UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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


THE
SECURITIES EXCHANGE ACT OF 1934


For
the quarter ended June 30, 2008, or





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


OF
THE SECURITIES EXCHANGE ACT OF 1934


For
the Transition Period from  _____ to ______





Commission
file number:  0-9341





SECURITY
NATIONAL FINANCIAL
CORPORATION


(Exact
name of registrant as specified in its charter)





UTAH
            87-0345941(State
      or other jurisdiction of
              incorporation
      or organization)
            (I.R.S.
      Employer
              Identification
      No.)





5300
      South 360 West, Suite 250 Salt Lake City, Utah
            84123(Address
      of principal executive office)
            (Zip
      Code)Registrant’s
      telephone number, including area code:
            (801)
      264-1060





Securities
registered pursuant to Section 12(b) of the Act:  None





Securities
registered pursuant to Section 12(g) of the Act:





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





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition
of  "accelerated filer and large accelerated filer" in Rule 12b-2 of
the Securities Exchange Act of 1934.  (Check one)




Larger
      accelerated filer  [   ]
            Accelerated
      filer  [   ]
            Non-accelerated
      filer  [ X ]





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act of 1934):YesNo  [x]





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





Class A Common Stock, $2.00 par
      value
            
            7,889,180Title
      of Class
            
            Number
      of Shares Outstanding as of July 31, 2008Class C Common Stock,
      $.20 par
      value
            
            8,492,392Title
      of Class
            
            Number
      of Shares Outstanding as of July 31,
2008















1





SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES


FORM
10-Q





QUARTER
ENDED JUNE 30, 2008





TABLE
OF CONTENTS








PART
I - FINANCIAL INFORMATION







Item
      1
            Financial
      Statements
            Page No.Condensed
      Consolidated Balance Sheets June 30, 2008and
      December 31, 2007 (unaudited)
            3-4Condensed
      Consolidated Statements of Earnings for theThree
      and Six Months ended June 30, 2008 and 2007 (unaudited)
            5Condensed
      Consolidated Statements of Cash Flows for theSix
      Months ended June 30, 2008 and 2007 (unaudited)
            6Notes
      to Condensed Consolidated Financial Statements (unaudited)
            7-16Item 2
            Management’s
      Discussion and Analysis of Financial Conditionand
      Results of Operations
            16-25Item
      3
            Quantitative
      and Qualitative Disclosures about Market Risk
            25Item
      4
            Controls
      and Procedures
            25PART
      II - OTHER INFORMATIONOther
      Information
            25-30Signature
      Page
            31Certifications
            32-34








2





SECURITY
NATIONAL FINANCIAL CORPORATION


AND
SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Unaudited)




June
      30,
              
              
              December
      31,Assets
              
              2008
              
              
              2007Investments:Fixed
      maturity securities, held to maturity, at amortized cost
              
              $
              104,778,670
              
              
              $
              116,896,016Fixed
      maturity securities, available for sale, at estimated fair
      value
              
              
              2,247,533
              
              
              
              2,880,920Equity
      securities, available for sale, at estimated fair value
              
              
              5,376,761
              
              
              
              5,900,292Mortgage
      loans on real estate and construction loans,net
      of allowances for losses
              
              
              136,267,068
              
              
              
              92,884,055Real
      estate, net of accumulated depreciation
              
              
              10,984,579
              
              
              
              7,946,304Policy,
      student and other loans net, of allowancesfor
      doubtful accounts
              
              
              17,097,034
              
              
              
              16,860,874Short-term
      investments
              
              
              8,902,339
              
              
              
              5,337,367Accrued
      investment income
              
              
              3,016,616
              
              
              
              3,032,285Total
      investments
              
              
              288,670,600
              
              
              
              251,738,113Cash
      and cash equivalents
              
              
              22,991,876
              
              
              
              5,203,060Mortgage
      loans sold to investors
              
              
              9,659,907
              
              
              
              66,700,694Receivables,
      net
              
              
              14,349,188
              
              
              
              13,743,682Restricted
      assets of cemeteries and mortuaries
              
              
              5,876,053
              
              
              
              5,711,054Cemetery
      perpetual care trust investments
              
              
              1,681,098
              
              
              
              1,604,600Receivable
      from reinsurers
              
              
              763,256
              
              
              
              746,336Cemetery
      land and improvements
              
              
              10,311,865
              
              
              
              9,760,041Deferred
      policy and pre-need contract acquisition costs
              
              
              32,232,270
              
              
              
              30,786,229Property
      and equipment, net
              
              
              14,449,080
              
              
              
              14,828,699Value
      of business acquired
              
              
              11,254,562
              
              
              
              11,686,080Goodwill
              
              
              1,028,026
              
              
              
              1,075,039Other
              
              
              4,355,462
              
              
              
              4,579,018Total
      Assets
              
              $
              417,623,243
              
              
              $
              418,162,645


See
accompanying notes to condensed consolidated financial statements.





