an Option.

(m)

“OPTIONEE” means an Outside Director who receivers an Option.

(n)

“OUTSIDE DIRECTOR” means a Director who is not an Employee

(o) “PARENT” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code,

(p)

“PLAN” means this 2006 Director Stock Option Plan.

(q) “SHARE” means a share of the Common Stock, as adjusted in accordance with Section 10 of the Plan.

(r) “SUBSIDIARY” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.

3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section10 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the plan is 100,000 Shares (the “Pool”) of Common Stock. The Shares may be authorized but unissued, or reacquired Common Stock.

If an Option should expire or become unexercisable for any reason without having been exercised in full. The unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan.

ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.

(a) ADMINISTRATOR. Except as otherwise required herein, the Plan shall be administered by the Board.

(b) PROCEDURE FOR GRANTS. The provisions set forth in this Section 4(b) shall not be amended more than once every six months, other than to comply with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. All grants of Options hereunder shall be automatic and non-discretionary and shall be made strictly in accordance with the following provisions:

(i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options granted to Outside Directors.

(ii) Effective as of December 7, 2006 (the “Effective Date”) and on each anniversary date thereof during the term of this Plan, each Outside Director shall automatically receive an Option to purchase 1,000 Shares (an “Annual Grant”). In addition, each new Outside Director who shall first join the Board on or after the Effective Date shall automatically be granted an Option to purchase 1,000 Shares upon the date on which such person first becomes an Outside Director, whether through election by the shareholders of the Company, appointment by the Board to fill a vacancy, or termination of employment by the Company while remaining as a Director (a “One-time Grant”) and an Annual Grant of an option to purchase 1,000 Shares on each anniversary date thereof during the term of this Plan.

(iii) The terms of each Option granted hereunder shall be as follows:

(A) the term of the Option shall have ten (10) years:

(B) the Option shall be exercisable while the Outside Director remains a Director of the Company and for a period of six months from the date Optionee’s continuous status as a Director terminates, as set forth in Section 8 hereof;

(C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Option; and

(D) each Annual Grant and One-Time Grant shall become exercisable at the rate of 250 shares each three month period, so that 100% of the Optioned Stock granted under any One-Time Grant or Annual Grant shall be exercisable one year after the date of grant of the Option, assuming Continuous Status as a Director and attendance at each board meeting.

(iv) In the event that any Option granted under the Plan would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased upon exercise of Options to exceed the Pool, then each such automatic grant shall be for that number of shares determined by dividing the total number of Shares remaining available for grant date. No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan through action of the shareholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options preciously granted hereunder.

(c) POWERS OF THE BOARD. Subject to the provisions and restrictions of the Plan, the Board shall have the authority, in its discretion: (i) to determine, upon review of relevant information and in accordance with Section 2(i) of the Plan, the Fair Market Value of the Common Stock; (ii) to interpret the Plan; (iii) to prescribe, amend and rescind rules and regulations relating to the Plan; (iv) to authorize any person to execute on behalf of the Company and instrument required to effectuate the grant of an Option previously granted hereunder; and (v) to make all other determinations deemed necessary or advisable for the administration of the Plan.

(d) EFFECT OF BOARD’S DECISION. All decisions, determinations and interpretations of the Board shall be final.

5. ELIGIBILITY. Options may be granted only to Outside Directors. All Options shall be automatically granted in accordance with the terms set forth in Section 4(b) hereof. An Outside Director who has been granted an option may, if he or she is otherwise eligible, be granted an additional Option or Options in accordance with such precision.

The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate his or her directorship at any time.

6. TERM OF PLAN. The plan shall become effective as of December 7, 2006 and shall continue in effect until the tenth anniversary of the Effective Date, unless sooner terminated under Section 12 of the plan.

7. CONSIDERATION. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Board and may consist entirely of (i) cash; (ii) check; (iii) promissory note; (iv) other shares which have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised and which, in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more that 12 months on the date of surrender; (v) delivery of a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds required to pay the exercise price; (vi) delivery of an irrevocable subscription agreement for the Shares not more than 12 months after the date of delivery of the subscription agreement; (vii) by a combination of the foregoing methods of payment; or (viii) such other consideration and method of payment for the issuance of Shares to the extent permitted under applicable law.

EXERCISE OF OPTION.

(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option granted hereunder shall be exercisable at such times as are set forth in Section 4(b) hereof; provided, however, that no Options shall be exercisable until stockholder approval of the Plan in accordance with Section 17 hereof has been obtained.

An Option may not be exercised for a fraction of a Share.

An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allocable under Section 7 of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan.

Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Options is exercised.

(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. In the event an Optionee’s Continuous Status as a Director terminates, the Optionee may exercise his or her Option but only within six months from the date of such termination, and only to the extent that the Optionee was entitled to exercise it at the date of such termination ( but in no event later than the expiration of its ten-year term). To the extent that the Optionee was not entitled to exercise an Option at the date of such termination, and to he extent that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate.

9. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will, by law of descent or distribution or pursuant to qualified domestic relations order, and may be exercised, during the lifetime of the Optionee, only by the Optionee or a permitted transferee.

10.

ADJUSTMENTS

(a) CHANGES IN CAPITALIZATION. In the event that the stock of the Company is changed by reason of any stock split, reverse stock split, recapitalization, or other change in the capital structure of the Company, or converted into or exchanged for other securities as a result of any merger, consolidation or reorganization, or in the event that the outstanding number of shares of stock of the Company is increased through payment of a stock dividend, appropriate proportionate adjustments shall be made in the number and class of shares of stock subject to the Plan, the number and class of shares subject to any Option outstanding Option; provided, however, that the Company shall not be required to issue fractional shares as a result of any such adjustment. Any such adjustment shall be make upon approval by the Board, whose determination shall be conclusive. If there is any other change in the number or type of he outstanding shares of stock of the Company, or of any other security into which such stock shall have been changed or for which it shall have been exchanged, and if he Board in its sole discretion determines that such change equitably requires an adjustment shall be made in accordance with the determination of the Board. No adjustments shall be required by reason of the issuance or sale by the Company for cash or other consideration of additional shares of its stock or securities convertible into or exchangeable for shares of its stock.

(b) CORPORATE TRANSACTIONS. New Options (substantially equivalent to the Options) may be substituted for the Options granted under the Plan, or the Company’s duties as to Options outstanding under the plan may be assumed, by an employer corporation other that the Company or by a parent or subsidiary of such employer corporation, in connection with any merger consolidation, acquisition of assets or stock, separation, reorganization, liquidation, or like occurrence in which the Company is involved; provided, however, in the event such employer the Options granted hereunder or substituted for such Options substantially equivalent options, or if the Board determined, in its sole discretion, that Options outstanding under the Plans should not then continue to be outstanding, the Options granted hereunder shall terminate and thereupon become null and void (i) upon dissolution or liquidation of the Company, acquisition, separation, or similar occurrence, or (ii) upon any merger, consolidation or similar occurrence; provided, however, that each Optionee shall be given notice of such dissolution, liquidation, merger, consolidation or similar occurrence, and shall have the right, at any time prior to, but contingent upon the consummation of such transaction, to exercise (x) any unexpired Options granted hereunder to the extent they are then exercisable, and (y) in the case of a merger consolidation or similar occurrence Company is not the surviving corporation, those Options which are not them; provided, further, that such exercise right shall not in any event expire less than 30 days after the date notice of such transaction is sent to the Optionee.

11. CHANGE IN CONTROL. In the event of a Change in Control of the Company, if the Change of Control is not approved by a majority of the Directors, the Administrator shall cause written notice of the proposed transaction to be given to all Optionees not less than fifteen (15) days prior to the anticipated effective date of the proposed transaction and, concurrent with the effective date of the proposed transaction, all Options shall be accelerated and concurrent with such date the holders of such Options shall have the right to exercise such Options in respect to any or all shares subject thereto. The Administrator in its discretion may, at any time an Option is granted, or at any time thereafter (regardless of its acceleration or non-acceleration), take on or more of the following actions: (A) provide for the purchase of each Option for an amount of cash or other property that could have been received upon the exercise of the Option, (B) adjust the terms of the Options in a manner determined by the Administrator to reflect the Change in Control, (C) cause the Options to be continued or assumed, or new rights substitute therefore, by the surviving or another entity, through the continuance of the Plan and the continuation or assumption of outstanding Options or the substitution for such Options of new options of comparable value covering shares of a successor corporation, with appropriate adjustments as to the number and kind of shares and Exercise Prices, in which event the Plan and such Options, or the new options substituted therefore, shall continue in the manner and under the terms so provided or (D) make such other provision as the Administrator may consider equitable. In the event of a Change in Control in which the Options are not continued, assumed or substituted therefore by the surviving or another entity, regardless of whether such Change in Control is approved by a majority of the Continuing Directors, the Options shall be accelerated and fully exercisable upon the effective date of the Change in Control and the Administrator shall cause written notice of the proposed transaction to be given to all Optionees not less than fifteen (15) days prior to the anticipated effective date of the proposed transaction. The Administrator shall have the right with respect to any specific Option granted under the Plan, to provide that such Options shall be accelerated in any event upon the effective date of the Change of Control.

12.

AMENDMENT AND TERMINATION OF THE PLAN.

(a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend or discontinue the plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with any applicable law or regulation, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as may be required.

(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated.

13. TIME OF GRANTING OPTIONS. The date of grant of an Option shall. For all purposes, be the date determined in accordance with the Section 4(b) hereof. Notice of the determination shall be given to each Outside Director to whom an Option is so granted within a reasonable time after the date of such grant.

14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws and the requirements of any stock exchange or market system upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law.

Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

15. RESERVATION OF SHARES. The Company, during the term of this plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

16. OPTION AGREEMENT. Options shall be evidenced by written option agreements in such form as the Board shall approve.

17. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to approval by the stockholders of the Company at or prior to the first annual meeting of stockholders held subsequent to the first granting of an Option hereunder. Such stockholder approval shall be obtained in the degree and manner appropriate under applicable state and federal law.

PROXY - SECURITY NATIONAL FINANCIAL CORPORATION - PROXY

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

CLASS C COMMON STOCK

The undersigned Class C common stockholder of Security National Financial Corporation (the "Company") acknowledges receipt of the Notice of Annual Meeting of the Stockholders to be held on Friday, July 13, 2007, at Valley Center Towers, 5373 South Green Street, Conference Room 105, Salt Lake City, Utah, at 10:00 a.m. Mountain Daylight Time, and hereby appoints Messrs. George R. Quist, Scott M. Quist and G. Robert Quist, or any of them, each with full power of substitution, as attorneys and proxies to vote all the shares of the undersigned at said Annual Meeting of Stockholders and at all adjournments or postponements thereof, hereby ratify and confirm all that said attorneys and proxies may do or cause to be done by virtue hereof. The above-named attorneys and proxies are instructed to vote all of the undersigned's shares as follows:

To elect five of the seven directors to be voted upon by Class A and Class C common stockholders together:

o FOR all nominees listed below (except as marked to the contrary below)

o WITHHOLD AUTHORITY to vote for all nominees listed below.

(INSTRUCTION: to withhold authority to vote for any individual nominee, strike a line through that nominee's name in the list below.)

Charles L. Crittenden, Robert G. Hunter, M.D., Scott M. Quist

George R. Quist and Norman G. Wilbur

2.	To amend the Company's 2003 Stock Option Plan to authorize an additional 400,000 shares of Class A common stock and an additional 1,000,000 shares of Class C common stock to be made available for issuance thereunder;

o FOR

o AGAINST

3.	To approve the adoption of the 2006 Director Stock Option Plan for the outside directors and to reserve 100,000 shares of Class A common stock for issuance thereunder;

o FOR

o AGAINST

4.	To ratify the appointment of Hansen, Barnett & Maxwell, P.C. as the Company's independent registered public accountants for the fiscal year ending December 31, 2007;

o FOR

o AGAINST

5.	To transact such other business as may properly come before the meeting or any adjournment thereof.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4 and 5.

Dated 2007

_________________________________________

Signature of Stockholder

__________________________________________

Signature of Stockholder

Please sign your name exactly as it appears on your share certificate. If shares are held jointly, each holder should sign. Executors, trustees, and other fiduciaries should so indicate when signing. Please sign, date, and return this Proxy Card immediately.

NOTE: Securities dealers or other representatives please state the number of shares voted by this Proxy.

PROXY - SECURITY NATIONAL FINANCIAL CORPORATION - PROXY

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

CLASS A COMMON STOCK

The undersigned Class A common stockholder of Security National Financial Corporation (the "Company") acknowledges receipt of the Notice of Annual Meeting of the Stockholders to be held on Friday, July 13, 2007, at Valley Center Towers, 5373 South Green Street, Conference Room 105, Salt Lake City, Utah, at 10:00 a.m., Mountain Daylight Time, and hereby appoints Messrs. George R. Quist, Scott M. Quist and G. Robert Quist, or any of them, each with full power of substitution, as attorneys and proxies to vote all the shares of the undersigned at said Annual Meeting of Stockholders and at all adjournments or postponements thereof, hereby ratify and confirming all that said attorneys and proxies may do or cause to be done by virtue hereof. The above-named attorneys and proxies are instructed to vote all of the undersigned's shares as follows:

1.	To elect two directors to be voted upon by Class A common stockholders voting separately as a class:

o FOR all nominees listed below (except as marked to the contrary below)

o WITHHOLD AUTHORITY to vote for all nominees listed below

(INSTRUCTION: to withhold authority to vote for any individual nominee, strike a line through that nominee's name in the list below.)

J. Lynn Beckstead, Jr. and H. Craig Moody

To elect the remaining five directors to be voted upon by Class A and Class C common stockholders together:

	o FOR all nominees listed below (except as marked to the contrary below)
	o WITHHOLD AUTHORITY to vote for all nominees listed below

(INSTRUCTION: to withhold authority to vote for any individual nominee, strike a line through that nominee's name in the list below.)

Charles L. Crittenden, Robert G. Hunter, M.D., George R. Quist

Scott M. Quist, and Norman G. Wilbur

3.	To amend the Company's 2003 Stock Option Plan to authorize an additional 400,000 shares of Class A common stock and an additional 1,000,000 shares of Class C common stock to be made available for issuance thereunder;

o FOR

o AGAINST

4.	To approve the adoption of the 2006 Director Stock Option Plan for the outside directors and to reserve 100,000 shares of Class A common stock for issuance thereunder;

o FOR

o AGAINST

5.	To ratify the appointment of Hansen, Barnett & Maxwell, P.C. as the Company's independent registered public accountants for the fiscal year ending December 31, 2007;

o FOR

o AGAINST

6.	To transact such other business as may properly come before the meeting or any adjournment thereof.

Dated ,

2007

_________________________________________

Signature of Stockholder

_________________________________________

Signature of Stockholder

NOTE: Securities dealers or other representatives please state the number of shares voted by this Proxy.

2006 ANNUAL REPORT

My Fellow Shareholders:

I am pleased to report to you on the affairs of the Company for the year ended December 31, 2006 and invite you to attend the annual stockholders meeting to be held on July 13, 2007 in Salt Lake City, Utah.

The year 2006 was marked by significant milestones for our Company. Some selected financial statistics and results are illustrative: Earnings per share increased 45% to $.74 per share. Total revenue increased 17% over 2005 levels to $152,531,000, which was a little below our five year average revenue growth rate of 20%. Stockholders equity as calculated, in conformity with accounting principles generally accepted in the United States of America, moved past the $50,000,000 mark for the first time to $52,971,000 and book value per share, using weighted average outstanding common shares rose 7% to $7.53.

Our Memorial operations performed well under the direction of Robert Quist in his first year as President of that group, realizing a 16% growth in revenue to $14,043,000 which resulted in a 43% growth in profitability (exclusive of realized gains on assets sold) to $602,000.

Our Life Insurance segment used 2006 as the year to improve the quality of life sales which resulted in a profitability increase of 60% to $4,471,000 on a pre-tax basis on a revenue increase of nearly 14% to $49,624,000. The acquisition of Memorial Insurance Company of America, which was accomplished last year, appears to be tracking as expected and contributed to the increased profitability this year.

Our Mortgage Operations saw a 30% decrease in profitability on an 18% increase in revenue. Continuing in 2006 we have expanded our operations in the face of a declining market. The mortgage market has been characterized by great consolidation over the last several years with many capable people losing their positions. While expensive in the short run, by hiring such people in well placed locations, we continue to build our branch organization and believe it will pay good dividends in the future. We now operate in 34 wholesale and retail branches located in 16 states.

Thank you for your confidence in our company. We continue in our efforts to both grow and increase in profitability.

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 four 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.

Our Company operates three main business segments: life insurance, funeral service and mortgage loans. The design and structure of our Company is that each segment is related 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 that assists in the sales and marketing of our insurance and pre-need cemetery/funeral products. Security National 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 planned to improve profitability. Our Company also actively pursues growth through acquisitions of life insurance companies and mortuaries, and by expanding our mortgage operations.

We offer affordable life insurance with minimal qualifications. Our Preferred Plan is one of America’s newest and best pre-need insurance programs. First day coverage is available for clients ages 0 to 85. Some additional included benefits are the early pay-off option (same as cash), double indemnity for accidental death and accidental common carrier death benefits. Premiums will never increase and your basic death benefit will never decrease. At participating funeral establishments, you can have lifetime protection against funeral inflation cost by answering three simple health questions. Participating funeral homes also may offer complimentary child, grandchild, and great-grandchild protection.

Our single premium and flexible premium annuities offer great savings vehicles and are perfect for funding your funeral pre-need contract, while you earn tax-deferred interest on the monies deposited. Additionally, annuity contracts require no medical or health questions.

Our Basic Life Plans are available for people ages 0-85 years old at the time of application. The Basic Life 1 Plan has first day coverage with a guaranteed death benefit to age 100, and premiums which will never increase. The Basic Life 2 Plan is for people with health conditions that may prevent them from obtaining first day coverage. The Basic Life 3 Plan is for people with high blood pressure and diabetes.

Our Flexible Life Accumulator (FLA) life insurance product is specifically designed to build cash value in addition to offering the protective services of life insurance. Because the FLA product is a 10-year whole life insurance product with an annuity rider the product is portable and can be used in a number of ways. For instance you can use the cash value to help repay your college debt and/or you can keep the policy as a long-term investment, and for the security of life insurance.

As a policyholder you will have access to our Student Service Center which will guide you through the complexities of college finance. Applying for financial aid can be an overwhelming and daunting task. Government rules and regulations are constantly changing and our professional staff is here to advise you throughout the process of obtaining financial aid.

Our Student Service Center can help you and your student fund some or all of their college education through the use of federally guaranteed student loans. As well, we can help with scholarship searches and grant searches that may help fund your student’s education. Security National Life Insurance Company is an authorized lender of the Federal Family Education Loan Program (FFELP). Since 1980, we have loaned over $200-million dollars to students through FFELP. Though you do not need to be a policyholder in order to received federal financial aid, we are proud to be a frontrunner in developing an innovative program which helps families provide for their educational funding needs as well as offering a well thought-out plan for helping you and your student repay the costs of obtaining a higher education.

Home Service Insurance is one of the oldest forms of insurance. It originated in England in 1854. Typically, the insurance was less than $1,000, which provided personal security for low and middle-income families. Today, Home Service Insurance is primarily used as burial insurance designed to pay the funeral and cemetery expenses that could shatter a family of limited means.

Home Service Insurance is a consumer friendly way to arrange and pay for funeral and burial expenses. Our product is sold through either a local funeral home or by a neighborhood agent. The personal approach continues with the payment options. Each month the customer may visit the funeral home or the agent will make a personal visit to the home to collect the premium. This allows the older population we serve to have the peace of mind that their personal choices will be honored.

Today, Security National Life Insurance Company is filling this key need for thousands of families by offering our Home Service Insurance Plans through local funeral homes and agents throughout the southern United States. Each of these funeral homes and agents are a Team Member with Security National Life and has the ability to customize a variety of pre-need funeral plans for the families and communities they serve.

Through Fast Funding, funeral homes assign the insurance policy a customer presents for payment of funeral services to Security National’s Fast Funding Department. The Funeral Home simply completes the “Request for Funding Worksheet” and “Assignment Form” which are then faxed to our Lake Mary office for verification.

As soon as the status of the insurance policy is determined and amount of benefit is verified, payment is made to the funeral home. This is typically a twenty-four hour process from the funding request to receipt of funds.

Funeral Fast Funding Benefits:

	Eliminate cash flow delays - limited paperwork
	Simplifies initial claims paperwork
	Funds are wired, or sent overnight, to funeral home from ONE SOURCE,
	Security National Life Insurance Company
	Certified Death Certificate not required for initial funding to funeral home

SecurityNational Mortgage currently operates 34 branch offices within the United States, and is headquartered in Salt Lake City, Utah.

We have worked diligently to establish strong relationships with the nation’s leading mortgage servicers, in order to provide a wide range of products to our mortgage brokers and business partners. We offer a full line of first and second mortgage products for residential real estate.

Depending on borrower’s credit and qualifications, financed amounts can be as high as 103% of the property value. We also offer “reduced documentation” alternatives for self-employed borrowers and others. In addition to standard FHA, VA, and conventional mortgages, we provide a full line of mortgage loans on loan sizes up to $1 million. In most cases, our mortgage loans are processed through our “rapid response” underwriting system, receiving same day decisions, saving time and money. In addition, we offer commercial and new construction financing for a variety of needs.

In this day and age, service and information are key. Our support staff and information systems are second to none. Our brokers, branch managers and business partners have confidence in knowing that business is getting done when they work with SecurityNational Mortgage.

Security National Capital complements SecurityNational Mortgage’s residential lending platform and provides an additional investment vehicle for our life insurance company. The company business plan is to successfully compete in the national commercial mortgage market as a direct lender and as a mortgage banker.

