SNFC - Security National Financial Corporation

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Shareholders

My Fellow Shareholders:

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George Quist

Founder
Chief Executive Officer
Chairman of the Board

I wish to report to you on the affairs of the Company for the year ended December 31, 2010 and invite you to attend the annual stockholders meeting to be held Friday, July 8, 2011 in Salt Lake City, Utah.

2010 is easily the most challenging year for Security National since the inception of the so-called “Great Recession”. While I understand that technically the Great Recession ended some time ago, its effects seem just now to be felt by our company, and more specifically the mortgage segment of our operations. Security National Financial Corporation experienced a $48,358,000, or 23%, decline in revenues to $168,530,000 for 2010, with 98% of that decline relating directly to mortgage operations. Our net earnings from operations decreased from $3,774,000 in 2009 to a loss of $430,000 in 2010 with again a substantial portion of that loss attributable to mortgage operations. I think it is well to keep perspective in mind while looking at our 2010 results since 2009 saw record profits at our mortgage division of over $3,000,000 after tax.

The leveling off of interest rates has had a dramatic detrimental effect on revenues and profitability in our mortgage segment as the overall mortgage market has shrunk. By some industry estimates United States mortgage originations declined 33% in 2010 from 2009, with additional shrinkage now projected for 2011 and 2012. Overall industry margins have decreased over the last year but we are hopeful they will stabilize at current levels. Credit losses continue at high levels with our current national administration’s seeming view that delinquent borrowers need not repay their loans. Credit continues to be problematical from both the borrower’s and the lender’s point of view as lending criteria tighten and secondary markets remain shallow. We continue to maintain our focus on costs of operations but at some point revenue growth must take priority. It is proving difficult to “shrink” into profitability as the size of the market has declined.

Our death care segment performed well through the first nine months of 2010, and then suffered dramatic losses at our Arizona operations in the fourth quarter. We believe we will be able to sell those unprofitable operations at a profit during the second quarter of 2010. We have retooled our pre-need sales forces in both Utah and California with Robert Quist heading our Utah sales operations and we are seeing positive results. It is instructive to remember that approximately $600,000 of the 2010 Cemetery Mortuary loss comes from depreciation on real estate owned not directly related to death care operations.

The current low interest rate environment continues to be a drag on our life segment. However, profitability significantly improved due to increased premium volume and reduced operating costs. We continue to see credit losses in both publicly traded securities and residential mortgage sectors but hope that the worst of such losses are behind us. Such losses have been extremely difficult to accurately anticipate and predict. Of worthy note we have not seen any appreciable decline in our policy persistency and new policy sales have continued at traditional levels. Despite the difficult economic choices that I am sure many of our policyholders face, they continue to make our insurance one of their priorities.

We thank you for your continued support as we work to restore and improve profitability.

Annual Reports