3





SECURITY
NATIONAL FINANCIAL CORPORATION


AND
SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS (Continued)


(Unaudited)




June
      30,
              
              
              December
      312008
              
              
              2007Liabilities
      and Stockholder's EquityLiabilitiesFuture
      life, annuity, and other benefits
              
              $
              299,631,068
              
              
              $
              296,068,767Unearned
      premium reserve
              
              
              5,044,073
              
              
              
              4,995,664Bank
      loans payable
              
              
              4,908,453
              
              
              
              12,552,666Notes
      and contracts payable
              
              
              582,441
              
              
              
              818,810Deferred
      pre-need cemetery and mortuary contract revenues
              
              
              13,030,893
              
              
              
              12,643,199Accounts
      payable
              
              
              2,101,446
              
              
              
              1,833,188Other
      liabilities and accrued expenses
              
              
              12,378,878
              
              
              
              14,812,845Income
      taxes
              
              
              17,918,784
              
              
              
              16,179,596Total
      liabilities
              
              
              355,596,036
              
              
              
              359,904,735Non-Controlling
      Interest in Perpetual Care Trusts
              
              
              2,542,289
              
              
              
              2,473,758Stockholders'
      EquityCommon
      Stock:Class
      A:  common stock, $2.00 par value; 20,000,000
    sharesauthorized;
      issued 7,889,180 shares in 2008 and 7,885,268 shares in
    2007
              
              
              15,778,360
              
              
              
              15,770,458Class
      B: non-voting common stock, $1.00 par value;5,000,000
      shares authorized; none issued or outstanding
              
              
              -
              
              
              
              -Class
      C:  convertible common stock, $0.20 par value;15,000,000
      shares authorized; issued 8,492,392 shares in 2008and
      8,530,699 in 2007
              
              
              1,698,478
              
              
              
              1,706,140Additional
      paid-in capital
              
              
              17,878,290
              
              
              
              17,737,172Accumulated
      other comprehensive income and other items, net of taxes
              
              
              1,651,392
              
              
              
              1,596,791Retained
      earnings
              
              
              24,579,795
              
              
              
              21,104,156Treasury
      stock at cost; 1,069,470 Class A shares in 2008 and1,104,484
      Class A shares in 2007
              
              
              (2,101,397
              )
              
              
              (2,130,565
              )Total
      stockholders' equity
              
              
              59,484,918
              
              
              
              55,784,152Total
      Liability and Stockholders' Equity
              
              $
              417,623,243
              
              
              $
              418,162,645





See
accompanying notes to condensed consolidated financial statements.





4





SECURITY
NATIONAL FINANCIAL CORPORATION


AND
SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS


(Unaudited)




Three
      Months Ended June 30,
              
              
              Six
      Months Ended June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Revenues:Insurance
      premiums and other considerations
              
              $
              9,114,934
              
              
              $
              7,906,334
              
              
              $
              17,850,532
              
              
              $
              15,868,609Net
      investment income
              
              
              7,548,332
              
              
              
              9,009,038
              
              
              
              14,752,582
              
              
              
              16,952,496Net
      mortuary and cemetery sales
              
              
              3,391,243
              
              
              
              3,434,182
              
              
              
              6,981,238
              
              
              
              6,945,119Realized
      gains (losses) on investments and other assets
              
              
              17,252
              
              
              
              758,199
              
              
              
              40,169
              
              
              
              736,668Mortgage
      fee income
              
              
              40,106,305
              
              
              
              33,079,231
              
              
              
              73,595,595
              
              
              
              62,601,118Other
              
              
              224,129
              
              
              
              128,904
              
              
              
              403,579
              
              
              
              258,030Total
      revenues
              
              
              60,402,195
              
              
              
              54,315,888
              
              
              
              113,623,695
              
              
              
              103,362,040Benefits
      and expensesDeath
      benefits
              
              
              4,341,123
              
              
              
              4,081,699
              
              
              
              9,137,986
              
              
              