Security National Capital is located in our corporate headquarters in Salt Lake City, Utah. Commercial mortgage programs are made available to approved residential mortgage brokers through the branch offices of SecurityNational Mortgage, strengthening and enhancing those important relationships. Through active internet marketing, commercial mortgages are also offered in all fifty states. Our target loan size is between $300,000 and $3,000,000.

We provide a full range of term conventional commercial mortgages for apartments, office buildings, retail and industrial properties. We distinguish ourselves in the marketplace through providing short term “bridge” financing on commercial properties that need to close quickly and that will be repaid within six to twelve months. We also offer “stated income” loans for established owner-occupied businesses. For a presentation of the mortgage products offered, please visit our state of the industry website: www.sncloans.com

Security National Capital is a direct lender originating commercial loans through its network of mortgage brokers; for its own portfolio, and for resale in the capital markets. Using relationships with other life insurance companies, commercial banks, and Wall Street investors, we package and sell closed loans, thereby leveraging the company’s capital and enhancing the return to Security National. We are originating and selling term commercial loans that are placed into rated Commercial Mortgage-Backed Securities, and Collateralized Debt Obligations sold on Wall Street. Accessing the capital market increases Security National’s ability to provide competitive products and service to its borrowers and the desired returns to its shareholders.

We serve more than two thousand families annually who are faced with the burden of making decisions following the loss of a loved one. Uncertainty, stress and grief may aggravate the process, forcing decisions to be made within hours of the death. Plan today - together so that you do not leave undone what could and should be pre-arranged.

Facts regarding pre-planning:

Fact: Every household has, or will, experience the death of a loved one.

Fact: Most people find themselves poorly prepared to deal with the decisions and cost that a death will force upon them.

Fact: Making pre-arrangements is a precious and wise economic decision.

Togetherness: Loved ones share in the choices and decisions. This reduces heartache, expense and indecision. Inflation protection: Based upon the past five decades, the cost of funeral arrangements will continue to increase. Pre-planning allows these costs to be secured, regardless of inflation. Conserve life insurance: Life insurance you may have purchased to secure your loved ones’ future should not be used to pay for funeral expenses. It is there to compensate for loss of income and to preserve your family’s way of life. Peace of mind: because you have made your own decisions, you are leaving answers and comfort for those you love. This peace of mind provides benefit far beyond the dollars spent.

Contact us today for a complimentary “Gift of Love” Memorial Guide Book which will allow you to record important information that can ease the burden left to those you love.

Security National Financial Corporation

5300 South 360 West, Suite 250; Salt Lake City, Utah 84123

Toll Free: (800) 574-7117; Phone: (801) 264-1060

MANAGEMENT REPORT AND FINANCIAL INFORMATION

The consolidated financial statements of Security National Financial Corporation and all information in the annual report are the responsibility of management. The statements have been prepared in conformity with generally accepted accounting principles generally accepted in the United States of America. Financial information elsewhere in this report is consistent with that in the consolidated financial statements. The consolidated financial statements have been audited by the independent registered public accounting firm of Hansen, Barnett & Maxwell, P.C. for the years ended December 31, 2006 and December 31, 2005 and Tanner LC for the year ended December 31, 2004. Their role is to render independent professional opinions on Security National Financial Corporation’s financial statements.

Management maintains a system of internal controls designed to meet its responsibilities for reliable financial statements. This system is designed to provide reasonable assurance, at appropriate costs, that assets are safeguarded and that transactions are properly recorded and executed in accordance with management’s authorization. Judgment is required to assess and balance the relative costs and expected benefits of those controls.

The Board of Directors selects an Audit Committee from among its members. No member of the Audit Committee is an employee of the Company. The Audit Committee is responsible to the Board for reviewing the accounting and auditing procedures and financial practices of the Company and for recommending the appointment of the independent accountants. The Audit Committee meets periodically with management and the independent accountants to review the work of each and to satisfy itself that they are properly discharging their responsibilities. The independent accountants have free access to the Committee, without the presence of management, to discuss their opinions on the adequacy of internal controls and to review the quality of financial reporting.

HANSEN, BARNETT & MAXWELL, P.C.

A Professional Corporation

CERTIFIED PUBLIC ACCOUNTANTS

AND

BUSINESS CONSULTANTS

5 Triad Center, Suite 750

Salt Lake City, UT 84180-1128

Phone: (801) 532-2200

Fax: (801) 532-7944

www.hbmcpas.com

Registered with the Public Company

Accounting Oversight Board

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and the Stockholders

Security National Financial Corporation

We have audited the accompanying consolidated balance sheets of Security National Financial Corporation and subsidiaries as of December 31, 2006 and 2005 and the related consolidated statements of earnings, stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Security National Financial Corporation and subsidiaries as of December 31, 2006 and 2005 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. Supplemental Schedules II, IV and V, are presented for purpose of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.

HANSEN, BARNETT & MAXWELL, P.C.

Salt Lake City, Utah

March 23, 2007

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	December 31,
Assets	2006	2005
Investments:
Fixed maturity securities held to maturity, at amortized cost	$ 98,317,519	$ 89,780,942
Fixed maturity securities, available for sale, at estimated fair value	3,417,531	6,597,161
Equity securities, available for sale, at estimated fair value	5,261,695	12,346,939
Mortgage loans on real estate and construction loans, net of allowances
for losses of $1,026,576 and $562,909 for 2006 and 2005	85,135,011	72,470,902
Real estate, net of accumulated depreciation of $4,024,710 and
$3,766,259 for 2006 and 2005	5,002,853	7,012,399
Policy, student and other loans net of allowance
for doubtful accounts of $435,726 and $339,218 for 2006 and 2005	12,846,986	12,391,569
Short-term investments	4,586,828	3,211,590
Accrued investment income	2,684,029	2,197,576
Total investments	217,252,452	206,009,078
Cash and cash equivalents	10,376,585	16,632,966
Mortgage loans sold to investors	59,817,248	53,970,231
Receivables, net	14,878,118	7,816,673
Restricted assets of cemeteries and mortuaries	5,430,870	5,240,099
Cemetery perpetual care trust investments	1,306,984	1,152,493
Receivable from reinsurers	700,850	6,572,756
Cemetery land and improvements sold to investors	8,745,424	8,498,227
Deferred policy and pre-need contract acquisition costs	28,395,762	24,048,638
Property and equipment, net	14,059,529	14,747,276
Cost of insurance acquired	11,882,047	12,663,221
Goodwill	683,191	683,191
Other	3,866,123	1,610,624
Total Assets	$ 377,395,183	$ 359,645,473

See accompanying notes to consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)

	December 31,
Liabilities and Stockholders' Equity	2006	2005
Liabilities
Future life, annuity, and other benefits	$ 268,403,765	$ 260,822,803
Unearned premium reserve	4,519,387	3,157,918
Bank loans payable	6,923,344	8,946,321
Notes and contracts payable	747,188	1,326,284
Deferred pre-need cemetery and mortuary contract revenues	11,533,798	10,828,994
Accounts payable	1,820,178	1,533,065
Funds held under reinsurance treaties	--	1,129,747
Other liabilities and accrued expenses	11,611,033	9,427,644
Income taxes	16,587,284	14,601,029
Total liabilities	322,145,977	311,773,805
Commitments and Contingencies	--	--
Non-Controlling Interest in Perpetual Care Trusts	2,278,510	2,173,250
Stockholders’ Equity
Class A common stock - $2.00 par value; 10,000,000 shares authorized;
issued 7,533,230 shares in 2006 and 7,098,363 shares in 2005	15,066,460	14,196,726
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; 7,500,000 shares
authorized; issued 7,117,591 shares in 2006 and 6,781,060 shares in 2005	1,423,518	1,356,212
Additional paid-in capital	17,064,488	15,650,344
Accumulated other comprehensive income and other items	1,703,155	117,647
Retained earnings	20,495,063	17,460,024
Treasury stock, at cost - 1,195,127 Class A shares and 145,045 Class C
shares in 2006; 1,251,104 Class A shares and 138,138 Class C shares
In 2005	(2,781,988)	(3,082,535)
Total stockholders’ equity	52,970,696	45,698,418
Total Liabilities and Stockholders’ Equity	$ 377,395,183	$ 359,645,473

See accompanying notes to consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Earnings

			Years Ended December 31,
Revenues:		2006				2005			2004
Insurance premiums and other considerations	$	30,776,491			$	27,170,109		$	25,979,341
Net investment income		23,245,631				19,386,571			15,939,176
Net mortuary and cemetery sales		12,122,728				10,838,878			11,661,053
Realized gains (losses) on investments and other assets		891,304				74,246			74,431
Mortgage fee income		85,112,831				71,859,272			62,689,391
Other		381,548				620,751			854,425
Total revenues		152,530,533				129,949,827			117,197,817

Benefits and expenses:
Death benefits		15,155,711				13,250,080			13,248,960
Surrenders and other policy benefits		1,697,857				1,484,284			1,291,621
Increase in future policy benefits		10,465,268				9,742,218			8,821,497
Amortization of deferred policy and pre-need acquisition costs and cost of insurance acquired		4,124,747				3,030,734			4,602,072
Selling, general and administrative expenses:
Commissions		63,500,035				53,807,368			48,690,807
Salaries		17,947,902				15,716,813			14,391,958
Other		24,280,011				21,166,024			19,014,776
Interest expense		6,141,298				4,921,238			2,173,778
Cost of goods and services sold - mortuaries and cemeteries		2,322,066				2,103,432			2,303,821

Total benefits and expenses		145,634,895				125,222,191			114,539,290

Earnings before income taxes		6,895,638				4,727,636			2,658,527
Income tax expense		(1,771,188		)		(1,239,756	)		(651,536	)
Minority interest		—				—			115,281
Net earnings	$	5,124,450			$	3,487,880		$	2,122,272

Net earnings per common share (1)	$	0.74			$	0.51		$	0.31

Net earnings per common share - assuming dilution (1)	$	0.72			$	0.50		$	0.30

Weighted average outstanding common shares (1)		6,955,439				6,881,036			6,851,287

Weighted average outstanding common Shares -assuming dilution (1)		7,106,474				6,911,587			7,067,377

(1) 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. Net earnings per Class C common share is equal to one-tenth (1/10) of such amount or $0.08, $0.06 and $0.04 per share of 2006, 2005 and 2004, respectively and $0.08, $0.06 and $0.03 per share-assuming dilution for 2006, 2005 and 2004, respectively.

See accompanying notes to consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

	Class A Common Stock		Class C Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (loss), and Other Items			Retained Earnings			Treasury Stock		Total
Balance as of January 1, 2004	$12,550,208		$1,293,927			$13,569,582		$(437,973)			$15,414,681			$(3,214,994)		$39,175,431
Comprehensive income:
Net earnings				—		—			—			2,122,272					2,122,272
Unrealized gains				—		—			426,621			—		—			426,621
Total comprehensive income		—		—		—			—			—		—			2,548,893
Exercise of stock options		255,776		—		775,801			—			(1,031,577	)	—			—
Purchase of Treasury stock		—		—		—			—			—		(422,946	)		(422,946	)
Sale of Treasury stock		—		—		142,500			—			—		220,641			363,141
Stock dividends		643,864		61,602		433,862			—			(1,139,328	)	—			—
Conversion Class C to Class A		61,892		(61,888	)	1,106			—			(789	)	—			321
Balance at December 31, 2004		13,511,740		1,293,641		14,922,851			(11,352	)		15,365,259		(3,417,299	)		41,664,840

Comprehensive income:
Net earnings		—		—		—			—			3,487,880		--			3,487,880
Unrealized gains		—		—		—			128,999			—		—			128,999
Total comprehensive income		—		—		—			—			—		—			3,616,879
Exercise of stock options		6,892		—		3,926			—			(8,084	)	—			2,734
Sale of Treasury stock		—		—		79,201			—			—		334,764			413,965
Stock dividends		676,084		64,581		644,366			—			(1,385,031	)	—			—
Conversion Class C to Class A		2,010		(2,010	)	—			—			—		—			—
Balance at December 31, 2005		14,196,726		1,356,212		15,650,344			117,647			17,460,024		(3,082,535	)		45,698,418

Comprehensive income:
Net earnings		—		—		—			—			5,124,450					5,124,450
Unrealized gains		—		—		—			1,585,508					—			1,585,508
Total comprehensive income		—		—		—			—			—		—			6,709,958
Exercise of stock options		149,040		—		(43,441	)		—			—		—			105,599
Purchase of Treasury stock		—		—		—			—			—		(3,901	)		(3,901	)
Sale of Treasury stock		—		—		154,154			—			—		304,448			458,602
Issuance for compensation		1,000		—		1,020			—			—		—			2,020
Stock dividends		719,212		67,788		1,302,411			—			(2,089,411	)	—			—
Conversion Class C to Class A		482		(482	)	—			—			—		—			—
Balance at December 31, 2006	$	15,066,460	$	1,423,518		17,064,488		$	1,703,155		$	20,495,063		($2,781,988	)	$	52,970,696

See accompanying notes to consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
		2006			2005			2004
Cash flows from operating activities:
Net earnings		$	5,124,450		$	3,487,880		$	2,122,272
Adjustments to reconcile net earnings to net cash provided by (used in)operating activities:
Realized (gains) losses on investments and other assets			(891,304	)		(74,246	)		(74,431	)
Depreciation			2,023,017			2,094,022			2,013,113
Provision for losses on real estate accounts and loans receivable			558,370			87,376			(165,781	)
Amortization of premiums and discounts			(34,144	)		36,637			(2,489	)
Provision of deferred income taxes			1,153,985			862,024			636,430
Policy and pre-need acquisition costs deferred			(7,313,030	)		(6,764,492	)		(6,051,793	)
Policy and pre-need acquisition costs amortized			3,132,647			1,933,125			3,370,763
Cost of insurance acquired amortized			992,100			1,097,609			1,231,308
Change in assets and liabilities net of effects from purchases and disposals of subsidiaries:
Land and improvements sold to investors			(247,197	)		49,537			(160,703	)
Future life and other benefits			13,017,175			10,824,347			9,000,715
Receivables for mortgage loans sold			(5,321,587	))		(6,803,081			67,621,035
Other operating assets and liabilities			(520,347	)		1,771,798			(2,609,762	)
Net cash provided by operating activities			11,674,135			8,602,536			76,930,677
Cash flows from investing activities:
Securities held to maturity:
Purchase - fixed maturity securities			(14,078,529	)		(5,984,347	)		(37,371,166	)
Calls and maturities-fixed maturity securities			4,978,963			7,781,126			6,293,614
Securities available for sale:
Purchase – fixed maturity securities			(173,262	)		(139,383	)		(21,993	)
Sales equity securities			11,973,825			4,183,108			2,675,301
Purchases of short-term investments			(41,342,009	)		(13,700,353	)		(29,893,323	)
Sales of short-term investments			39,966,771			15,117,762			26,731,711
Purchases of restricted assets 49,537			(50,239	)		(57,453	)		(262,195	)
Change in assets for perpetual care trusts			(154,491	)		(163,254	)		(31,959	)
Amount received for perpetual care trusts			105,260			89,500			130,660
Mortgage, policy, and other loans made			(90,543,821	)		(76,034,805	)		(78,437,965	)
Payments received for mortgage, policy, and other loans			76,979,450			69,804,347			41,116,662
Purchases of property and equipment			(1,763,708	)		(2,236,732	)		(1,241,898	)
Disposal of property and equipment			(37,756	)		—			—
Cash received from sale of property and equipment			—			—			149,040
Purchases of real estate			(2,262,890	)		(5,138,795	)		(1,856,931	)
Cash (paid) received for purchase of subsidiary			—			1,722,238			(304,042	)
Sale of real estate			539,781			3,898,980			352,054
Net cash used in investing activities			(11,042,655	)		(858,061	)		(71,972,430	)

See accompanying notes to the consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

	Years Ended December 31,
	2006			2005			2004
Cash flows from financing activities:
Annuity contract receipts		5,941,594			5,547,795			5,387,393
Annuity contract withdrawals		(10,817,231	)		(9,655,951	)		(10,276,576	)
Repayment of bank loans and notes and contracts payable		(2,572,524	)		(2,463,116	)		(4,379,949	)
Proceeds from borrowing on notes and contracts		—			672,439			—
Purchase of minority shareholder stock of subsidiary		—			(960,309	)		—
Stock options exercised		105,599			—
Purchase of treasury stock		(3,901	)		—			(422,946	)
Sale of treasury stock		458,602			413,965			363,141
Net cash used in financing activities		(6,887,861	)		(6,445,177	)		(9,328,937	)
Net change in cash and cash equivalents		(6,256,381	)		1,299,298			(4,370,690	Cash and cash equivalents at beginning of year	16,632,966	15,333,668	19,704,358
Cash and cash equivalents at end of year	$	10,376,585		$	16,632,966		$	15,333,668

Supplemental Schedule of Cash Flow Information:

The following information shows the non-cash items in connection with the purchase of Security National Life Insurance Company of Louisiana on March 16, 2004 and Memorial Insurance Company of America on December 29, 2005:

	2005			2004
Liabilities assumed:
Future life, annuity and other policy benefits	$	30,326,086		$	1,865,038
Policy and contract claims		171,526			—
Unearned premiums		61,901			—
Other liabilities		184,390			—
Deferred income taxes		1,928,137			—
Less non-cash items
Cost of insurance acquired		(251,086	)		(304,042	)
Bonds received		(20,865,718	)		(1,537,801	)
Common stock received		(8,130,046	)		(326,325	)
Redeemable preferred stock		(821,077	)		—
Mortgage loans received		—			(471,593	)
Real estate received		—			(32,668	)
Policy loans received		(34,575	)		(28,180	)
Short-term investments		—			586,601
Receivables		(388,374	)		(13,589	)
Accrued investment income		(302,923	)		(24,983	)
Property, plant and equipment		(156,003	)		(16,500	)
Cash (paid) received	$	1,722,238		$	(304,042	)

See accompanying notes to the consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

Significant Accounting Policies

General Overview of Business

Security National Financial Corporation and its wholly owned subsidiaries (the “Company”) operates in three main business segments: life insurance, cemetery and mortuary, and mortgage loans. 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 intermountain west, California and eleven southern states. The cemetery and mortuary segment of the Company consists of five cemeteries in Utah, one cemetery in California, eight mortuaries in Utah and four mortuaries in Arizona. The mortgage loan segment is an approved governmental and conventional lender that originates and underwrites residential and commercial loans for new construction, existing homes and real estate projects primarily in Arizona, California, Colorado, Florida, Hawaii, Kansas, Nevada, North Carolina, Oklahoma, Oregon, Texas, Utah, and Virginia.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance accounting principles generally accepted in the United States of America. The presentation of certain amounts in prior years has been reclassified to conform to the 2006 presentation.

Principles of Consolidation

These consolidated financial statements include the financial statement of Security National Financial Corporation and its majority owned subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation.

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.

Held-to-maturity investments are carried at amortized cost, reflecting the Company’s intent and ability to hold the securities to maturity. Available-for-sale securities are stated at estimated fair value with net unrealized gains or losses reported as a component of accumulated other comprehensive income.

Investment gains and losses arise when investments are sold (as determined on a specific identification basis) or are other-than-temporarily impaired. If in management’s judgment a decline in the value of an investment below cost is other than temporary, the cost of the investment is written down to fair value with a corresponding charge to earnings. Factors considered in judging whether an impairment is other than temporary include: the financial condition, business prospects and credit worthiness of the issuer, the length of time that fair value has been less than cost, the relative amount of the decline, and the Company’s ability and intent to hold the investment until the fair value recovers, which is not assured.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

Significant Accounting Policies (Continued)

Fixed maturity securities held to maturity are carried at cost, adjusted for amortization of premium or accretion of discount. Although the Company has the ability and intent to hold these investments to maturity, infrequent and unusual conditions could occur under which it would sell certain of these securities. Those conditions include unforeseen changes in asset quality, significant changes in tax laws, and changes in regulatory capital requirements or permissible investments.

Fixed maturity and equity securities available for sale are carried at estimated fair value, which is based upon quoted trading prices. Changes in fair values net of income taxes are reported as unrealized appreciation or depreciation and recorded as an adjustment directly to stockholders’ equity and, accordingly, have no effect on net income.

Mortgage loans on real estate, construction loans and mortgage loans held for sale are carried at unpaid principal balances, adjusted for amortization of premium or accretion of discount, less allowance for possible losses.

Real estate 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 from impairment in value, if any.

Policy, student, and other loans are carried at the aggregate unpaid balances, less allowances for possible losses.

Short-term investments are carried at cost and consist of certificates of deposit and commercial paper with maturities of up to one year.

Restricted assets of cemeteries and mortuaries are assets held in a trust account for future mortuary services and merchandise and consist of cash; participations in mortgage loans with Security National Life Insurance Company; mutual funds carried at cost; fixed maturity securities carried at cost adjusted for amortization of premium or accretion of discount; and equity securities carried at fair market value.

Cemetery and mortuary perpetual care trust business segment contains six wholly owned cemeteries. Of the six cemeteries owned by the Company, four cemeteries are endowment care properties. Under endowment care arrangements a portion of the price for each lot sold is withheld and invested in a portfolio of investments similar to those described in the prior paragraph. The earnings stream from the investments is designed to fund future maintenance and upkeep of the cemetery.

Realized gains and losses on investments and declines in value considered to be other than temporary, are recognized in operations on the specific identification basis.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

Significant Accounting Policies (Continued)

Cemetery Land and Improvements Held for Sale

The development of a cemetery involves not only the initial acquisition of raw land but 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 criteria for recognizing a sale of that lot is met.

