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 am pleased to report to you on the affairs of the Company for the year ended December 31, 2009, and invite you to attend the annual stockholders meeting to be held July 9, 2010, in Salt Lake City, Utah.

While Security National Financial Corporation experienced a .5% decline in revenues to $218,595,000 for 2009, its pre-tax earnings from operations increased 768% to $6,348,000. Net after tax earnings for the twelve-month period increased 556% from $575,000 in 2008 to $3,774,000 in 2009. The Company's asset base increased approximately 7% during the year to $471,000,000. This was an impressive performance in a difficult economy.There were several trends that continued in 2008 that significantly impacted our businesses. Interest rates, for one, continued their downward pressure. While this trend in general benefits our mortgage segment, it reduces investment income, thereby harming our life segment. We continue to see higher than expected credit related losses across our business lines. Monitoring and improving the credit quality of both our originated loans and our investment portfolios remains a primary concern. On a positive note regarding our mortgage business, while foreclosures have increased, once we are able to obtain possession of the subject property we are able to rent it at rates that allow profitable operations. By contrast, when a fixed income security defaults, our recovery is usually very limited.

Despite the above accomplishments, the economic environment within which we must continue to operate remains very troubled. Of course we are gratified that we have maintained our revenues and increased our profitability during 2009. However, the current low interest rate environment continues to hamper our life segment profitability and, assuming stable to moderately rising interest rates in the near future, could hamper mortgage segment profitability. Furthermore, we continue to see credit losses in both the publicly traded securities and the 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.

To compensate for the decreased investment income attributable to low interest rates, our life segment has for the past several years attacked its costs of operation. Of worthy note, we have not seen any decline in our policy persistency and new policy sales, most notably in our funeral insurance segments which have continued to increase. Despite the difficult economic choices that I am sure many of our policyholders face, they continue to make our insurance one of their priorities.

The leveling off of rates has had a detrimental effect on revenues in our mortgage segment as the refinance market has shrunk. Overall, industry margins have decreased over the last year, but we are hopeful they will stabilize at current levels. 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 operation but at some point revenue growth must take priority.

Our death-care segment performed well. We have not seen significant downward pressure on prices. At year end, we did undertake a restructure of our pre-need cemetery sales forces and we seem to be experiencing positive results.

We thank you for your continued support during these difficult times.

Annual Reports