              8,173,978Surrenders
      and other policy benefits
              
              
              350,874
              
              
              
              463,580
              
              
              
              972,145
              
              
              
              1,072,202Increase
      in future policy benefits
              
              
              3,686,400
              
              
              
              2,930,517
              
              
              
              6,763,257
              
              
              
              5,673,985Amortization
      of deferred policy and pre-needacquisition
      costs and value of business acquired
              
              
              1,264,612
              
              
              
              1,362,645
              
              
              
              2,412,983
              
              
              
              2,723,485Selling
      general and administrative expenses:Commissions
              
              
              26,926,585
              
              
              
              24,855,478
              
              
              
              49,662,971
              
              
              
              47,295,202Salaries
              
              
              6,649,609
              
              
              
              5,901,947
              
              
              
              12,915,438
              
              
              
              11,686,845Other
              
              
              11,515,070
              
              
              
              8,538,985
              
              
              
              21,277,760
              
              
              
              15,746,867Interest
      expense
              
              
              1,952,591
              
              
              
              4,158,004
              
              
              
              4,144,076
              
              
              
              7,257,325Cost
      of goods and services sold-mortuaries
      and cemeteries
              
              
              628,083
              
              
              
              663,183
              
              
              
              1,304,896
              
              
              
              1,314,923Total
      benefits and expenses
              
              
              57,314,947
              
              
              
              52,956,038
              
              
              
              108,591,512
              
              
              
              100,944,812Earning
      before income taxes
              
              
              3,087,248
              
              
              
              1,359,850
              
              
              
              5,032,183
              
              
              
              2,417,228Income
      tax expense
              
              
              (986,615
              )
              
              
              (328,822
              )
              
              
              (1,556,094
              )
              
              
              (641,659
              )Net
      earnings
              
              $
              2,100,633
              
              
              $
              1,031,028
              
              
              $
              3,476,089
              
              
              $
              1,775,569Net
      earnings per Class A Equivalentcommon
      share (1)
              
              $
              0.27
              
              
              $
              0.14
              
              
              $
              0.45
              
              
              $
              0.24Net
      earnings per Class A Equivalentcommon
      share-assuming dilution (1)
              
              $
              0.27
              
              
              $
              0.13
              
              
              $
              0.45
              
              
              $
              0.23Weighted-average
      Class A equivalent commonshare
      outstanding (1)
              
              
              7,658,943
              
              
              
              7,465,526
              
              
              
              7,652,661
              
              
              
              7,463,277Weighted-average
      Class A equivalent commonshares
      outstanding assuming-dilution (1)
              
              
              7,734,590
              
              
              
              7,737,444
              
              
              
              7,739,747
              
              
              
              7,722,412
  (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.





See
accompanying notes to condensed consolidated financial statements.





5





SECURITY
NATIONAL FINANCIAL CORPORATION


AND
SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)




Six
      Months Ended June 30,2008
              
              
              2007Cash
      flows from operating activities:Net
      cash provided by (used in) operating activities
              
              $
              69,090,748
              
              
              $
              (16,613,660
              )Cash
      flows from investing activities:Securities
      held to maturity:Purchase-fixed
      maturity securities
              
              
              (2,174,222
              )
              
              
              (2,026,486
              )Calls
      and maturities - fixed maturity securities
              
              
              15,027,422
              
              
              
              5,756,249Securities
      available for sale:Purchase-fixed
      maturity securities
              
              
              (14,699
              )
              
              
              (76,974
              )Sales-equity
      securities
              
              
              605,059
              
              
              
              789,494Purchase
      of short-term investments
              
              
              (21,403,313
              )
              
              
              (10,817,321
              )Sales
      of short-term investments
              
              
              17,838,341
              
              
              
              8,395,280Purchase
      of restricted assets
              
              
              (203,619
              )
              
              
              (243,851
              )Changes
      in assets for perpetual care trusts
              
              
              (107,256
              )
              
              
              (89,321
              )Amount
      received for perpetual care trusts
              
              
              68,531
              
              
              
              74,019Mortgage,
      policy, and other loans made
              
              
              (68,267,113
              )
              
              
              (32,831,713
              )Payments
      received for mortgage, policy and other loans
              
              
              23,154,837
              
              
              
              47,986,468Purchase
      of property and equipment
              
              
              (737,074
              )
              
              
              (1,981,495
              )Disposal
      of property and equipment
              
              
              81,352
              
              
              
              730,242Purchase
      of real estate
              
              
              (3,682,210
              )
              