Property and Equipment

Property, plant 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 are amortized over the lesser of the useful life or remaining lease terms.

Recognition of Insurance Premiums and Other Considerations

Premiums 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. Revenues 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 policy charges for the policy administration charges, and surrender charges assessed against policyholder account balances during the period.

Deferred Policy Acquisition Costs and Cost of Insurance 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 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.

Cost of insurance acquired is the present value of estimated future profits of the acquired business and is amortized similar to deferred policy acquisition costs.

Allowance for Loan Losses and Doubtful Accounts

The Company records an estimate of the expense for potential losses from not collecting mortgage loans, other loans and receivables. Mortgage loans held for sale and significant receivables are the result of cemetery and mortuary operations, mortgage loan operations and other receivables. The allowance is based upon the Company’s experience. The critical issues that impact recovery of the cemetery and mortuary receivables is the overall economy. The critical issues that impact recovery of mortgage loan operations are interest rate risk and loan underwriting.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

Significant Accounting Policies (Continued)

Future Life, Annuity and Other Policy Benefits

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. The range of assumed interest rates for all traditional life insurance policy reserves was 4.5% 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 in excess of related policy account balances. Interest crediting rates for interest-sensitive insurance products ranged from 4% to 6.5%.

Participating Insurance

Participating business constituted 2%, 3%, and 2% of insurance in force for 2006, 2005 and 2004, respectively. The provision for policyholders’ dividends included in policyholder obligations is based on dividend scales anticipated by management. Amounts to be paid are determined by the Board of Directors.

Reinsurance

The Company follows the procedure of reinsuring risks in excess of $75,000 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.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

Significant Accounting Policies (Continued)

Cemetery and Mortuary Operations

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 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 recognized in accordance with the retail land sales provisions of Statement of Financial Accounting Standards No. 66, Accounting for the Sales of Real Estate (FAS No. 66). Under FAS 66, recognition of revenue and associated costs from constructed cemetery property must be deferred until a minimum percentage of the sales price has been collected. Revenues related to the sale of unconstructed cemetery property is deferred until such property has been constructed and meets the criteria of FAS No. 66 described above.

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. 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 are accounted for under the guidance of the provisions of Statement of Financial Accounting Standards No. 60 Accounting and Reporting by Insurance Enterprises (FAS No. 60). Obtaining costs, 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.

Revenues and costs for at-need sales are recorded when a valid contract exists, the services are performed, collection reasonably assured and there are no significant obligations remaining.

The Company, through its mortuary and cemetery 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.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

Significant Accounting Policies (Continued)

Mortgage Operations

Mortgage fee income consists of origination fees, processing fees and certain other income related to the origination of mortgages. For mortgages sold to third party investors, mortgage fee income and related expenses are recognized at the time the loan meets the sales criteria for financial assets which are: (1) the transferred assets have been isolated from the Company and its creditors, (2) the transferee has the right to pledge or exchange the mortgage, and (3) the Company does not maintain effective control over the transferred mortgage. Certain loans funded are transferred to unrelated financial institutions under purchase commitments. All rights and title to the mortgage loans are assigned to the unrelated financial institutions, including any investor commitments for these loans prior to their purchasing these loans under the purchase commitments. As of December 31, 2006 and 2005, mortgage loans totaling $190,455,000 and $93,389,000 respectively, have been sold and were outstanding under these commitments.

The Company has commitment agreements from financial institutions whereby the financial institutions have agreed to purchase mortgage loans up to $306,854,000 as of December 31, 2006, until these loans are purchased by third party investors.

The majority of loans originated are sold to third party investors. Receivables for mortgages sold to investors are shown on the balance sheet as mortgage loans sold to investors and are shown on the basis of the amount due from the investors, which includes fees. Any impairment to these receivables are included in a separate allowance for loan losses. The estimates are based upon historical experience and best estimate of future losses.

The Company accrues an estimate of future losses on mortgage loans sold to third party investors. The Company may be required to reimburse third party investors for costs associated with early payoff of loans within the first year of duration and to repurchase loans in default within the first year. The estimates are based upon historical experience and best estimate of future liabilities. At December 31, 2006 and 2005 the reserve for future loan losses was $2,712,000 and $2,183,000, respectively.

Self Insurance

The Company is self insured for certain casualty insurance, workers compensation and health benefit programs. Self–Insurance reserves are maintained relative to these programs. The level of exposure from catastrophic events is limited by the purchase of stop-loss and aggregate liability reinsurance coverages. When estimating the self-insurance liabilities and related reserves, management considers a number of factors, which include historical claims experience, demographic factors, severity factors and valuations provided by independent third-party actuaries. Management reviews its assumptions with its independent third-party administrators and actuaries to evaluate whether the self-insurance reserves are adequate. If actual claims or adverse development of loss reserves occurs and exceed these estimates, additional reserves may be required. The estimation process contains uncertainty since 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.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

Significant Accounting Policies (Continued)

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. No impairment of goodwill has been recognized in the accompanying financial statements.

Long-lived Assets

Long-lived assets to be held and used 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. No impairment of long-lived assets has been recognized in the accompanying financial statements.

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.

Earnings Per Common Share

The Company computes earnings per share in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, Earnings per share. This Standard requires 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. Basic and diluted earnings per share amounts have been adjusted retroactively for the effect of annual stock dividends.

Stock Compensation

Effective January 1, 2006, the Company adopted the Financial Accounting Standards Board Statement of Financial Accounting Standards 123 (revised 2004). Share-Based Payment (“SFAS123R”). SFAS 123R requires the recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award. The fair value of all options was calculated using the

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

Significant Accounting Policies (Continued)

Black Scholes method. SFAS 123R also requires the stock option compensation expense to be recognized over the period during which an employee is required to provide service in exchange for the award (the vesting period). Prior to adopting SFAS 123R, the Company accounted for stock-based compensation plans under Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees (“APB 25”). Under APB 25, generally no compensation expense is recorded when the terms of the award are fixed and the exercise price of the employee stock option equals or exceeds the fair value of the underlying stock on the date of grant. The Company adopted the disclosure-only provision of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”).

The Company also has one variable option plan (the “1987 Plan”). In accordance with SFAS 123R for 2006 and APB Opinion No. 25 for 2005 and 2004, compensation cost related to options granted and outstanding under this plan is estimated and recognized over the period of the award based on changes in the current market price of the Company’s stock over the vesting period. Options granted under the 1987 Plan are exercisable for a period of ten years from the date of grant. No compensation was recognized under SFAS 125R for 2006 or under APB 25 for 2005 and 2004.

The Company has four fixed option plans (the “1987 Plan”, the “1993 Plan,” the “2000 Plan”, the “2003 Plan” and the “2006 Plan”). No compensation cost has been recognized for these plans under SFAS 123R for 2006 or under APB 25 for 2005 and 2004. Had compensation cost for 2005 and 2004 for these plans been determined based upon the fair value at the grant date consistent with the methodology prescribed under SFAS No. 123R, the Company’s net earning and basic and diluted earnings per share would have been reduced as follows:

Years Ended December 31,
	2005	2004

Net earnings, as reported	$3,487,880		$ 2,122,272
Total stock-based employee compensation recognized		--		--

Total stock-based employee compensation expense

determined under fair value based method
for all awards	(676,920)	(1,090,458)

Pro forma net earnings

$2,810,960

$1,031,814

Basic earnings per share, as reported	$0.51	$0.31
Diluted earnings per share as reported	$0.50	$0.30
Basic earnings per share, pro forma	$0.41	$0.15
Diluted earnings per share, pro forma	$0.41	$0.15

The weighted-average fair value of each option granted in 2006 under the 2006 Plan, is estimated at $3.11 as of the grant date using the Black Scholes Option Pricing Model with the following assumptions: dividend yield of 5%, volatility of 42%, risk-free interest rate of 3.4%, and an expected life of ten years. For the year ended December 31, 2006, the Company calculated compensation expense of $7,680 related to stock options.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

Significant Accounting Policies (Continued)

The Company generally estimates the expected life of the options based upon the contractual term of the options. Future volatility is estimated based upon the historical volatility of the Company’s Class A common stock over a period equal to the estimated life of the options. Common stock issued upon exercise of stock options are generally new share issuances rather than from treasury shares. Future compensation relating to non-vested stock options at December 31, 2006 is not material.

The weighted-average fair value of options granted in 2005 under the 2000 Plan and the 2003 Plan is estimated at $1.92 as of the grant date using the Black Scholes option-pricing model with the following assumptions: dividend yield of 5%, volatility of 39%, risk-free interest rate of 3.4%, and an expected life of five to ten years.

The weighted-average fair value of options granted in 2004 under the 2000 Plan and the 2003 Plan is estimated at $1.71 as of the grant date using the Black Scholes Option Pricing Model with the following assumptions: dividend yield of 5%, volatility of 36%, risk-free interest rate of 3.4%, and an expected life of five to ten years.

Concentration of Credit Risk

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.

Recent Accounting Pronouncements

In September 2005, the AICPA issued Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs (“DAC”) in Connection with Modifications or Exchanges of Insurance Contracts, (“SOP 05-1”). SOP 05-1 provides guidance on accounting by insurance enterprises for DAC on internal replacements of insurance and investment contracts. An internal replacement is a modification in product benefits, features, rights or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a 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 should be accounted for as an extinguishment of the replaced contract. Unamortized DAC, unearned revenue liabilities and deferred sales inducements from the replaced contract must be written-off. Modifications that result in a contract that is substantially unchanged from the replaced contract should be accounted for as a continuation of the replaced contract. SOP 05-1 is effective for internal replacements occurring in fiscal years beginning after December 15, 2006, with earlier adoption encouraged. Initial application of SOP 05-1 should be as of the beginning of the entity’s fiscal year. The Company will adopt SOP 05-1 effective January 1, 2007. Adoption of this statement is not expected to have a material impact on the Company’s consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

Significant Accounting Policies (Continued)

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140 (SFAS 155). SFAS 155 amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities and related interpretations. SFAS 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation and clarifies which interest-only strips and principal-only strips are not subject to recognition as liabilities. SFAS 155 eliminates the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for the Company for all financial instruments acquired or issued beginning January 1, 2007. The impact of adoption of this statement on the Company’s consolidated financial statements will likely not be material.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140 (SFAS 156). SFAS 156 amends SFAS 140 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities and related interpretations. SFAS 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset. It also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. SFAS 156 permits an entity to use either the amortization method or the fair value measurement method for each class of separately recognized servicing assets and servicing liabilities. SFAS 156 is effective for the Company as of January 1, 2007. The impact of adoption of this statement on the Company’s consolidated financial statements will likely not be material.

In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes, which attempts to set out a consistent framework for preparers to use to determine the appropriate level of valuation allowance tax reserves to maintain for deferred tax assets relating to uncertain tax positions. This interpretation of FASB Statement No. 109 uses a two-step approach wherein a tax benefit is recognized if a position is more-than-likely-than-not to be sustained. The amount of the benefit is then measured to be the highest tax benefit, which is greater than a fifty percent likelihood of being realized. FIN 48 also sets out disclosure requirements to enhance transparency of an entity’s valuation allowances. The Company will adopt this Interpretation as of January 1, 2007. The impact from adoption has not been determined.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 will be applied prospectively and is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. SFAS 157 is not expected to have a material impact on the Company’s consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

Significant Accounting Policies (Continued)

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, (“SFAS 158”). Under SFAS 158, the Company must recognize a net liability or asset to report the funded status of its defined benefit pension and other postretirement benefit plans on its balance sheets. The effective date of the recognition and disclosure provisions for the company is as of December 31, 2006. Adoption of SFAS 158 did not have a material effect on the consolidated financial statements as of December 31, 2006 or for the year then ended.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (“SAB 108”). SAB 108 was issued to provide interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The provisions of SAB 108 are effective for the Company for the year ended December 31, 2006. The adoption of SAB 108 did not have a material impact on the Company’s consolidated financial statements.

In February 2007 the FASB issued SFAS No 159, The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No 115 (“SFAS 159”) SFAS 159 allows measurement at fair value of eligible financial assets and liabilities that are not otherwise measured at fair value. If the fair value option for an eligible item is elected, unrealized gains and losses for that item shall be reported in current earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements designed to draw comparison between the different measurement attributes the Company elects for similar types of assets and liabilities. This statement is effective for fiscal years beginning after November 15, 2007. The Company is in the process of evaluating the application of the fair value option and its effect on its financial position and results of operations.

2) Acquisitions

Southern Security Life - Minority Interest Acquisition

As of December 31, 2004, the Company’s wholly owned subsidiary, Security National Life Insurance Company (“Security National Life”), and its wholly owned subsidiary, SSLIC Holding, owned approximately 77% of the outstanding shares of common stock of Southern Security Life.

On January 1, 2005, the Company, through Security National Life, acquired the remaining 490,816 shares of common stock or the remaining 23% of Southern Security Life for $3.84 per share in cash, or an aggregate of $1,884,733, which was primarily paid during 2005.

The Florida Office of Insurance Regulation approved a reinsurance agreement on December 28, 2005. As a result of the reinsurance agreement, all of the insurance business and operations of Southern Security Life, including its assets and liabilities, were transferred to Security National Life, as reinsurer, as of December 31, 2005, the effective date of the agreement, except for the capital and surplus which is required to be maintained under Florida law. Thus, approximately $48,528,000 in assets and liabilities were transferred from Southern Security Life to Security National Life pursuant to the reinsurance agreement.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

2) Acquisitions (Continued)

Southern Security Life - Sale

On December 29, 2006, the Company, through its wholly owned subsidiary, Security National Life, entered into an agreement to sell Southern Security Life to American Network Insurance Company ("American Network"), a Pennsylvania corporation and wholly owned subsidiary of Penn Treaty America Corporation, a Pennsylvania corporation. Under the terms of the agreement, Security National Life is to receive $4,265,884 upon approval of the transaction by the Florida Office of Insurance Regulation, the Florida Department of Financial Services, and the Pennsylvania Department of Insurance.

Until closing, Security National Life was required to pay $503,302 into an escrow account which will be repaid to Security National Life upon receipt of a written notice from American Network that it has deposited its own bonds with the states of Alabama, Michigan and South Carolina

In the event any of the regulatory authorities disapprove or fail to approve the transaction on or before June 30, 2007, the purchase price and payment by Security National Life will be released from escrow to the original parties and the purchase agreement will be terminated and Southern Security Life will be merged into Security National Life.

On March 5, 2007, the Company received a proposed consent order from the Florida Office of Insurance Regulation concerning the New Success Life Program, the higher education product currently being marketed and sold by Southern Security Life. The proposed order states that as a result of the investigation the Florida Office has determined that Southern Security Life violated Florida law (i) by knowingly making statements, sales presentations, omissions or comparisons that misrepresented the benefits, advantages, or terms of the New Success Life Program, and (ii) by knowingly making, advertisements, announcements, or statements containing representations that were untrue or misleading.

The proposed order would require Security National Life and Southern Security Life to immediately cease and desist from making any false or misleading representations to Florida consumers suggesting that the New Success Life Program would accumulate enough value to pay for college expenses in full. The proposed order would also require Security National Life and Southern Security Life to agree to no longer market or sell the New Success Life Program in the State of Florida. In addition, Security National Life and Southern Security Life would be required to send a written notice to Florida consumers who purchased the New Success Life Program on or after January 1, 1998 stating that the higher education program is a whole life insurance product, with a term and annuity rider, and not a college trust fund, savings plan, or other program, and it may not necessarily pay college expenses in full from the accumulated value.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

2) Acquisitions (Continued)

Moreover, the written notice is to provide an opportunity for the Florida consumers who purchased the New Success Life Program on or after January 1, 1998 to cancel their policy and be given a full refund, including all premiums paid, together with interest at the agreed upon rate in the original contract. If each of the Florida consumers who purchased the New Success Life Program after January 1, 1998 was to cancel his or her policy and receive a refund, the cost to the Company to refund all premiums paid, including interest, would be approximately $8,200,000, an amount in excess of the assets of Southern Security Life.

The proposed consent order would also require Security National Life and Southern Security Life to issue refunds including interest to the eleven policyholders whose affidavits were taken in connection with the administrative complaint that the Florida Office had previously filed against Franz Wallace, the former National Sales Director of Southern Security Life. Security National Life and Southern Security Life would additionally be required to issue refunds, including interest, to any Florida policyholder in the New Success Life Program who had filed a complaint with the Florida Department of Financial Services or whose coverage had lapsed. Furthermore, Security National Life and Southern Security Life would be required to notify the state insurance department in each state in which the New Success Life Program is marketed of the order and any complaint that Southern Security Life received relating to the New Success Life Program from policyholders in that state. Finally, Security National Life and Southern Security Life would be required to pay the Florida Office a penalty of $100,000 and administrative costs of $5,000.

The Company disputes the terms of the proposed consent order. The Company is not aware of specific concerns that the Florida Office has with the New Success Life Program because it has received no administrative complaint from the Florida Office nor is it aware of any recent market conduct examination that the Florida Office has conducted relative to the program. The Company intends to vigorously oppose the proposed consent order. The Company is currently engaged in discussions with the Florida Office in an effort to settle the dispute concerning the proposed order. If the Company is unable to reach a satisfactory resolution with the Florida Office with respect to the terms of the proposed consent order and the Florida Office issues a similar order, the Company intends to take action necessary to protect its rights and interests, including requesting a hearing before an administrative law judge to oppose the order. The Company believes any potential liability would be limited to the assets of Southern Security Life, which are approximately $3,847,000.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

2) Acquisitions (Continued)

Paramount Security Life Insurance Company

On March 16, 2004, Security National Life completed the purchase of all of the outstanding common stock of Paramount Security Life Insurance Company, now known as Security National Life of Louisiana, a Louisiana domiciled insurance company located in Shreveport, Louisiana. As of March 16, 2004, Paramount Security Life Insurance Company had approximately 9,400 policies in force and approximately 29 agents. The total purchase consideration was $4,398,000 and the transaction was effective, January 26, 2004. The operation of Security National Life of Louisiana has been included in the consolidated operations of the Company from January 26, 2004.

Security National Life of Louisiana is licensed in the State of Louisiana and is permitted to appoint agents who do not have a full life insurance license. These agents are limited to selling small life insurance policies in the final expense market.

Memorial Insurance Company of America

On December 29, 2005, Security National Life and Southern Security Life completed a stock purchase transaction with Memorial Insurance Company of America, an Arkansas domiciled insurance company (“Memorial Insurance Company”), and purchased all of the outstanding shares of common stock of Memorial Insurance Company for $13,500,000.

The shareholders of Memorial Insurance Company received payment for their shares by means of distributions, with Security National Life and Southern Security Life simultaneously contributing sufficient capital and surplus to Memorial Insurance Company to maintain its status as an admitted insurer in good standing in the state of Arkansas.

The following unaudited consolidated pro forma results of operations is presented assuming consummation of the purchase of Paramount Security Life Insurance Company and Memorial Insurance Company as of January 1, 2004:

						Unaudited Pro Forma
			Years Ended December 31,
			2005					2004
	in thousands except earnings per share
Total revenue		$133,609					$122,000
Net earnings				4,325					4,283
Basic earnings per share					$0.63				$0.63

Diluted earnings per share$0.63$0.61

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

2) Acquisitions (Continued)

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition of Paramount Security Life Insurance Company on March 16, 2004 and Memorial Insurance Company of America on December 29, 2005:

	Memorial	Paramount
Assets:
Cash received	$ 1,722,238	$ --
Cost of insurance acquired	251,086	304,042
Investments	29,816,841	1,864,126
Mortgage loans	--	471,593
Real estate	--	32,668
Policy loans	34,575	28,180
Receivables	388,374	13,589
Accrued investment income	302,923	24,983
Property and equipment	156,003	16,500
Total assets acquired	32,672,040	2,755,681

Liabilities:
Future life, annuity and other benefits	30,326,086	1,865,038
Other liabilities	417,817	586,601
Deferred income taxes	1,928,137	--
Total liabilities assumed	32,672,040	2,451,639

Net assets acquired	$ --	$ 304,042

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

3) Investments

The Company’s investments in fixed maturity securities held to maturity and equity securities available for sale as of December 31, 2006 are summarized as follows:

		Gross	Gross	Estimated
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
December 31, 2006:
Fixed maturity securities held to maturity carried at amortized cost:
Bonds:
U.S. Treasury securities
and obligations of U.S
Government agencies	$14,237,522	$105,720	$(287,625)	$14,055,617

Obligations of states and	.
political subdivisions	1,189,165	51,099	(4,361)	1,235,903

Corporate securities including public utilities	72,755,683	1,036,087	(539,122)	73,252,648

Mortgage-backed securities	9,511,196	59,004	(331,484)	9,238,716

Redeemable preferred stock	623,953	16,240	(500)	639,693
Total fixed maturity securities held to maturity	$98,317,519	$1,268,150	$(1,163,092)	$98,422,577

Securities available for sale carried at
estimated fair value:
Fixed maturity securities available for sale:
U.S. Treasury securities
and obligations of U.S.
Government agencies	$597,937	$19,365	$--	$617,302

Corporate securities including	2,713,641	86,588	--	2,800,229
public utilities
Total fixed maturity securities
available for sale	$3,311,578	$105,953	$--	$ 3,417,531

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

3) Investments (Continued)

		Gross	Gross	Estimated
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
December 31, 2006:

Equity securities available for sale:

Non-redeemable preferred stock	$20,281	$ --	$(2,719)	$ 17,562

Common stock:

Public utilities	411,999	391,020	(10,557)	792,462
Banks, trusts and insurance companies	559,683	909,209	(21,265)	1,447,627
Industrial, miscellaneous and all other	1,173,702	2,265,431	(435,089)	3,004,044

Total equity securities available for sale	$2,165,665	$3,565,660	$(469,630)	$5,261,695

Total securities available for sale carried at estimated fair value	$5,477,243	$3,671,613	$(469,630)	$8,679,226

Mortgage loans on real estate and construction loans:
Residential	$15,992,983
Residential construction	25,465,382
Commercial	44,334,305
Commercial Construction	368,917
Allowance for loan losses	(1,026,576)
Total mortgage loans on real estate and construction loans	$85,135,011

Real estate	$5,002,853

Policy, student and other loans	$12,846,986

Short-term investments	$4,586,828

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

3)	Investments (Continued)

The Company’s investments in fixed maturity securities held to maturity and equity securities available for sale as of December 31, 2005 are summarized as follows:

		Gross	Gross	Estimated
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
December 31, 2005:
Fixed maturity securities held to maturity carried at amortized cost
Bonds:
U.S. Treasury securities and
obligations of U.S Government agencies	$15,135,496	$161,384	$(185,916)	$15,110,964

Obligations of states and political subdivisions	1,276,511	24,143	(3,335)	1,297,319

Corporate securities including ublic utilities	70,022,086	1,945,973	(420,407)	71,547,652

Mortgage-backed securities	2,497,872	24,543	(136,089)	2,386,326

Redeemable preferred stock	848,977	22,688	--	871,665
Total fixed maturity securities held to maturity	$89,780,942	$2,178,731	$(745,747)	$91,213,926
				-
Securities available for sale carried at estimated fair value
Fixed maturity securities available for sale:
U.S. Treasury securities
and obligations of U.S.
Government agencies	$597,399	$35,315	$ --	$632,714

Corporate securities including public utilities	5,846,721	122,715	(4,989)	5,964,447

Total fixed maturity securities available for sale	$6,444,120	$158,030	$(4,989)	$6,597,161

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

Investments (Continued)

		Gross	Gross	Estimated
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
December 31, 2005:

Equity securities available for sale:

Non-redeemable preferred stock	$37,781	$21,125	$(3,436)	$55,470

Common stock:

Public utilities	1,533,349	262,451	(15,357)	1,780,443
Banks, trusts and insurance companies	520,684	604,681	(12,915)	1,112,450
Industrial, miscellaneous and all other	8,080,838	1,801,463	(483,725)	9,398,576

Total equity securities available for sale	$10,172,652	$2,689,720	$(515,433)	$12,346,939

Total securities available for sale carried at estimated fair value	$16,616,772	$2,847,750	$(520,422)	$18,944,100


Mortgage loans on real estate and construction loans
Residential	$11,121,810
Residential construction	17,278,209
Commercial	43,504,500
Commercial construction	1,129,292
Allowance for loan losses	(562,909)
Total mortgage loans on real estate and construction loans	$72,470,902

Real estate	$ 7,012,399

Policy, student and other loans	$12,391,569

Short-term investments	$ 3,211,590

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

Investments (Continued)

The fair values for 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 December 31, 2006, 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.

	Amortized	Estimated Fair
Held to Maturity:	Cost	Value

Due in 2007	$ 1,686,299	$ 1,682,584
Due in 2008 through 2011	8,866,775	8,947,719
Due in 2012 through 2016	21,219,659	21,200,678
Due after 2016	56,409,636	56,713,187
Mortgage-backed securities	9,511,197	9,238,716
Redeemable preferred stock	623,953	639,693
Total held to maturity	$98,317,519	$98,422,577


Available for Sale:	Amortized Cost	Estimated Fair Value
Due in 2007	$ 499,874	$ 502,200
Due in 2008 through 2011	2,713,641	2,800,229
Due in 2012 through 2016	--	--
Due after 2016	98,063	115,102
Non-redeemable preferred stock	20,281	17,562
Common stock	2,145,384	5,244,133
Total available for sale	$ 5,477,243	$ 8,679,226

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

3) Investments (Continued)

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

					2006			2005				2004
Fixed maturity securities held
	to maturity:
		Gross realized gains	$			1,282	$ 2,593			$36,933
		Gross realized losses		(28,439)					--		(26,355)

Securities available for sale:
	Gross realized gains	106,252		56,651			3,310
	Gross realized losses		(12,996)		(561)	(6,364)

Other assets			825,205			15,563		66,907
	Total	$		891,304	$74,246		$74,431

Generally gains and losses from held to maturity securities are a result of early calls and related amortization of premiums or discounts.

Mortgage loans consist of first and second mortgages. The mortgage loans bear interest at rates ranging from 6% to 22.25%, 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 do business. At December 31, 2006, the Company has 48% of its mortgage loans from borrowers located in the state of Utah. The mortgage loans on real estate balances on the consolidated balance sheet are reflected net of an allowance for loan losses of $1,026,576 and $562,909 at December 31, 2006 and 2005, respectively.

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 December 31, 2006, other than investments issued or guaranteed by the United States Government.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

3) Investments (Continued)

Major categories of net investment income are as follows:

								2006								2005								2004
Fixed maturity securities			$5,893,909						$ 4,602,518									$ 4,438,808
Equity securities							132,521								84,611										67,120
Mortgage loans on real estate						6,884,991						5,267,027									3,403,110
Real estate						1,159,572						1,636,413									1,322,796
Policy, student and other loans							713,798							674,826									673,404
Short-term investments, principally
	gains on sale of mortgage loans
	and other			10,409,719									8,642,669									7,276,009
	Gross investment income		25,194,510							20,908,064									17,181,247
Investment expenses					(1,948,879)						(1,521,493)									(1,242,071)
Net investment income		$23,245,631							$19,386,571								$15,939,176

Net investment income includes net investment income earned by the restricted assets of the cemeteries and mortuaries of approximately $936,000, $904,000 and $781,000 for 2006, 2005, and 2004, respectively.

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

Securities on deposit for regulatory authorities as required by law amounted to $7,248,075 at December 31, 2006 and $9,439,648 at December 31, 2005. The restricted securities are included in various assets under investments on the accompanying consolidated balance sheets.

4) Receivables

Receivables consist of the following:

2006

2005

Trade contracts	$ 8,114,563	$ 5,733,142
Advances receivable from sales agents	2,146,507	1,992,877
Contract for sale of Southern Security Life	4,365,887	-
Other	1,117,553	958,851
Total receivables	15,744,510	8,684,870
Allowance for doubtful accounts	(866,392)	(868,197)
Net receivables	$ 14,878,118	$ 7,816,673

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

5) Cost of Insurance Acquired

Information with regard to cost of insurance acquired is as follows:

2006

2005

2004

Balance at

	beginning of year	$12,663,221		$14,053,497		$14,980,763
Cost of insurance acquired			210,926		(292,667)		304,042

Imputed interest at 7%		851,702		935,085		1,016,199
Amortization	(1,843,802)		(2,032,694)		(2,247,507)

Net amortization

charged to income

(992,100)

(1,097,609)

(1,231,308)

Balance at end

of year

$11,882,047

$12,663,221

$14,053,497

Presuming no additional acquisitions, net amortization charged to income is expected to approximate $936,000, $876,000, $840,000, $805,000, and $772,000 for the years 2007 through 2011. Actual amortization may vary based on changes in assumptions or experience.

6) Property and Equipment

The cost of property and equipment is summarized below:

								December 31,
							2006							2005
Land and buildings		$ 17,040,687							$ 15,842,601
Furniture and equipment					12,024,948							12,142,351
				29,065,635							27,984,952
Less accumulated depreciation			(15,006,106)							(13,916,575)
	Subtotal			14,059,529							14,068,377
Land and buildings sold to investors						--							678,899
Total		$ 14,059,529							$ 14,747,276

Bank Loans Payable

Bank loans payable are summarized as follows:

	December 31,
2006		2005

6% note payable in monthly installments of $5,693

6.93% note payable in monthly installments of $14,175

including principal and interest, collateralized by real
property with a book value of approximately $812,000,
due November 2007.	1,379,158	1,426,515

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

7)	Bank Loans Payable (Continued)
			December 31,
		2006		2005

Bank prime rate less 1.35% (6.90% at December 31, 2006) note

payable in monthly installments of $2,736 including principal
and interest, collateralized by 15,000 shares of Security National
Life Insurance Company stock, due February 2007.	4,827	38,589

7.35% note payable in monthly installments of $14,975 including

principal and interest, collateralized by 15,000 shares of
		ncipal
	Security National Life Insurance Company stock, paid December 2006.		--	172,549

5.87% note payable with interest and monthly principal payments of $134,000, collateralized by 15,000 shares
of Security National Life Insurance Company Stock,
due January 2010.	4,569,116	5,926,478

Mark to market of interest rate swaps (discussed below) adjustment

(133,080)

(162,629)

Other collateralized bank loans payable			539,069		947,598
	Total bank loans	6,923,344		8,946,321

Less current installments		3,118,842		2,291,439
Bank loans, excluding current installments	$ 3,804,502		$ 6,654,882

The Company has line of credit agreements with a bank for $2,500,000, of which $250,000 and $600,000 were outstanding at December 31, 2006 and 2005, respectively, and were included in other collateralized bank loans payable. The lines of credit are for general operating purposes and bear interest at the bank’s prime rate and must be repaid every 30 days.

The Company considers its interest rate swap instruments (swaps) effective cash flow hedges against the variable interest rates of certain bank loans. The swaps expire on the maturity dates of the bank loans they hedge. In the event a swap is terminated, any resulting gain or loss would be deferred and amortized to interest expense over the remaining life of the bank loan it hedged. In the event of early extinguishment of a hedged bank loan, any realized or unrealized gain or loss from the hedging swap would be recognized in income coincident with the extinguishment.

Information regarding the swaps is as follows as of December 31, 2006:

Weighted average variable interest rate of
	the hedged bank loans (prime less .5%)		7.75%
Weighted average fixed interest rate of the swaps			6.11%
Market value of the swaps- potential unrealized
	gain position	$133,080

The respective market values of the swaps are derived from proprietary models of the financial institution with whom the Company purchased the swaps and from whom the Company obtained the hedged bank loans.

See Note 8 for summary of maturities in subsequent years.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

8) Notes and Contracts Payable

Notes and contracts payable are summarized as follows:

	December 31,
2006		2005

Unsecured note payable due to former stockholders

of Deseret Memorial, Inc. resulting from the
acquisition of such entity. Amount represents
the present value, discounted at 8%, of monthly
annuity payments of $5,900, due September 2011.	$279,853	$	501,598

9% note payable in monthly installments of

Due to shareholder of Security National

Other notes payable	258,013		356,379
Total notes and contracts payable	747,188	1,326,284
Less current installments	202,964		449,878

Notes and contracts, excluding

current installments

544,224

$ 876,406

The following tabulation shows the combined maturities of bank loans payable, lines of credit and notes and contracts payable:

2007		$3,321,806
2008			1,798,649
2009			1,769,988
2010				569,822
	2011					77,114
Thereafter					133,153
Total		$7,670,532

Interest paid approximated interest expense in 2006, 2005 and 2004.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

9) Cemetery and Mortuary Endowment Care and Pre-need Merchandise Funds

The Company has, historically, presented its perpetual care trusts, associated with its pre-need funeral and cemetery activities, on a net basis in the consolidated financial statements. In accordance with its adoption of FIN 46R, the assets and liabilities of the perpetual care trusts have been presented on a gross basis. Although FIN 46R requires the consolidation of the merchandise and service trusts, it does not change the legal relationships among the trusts, the Company and its customers. The customers are the legal beneficiaries of these merchandise and service trusts, and therefore, their interest in these trusts has been represented as non-controlling interest in perpetual care trusts in the accompanying consolidated financial statements.

The components of the non-controlling interests in perpetual care trusts are as follows:

			December 31
		2006			2005
Trust investments, at market value	$1,306,984			$1,152,493

Note receivables from Cottonwood Mortuary

	and Singing Hills Cemetery eliminated
		in consolidation		1,158,863			1,051,978
Other					(187,337)			(31,221)
Non-controlling interest			$2,278,510			$2,173,250

The Company has established and maintains certain restricted trust investments to provide for future merchandise and service obligations incurred in connection with its pre-need sales. Such amounts are reported as pre-need funeral and cemetery trust investments of cemeteries and mortuaries in the accompanying consolidated balance sheets.

Assets in the restricted asset account are summarized as follows:

							December 31,
				2006							2005
Cash and cash equivalents	$		673,262					$ 747,281
Mutual funds		332,960							332,960
Fixed maturity securities						8,775						8,775
Equity securities					77,778					77,778

Participation in mortgage loans

	with Security National Life			4,338,095			4,039,609
Time certificate of deposit					--			33,696
		Total	$5,430,870			$5,240,099

10) Income Taxes

The Company’s income tax liability at December 31 is summarized as follows:

						December 31,
					2006						2005
Current	$			690,171			$			358,357
Deferred			15,897,113						14,242,672
Total		$16,587,284						$14,601,029

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

10) Income Taxes (Continued)

Significant components of the Company’s deferred tax (assets) and liabilities at December 31 are approximately as follows:

		December 31,
	2006		2005
Assets
Future policy benefits	$(2,678,185)		$(1,424,759)
Unearned premium	(1,672,173)		(1,736,217)
Other	(434,239)		(299,209)
Total deferred tax assets	(4,784,597)		(3,460,185)

Liabilities
Deferred policy acquisition costs	7,374,960		6,694,963
Cost of insurance acquired	4,338,358		2,150,799
Installment sales	2,232,103		3,262,577
Trusts	1,257,376		1,766,590
Tax on unrealized appreciation	1,649,404		584,879
Difference between book and tax basis of other
assets and liabilities	3,829,509		3,243,049
Total deferred tax liabilities	20,681,710		17,702,857
Net deferred tax liability	$15,897,113		$14,242,672

The Company paid $173,389, $37,960 and $126,894 in income taxes for 2006, 2005 and 2004, respectively. The Company’s income tax expense (benefit) is summarized as follows:

					2006					2005				2004
Current		$		617,203			$	377,732			$				15,106
Deferred			1,153,985						862,024				636,430
Total	$1,771,188					$1,239,756						$651,536

The reconciliation of income tax expense at the U.S. federal statutory rates is as follows:

		2006		2005		2004
Computed expense at statutory rate	$2,344,517		$1,607,396		$ 903,899

Special deductions allowed

	small life insurance companies		(624,438)					(399,820)					(243,873)
Dividends received deduction					(2,040)					(5,780)						(5,619)
Minority interest taxes						--					--				47,376
Other, net				53,149					37,960					(50,247)
	Tax expense	$1,771,188					$1,239,756					$ 651,536

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

10) Income Taxes (Continued)

A portion of the life insurance income earned prior to 1984 was not subject to current taxation but was accumulated for tax purposes, in a “policyholders’ surplus account.” Under provisions of the Internal Revenue Code, the policyholders’ surplus account was frozen at its December 31, 1983 balance and will be taxed generally only when distributed. Congress passed changes to the tax code, which exempts distributions from tax if such distributions are made in the years 2005 through 2007. The Company took advantage of these changes and made distributions in 2006 of its policyholders surplus account ($4,152,318).

The Company has a net operating loss carry forward of approximately $1,434,000, as of December 31, 2006. These carry forward amounts begin expiring in ten years and range up to 20 years.

11)

Reinsurance, Commitments and Contingencies

The Company follows the procedure of reinsuring risks in excess of a specified limit, which ranged from $30,000 to $75,000 during the years 2006 and 2005. The Company is liable for these amounts in the event such reinsurers are unable to pay their portion of the claims. The Company has also assumed insurance from other companies having insurance in force amounting to $1,388,552,000 (unaudited) at December 31, 2006 and $1,964,847,00 (unaudited) at December 31, 2005.

As part of the acquisition of Southern Security, the Company has a co-insurance agreement with The Mega Life and Health Insurance Company (“MEGA”). On December 31, 1992 Southern Security ceded to MEGA 18% of all universal life policies in force at that date. MEGA is entitled to 18% of all future premiums, claims, policyholder loans and surrenders relating to the ceded policies. In addition, Southern Security receives certain commission and expense reimbursement. Effective January 1, 2006, Southern Security entered into a Reinsurance Recapture Agreement with MEGA wherein the policies reinsured under the Reinsurance Agreement between the Company and MEGA dated December 31, 1992, as amended was recaptured. During February 2006 MEGA transferred assets and liabilities of approximately $6,582,000 to Southern Security. Consideration paid by Southern Security to MEGA was $200,000.

The Company has commitments to fund residential construction loans. As of December 31, 2006 the Company had commitments of $43,389,000 for these loans of which $25,465,000 had been funded. These loans are for new construction. The Company will advance funds once the work has been completed and an independent inspection is made. The maximum loan commitment ranges between 50% to 80% of appraised value. The Company receives fees from the borrowers and the interest rate is generally 1% to 2% over the bank prime rate (8.25% as of December 31, 2006). Maturities range between six and twelve months.

On December 26, 2003, the Company entered into a partially Coinsurance and a partially Modified Coinsurance Agreement (CoModco Agreement) with Guaranty Income Life Insurance Company (Guaranty) effective September 30, 2003. The Company has reinsured 100% of certain blocks of Guaranty’s traditional life, universal life and annuity businesses. The total liabilities reinsured for these blocks of businesses on October 1, 2003 were $60,527,887. The

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

11)

Reinsurance, Commitments and Contingencies (Continued)

Company paid a ceding commission to Guaranty of $3,400,000 and will receive from Guaranty a risk charge of 1% of the outstanding Coinsurance per calendar quarter. Guaranty put into a bank trust investment grade bonds, which equal the outstanding liabilities assumed by the Company. The Company is named as a beneficiary of the trust and the terms of the trust are such that Guaranty will maintain investment grade bonds in the trust to equal the outstanding liabilities assumed by the Company. Under the CoModco Agreement the Coinsurance and the increase in reserves are equal. Under U. S. GAAP the Coinsurance and the reserve increases are netted since these are non-cash items, and the Company expects to recapture the Coinsurance from future profits of the reinsured business. Guaranty has the right to recapture the business at any time after December 31, 2004 upon 90 days advance notice. As of December 31, 2006 and 2005, the outstanding Coinsurance amount was $-0- and $-0-, respectively. The Company recorded as income the risk charge for the years ended December 31, 2006 and 2005, of $-0- and $10,000, respectively. In the event that the Company believes it will not recover the Coinsurance it will have to record as an expense and a future liability for the amount of such impairment. Effective January 1, 2005, Guaranty recaptured the reinsurance under this agreement and the agreement was cancelled between the Company and Guaranty. The recapture did not result in recognition of a gain or loss in the consolidated financial statements.

The City of Phoenix (in Arizona) began condemnation proceedings during 2004 on the property where the Camelback Funeral Home was located for purposes of constructing a light rail facility. The city placed $1,200,000 in escrow to pay the Company for the property that was condemned. The carrying amount on the Company’s financial statements for the land and building of the Camelback Funeral Home at December 31, 2005 was $678,889. The Company has had an independent appraisal and negotiated a higher sales price with the city. In July 2006, the Company settled with the City of Phoenix for a sales price of $1,440,000. As a result of the sale, the Company recognized a gain of $760,231 during the third quarter of 2006. The first payment of $1,200,000 was made by the City of Phoenix in August 2006 with the remaining amount to be received within 30 days of the city council’s approval of the sales price.

The Company leases office space and equipment under various non-cancelable agreements, with remaining terms up to five years. Minimum lease payments under these non-cancelable operating leases as of December 31, 2006, are approximately as follows:

Years Ending
	December 31:
				2007		$ 854,000
			2008				677,000
			2009				376,000
			2010				126,000
				2011				8,000
		Total			$2,041,000

Total rent expense related to these non-cancelable operating leases for the years ended December 31, 2006, 2005, and 2004 was approximately $1,222,000, $828,000 and $734,000, respectively.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

11)

Reinsurance, Commitments and Contingencies (Continued)

At December 31, 2006, the Company was contingently liable under a standby letter of credit aggregating $101,520, to be used as collateral to cover any contingency related to additional risk assessments pertaining to the Company's self-insurance casualty program. The Company does not expect any material losses to result from the issuance of the standby letter of credit because claims are not expected to exceed premiums paid. Accordingly, the estimated fair value of these instruments is zero.

The Company is self insured for certain casualty insurance and health benefit programs. Self-Insurance reserves are maintained relative to these programs. The level of exposure from catastrophic events is limited by the purchase of stop-loss and aggregate liability reinsurance coverages. When estimating the self-insurance liabilities and related reserves, management considers a number of factors, which include historical claims experience, demographic factors, severity factors and valuations provided by independent third-party actuaries. Management reviews its assumptions with its independent third-party administrators and actuaries to evaluate whether the self-insurance reserves are adequate. If actual claims or adverse development of loss reserves occurs and exceed these estimates, additional reserves may be required. The estimation process contains uncertainty since management must use judgment to estimate the ultimate cost that will be incurred to settle reported claims and unreported claims and unreported claims for incidents incurred but not reported as of the balance sheet date. At December 31, 2006, $100,324 of reserves was established related to such insurance programs versus $163,269 at December 31, 2005.

The Company received a letter dated November 29, 2004 on behalf of Roger Gornichec, who the Company recognizes as having been an independent contractor. Gornichec had concluded his services as an agent selling insurance in the spring of 2003 and his license to sell cemetery plots was not renewed in the summer of 2004. Gornichec asserted that he was an employee contrary to the Company’s position.

The claims made in the letter on behalf of Gornichec included but were not limited to, wrongful termination in violation of public policy, misrepresentation, age discrimination, whistle-blower retaliation, interference with economic advantage, breach of contract, breach of the covenant of good faith and fair dealing, and infliction of emotional distress. Gornichec also claimed he was owed a certain amount from a retirement plan. The letter from Gornichec’s attorney proposed a settlement in the amount of $420,000. Based on its investigation, the Company believes Gornichec was an independent contractor rather than an employee, and there was no justification for the claims and the settlement amount sought. The Company reached a settlement with Gornichec, which resulted in the Company paying $27,000 to Gornichec during the second quarter of 2006.

The Company received a letter dated November 9, 2004 on behalf of Charles Hood, who worked at Singing Hills Memorial Park in El Cajon, California. Hood was hired in early 2003 as a groundskeeper with his work concluding on October 30, 2003. Hood claims he wrote a letter to the Company expressing his concerns regarding the operation of the cemetery, and that the next day he was terminated, even though he recognizes his relationship was as an at-will employee. Hood’s claims against the Company also include, but are not limited to, violation of labor laws, whistleblower retaliation and infliction of emotional distress. The letter proposed a settlement in the amount of $275,000.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

11)

Reinsurance, Commitments and Contingencies (Continued)

On November 23, 2005, Hood filed a complaint in the Superior Court of the State of California for the County for San Diego (Case No. GIE 028978) against Singing Hills Memorial Park and California Memorial Estates, Inc, wholly owned subsidiaries of the Company. The claims in the complaint include wrongful termination in violation of public policy, retaliation in violation of public policy, race discrimination in violation of the California Fair Employment and Housing Act, retaliation in violation of the California Fair Employment and Housing Act, intentional infliction of emotional distress, plus punitive damages, attorney’s fees and costs of the lawsuit. There are no specific amounts requested in the complaint, but damages are in an amount to be proven at a jury trial. The Company contends that Hood voluntarily quit and was not terminated. The trial was set for November 2006. The Company reached a settlement with Hood, which resulted in the Company paying $30,000 to Hood, during the third quarter of 2006.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

11)

Reinsurance, Commitments and Contingencies (Continued)

refunds, including interest, to any Florida policyholder in the New Success Life Program who had filed a complaint with the Florida Department of Financial Services or whose coverage had lapsed. Furthermore, Security National Life and Southern Security Life would be required to notify the state insurance department in each state in which the New Success Life Program is marketed of the order and any complaint that Southern Security Life received relating to the New Success Life Program from policyholders in that state. Finally, Security National Life and Southern Security Life would be required to pay the Florida Office a penalty of $100,000 and administrative costs of $5,000.

The Company is a defendant in various other legal actions arising from the normal conduct of business. Management believes that none of the actions will have a material effect on the Company’s financial position or results of operations. Based on management’s assessment and legal counsel’s representations concerning the likelihood of unfavorable outcomes, no amounts have been accrued for the above claims in the consolidated financial statements.

The Company 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.

12)

Retirement Plans

The Company and its subsidiaries have a noncontributory Employee Stock Ownership Plan (ESOP) for all eligible employees. Eligible employees are primarily those with more than one year of service, who work in excess of 1,040 hours per year. Contributions, which may be in cash or stock of the Company, are determined annually by the Board of Directors. The Company’s contributions are allocated to eligible employees based on the ratio of each eligible employee’s compensation to total compensation for all eligible employees during each year. ESOP contribution expense totaled $138,286, $131,524, and $105,196 for 2006, 2005 and 2004, respectively. At December 31, 2006 the ESOP held 625,824 shares of Class A and 1,630,693 shares of Class C common stock of the Company. All shares held by the ESOP have been allocated to the participating employees and all shares held by the ESOP are considered outstanding for purposes of computing earnings per share.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

12)

Retirement Plans (Continued)

The Company has a 401(k) savings plan covering all eligible employees, as defined above, which includes employer participation in accordance with the provisions of Section 401(k) of the Internal Revenue Code. The plan allows participants to make pretax contributions up to the lesser of 15% of total annual compensation or the statutory limits.

The Company may match up to 50% of each employee’s investment in Company stock, up to 1/2 of 1% of the employee’s total annual compensation. The Company’s match will be Company stock and the amount of the match will be at the discretion of the Company’s Board of Directors. The Company’s matching 401(k) contributions for 2006, 2005, and 2004 were $8,656, $5,142, and $5,746, respectively. Also, the Company may contribute, at the discretion of the Company’s Board of Directors, an Employer Profit Sharing Contribution to the 401(k) savings plan. The Employer Profit Sharing Contribution shall be divided among three different classes of participants in the plan based upon the participant’s title in the Company. The Company contributions for 2006, 2005, and 2004 were $162,584, $135,589, and $128,949, respectively. All amounts contributed to the plan are deposited into a trust fund administered by an independent trustee.

In 2001, the Company’s Board of Directors adopted a 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’s contributions for 2006, 2005 and 2004 were $125,558, $141,710, and $123,249, respectively.

The Company has deferred compensation agreements with its Chief Executive Officer and its past Senior Vice President. The deferred compensation is payable on the retirement or death of these individuals either in annual installments over 10 years or in a lump sum settlement, if approved by the Board of Directors. The amount payable is $70,392 per year with cost of living adjustments each anniversary. The compensation agreements also provide that any remaining balance will be payable to their heirs in the event of their death. In addition, the agreements provide that the Company will pay the Group Health coverages for these individuals and/or their spouses. In 2006 and 2005, the Company increased its liability for these future obligations by $6,000 and $10,000, respectively. The current balance as of December 31, 2006 is $732,000.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

12)

Retirement Plans (Continued)

On July 16, 2004, the Company entered into an employment agreement with Scott M. Quist, its President and Chief Operating Officer. The agreement is effective as of December 4, 2003 and has a five-year term, but the Company has agreed to renew the agreement on December 4, 2008 and 2013 for additional five-year terms, provided Mr. Quist performs his duties with usual and customary care and diligence. Under the terms of the agreement, Mr. Quist is to devote his full time to the Company serving as its President, General Counsel and Chief Operating Officer at not less than his current salary and benefits. The Company also agrees to maintain a group term life insurance policy of not less than $1,000,000 on Mr. Quist’s life and a whole life insurance policy in the amount of $500,000 on Mr. Quist’s life. In the event of disability, Mr. Quist’s salary would be continued for up to five years at 75% of its current level.

In the event of a sale or merger of the Company and Mr. Quist is not retained in his current position, the Company would be obligated to continue Mr. Quist’s current compensation and benefits for seven years following the merger or sale. The agreement further provides that Mr. Quist 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 ten years in annual installments in the amount equal to 75% of his then current rate of compensation. However, in the event that Mr. Quist dies prior to receiving all retirement benefits thereunder, the remaining benefits are to be paid to his heirs. The Company expensed $88,700 and $37,800 in fiscal 2006 and 2005, respectively, to cover the present value of anticipated retirement benefits under the employment agreement. The liability accrued is $486,000 and $397,300 as of December 31, 2006 and 2005, respectively.

In the event of a sale or merger of the Company, and Mr. Beckstead were not retained in his current position, the Company would be obligated to continue Mr. Beckstead’s current compensation and benefits for five years following the merger or sale. The agreement further provides that Mr. Beckstead is entitled to receive annual retirement benefits beginning (i) one month from the date of his retirement (to commence no sooner than age 62½) (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 ten years in annual installments in the amount equal to one-half of his then current annual salary. However, in the event that Mr. Beckstead dies prior to receiving all retirement benefits thereunder, the remaining benefits are to be paid to his heirs. The Company expensed in 2006 and 2005 approximately $36,200 and $46,300, respectively, to cover the present value of the retirement benefit of the agreement. The liability accrued is $273,000 and $236,800, as of December 31, 2006 and 2005, respectively.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

13) Capital Stock

The following table summarizes the activity in shares of capital stock for the three-year period ended December 31, 2006:

	Class A	Class C
Balance at December 31, 2003	6,275,104	6,469,638

Exercise of stock options	127,888	--
Stock Dividends	321,932	308,007
Conversion of Class C to Class A	30,946	(309,446)
Balance at December 31, 2004	6,755,870	6,468,199

New shares issued for compensation	896	--
Exercise of stock options	2,550	--
Stock Dividends	338,042	322,908
Conversion of Class C to Class A	1,005	(10,047)
Balance at December 31, 2005	7,098,363	6,781,060

New shares issued for compensation	500	--
Exercise of stock options	74,520	--
Stock Dividends	359,606	338,940
Conversion of Class C to Class A	241	(2,409)
Balance at December 31, 2006	7,533,230	7,117,591

The Company has two classes of common stock with shares outstanding, Class A and Class C. Class C shares vote share for share with the Class A shares on all matters except election of one-third of the directors who are elected solely by the Class A shares, but generally are entitled to a lower dividend participation rate. Class C shares are convertible into Class A shares at any time on a ten to one ratio.

Stockholders of both classes of common stock have received 5% stock dividends in the years 1990 through 2006, 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.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

13) Capital Stock (Continued)

Earnings per share amounts have been retroactively adjusted for the effect of annual stock dividends. In accordance with SFAS 128, the basic and diluted earnings per share amounts were calculated as follows:

2006

2005

2004

Numerator:

Net income

$5,124,450

$3,487,880

$2,122,272

Denominator:

Denominator for basic earnings
	per share-weighted-average shares	6,955,439	6,881,036	6,851,287

	Effect of dilutive securities:
		Employee stock options	149,733			29,980			214,462
		Stock appreciation rights			1,302			571			1,628
Dilutive potential common shares				151,035			30,551			216,090

Denominator for diluted earnings per
	share-adjusted weighted-average
	shares and assumed conversions	7,106,474	6,911,587	7,067,377

	Basic earnings per share	$0.74	$0.51	$0.31
	Diluted earnings per share	$0.72	$0.50	$0.30

14)

Stock Compensation Plans

In 1987, the Company adopted the 1987 Incentive Stock Option Plan (the 1987 Plan). The 1987 Plan provides that shares of the Class A Common Stock of the Company may be optioned to certain officers and key employees of the Company. The 1987 Plan establishes a Stock Option Plan Committee which selects the employees to whom the options will be granted and determines the price of the stock. The 1987 Plan establishes the minimum purchase price of the stock at an amount which is not less than 100% of the fair market value of the stock (110% for employees owning more than 10% of the total combined voting power of all classes of stock).

The 1987 Plan provides that if additional shares of Class A Common Stock are issued pursuant to a stock split or a stock dividend, the number of shares of Class A Common Stock then covered by each outstanding option granted hereunder shall be increased proportionately with no increase in the total purchase price of the shares then covered, and the number of shares of Class A Common Stock reserved for the purpose of the 1987 Plan shall be increased by the same proportion.

In the event that the shares of Class A Common Stock of the Company from time to time issued and outstanding are reduced by a combination of shares, the number of shares of Class A Common Stock then covered by each outstanding option granted hereunder shall be reduced proportionately with no reduction in the total price of the shares then so covered, and the number of shares of Class A Common Stock reserved for the purposes of the 1987 Plan shall be reduced by the same proportion.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

14)

Stock Compensation Plans (Continued)

The 1987 Plan terminated in 1997 and options granted are non-transferable. Options granted and outstanding under the 1987 Plan include Stock Appreciation Rights which permit the holder of the option to elect to receive cash, amounting to the difference between the option price and the fair market value of the stock at the time of the exercise, or a lesser amount of stock without payment, upon exercise of the option.

Activity of the 1987 Plan is summarized as follows:

		Number of
	Class A Shares			Option Price
Outstanding at December 31, 2003			4,220		$3.20

Adjustment for the effect of stock dividends		158
Exercised	(1,055)

Outstanding at December 31, 2004

3,323

$3.05

Adjustment for the effect of stock dividends

166

Outstanding at December 31, 2005

3,489

$2.90

Adjustment for the effect of stock dividends

175

Outstanding at December 31, 2006

3,664

$2.76

Exercisable at end of year

3,664

$2.76

Available options for future grant

1987 Stock Incentive Plan

Weighted average contractual term of options

outstanding at December 31, 2006

.3 years

Aggregated intrinsic value of options outstanding

at December 31, 2006

$ 9,072

On June 21, 1993, the Company adopted the Security National Financial Corporation 1993 Stock Incentive Plan (the “1993 Plan”), which reserved 300,000 shares of Class A Common Stock for issuance thereunder.

The 1993 Plan allows the Company to grant options and issue shares as a means of providing equity incentives to key personnel, giving them a proprietary interest in the Company and its success and progress.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

14)

Stock Compensation Plans (Continued)

The 1993 Plan provides for the grant of options and the award or sale of stock to officers, directors, and employees of the Company. Both “incentive stock options,” as defined under Section 422A of the Internal Revenue Code of 1986 (the “Code”), and “non-qualified options” may be granted pursuant to the 1993 Plan. Options intended as incentive stock options may be issued only to employees, and must meet certain conditions imposed by the Code, including a requirement that the option exercise price be not less than the fair market value of the option shares on the date of grant. The 1993 Plan provides that the exercise price for non-qualified options will be not less than at least 50% of the fair market value of the stock subject to such option as of the date of grant of such options, as determined by the Company’s Board of Directors.

The options were granted to reward certain officers and key employees who have been employed by the Company for a number of years and to help the Company retain these officers by providing them with an additional incentive to contribute to the success of the Company.

The 1993 Plan is administered by the Board of Directors or by a committee designated by the Board. The 1993 Plan provides that if the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of options shall be increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. No options may be exercised for a term of more than ten years from the date of grant.

On November 7, 1996, the Company amended the Plan as follows: (i) to increase the number of shares of Class A Common Stock reserved for issuance under the plan from 300,000 Class A shares to 600,000 Class A shares; and (ii) to provide that the stock subject to options, awards and purchases may include Class C common stock.

On October 14, 1999, the Company amended the 1993 Plan to increase the number of shares of Class A Common Stock reserved for issuance under the plan from 600,000 Class A shares to 1,046,126 Class A shares. The Plan had a term of ten years and was terminated in 2003 and options granted thereunder are non-transferable.

Activity of the 1993 Plan is summarized as follows:

Number of Class A Shares

Option Price

Outstanding at December 31, 2003

642,782

$2.07 – $6.18

Adjustment for the effect of stock dividends

16,176

Exercised

(310,341)

Cancelled

(8,925)

Outstanding at December, 2004		339,692			$1.97 - $5.35
	Adjustment for the effect of stock dividends		16,664
	Exercised			(2,980)
	Cancelled			(3,421)

Outstanding at December 31, 2005		349,955				$1.88 - $5.10
	Adjustment for the effect of stock dividends				13,345
	Exercised			(53,604)
	Cancelled			(29,453)
Outstanding at December 31, 2006			280,243			$1.79 - $4.86

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

14)

Stock Compensation Plans (Continued)

	Number of Class A Shares		Option Price
Exercisable at end of year		280,243		$1.79 - $4.86

Available options for future grant

1993 Stock Incentive Plan

Weighted average contractual term of options

outstanding at December 31, 2006

4.4 years

Aggregated intrinsic value of options outstanding

at December 31, 2006

$205.471

On October 16, 2000, the Company adopted the Security National Financial Corporation 2000 Director Stock Option Plan (the “2000 Plan”), which reserved 50,000 shares of Class A Common Stock for issuance thereunder. Effective November 1, 2000, and on each anniversary date thereof during the term of the 2000 Plan, each outside Director who shall first join the Board after the effective date shall be granted an option to purchase 1,000 shares upon the date which such person first becomes an outside Director and an annual grant of an option to purchase 1,000 shares on each anniversary date thereof during the term of the 2000 Plan. The options granted to outside Directors shall vest in their entirety on the first anniversary date of the grant.

The primary purposes of the 2000 Plan are to enhance the Company’s ability to attract and retain well-qualified persons for service as directors and to provide incentives to such directors to continue their association with the Company.

The 2000 Plan provides that if the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of options shall be increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivisions, combination or stock dividend.

The 2000 Plan terminated in 2006 and options granted are non-transferable. Options granted and outstanding under the 2000 Plan include Stock Appreciation Rights which permit the holder of the option to elect to receive cash, amounting to the difference between the option price and the fair market value of the stock at the time of the exercise, or a lesser amount of stock without payment, upon exercise of the option.

Activity of the 2000 Plan is summarized as follows:

	Number of
Class A Shares		Option Price

Outstanding at December 31, 2003		14,627				$1.85 - $5.72
	Adjustment for the effect of stock dividends			931
	Granted		4,000
	Exercised				--

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

14)

Stock Compensation Plans (Continued)

	Number of
Class A Shares		Option Price

Outstanding at December 31, 2004		19,558				$1.76 - $5.45
	Adjustment for the effect of stock dividends				986
	Granted			4,000
	Exercised		(3,828)

Outstanding at December 31, 2005		20,716			$2.00 - $5.19
	Adjustment for the effect of stock dividends			845
	Granted			--
	Exercised		(3,828)

Outstanding at December 31, 2006

17,733

$1.90 - $4.94

Exercisable at end of year

17,733

$1.90- $4.94

Available options for future		-0-
	grant 2000 Director Plan

Weighted average contractual term of options

outstanding at December 31, 2006

2.3 years

Aggregated intrinsic value of options

Outstanding at December 31, 2006

$ 31,917

On July 11, 2003, the Company adopted the Security National Financial Corporation 2003 Stock Option Plan (the “2003 Plan”), which reserved 500,000 shares of Class A Common Stock and 1,000,000 shares of Class C Common Stock for issuance thereunder. On December 7, 2006, the Board of Directors approved, subject to shareholder authorization, 500,000 shares of Class A common stock for issuance under the 2003 Plan. The 2003 Plan allows the Company to grant options and issue shares as a means of providing equity incentives to key personnel, giving them a proprietary interest in the Company and its success and progress.

The 2003 Plan is to be administered by the Board of Directors or by a committee designated by the Board. The terms of options granted or stock awards or sales affected under the 2003 Plan are to be determined by the Board of Directors or its committee. No options may be exercised for a term of more than ten years from the date of the grant. Options intended as incentive stock options may be issued only to employees, and must meet certain conditions imposed by the code, including a requirement that the option exercise price be no less than the fair market value of the option shares on the date of grant. The 2003 Plan provides that the exercise price for non-qualified options will not be less than at least 50% of the fair market value of the stock subject to such option as of the date of grant of such options, as determined by the Company’s Board of Directors.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

14)

Stock Compensation Plans (Continued)

The 2003 Plan has a term of ten years. The Board of Directors may amend or terminate the 2003 Plan at any time, from time to time, subject to approval of certain modifications to the 2003 Plan by the shareholders of the Company as may be required by law or the 2003 Plan.

Activity of the 2003 Plan is summarized as follows:

		Number of			Number of			Option
	Class A Shares			Class C Shares(1)			Price(1)
Outstanding at January 1, 2004			--			--

Adjustment for the effect of stock dividends			7,675			50,000
Granted		153,500			1,000,000
Exercised	--			--

Outstanding at December 31, 2004

161,175

1,050,000

$3.77 - $3.08

Adjustment for the effect of stock dividends		25,404			52,500
Granted	349,000						--
Exercised				--			--
Cancelled			(2,100)			--

Outstanding at December 31, 2005

533,479

1,102,500

$2.93 - $3.68

Adjustment for the effect of stock dividends			22,823		55,125
Granted				--			--
Exercised	(63,881)						--
Cancelled		(13,125)				--

Outstanding at December 31, 2006

479,296

1,157,625

$2.79 - $3.50

Exercisable at end of year

479,296

1,157,625

$2.79 - $3.50

Available options for future grant

2003 Stock Incentive Plan

72,407

57,881

Weighted average contractual term of options

outstanding at December 31, 2006

6.3 years

Aggregated intrinsic value of options

outstanding at December 31, 2006

$1,140,059

(1) Class “C” shares are converted to Class “A” shares on a 10 to 1 ratio. The Option Price is based on Class A Common shares.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

On December 7, 2006, the Company adopted the 2006 Director Stock Option Plan (the “Director Plan”) effective December 7, 2006. The Director Plan provides for the grant by the Company of options to purchase up to an aggregate of 100,000 shares of Class A Common Stock for issuance thereunder and adjusted for stock dividends if any. The Director Plan provides that each member of the Company’s Board of Directors who is not an employee or paid consultant of the Company automatically is eligible to receive options to purchase the Company’s Class A Common Stock under the Director Plan.

Effective as of December 7, 2006, and on each anniversary date thereof during the term of the Director Plan, each outside director shall automatically receive an option to purchase 1,000 shares of Class A Common Stock. In addition, each new outside director who shall first join the Board after the effective date shall be granted an option to purchase 1,000 shares upon the date which such person first becomes an outside director and an annual grant of an option to purchase 1,000 shares on each anniversary date thereof during the term of the Director Plan. The options granted to outside directors shall vest in their entirety on the first anniversary date of the grant. The primary purposes of the Director Plan are to enhance the Company’s ability to attract and retain well-qualified persons for service as directors and to provide incentives to such directors to continue their association with the Company.

In the event of a merger of the Company with or into another company, or a consolidation, acquisition of stock or assets or other change in control transaction involving the Company, each option becomes exercisable in full, unless such option is assumed by the successor corporation. In the event the transaction is not approved by a majority of the “Continuing Directors” (as defined in the Director Plan), each option becomes fully vested and exercisable in full immediately prior to the consummation of such transaction, whether or not assumed by the successor corporation.

Activity of the 2006 Plan is summarized as follows:

		Number of
	Class A Shares			Option Price
Outstanding at December 31, 2005			--		--

Granted	4,000
Adjustment for the effect of stock dividends		200

Outstanding at December 31, 2006

4,200

$5.06

Exercisable at end of year

$5.06

Available options for future grant

2006 Stock Incentive Plan

100,800

Weighted average contractual term of options

outstanding at December 31, 2006

9.9 years

Aggregated intrinsic value of options

outstanding at December 31, 2006

$760

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

15) Statutory Reserves

Generally, the net assets of the life insurance subsidiaries available for transfer to the Company are limited to the amounts that the life insurance subsidiaries net assets, as determined in accordance with statutory accounting practices, which were $19,153,896 at December 31, 2006, exceed minimum statutory capital requirements; however, payments of such amounts as dividends are subject to approval by regulatory authorities.

The Utah, Louisiana and Arkansas Insurance Departments impose minimum risk-based capital requirements, that were developed by the National Association of Insurance Commissioners, (“NAIC”) on insurance enterprises. The formulas for determining the risk-based capital (“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 have a combined weighted Ratio that is greater than 418% of the first level of regulatory action.

16) Business Segment Information

Description of Products and Services by Segment

The Company has three reportable business segments: life insurance, cemetery and mortuary, and mortgage loans. 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 loan segment consists of loan originations fee income and expenses from the originations of residential and commercial mortgage loans and interest earned and interest expenses from warehousing pre-sold loans before the funds are received from financial institutional investors.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

16) Business Segment Information (Continued)

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.

Factors Management Used to Identify the Enterprise’s Reportable Segments

The Company’s reportable segments are business units that offer different products and are managed separately due to the different products and the need to report to the various regulatory jurisdictions.

		2006
	Life		Cemetery/		Reconciling
	Insurance		Mortuary	Mortgage	Items	Consolidated
Revenues:
From external sources:
Revenue from customers	$ 30,776,491		$12,122,728	$85,112,831	--	$128,012,050
Net investment income	13,774,225		935,487	8,535,919	--	23,245,631
Realized losses on nvestments and other assets	131,073		760,231	--	--	891,304
Other revenues	34,921		108,987	237,640	--	381,548

Intersegment revenues:
Net investment income	4,907,414		116,004	452,070	(5,475,488)	--
Total revenues	49,624,124		14,043,437	94,338,460	(5,475,488)	152,530,533
Expenses:
Death and other policy benefits	16,853,568		--	--	--	16,853,568
Increase in future policy benefits	10,465,268		--	--	--	10,465,268
Amortization of deferred policy acquisition costs
and cost of insurance acquired	3,796,062		328,685	--	--	4,124,747
Depreciation	487,545		298,512	540,915	--	1,326,972
General, administrative
and other costs:
Intersegment	24,000		60,672	294,828	(379,500)	--
Other	12,603,489		11,508,066	82,611,487	--	106,723,042
Interest expense:
Intersegment	546,075		177,359	4,372,554	(5,095,988)	--
Other	376,289		307,728	5,457,281	--	6,141,298
Total benefits and expenses	45,152,296		12,681,022	93,277,065	(5,475,488)	145,634,895
Earnings before
income taxes	$ 4,471,828		$ 1,362,415	$ 1,061,395	$ --	$ 6,895,638
Identifiable assets	$353,431,518		$54,787,639	$22,158,123	$(52,982,097)	$377,395,183

Expenditures for
long-lived assets	$454,817		$670,988	$ 637,903	$ --	$1,763,708

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

16) Business Segment Information (Continued)

			2005
	Life	Cemetery/			Reconciling
Revenues:	Insurance	Mortuary		Mortgage	Items	Consolidated
From external sources:
Revenue from customers	$ 27,170,109	$10,838,878		$71,859,272	$ --	$109,868,259
Net investment income	11,080,324	967,740		7,338,507	--	19,386,571
Realized gains on investments and other
assets	74,246	--		--	--	74,246
Other revenues	293,151	162,078		165,522	--	620,751

Intersegment revenues:
Net investment income	5,015,356	92,004		349,027	(5,456,387)	--
Total revenues	43,633,186	12,060,700		79,712,328	(5,456,387)	129,949,827
Expenses:
Death and other policy benefits	14,734,364	--		--	--	14,734,364
Increase in future policy benefits	9,742,218	--		--	--	9,742,218
Amortization of deferred policy acquisition costs and cost of
insurance acquired	2,765,422	265,312		--	--	3,030,734
Depreciation	438,423	699,236		566,495	--	1,704,154
General, administrative and
other costs:
Intersegment	--	36,672		296,664	(333,336)	--
Other	12,278,778	10,147,421		68,663,284	--	91,089,483
Interest expense:
Intersegment	422,199	172,557		4,528,295	(5,123,051)	--
Other	460,708	317,292		4,143,238	--	4,921,238
Total benefits and expenses	40,842,112	11,638,490		78,197,976	(5,456,387)	125,222,191
Earnings before income taxes	$2,791,074	$ 422,210		$ 1,514,352	$ --	$ 4,727,636

Identifiable assets	$345,029,159	$51,281,466		$18,193,773	$(54,858,925)	$359,645,473

Expenditures for
long-lived assets	$ 758,688	$ 1,155,673		$ 322,371	$ --	$ 2,236,732

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

16)	Business Segment Information (Continued)

			2004
	Life	Cemetery/			Reconciling
	Insurance	Mortuary		Mortgage	Items	Consolidated
Revenues:
From external sources:
Revenue from customers	$25,979,341	$11,661,053		$62,689,391	$ --	$100,329,785
Net investment income	9,062,991	812,659		6,063,526	--	15,939,176
Realized gains on
investments and other assets	7,523	66,908		--	--	74,431
Other revenues	311,316	184,712		358,397	--	854,425

Intersegment revenues:
Net investment income	7,478,350	85,337		265,470	(7,829,157)	--
Total revenues	42,839,521	12,810,669		69,376,784	(7,829,157)	117,197,817
Expenses:
Death and other policy benefits	14,540,581	--		--	--	14,540,581
Increase in future policy benefits	8,821,497	--		--	--	8,821,497
Amortization of deferred policy
and pre-need acquisition costs
and cost of insurance acquired	4,349,371	252,701		--	--	4,602,072
Depreciation	426,432	768,882		469,703	--	1,665,017
General, administration and other
costs:
Intersegment	--	36,672		284,982	(321,654)	--
Other	11,771,056	9,963,065		61,002,224	--	82,736,345
Interest expense:
Intersegment	348,797	163,297		6,995,409	(7,507,503)	-
Other	647,823	339,182		1,186,773	--	2,173,778
Total benefits and expenses	40,905,557	11,523,799		69,939,091	(7,829,157)	114,539,290
Earnings (losses) before income taxes	$ 1,933,964	$ 1,286,870		$ (562,307)	$ --	$ 2,658,527

Expenditures for long-lived assets	$ 283,655	$ 487,118		471,125	$ --	$ 1,241,898

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

17)	Related Party Transactions

On December 19, 2001, the Parent Company entered into an option agreement with Monument Title, LLC, a Utah limited liability company (“Monument Title”), in which the Parent Company made available a $100,000 line of credit to Monument Title at an interest rate of 8% per annum. The line of credit was secured by the assets of Monument Title. From December 28, 2001 to June 14, 2002, the Company, under direction of the Parent Company, advanced Monument Title a total of $77,953 under the line of credit. The Company had the right, under the option agreement, for a period of five years from the date thereof, to acquire 100% of the outstanding common shares of Monument Title for the sum of $10.

On November 2, 2004 the Company entered into an Agreement to Repay Indebtedness and Convey Option with Monument Title and its principal owner. Under the terms of the agreement, Monument Title agreed to pay the Company a total of $94,177, representing the total of $77,953 that the Company advanced to Monument Title under the line of credit, plus interest thereon, within seven days from the date of the agreement. Monument Title paid $94,177 to the Company pursuant to the agreement. In addition, the Company agreed to release an interest to acquire 100% of the outstanding common shares of Monument Title, in consideration for a payment of an additional $94,177. Under the agreement, Monument Title was to pay the additional $94,177 to the Company in minimum payments of $500 per month for the first twelve months following the date of the agreement, with additional payments of $1,000 per month for the second twelve months following the date of the agreement.

Pursuant to this agreement, the Company received payments totaling $7,000 in 2005 and then received payments totaling $87,177 in 2006. Upon receipt of the final payment under the agreement, the Company released all of its interest to Monument Title.

18) Disclosure about Fair Value of Financial Instruments

The fair values of investments in fixed maturity and equity securities along with methods used to estimate such values are disclosed in Note 3. The following methods and assumptions were used by the Company in estimating the “fair value” disclosures related to other significant financial instruments:

Cash, Receivables, Short-term Investments, and Restricted Assets of the Cemeteries and Mortuaries: The carrying amounts reported in the accompanying consolidated balance sheet for these financial instruments approximate their fair values.

Mortgage, Policy, Student, and Collateral Loans: The fair values are estimated using interest rates currently being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. The carrying amounts reported in the accompanying consolidated balance sheet for these financial instruments approximate their fair values.

Investment Contracts: The fair values for the Company’s liabilities under investment-type insurance contracts are estimated based on the contracts’ cash surrender values.

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.

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

	December 31, 2006		December 31, 2005
	Carrying	Fair	Carrying	Fair
	Amount	Value	Amount	Value
Financial assets:
Investment in fixed maturity securities	$ 98,317,519	$ 98,422,577	$ 89,780,942	$ 91,213,926
Investment in securities available for sale	8,679,226	8,679,226	18,944,100	18,944,100
Investment in mortgage loans and construction loans	85,135,011	85,135,011	72,470,902	72,470,902
Investment in policy, student and other loans	12,846,986	12,846,986	12,391,569	12,391,569
Short-term investments	4,586,828	4,586,828	3,211,590	3,211,590
Cash and cash equivalents	10,376,585	10,376,585	16,632,966	16,632,966
Mortgage loans sold to investors	59,091,848	59,091,848	53,403,215	53,403,215
Receivables	15,603,518	15,603,518	8,383,689	8,383,689
Restricted assets of cemeteries and mortuaries	5,430,870	5,430,870	5,240,099	5,240,099
Cemetery perpetual care trust investments	1,306,984	1,306,984	1,152,493	1,152,493
Financial liabilities:
Investment-type insurance contracts	(94,284,000)	(94,284,000)	(93,859,000)	(93,859,000)
Bank loans payable, excluding interest rate swaps	(7,056,424)	(7,056,424)	(9,108,950)	(9,108,950)
Notes and contracts payable	(747,188)	(747,188)	(1,326,284)	(1,326,284)
Accounts payable	(1,820,178)	(1,820,178)	(1,533,065)	(1,533,065)
Other liabilities and accrued expenses	(11,611,033)	(11,611,033)	(9,427,644)	(9,427,644)
Derivatives:
Interest rate lock commitments	1,147,314	1,147,314	487,382	487,382
Forward contracts on mortgage-backed securities	62,227	62,227	(229,688)	(229,688)
Bank loan interest rate swaps	133,080	133,080	162,629	162,629

19)

Accumulated Other Comprehensive Income and Other Items

The following summarizes accumulated other comprehensive income:

	December 31,
2006		2005	2004

Unrealized gains (losses)

on available for-sale securities

$ 1,070,471

$ (342,816)

$ 237,042

Reclassification adjustment for net realized

	gains (losses) in net income				93,255				56,090				(3,054)
Net unrealized gains (losses) before taxes		1,163,726				(286,726)				233,988
Tax (expense) benefit			(186,935)					114,017				16,928
	Net			976,791			(172,709)				250,916

Potential unrealized gains (losses) for

	derivative bank loans (interest
	rate swaps) before taxes	(29,549)		199,439			266,219
Tax (expense) benefit			10,047			(67,809)			(90,514)
	Net	(19,502)			131,630			175,705

Potential unrealized gains for derivative

	mortgage loans before taxes			951,847			257,694						--
Tax (expense) benefit			(323,628)						(87,616)		--
	Net				628,219			170,078		--
Other comprehensive income		$ 1,585,508				$ 128,999						$ 426,621

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

19)

Accumulated Other Comprehensive Income and Other Items (Continued)

The following is the accumulated balances of other comprehensive income and other items as of December 31, 2006:

	Beginning
				Balance			Change			Balance
		December 31, 2005				for the period			December 31, 2006
Unrealized gains on available-
for-sale securities			$ 1,822,854		$ 976,791			$2,799,645
Unrealized gains on derivative
mortgage loans			170,078		628,219			798,297
Unrealized gains on derivative bank
loan interest rate swaps			107,335		(19,502)			87,833
Other comprehensive income			2,100,267		1,585,508			3,685,775

Other items:
Acquisitions of company stock
held in escrow			(1,982,620)		--			(1,982,620)
Total other comprehensive income
and other items			$ 117,647		$1,585,508			$1,703,155

20)	Derivative Loan Commitments

During 2005, the Company’s mortgage banking activities implemented new practices relating to mortgage loan commitments, including interest rate lock commitments and forward commitments to sell loans to third-party investors. The Company also implemented a hedging strategy for these transactions. A mortgage loan commitment binds the Company to lend funds to a qualified borrower at a specified interest rate and within a specified period of time, generally up to 30 days after inception of the rate lock. Mortgage loan commitments are derivatives under Statement of Financial Accounting Standards No. 133 (“SFAS 133”), Accounting for Derivative Instruments and Hedging Activities, as amended by Statement of Financial Accounting Standards No. 149 (“SFAS 149”), Amendment of Statement 133 on Derivative Instruments and Hedging Activities and must be recognized at fair value on the consolidated balance sheet with changes in their fair values recorded as part of other comprehensive income from mortgage banking operations.

The Company is exposed to price risk due to the potential impact of changes in interest rates on the values of mortgage loan commitments from the time a derivative 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 derivative loan commitments that will be exercised (i.e., the number of loan commitments that will be funded) fluctuates. The probability that a loan will not be funded within the terms of the commitment is driven by a number of factors, particularly the change, if any, in mortgage rates following the inception of the interest rate lock. However, many borrowers continue to exercise derivative loan commitments even when interest rates have fallen.

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

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

20)	Derivative Loan Commitments (Continued)

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 observed data that take into account all of the variables, as well as renegotiations of rate and point commitments that tend to occur when mortgage rates fall. These fallout estimates are used to estimate the number of loans that the Company expects to be funded within the terms of the mortgage loan commitments and are updated periodically to reflect the most current data. Once a loan is closed, it is classified as a loan receivable-sold to investors.

The Company estimates the fair value of a mortgage loan commitment based on the change in estimated fair value of the underlying mortgage loan and 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 mortgage loan commitment is issued. Therefore, at the time of issuance, the estimated fair value is zero. 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 derived from the Company’s recent historical empirical data are used to estimate the quantity of mortgage loans that will fund within the terms of the commitments.

The Company utilizes various derivative instruments to economically hedge the price risk associated with its outstanding mortgage loan commitments. Management expects these derivatives will experience changes in fair value opposite to changes in fair value of the derivative loan commitments, thereby reducing earnings volatility related to the recognition in earnings of changes in the values of the commitments. A forward loan sales commitment protects the Company from losses on sales of the loans arising from exercise of the loan commitments by securing the ultimate sales price and delivery date of the loans. For mortgage loan commitments not protected by a forward sales commitment, the instruments used to economically hedge the fair value of the mortgage loan commitments include other freestanding derivatives such as mortgage backed securities, options and U.S. Treasury futures. The Company takes into account various factors and strategies in determining the portion of the mortgage loan commitments it wants to hedge economically.

The significant components of other comprehensive income during the years ended December 31, 2006 and 2005 are as follows:

					2006				2005
Gain (loss) forward loan sale commitments			$ 291,915				$ (317,304)
Gain on derivative loan commitments				659,932				574,998
	Total	$ 951,847				$ 257,694

21)	Quarterly Financial Data (Unaudited)

	2006 Three Months Ended
	2006 Three Months Ended
	March 31	June 30	September 30	December 31
Revenues	$32,403,693	$34,146,449	$38,574,775	$47,405,616
Benefits and expenses	31,101,536	33,253,582	36,441,240	44,838,537
Earnings before income taxes	1,302,157	892,867	2,133,535	2,567,079
Income tax expense	288,491	169,228	592,238	721,231
Net earnings	1,013,666	723,639	1,541,297	1,845,848
Net earnings per common share	$0.15	$0.10	$0.22	$0.26
Net earnings per common share
assuming dilution	$0.14	$0.10	$0.22	$0.26

SECURITY NATIONAL FINANCIAL CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2006, 2005, and 2004

21)	Quarterly Financial Data (Unaudited) (Continued)

				2005
	Three Months Ended
	March 31	June 30	September 30		December 31
Revenues	$27,822,684	$31,844,056	$35,560,593		$34,722,494
Benefits and expenses	27,560,936	31,140,954	33,605,129		32,915,172
Earnings before income taxes	261,748	703,102	1,955,464		1,807,322
Income tax expense	(18,160)	151,627	628,751		477,538
Net earnings	279,908	551,475	1,326,713		1,329,784
Net earnings per common share	$0.04	$0.08	$0.19		$0.19
Net earnings per common share
assuming dilution	$0.04	$0.08	$0.19		$0.19

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Selected Consolidated Financial Data

The following selected financial data for each of the five years in the period ended December 31, 2006, are derived from the audited consolidated financial statements. The data as of December 31, 2006 and 2005, and for the three years ended December 31, 2006, should be read in conjunction with the consolidated financial statements, related notes and other financial information included herein.

Consolidated Statement of Earnings Data:

			Year Ended December 31,
	2006(1)	2005		2004(2)	2003(3)	2002
Revenue
Premiums	$30,776,000	$27,170,000		25,979,000	23,295,000	$14,077,000
Net investment income	23,246,000	19,387,000		15,939,000	17,303,000	12,540,000
Net mortuary and cemetery sales	12,123,000	10,839,000		11,661,000	10,944,000	10,638,000
Realized (losses) gains on investments	891,000	74,000		74,000	(2,000)	1,021,000
Mortgage fee income	85,113,000	71,859,000		62,690,000	92,955,000	57,008,000
Other	381,000	621,000		855,000	550,000	479,000
Total revenue	152,530,000	129,950,000		117,198,000	145,045,000	95,763,000

Expenses
Policyholder benefits	27,319,000	24,477,000		23,362,000	21,755,000	13,756,000
Amortization of deferred
policy acquisition costs	4,125,000	3,031,000		4,602,000	4,929,000	3,994,000
Selling, general and administrative expenses	105,728,000	90,690,000		82,097,000	102,926,000	68,459,000
Interest expense	6,141,000	4,921,000		2,174,000	3,642,000	1,970,000
Cost of goods and services of
the mortuaries and cemeteries	2,322,000	2,103,000		2,304,000	2,328,000	2,045,000
Total benefits and expenses	145,635,000	125,222,000		114,539,000	135,580,000	90,224,000
Income before income tax expense	6,895,000	4,728,000		2,659,000	9,465,000	5,539,000
Income tax expense	(1,771,000)	(1,240,000)		(652,000)	(2,891,000)	(1,565,000)
Minority interest in (income)
loss of subsidiary	--	--		115,000	22,000	18,000
Net earnings	$5,124,000	3,488,000		2,122,000	$ 6,596,000	$ 3,992,000

Net earnings per common share (4)	$0.74	$0.51		$0.31	$1.02	$0.64
Weighted average outstanding
common shares (4)	6,955,000	6,881,000		6,851,000	6,497,000	6,218,000
Net earnings per common
share-assuming dilution(4)	$0.72	$0.50		$0.30	$0.99	$0.62
Weighted average outstanding
common shares-assuming dilution (4)	7,106,000	6,912,000		7,067,000	6,649,000	6,389,000

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Selected Consolidated Financial Data continued

Balance Sheet Data:

				December 31,
	2006	2005(1)	2004(2)		2003	2002(3)
Assets
Investments and restricted assets	$222,683,000	$211,249,000	$182,645,000		$110,386,000	$104,263,000
Cash	10,377,000	16,633,000	15,334,000		19,704,000	38,199,000
Receivables	74,695,000	61,787,000	54,013,000		120,698,000	102,590,000
Other assets	69,640,000	69,976,000	65,471,000		63,653,000	63,805,000
Total assets	$377,395,000	$359,645,000	$317,463,000		$314,441,000	$308,857,000

Liabilities
Policyholder benefits	$272,923,000	$263,981,000	226,785,000		$220,739,000	$217,895,00
Notes & contracts payable	7,671,000	10,273,000	12,263,000		16,909,000	18,321,000
Cemetery & mortuary liabilities	11,534,000	10,829,000	10,762,000		10,562,000	10,076,000
Other liabilities	30,018,000	26,691,000	20,091,000		21,146,000	21,934,000
Total liabilities	322,146,000	311,774,000	269,901,000		269,356,000	268,226,000

Minority interest	--	--	3,813,000		3,957,000	4,298,000

Non-controlling interest
perpetual care trusts	2,278,000	2,173,000	2,084,000		1,953,000	1,820,000


Stockholders’ equity	52,971,000	45,698,000	41,665,000		39,175,000	34,513,000
Total liabilities and
stockholders’ equity	$377,395,000	$359,645,000	$317,463,000		$314,441,000	$308,857,000

(1)

Includes the purchase of Memorial Insurance Company of America on December 29, 2005.

(2)

Includes the purchase of Paramount Security Life Insurance Company, now Security National Life Insurance Company of Louisiana, on March 16, 2004.

(3)

Includes the purchase of assets from Acadian Life Insurance Company on December 23, 2002.

(4)

Earnings per share amounts have been adjusted retroactively for the effect of annual stock dividends.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

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 trends or events 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) emphasis on cemetery and mortuary business; and (iii) capitalizing on lower interest rates by originating and refinancing mortgage loans and other “niche” mortgage products.

SecurityNational Mortgage Company (“SNMC”) is a mortgage lender incorporated under the laws of the State of Utah. SNMC is approved and regulated by the Federal Housing Administration (FHA), a department of the U.S. Department of Housing and Urban Development (HUD), to originate mortgage loans that qualify for government insurance in the event of default by the borrower. SNMC obtains loans primarily from independent brokers and correspondents. SNMC funds the loans from internal cash flows and lines of credit from financial institutions, including the Company’s insurance subsidiaries. SNMC receives fees from the borrowers and other secondary fees from third party investors who purchased the loans from SNMC. SNMC pays the brokers and correspondents a commission for loans that are brokered through SNMC.

As of December 31, 2006, SNMC had 28 branches in thirteen states. SNMC opened one office in 2004 in Cape Coral, Florida. In 2005, SNMC opened offices in Kailua, Hawaii; Bend, Oregon; Midvale, Utah; and Richmond, Virginia. In 2006, SNMC opened offices in San Jose, California; Shallotte, North Carolina; Irvine, California; Oklahoma City, Oklahoma, Overland Park, Kansas and Beaverton, Oregon. SNMC originated and sold 14,427 loans ($2,461,000,000 loan amount), 12,786 loans ($2,085,000,000 loan amount), and 11,567 loans ($1,781,000,000 loan amount) in 2006, 2005 and 2004, respectively.

On December 17, 1998, the Company purchased all of the outstanding common shares of SSLIC Holding Company, formerly Consolidare Enterprises, Inc., and Insuradyne Corporation for a total cost of $12,248,194. At the time the transaction was completed, Consolidare owned 57.4% of the outstanding shares of Southern Security Life. Following the acquisition of Consolidare, Security National Life and its wholly owned subsidiary, SSLIC Holding Company, increased their ownership of the outstanding shares of Southern Security Life through the purchase of shares traded on the Nasdaq SmallCap Market and stock purchase transactions with then current stockholders of Southern Security Life. As of December 31, 2004, Security National Life and SSLIC Holding Company held 76.7% of the outstanding common shares of Southern Security Life.

On January 1, 2005, Security National Life and SSLIC Holding Company completed a merger transaction with Southern Security Life whereby SSLIC Holding Company was merged with Southern Security Life, which resulted in Southern Security Life becoming a wholly owned subsidiary of Security National Life and the unaffiliated stockholders of Southern Security Life becoming entitled to receive an aggregate of $1,884,733 for their shares.

On December 31, 2005, all of the remaining insurance business of Southern Security Life consisting of $48,528,000 in assets and liabilities was transferred to Security National Life by a reinsurance agreement, except for $3,500,000 in capital and surplus required to be maintained under Florida law. Also on December 31, 2005, Southern Security Life paid a $7,181,000 dividend to Security National Life.

On December 29, 2006, Southern Security Life was sold in a stock sales transaction. At the time of the sale, Southern Security Life’s assets consisted of a corporate charter, licenses, and the required capital and surplus. Under the terms of the transaction, Security National Life received purchase consideration consisting of $400,000 plus an amount equal to Southern Security Life’s capital and surplus as of December 31, 2006. The sale is conditioned upon the subsequent approval of the transaction by the Florida Office of Insurance Regulation and, if such approval is not obtained, Southern Security Life will be liquidated.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

On December 23, 2002, the Company completed an asset purchase transaction with Acadian Life Insurance Company, a Louisiana domiciled life insurance company, in which it acquired from Acadian $75,000,000 in assets and $75,000,000 in insurance reserves through its wholly owned subsidiary, Security National Life, a Utah domiciled life insurance company. The acquired assets consist primarily of approximately 275,000 funeral insurance policies in force in the state of Mississippi. The assets were originally acquired by Acadian from Gulf National Life Insurance Company on June 6, 2001, consisting of all the insurance policies of Gulf National Life Insurance Company in force and in effect on June 1, 2001.

On March 16, 2004, Security National Life purchased all of the outstanding common shares of Paramount Security Life Insurance Company, now known as Security National Life of Louisiana, a Louisiana domiciled insurance company located in Shreveport, Louisiana. As of December 31, 2003, Security National Life of Louisiana had 9,383 policies in force and 29 agents. There were no material changes in the number of policies in force or the number of agents between December 31, 2003 and March 16, 2004. The purchase consideration was $4,398,000 and the transaction was effective January 26, 2004. Security National Life of Louisiana is licensed in the State of Louisiana where it is permitted to appoint agents who do not have a full life insurance license.

These agents are limited to selling small life insurance policies in the final expense market. The Company believes that with this license it will be able to expand its operations in Louisiana. The Company is servicing Security National Life of Louisiana policyholders out of its Jackson, Mississippi office and has closed its Shreveport office.

On December 29, 2005, Security National Life and Southern Security Life purchased all of the outstanding common shares of Memorial Insurance Company of America, an Arkansas domiciled insurance company located in Blytheville, Arkansas. As of December 31, 2005, Memorial Insurance Company had 116,116 policies in force and approximately 50 agents. The purchase consideration was $13,500,000.

Significant Accounting Policies

The following is a brief summary of our significant accounting policies and a review of our most critical accounting estimates. Please also refer to Note 1 of our consolidated financial statements.

Insurance Operations

In accordance with accounting principles generally accepted in the United States of America (GAAP), premiums and considerations received for interest sensitive products such as universal life insurance and ordinary annuities are reflected as increases in liabilities for policyholder account balances and not as revenues. Revenues reported for these products consist of policy charges for the cost of insurance, administration charges, amortization of policy initiation fees and surrender charges assessed against policyholder account balances. Surrender benefits paid relating to these products are reflected as decreases in liabilities for policyholder account balances and not as expenses. The Company receives investment income earned from the funds deposited into account balances, a portion of which is passed through to the policyholders in the form of interest credited. Interest credited to policyholder account balances and benefit claims in excess of policyholder account balances are reported as expenses in the consolidated financial statements.

Premium revenues reported for traditional life insurance products are recognized as revenues when due. Future policy benefits are recognized as expenses over the life of the policy by means of the provision for future policy benefits.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

The costs related to acquiring new business, including certain costs of issuing policies and other variable selling expenses (principally commissions), defined as deferred policy acquisition costs, are capitalized and amortized into expense. For nonparticipating traditional life products, these costs are amortized over the premium paying period of the related policies, in proportion to the ratio of annual premium revenues to total anticipated premium revenues. Such anticipated premium revenues are estimated using the same assumption used for computing liabilities for future policy benefits and are generally “locked in” at the date the policies are issued. For interest sensitive products, these costs are amortized generally in proportion to expected gross profits from surrender charges and investment, mortality and expense margins. This amortization is adjusted when the Company revises the estimate of current or future gross profits or margins. For example, deferred policy acquisition costs are amortized earlier than originally estimated when policy terminations are higher than originally estimated or when investments backing the related policyholder liabilities are sold at a gain prior to their anticipated maturity.

Death and other policyholder benefits reflect exposure to mortality risk and fluctuate from year to year on the level of claims incurred under insurance retention limits. The profitability of the Company is primarily affected by fluctuations in mortality, other policyholder benefits, expense levels, interest spreads (i.e., the difference between interest earned on investments and interest credited to policyholders) and persistency. The Company has the ability to mitigate adverse experience through sound underwriting, asset/liability duration matching, sound actuarial practices, adjustments to credited interest rates, policyholder dividends or cost of insurance charges.

Cemetery and Mortuary Operations

Pre-need sales of funeral services and caskets, including revenue and costs associated with the sales of pre-need funeral services and caskets are deferred until the services are performed or the caskets are delivered.

Pre-need sales of cemetery interment rights (cemetery burial property) - revenue and costs associated with the sales of pre-need cemetery interment rights are recognized in accordance with the retail land sales provisions of Statement of Financial Accounting Standards No. 66, “Accounting for the Sales of Real Estate” (SFAS No. 66). Under SFAS 66, recognition of revenue and associated costs from constructed cemetery property must be deferred until a minimum percentage of the sales price has been collected. Revenues related to the pre-need sale of unconstructed cemetery property will be deferred until such property is constructed and meets the criteria of SFAS 66 described above.

Pre-need sales of cemetery merchandise (primarily markers and vaults) - revenue and costs associated with the sales of pre-need cemetery merchandise are deferred until the merchandise is delivered.

Pre-need sales of cemetery services (primarily merchandise delivery and 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 obtaining costs - costs incurred related to obtaining new pre-need cemetery and prearranged funeral business are accounted for under the guidance of the provisions of Statement of Financial Accounting Standards No. 60 “Accounting and Reporting by Insurance Enterprises” (FAS No. 60). Obtaining costs, which include only costs that vary with and are primarily related to the acquisition of new pre-need cemetery and prearranged funeral business, are deferred until the merchandise is delivered or services are performed.

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 obligations remaining.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Mortgage Operations

Mortgage fee income is generated through the origination and refinancing of mortgage loans and is realized in accordance with SFAS No. 140.

The majority of loans originated are sold to third party investors. The amounts sold to investors are shown on the balance sheet as due from sale of loans, and are shown on the basis of the amount of fees due from the investors.

Use of Significant Accounting Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures. It is reasonably possible that actual experience could differ from the estimates and assumptions utilized which could have a material impact on the financial statements. The following is a summary of our significant accounting estimates, and critical issues that impact them:

Fixed Maturities Available for Sale

Securities available-for-sale are carried at fair value, with unrealized holding gains and losses reported in accumulated other comprehensive income which is included in stockholders’ equity after adjustment for deferred income taxes and deferred acquisition costs related to universal life products.

The Company is required to exercise judgment to determine when a decline in the value of a security is other than temporary. When the value of a security declines and the decline is determined to be other than temporary, the carrying value of the investment is reduced to its fair value and a realized loss is recorded to the extent of the decline.

Deferred Acquisition Costs

Amortization of deferred policy acquisition costs for interest sensitive products is dependent upon estimates of current and future gross profits or margins on this business. Key assumptions used include the following: yield on investments supporting the liabilities, amount of interest or dividends credited to the policies, amount of policy fees and charges, amount of expenses necessary to maintain the policies, and amount of death and surrender benefits and the length of time the policies will stay in force.

For nonparticipating traditional life products, these costs are amortized over the premium paying period of the related policies, in proportion to the ratio of annual premium revenues to total anticipated premium revenues. Such anticipated premium revenues are estimated using the same assumption used for computing liabilities for future policy benefits and are generally “locked in” at the date the policies are issued.

Cost of Insurance Acquired

Cost of insurance acquired is the present value of estimated future profits of the acquired business and is amortized similar to deferred acquisition costs. The critical issues explained for deferred acquisition costs would also apply for cost of insurance acquired.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Allowance for Doubtful Accounts

The Company accrues an estimate of potential losses for the collection of receivables. The significant receivables are the result of receivables due on mortgage loans sold to investors, cemetery and mortuary operations, mortgage loan operations and other receivables. The allowance is based upon the Company’s experience. The critical issues that would impact recovery of the cemetery and mortuary receivables is the overall economy. The critical issues that would impact recovery of mortgage loan operations would be interest rate risk and loan underwriting.

Future Policy Benefits

Reserves for future policy benefits for traditional life insurance products requires the use of many assumptions, including the duration of the policies, mortality experience, expenses, investment yield, lapse rates, surrender rates, and dividend crediting rates.

These assumptions are made based upon historical experience, industry standards and a best estimate of future results and, for traditional life products, include a provision for adverse deviation. For traditional life insurance, once established for a particular series of products, these assumptions are generally held constant.

Unearned Revenue

The universal life products the Company sells have significant policy initiation fees (front-end load), which are deferred and amortized into revenues over the estimated expected gross profits from surrender charges and investment, mortality and expense margins. The same issues that impact deferred acquisition costs would apply to unearned revenue.

Deferred Pre-need Cemetery and Funeral Contracts Revenues and Estimated Future Cost of Pre-need Sales

The revenue and cost associated with the sales of pre-need cemetery merchandise and funeral services are deferred until the merchandise is delivered or the service is performed.

The Company, through its mortuary and cemetery operations, provides a guaranteed funeral arrangement 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.

Mortgage Loan Loss Reserve

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Deferred Compensation

The Company has deferred compensation agreements with several of its current and past executive officers. The deferred compensation is payable upon retirement or death of these individuals either in annual installments (ten years) or lump sum settlement, if approved by the Board of Directors. The Company has accrued the present value of these benefits based upon their future retirement dates and other factors, on its consolidated financial statements.

Depreciation

Depreciation is calculated principally on the straight-line-method over the estimated useful lives of the assets, which range from 3 to 40 years. Leasehold improvements are amortized over the lesser of the useful life or remaining lease terms.

Self-Insurance

The Company is self insured for certain casualty insurance, workers compensation and health benefit programs. Self – Insurance reserves are maintained relative to these programs. The level of exposure from catastrophic events is limited by the purchase of stop-loss and aggregate liability reinsurance coverages. When estimating the self-insurance liabilities and related reserves, management considers a number of factors, which include historical claims experience, demographic factors, severity factors and valuations provided by independent third-party actuaries. Management reviews its assumptions with its independent third-party administrators and actuaries to evaluate whether the self-insurance reserves are adequate. If actual claims or adverse development of loss reserves occurs and exceed these estimates, additional reserves may be required. The estimation process contains uncertainty since management must use judgment to estimate the ultimate cost that will be incurred to settle reported claims and unreported claims and unreported claims for incidents incurred but not reported as of the balance sheet date.

Results of Operations

2006 Compared to 2005

Total revenues increased by $22,580,000, or 17.4%, from $129,950,000 for fiscal year 2005 to $152,530,000 for fiscal year 2006. Contributing to this increase in total revenues was a $13,254,000 increase in mortgage fee income, a $3,606,000 increase in insurance premium and other considerations, a $3,859,000 increase in net investment income, a $1,284,000 increase in mortuary and cemetery sales, and an $817,000 increase in realized gains on investments and other assets. This increase was partially offset by a $240,000 decrease in other revenues.

Insurance premiums and other considerations increased by $3,606,000, from $27,170,000 in 2005 to $30,776,000 in 2006. This increase was primarily due to the additional insurance premiums that were realized on new insurance sales and from the acquisition of Memorial Insurance Company on December 29, 2005.

Net investment income increased by $3,859,000, from $19,387,000 in 2005 to $23,246,000 in 2006. This increase was primarily attributable to additional interest income from increased long-term bond and mortgage purchases and additional investment income from the assets received as a result of the acquisition of Memorial Insurance Company.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Net mortuary and cemetery sales increased by $1,284,000, from $10,839,000 in 2005 to $12,123,000 in 2006. This was due to increased at-need sales in the cemetery and mortuary operations and increased pre-need land sales in cemetery operations.

Other revenues decreased by $240,000, from $621,000 in 2005 to $381,000 in 2006. Other revenues decreased in 2006 due to a reduction in other deposit funds and reinsurance risk charges.

Realized gains on investments and other assets increased by $817,000, from $74,000 in 2005 to $891,000 in 2006. This increase was primarily due to a gain of $760,000 from the condemnation of the Camelback Funeral Home by the City of Phoenix to construct a light rail facility.

Mortgage fee income increased by $13,254,000, from $71,859,000 in 2005 to $85,113,000 in 2006. This increase was primarily attributable to an increase in the number of loan originations during 2006 due to the opening of additional mortgage offices in Irvine and Los Gatos, California; Overland Park, Kansas; Oklahoma City, Oklahoma; Shallotte, North Carolina; and Beaverton, Oregon, and increased production in existing mortgage offices, which resulted in financing a greater number of mortgage loans.

Total benefits and expenses were $145,635,000 for 2006, which constituted 95.5% of the Company’s total revenues, as compared to $125,222,000, or 96.4% of the Company’s total revenues for 2005.

Death benefits, surrenders and other policy benefits, and increase in future policy benefits increased by $2,842,000 from $24,477,000 in 2005 to $27,319,000 in 2006. This net increase was primarily due to increased business and to the expected increase in reserves for policyholder benefits and death claims.

Amortization of deferred policy and pre-need acquisition costs and cost of insurance acquired increased by $1,094,000 from $3,031,000 in 2005 to $4,125,000 in 2006. This increase was primarily due to increased business on a slight increase in the lapse rate of 8.4% in 2006 from 7.9% in 2005.

General and administrative expenses increased by $15,038,000, from $90,690,000 in 2005 to $105,728,000 in 2006. Contributing to this increase was a $9,693,000 increase in commission expenses, from $53,807,000 in 2005 to $63,500,000 in 2006 due to a greater number of mortgage loan originations made by SecurityNational Mortgage Company during 2006. Salaries increased by $2,231,000 from $15,717,000 in 2005 to $17,948,000 in 2006, primarily due to merit increases in the salaries of existing employees and an increase in the number of employees necessitated as the result of the Company’s expanding business operations. Other expenses increased by $3,114,000, from $21,166,000 in 2005 to $24,280,000 in 2006. The increase in other expenses primarily resulted from loan costs at SecurityNational Mortgage Company during 2006 due to a greater number of loan originations and additional expenses from the operations of Memorial Insurance Company, which the Company purchased on December 29, 2005.

Interest expense increased by $1,220,000, from $4,921,000 in 2005 to $6,141,000 in 2006. This increase was primarily due to increased warehouse lines of credit required for a greater number of warehoused mortgage loans by SecurityNational Mortgage Company.

Cost of goods and services sold of the mortuaries and cemeteries increased by $219,000, from $2,103,000 in 2005 to $2,322,000 in 2006. This increase was primarily due to increased cemetery and mortuary sales.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

2005 Compared to 2004

Total revenues increased by $12,752,000, or 10.9%, from $117,198,000 for fiscal year 2004 to $129,950,000 for fiscal year 2005. Contributing to this increase in total revenues was a $9,169,000 increase in mortgage fee income, a $1,191,000 increase in insurance premium and other considerations, and a $3,448,000 increase in net investment income. This increase was partially offset by an $822,000 decrease in mortuary and cemetery sales, and a $234,000 decrease in other revenues.

Insurance premiums and other considerations increased by $1,191,000, from $25,979,000 in 2004 to $27,170,000 in 2005. This increase was primarily due to the additional insurance premiums that were realized on new insurance sales.

Net investment income increased by $3,448,000, from $15,939,000 in 2004 to $19,387,000 in 2005. This increase was primarily attributable to additional borrower interest income from increased long-term bond purchases and mortgage loans over the comparable period in 2005.

Net mortuary and cemetery sales decreased by $822,000, from $11,661,000 in 2004 to $10,839,000 in 2005. This reduction in mortuary sales was primarily due to a reduction in pre-need property sales and the loss of sales from the Camelback Funeral Home as a result of the City of Phoenix having commenced condemnation proceedings to construct a light rail facility on the funeral home property.

Other revenues decreased by $234,000, from $855,000 in 2004 to $621,000 in 2005. Other revenue decreased in 2005 due in part to a one-time recovery of funds in 2004 from a member of management who made restitution of $111,000 by transferring to the Company shares of the Company’s common stock that the employee owned at the time he was terminated.

Mortgage fee income increased by $9,169,000, from $62,690,000 in 2004 to $71,859,000 in 2005. This increase was primarily attributable to an increase in the number of loan originations during 2005 due to the opening of new offices and increased production from existing offices, which resulted in financing a greater number of mortgage loans.

Total benefits and expenses were $125,222,000 for 2005, which constituted 96.4% of the Company’s total revenues, as compared to $114,539,000, or 97.7% of the Company’s total revenues for 2004.

During 2005, there was a net increase of $1,115,000 in death benefits, surrenders and other policy benefits, and increase in future policy benefits from $23,362,000 in 2004 to $24,477,000 in 2005. This net increase was primarily the result of an increase in reserves for policyholders.

Amortization of deferred policy and pre-need acquisition costs and cost of insurance acquired decreased by $1,571,000 from $4,602,000 in 2004 to $3,031,000 in 2005. This decrease was primarily due to recognition of improvements in persistency.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

General and administrative expenses increased by $8,593,000, from $82,097,000 in 2004 to $90,690,000 in 2005. Contributing to this increase was a $5,117,000 increase in commission expenses, from $48,690,000 in 2004 to $53,807,000 in 2005 due to higher mortgage loan originations made by SecurityNational Mortgage Company during 2005. Salaries increased by $1,325,000 from $14,392,000 in 2004 to $15,717,000 in 2005, primarily due to merit increases in the salaries of existing employees and an increase in the number of employees. Other expenses increased by $2,151,000, from $19,015,000 in 2004 to $21,166,000 in 2005. The increase in other expenses primarily resulted from loan costs at SecurityNational Mortgage Company during 2005 due to a greater number of loan originations.

Interest expense increased by $2,747,000, from $2,174,000 in 2004 to $4,921,000 in 2005. This increase was primarily due to the increased use of warehouse lines of credit required for the funding of mortgage loans by SecurityNational Mortgage Company during 2005.

Cost of goods and services sold of the mortuaries and cemeteries decreased by $201,000, from $2,304,000 in 2004 to $2,103,000 in 2005. This reduction in the cost of goods and services sold of the mortuaries and cemeteries was due to the reduced costs of at-need merchandise at the Company’s mortuaries and cemeteries and the loss of sales from the Camelback Funeral Home as a result of the City of Phoenix having commenced condemnation proceedings for purposes of constructing a light rail facility on the funeral home property.

Risks

The following is a description of the most significant risks facing the Company and how it mitigates those risks:

Legal/Regulatory Risk - the risk that changes in the legal or regulatory environment in which the Company operates will create additional expenses and/or risks not anticipated by the Company in developing and pricing its products. That is, regulatory initiatives designed to reduce insurer profits, new legal theories or insurance company insolvencies through guaranty fund assessments may create costs for the insurer beyond those recorded in the consolidated financial statements. In addition, changes in tax law with respect to mortgage interest deductions or other public policy or legislative changes may affect the Company’s mortgage sales. Also, the Company may be subject to further regulations in the cemetery/mortuary business. The Company mitigates these risks by offering a wide range of products and by diversifying its operations, thus reducing its exposure to any single product or jurisdiction, and also by employing underwriting practices which identify and minimize the adverse impact of such risks.

Credit Risk - the risk that issuers of securities owned by the Company, mortgagors of mortgage loans on real estate and obligors on construction loans, will default or that other parties, including reinsurers and holders of cemetery/ mortuary contracts which owe the Company money, will not pay. The Company minimizes these risks by adhering to a conservative investment strategy, by maintaining sound reinsurance and credit and collection policies and by providing for any amounts deemed uncollectible.

Interest Rate Risk - the risk that interest rates will change which may cause a decrease in the value of the Company’s investments or impair the ability of the Company to market its mortgage and cemetery/mortuary products. This change in rates may cause certain interest-sensitive products to become uncompetitive or may cause disintermediation. The Company mitigates this risk by charging fees for non-conformance with certain policy provisions, by offering products that transfer this risk to the purchaser, and/or by attempting to match the maturity schedule of its assets with the expected payouts of its liabilities. To the extent that liabilities come due more quickly than assets mature, the Company might have to borrow funds or sell assets prior to maturity and potentially recognize a loss on the sale.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Mortality/Morbidity Risk - the risk that the Company’s actuarial assumptions may differ from actual mortality/morbidity experience may cause the Company’s products to be underpriced, may cause the Company to liquidate insurance or other claims earlier than anticipated and other potentially adverse consequences to the business. The Company minimizes this risk through sound underwriting practices, asset/liability duration matching, and sound actuarial practices.

Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated 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, construction loans and other receivables, 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 adequate.

Liquidity and Capital Resources

The Company’s life insurance subsidiaries and cemetery and mortuary subsidiaries realize cash flow from premiums, contract payments and sales on personal services rendered for cemetery and mortuary business, from interest and dividends on invested assets, and from the proceeds from the maturity of held-to-maturity investments or sale of other investments. The mortgage subsidiary realizes cash flow from fees generated by originating and refinancing mortgage loans and interest earned on mortgages sold to investors. The Company considers these sources of cash flow to be adequate to fund future policyholder and cemetery and mortuary liabilities, which generally are long-term, and adequate to pay current policyholder claims, annuity payments, expenses on the issuance of new policies, the maintenance of existing policies, debt service, and to meet operating expenses.

The Company attempts to match the duration of invested assets with its policyholder and cemetery and mortuary liabilities. The Company may sell investments other than those held-to-maturity in the portfolio to help in this timing; however, to date, that has not been necessary. The Company purchases short-term investments on a temporary basis to meet the expectations of short-term requirements of the Company’s products.

The Company’s investment philosophy is intended to provide a rate of return which will persist during the expected duration of policyholder and cemetery and mortuary liabilities regardless of future interest rate movements.

The Company’s investment policy is to invest predominantly in fixed maturity securities, mortgage loans, and the warehousing of mortgage loans on a short-term basis before selling the loans to investors in accordance with the requirements and laws governing the life insurance subsidiaries. Bonds owned by the insurance subsidiaries amounted to $101,735,000 as of December 31, 2006 compared to $96,378,000 as of December 31, 2005. This represents 47% of the total investments in 2006 and 2005. Generally, all bonds owned by the life insurance subsidiaries are rated by the National Association of Insurance Commissioners (NAIC). Under this rating system, there are six categories used for rating bonds. At December 31, 2006, 2.3% (or $2,402,000) and at December 31, 2005, 3.5% (or $3,431,000) of the Company’s total bond investments were invested in bonds in rating categories three through six which are considered non-investment grade.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

If market conditions were to cause interest rates to change, the market value of the fixed income portfolio (of approximately $188,002,000) could change by the following amounts based on the respective basis point swing (the change in the market values were calculated using a modeling technique):

-200 bps

-100 bps

+100 bps

+200 bps

Change in

Market Value	$21,597	$9,937	$(7,902)	$(15,659)
(in thousands)

The Company has classified certain of its fixed income securities, including high-yield securities, in its portfolio as available for sale, with the remainder classified as held to maturity. However, in accordance with Company policy, any such securities purchased in the future will be classified as held to maturity. Business conditions, however, may develop in the future which may indicate a need for a higher level of liquidity in the investment portfolio. In that event the Company believes it could sell short-term investment grade securities before liquidating higher-yielding longer-term securities.

The Company is subject to risk based capital guidelines established by statutory regulators requiring minimum capital levels based on the perceived risk of assets, liabilities, disintermediation, and business risk. At December 31, 2006 and 2005, the life subsidiaries exceeded the regulatory criteria.

The Company’s total capitalization of stockholders’ equity and bank debt and notes payable was $60,641,000 and $55,971,000 as of December 31, 2006 and 2005, respectively. Stockholders’ equity as a percent of total capitalization was 87% and 82% as of December 31, 2006 and 2005, respectively.

Lapse rates measure the amount of insurance terminated during a particular period. The Company’s lapse rate for life insurance in 2006 was 8.4%, as compared to a rate of 7.9% in 2005.

On December 17, 1998, the Company completed the acquisition of SSLIC Holding Company formerly Consolidare Enterprises, Inc., a Florida corporation pursuant to the terms of the Acquisition Agreement, which the Company entered into on April 17, 1998, with SSLIC Holding Company and certain shareholders of SSLIC Holding Company for the purchase of all of the outstanding shares of common stock of SSLIC Holding Company. Prior to completion of the acquisition, SSLIC Holding Company owned 57.4% of the outstanding shares of common stock of Southern Security Life. The Company also acquired all of the outstanding shares of stock of Insuradyne Corp., a Florida corporation (“Insuradyne”).

As consideration for the purchase of the shares of SSLIC Holding Company, the Company paid to the stockholders of Consolidare at closing an aggregate of $12,248,194. In order to pay the purchase consideration, the Company obtained $6,250,000 from bank financing, with the balance of $5,998,194 obtained from funds then currently held by the Company. In addition to the purchase consideration, the Company caused Southern Security Life to pay, on the closing date, $1,050,000 to George Pihakis, the President and Chief Executive Officer of Southern Security Life prior to closing, as a lump sum settlement of the executive compensation agreement between Southern Security Life and Mr. Pihakis.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

In connection with the acquiring of SSLIC Holding Company, the Company entered into an Administrative Services Agreement dated December 17, 1998 with Southern Security Life. Under the terms of the agreement, the Company agreed to provide Southern Security Life with certain defined administrative and financial services, including accounting services, financial reports and statements, actuarial, policyholder services, underwriting, data processing, legal, building management, marketing advisory services and investment services. In consideration for the services to be provided by the Company, Southern Security Life will pay the Company an administrative services fee of $250,000 per month, or $3,000,000 on an annual basis, which may be increased, beginning on January 1, 2001, to reflect increases in the Consumer Price Index over the index amount as of January 1, 2000. However, such fee is to be reduced to zero for so long as the capital and surplus of Southern Security Life is less than or equal to $6,000,000, unless Southern Security Life and the Company otherwise agree in writing and such agreement is approved by the Florida Department of Insurance. The Company has not made any increases in the amount of the Administrative Services Fee to reflect increases in the Consumer Price Index.

The Administrative Services Agreement remained in effect for an initial term expiring on December 16, 2003. The term of the agreement was automatically extended for additional one-year terms expiring December 16, 2004, 2005 and 2006. The agreement is automatically extended for additional one-year terms unless either the Company or Southern Security Life delivers a written notice on or before September 30 of any year stating to the other a desire not to extend the term of the agreement.

On December 31, 2005, all of the remaining insurance business of Southern Security Life was transferred to Security National Life by a reinsurance agreement, except for the capital and surplus required to be maintained under Florida law and, as a result, Security National Life assumed full responsibility for Southern Security Life's obligations under the Administrative Services Agreement. The obligations assumed by Security National Life include payment of the monthly administrative services fee to the Company. Neither the Company nor Security National Life, which assumed Southern Security Life's rights and obligations under the agreement, provided written notice prior to September 30, 2006 stating a desire not to extend the term of the agreement. Consequently, the agreement has been extended for an additional one-year term ending December 31, 2007.

On January 1, 2005, Security National Life and SSLIC Holding Company, a wholly owned subsidiary of Security National Life, completed a merger transaction with Southern Security Life. Under the terms of the merger and pursuant to the Agreement and Plan of Reorganization, dated August 25, 2004, including the amendment thereto dated December 27, 2004, SSLIC Holding Company was merged with and into Southern Security Life, which resulted in (i) Southern Security Life becoming a wholly-owned subsidiary of Security National Life, and (ii) the unaffiliated stockholders of Southern Security Life, holding an aggregate of 490,816 shares of common stock, becoming entitled to receive $3.84 in cash for each issued and outstanding share of their common stock of Southern Security Life, or an aggregate of $1,884,733.

As a result of the merger, the separate existence of SSLIC Holding Company ceased as Southern Security Life became the surviving corporation of the merger. Southern Security Life continues to be governed by the laws of the State of Florida, and its separate corporate existence continues unaffected by the merger. In addition, as a result of the merger, Security National Life owns all of the issued and outstanding common shares of Southern Security Life. The Company, through its affiliates, Security National Life and SSLIC Holding Company, owned 76.7% of the Company’s outstanding common shares prior to the merger.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

The purpose of the merger was to terminate the registration of the common stock of Southern Security Life under the Securities Exchange Act of 1934 (by reducing the number of its stockholders of record to fewer than 300 stockholders) and the Nasdaq listing of the common stock, reduce expenses associated with such registration and listing, and provide the stockholders an opportunity to sell their shares in an illiquid trading market without incurring brokerage commissions. As a result of becoming a non-reporting company, Southern Security Life is no longer required to file periodic reports with the SEC, including among other things, annual reports on Form 10-K and quarterly reports on Form 10-Q, and is no longer subject to the SEC’s proxy rules. In addition, its common stock is no longer eligible for trading on the Nasdaq SmallCap Market.

On December 23, 2002, the Company completed an asset purchase transaction through its wholly owned subsidiary, Security National Life with Acadian from which it acquired $75,000,000 in assets and $75,000,000 in insurance reserves. The acquired assets consist primarily of approximately 275,000 funeral insurance policies in force in the state of Mississippi. The assets were originally acquired by Acadian from Gulf National Life Insurance Company on June 6, 2001, which, at that time, consisted of all of the insurance policies of Gulf National Life Insurance Company in force and in effect on June 1, 2001 (the “Reinsured Business”).

As a part of the transaction, Security National Life entered into a coinsurance agreement with Acadian, in which Security National Life agreed to reinsure all the liabilities related to policies held by Mississippi policyholders. The terms included the payment of all legal liabilities, obligations, claims and commissions of the acquired policies. The effective date of the coinsurance agreement was September 30, 2002, following Acadian’s recapture of the insurance in force from its reinsurer Scottish Re (U.S.) Inc. on September 30, 2002.

The coinsurance agreement further provides that Acadian is required to pay Security National Life an initial coinsurance premium in cash or assets acceptable to Security National Life in an amount equal to the full coinsurance reserves, not including the incurred but not reported (IBNR) reserve as of the effective date. The ceding commission to be paid by Security National Life to Acadian for the reinsured policies is to be the recapture amount to be paid by Acadian to Scottish Re (U.S.), Inc., which was approximately $10,000,000. After the initial coinsurance premium, the coinsurance premiums payable by Acadian to Security National Life are to be equal to all of the premiums collected by Acadian on the reinsurance policies subsequent to December 31, 2002.

On January 1, 2003, Security National Life entered into an assumption agreement effective January 1, 2003, with Acadian, in which Security National Life agreed to assume certain of the liabilities related to the reinsurance policies. Under the terms of the assumption agreement, Acadian agreed to cede to Security National Life, and Security National Life agreed to assume the stated insurance risks and contractual obligations of Acadian relating to the Reinsured Business. Security National Life agreed to pay all legal liabilities and obligations, including claims and commissions, of Acadian with respect to the Reinsured Business arising on or after January 1, 2003, in accordance with the terms and conditions of the reinsured policies.

On March 16, 2004, Security National Life purchased all of the outstanding common stock of Paramount Security Life Insurance Company, now known as Security National Life of Louisiana, a Louisiana domiciled insurance company located in Shreveport, Louisiana. As of December 31, 2003, Security National Life of Louisiana had 9,383 policies in force and 29 agents. There were no material changes in the number of policies in force of the number of agents between December 31, 2003 and March 16, 2004. The purchase consideration was $4,398,000 and the transaction was effective January 26, 2004. Security National Life of Louisiana is licensed in the State of Louisiana where it is permitted to appoint agents who do not have a full life insurance license.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

On December 31, 2005, all of the remaining insurance business of Southern Security Life consisting of $48,528,000 in assets and liabilities was transferred to Security National Life by a reinsurance agreement, except for $3,500,000 in required capital and surplus. Also on December 31, 2005, Southern Security Life paid a $7,181,000 dividend to Security National Life.

On December 29, 2006, Southern Security Life was sold in a stock sales transaction for $400,000 plus an amount equal to Southern Security Life’s assets consisting of a corporate charter, licenses and required capital and surplus. The sale is conditioned upon the subsequent approval of the transaction by the Florida Office of Insurance Regulation and, if such approval is not obtained, Southern Security Life will be liquidated.

At December 31, 2006, $22,869,000 of the Company’s consolidated stockholders’ equity represents the statutory stockholders’ equity of the Company’s insurance subsidiaries. The life insurance subsidiaries need to comply with applicable state regulations before a dividend can be paid to their parent company.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements to encourage companies to provide prospective information about their businesses without fear of litigation so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in such statements. The Company desires to take advantage of the “safe harbor” provisions of the act.

Forward-Looking Statements

This Annual Report of Form 10-K contains forward-looking statements, together with related data and projections, about the Company’s projected financial results and its future plans and strategies. However, actual results and needs of the Company may vary materially from forward-looking statements and projections made from time to time by the Company on the basis of management’s then-current expectations. The business in which the Company is engaged involves changing and competitive markets, which may involve a high degree of risk, and there can be no assurance that forward-looking statements and projections will prove accurate.

Factors that may cause the Company’s actual results to differ materially from those contemplated or projected, forecast, estimated or budgeted in such forward looking statements include among others, the following possibilities: (i) heightened competition, including the intensification of price competition, the entry of new competitors, and the introduction of new products by new and existing competitors; (ii) adverse state and federal legislation or regulation,

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

including decreases in rates, limitations on premium levels, increases in minimum capital and reserve requirements, benefit mandates and tax treatment of insurance products; (iii) fluctuations in interest rates causing a reduction of investment income or increase in interest expense and in the market value of interest rate sensitive investment; (iv) failure to obtain new customers, retain existing customers or reductions in policies in force by existing customers; (v) higher service, administrative, or general expense due to the need for additional advertising, marketing, administrative or management information systems expenditures; (vi) loss or retirement of key executives or employees; (vii) increases in medical costs; (viii) changes in the Company’s liquidity due to changes in asset and liability matching; (ix) restrictions on insurance underwriting based on genetic testing and other criteria; (x) adverse changes in the ratings obtained by independent rating agencies; (xi) failure to maintain adequate reinsurance; (xii) possible claims relating to sales practices for insurance products and claim denials and (xiii) adverse trends in mortality and morbidity.

Off-Balance Sheet Agreements

Years Ending December 31:
		2007			$854,000
	2008					677,000
	2009					376,000
	2010					126,000
		2011					8,000
		Thereafter						--
			Total	$2,041,000

Total rent expense related to these non-cancelable operating leases for the years ended December 31, 2006, 2005 and 2004 was approximately $1,222,000, $828,000 and $734,000, respectively.

The total of the Company un-funded residential construction loan commitments as of December 31, 2006 was $17,923,325.

Variable Interest Entities

In conjunction with the Company’s casualty insurance program, limited equity interests are held in a captive insurance entity. This program permits the Company to self-insure a portion of losses, to gain access to a wide array of safety-related services, to pool insurance risks and resources in order to obtain more competitive pricing for administration and reinsurance and to limit its risk of loss in any particular year. This entity meets the

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

definition of a variable interest entity (“VIE’s), however, based on the criteria set forth in FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, “there is not a requirement to include this entity in the consolidated financial statements. The maximum exposure to loss related to the Company’s involvement with this entity is limited to approximately $120,000, a majority of which is collateralized under a standby letter of credit issued on the insurance entity’s behalf. See Note 11, “Reinsurance, Commitments and Contingencies”, for additional discussion of commitments associated with the insurance program and Note 1, “Significant Accounting Policies”, for further information on a standby letter of credit. As of December 31, 2006, there are no other entities that met the definition of a VIE.

Recent Accounting Pronouncements

In September 2005, the AICPA issued Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs (“DAC”) in Connection with Modifications or Exchanges of Insurance Contracts, (“SOP 05-1”). SOP 05-1 provides guidance on accounting by insurance enterprises for DAC on internal replacements of insurance and investment contracts. An internal replacement is a modification in product benefits, features, rights or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a 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 should be accounted for as an extinguishment of the replaced contract. Unamortized DAC, unearned revenue liabilities and deferred sales inducements from the replaced contract must be written-off. Modifications that result in a contract that is substantially unchanged from the replaced contract should be accounted for as a continuation of the replaced contract. SOP 05-1 is effective for internal replacements occurring in fiscal years beginning after December 15, 2006, with earlier adoption encouraged. Initial application of SOP 05-1 should be as of the beginning of the entity’s fiscal year. The Company adopted SOP 05-1 effective January 1, 2007. Adoption of this statement is not expected to have a material impact on the Company’s consolidated financial statements.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset. It also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. SFAS 156 permits an entity to use either the amortization method or the fair value measurement method for each class of separately recognized servicing assets and servicing liabilities. SFAS 156 is effective for the Company as of January 1, 2007. The impact of adoption of this statement on the Company’s consolidated financial statements will likely not be material.

In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes, which attempts to set out a consistent framework for preparers to use to determine the appropriate level of valuation allowance tax reserves to maintain for deferred tax assets relating to uncertain tax positions. This interpretation for FASB Statement No. 109 uses a two-step approach wherein a tax benefit is recognized if a position is more-than-likely-than-not to be sustained. The amount of the benefit is then measured to be the highest tax benefit, which is greater than fifty percent likely to be realized. FIN 48 also sets out disclosure requirements to enhance transparency of an entity’s tax reserves. The Company will adopt this Interpretation as of January 1, 2007. The impact from adoption has not been determined.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, (“SFAS 158”). Under SFAS 158, the company must recognize a net liability or asset to report the funded status of their defined benefit pension and other postretirement benefit plans on their balance sheets. The effective date of the recognition and disclosure provisions for the company is as of December 15, 2006. The adoption of SAB 108 did not have a material impact on the consolidated financial statements.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (“SAB 108”). SAB 108 was issued to provide interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The provisions of SAB 108 are effective for the Company for its December 31, 2006 year-end. The adoption of SAB 108 did not have a material impact on the Company’s consolidated financial statements.

In February 2007, the FASB issued SFAS No 159, The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No 115 (“SFAS 159”) SFAS 159 allows measurement at fair value of eligible financial assets and liabilities that are not otherwise measured at fair value. If the fair value option for an eligible item is elected, unrealized gains and losses for that item shall be reported in current earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements designed to draw comparison between the different measurement attributes the Company elects for similar types of assets and liabilities. This statement is effective for fiscal years beginning after November 15, 2007. The Company is in the process of evaluating the application of the fair value option and its effect on its financial position and results of operations.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Quantitative and Qualitative Disclosures about Market Risk

The Company has no activities in derivative financial or commodity instruments other than those recorded and disclosed in the financial statements. See note 20 of the consolidated financial statements included elsewhere in this Form 10-K. The Company’s exposure to market risks (i.e., interest rate risk, foreign currency exchange rate risk and equity price risk) through other financial instruments, including cash equivalents, accounts receivable and lines of credit, is not material.

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Market for the Registrant’s Common Stock and Related Security Holder Matters

The Company’s Class A Common Stock trades on the Nasdaq National Market under the symbol “SNFCA.” Prior to August 13, 1987, there was no active public market for the Class A and Class C Common Stock. As of March 29, 2007, the closing sales price of the Class A Common Stock was $4.79 per share. The following are the high and low market closing sales prices for the Class A Common Stock by quarter as reported by Nasdaq since January 1, 2005:

Period (Calendar Year)								Price Range
							High			Low
	2005
		First Quarter		$3.89					$2.71
		Second Quarter			3.36						2.72
			Third Quarter			3.00					2.79
		Fourth Quarter			3.64						2.82

2006
	First Quarter		$4.56			$3.14
	Second Quarter			4.73			3.81
		Third Quarter			4.16		3.71
	Fourth Quarter			5.43			3.93

2007
	First Quarter	5.95	4.65

The above sales prices have been adjusted retroactively for the effect of annual stock dividends.

The Class C Common Stock is not actively traded, although there are occasional transactions in such stock by brokerage firms. (See Note 13 to the Consolidated Financial Statements.)

SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES

Market for the Registrant’s Common Stock and Related Security Holder Matters continued

The Company has never paid a cash dividend on its Class A or Class C Common Stock. The Company currently anticipates that all of 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. A 5% stock dividend on Class A and Class C Common Stock has been paid each year from 1990 through 2006.

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, 2001 through December 31, 2006. 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 at December 31, 2001 and that all dividends were reinvested.

The comparison 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.


	12/31/01	12/31/02	12/31/03	12/31/04	12/31/05	12/31/06
SNFC	100	268	326	145	174	265
S & P 500	100	77	97	106	109	124
S & P Insurance	100	78	94	99	112	122

The graph set forth above is required by the Securities & 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.

As of December 31, 2006, there were 4,603 record holders of Class A Common Stock and 130 record holders of Class C Common Stock.