              
              (1,219,465
              )Sale
      of real estate
              
              
              446,596
              
              
              
              1,195,183Net
      cash provided by (used in) investing activities
              
              
              (39,367,368
              )
              
              
              15,640,309Cash
      flows from financing activities:Annuity
      contract receipts
              
              
              6,627,935
              
              
              
              2,954,809Annuity
      contract withdrawals
              
              
              (10,812,757
              )
              
              
              (6,136,505
              )Stock
      Options Excercised
              
              
              126,581
              
              
              
              -Sale
      of treasury stock
              
              
              23,376
              
              
              
              -Repayment
      of bank loans on notes and contracts
              
              
              (10,447,759
              )
              
              
              (787,138
              )Proceeds
      from borrowing on bank loans
              
              
              2,548,060
              
              
              
              1,826,400Net
      cash used in financing activities
              
              
              (11,934,564
              )
              
              
              (2,142,434
              )Net
      cash in cash and cash equivalents
              
              
              17,788,816
              
              
              
              (3,115,785
              )Cash
      and cash equivalents at beginning of period
              
              
              5,203,060
              
              
              
              10,376,585Cash
      and cash equivalents at end of period
              
              $
              22,991,876
              
              
              $
              7,260,800
  See
accompanying notes to condensed consolidated financial statements.





6





SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES


Notes to
Condensed Consolidated Financial Statements


June 30,
2008 (Unaudited)





1.       Basis of
Presentation





The
accompanying unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q
and Articles 8 and 10 of Regulation S-X. Accordingly, they do not include all of
the information and disclosures required by accounting principles generally
accepted in the United States of America for complete financial statements.
These financial statements should be read in conjunction with the consolidated
financial statements of the Company and notes thereto for the year ended
December 31, 2007, included in the Company’s Annual Report on Form 10-K (file
number 0-9341). In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended June 30,
2008 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2008.





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





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





Certain
2007 amounts have been reclassified to bring them into conformity with the 2008
presentation.





2.      Recent Accounting
Pronouncements





In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and
SFAS No. 160, Non-controlling
Interests in Consolidated Financial Statements. SFAS No. 141(R) requires
an acquirer to measure the identifiable assets acquired, the liabilities assumed
and any non-controlling interest in the acquiree at their fair values on the
acquisition date, with goodwill being the excess value over the net identifiable
assets acquired. SAFS No. 160 clarifies that a non-controlling interest in a
subsidiary should be reported as equity in the consolidated financial
statements, consolidated net income should be adjusted to include the net income
attributed to the non-controlling interest and consolidated comprehensive income
shall be adjusted to include the comprehensive income attributed to the
non-controlling interest. The calculation of earnings per share will continue to
be based on income amounts attributable to the parent. SFAS No. 141(R) and SFAS
No. 160 are effective for financial statements issued for fiscal years beginning
after December 15, 2008. Early adoption is prohibited. The Company has not yet
determined the effect on our consolidated financial statements upon adoption of
SFAS No. 141(R) or SFAS No. 160.





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities.  SFAS No. 161 amends SFAS
No. 133, Accounting for
Derivative Instruments and Hedging Activities to require enhanced
disclosures concerning the manner in which an entity uses derivatives (and the
reasons it uses them),  the manner in which derivatives and related
hedged items are accounted for under SFAS No. 133 and interpretations thereof,
and the effects that derivatives and related hedged items have on an entity's
financial position, financial performance, and cash flows.  SFAS No.
161 is effective for financial statements of fiscal years and interim periods
beginning after November 15, 2008.  The Company has not yet determined
the effects on its consolidated financial statements, if any, that may result
upon the adoption of SFAS 161.





During
2008, the Company determined not to elect the fair value option under SFAS No.
159, The Fair Value Option for
Financial Assets and Financial Liabilities, and continues to record
unrealized gains and losses in accumulated other comprehensive
income.





7





SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES


Notes to
Condensed Consolidated Financial Statements


June 30,
2008 (Unaudited)





3.       Comprehensive
Income





For the
three months ended June 30, 2008 and 2007, total comprehensive income amounted
to $738,984 and $1,134,604, respectively. This decrease of $395,620 was
primarily the result of an increase in net income of $1,069,605, a decrease in
derivatives of $1,264,909, and a decrease in unrealized gains and losses in
securities available for sale of $200,316.





For the
six months ended June 30, 2008 and 2007, total comprehensive income amounted to
$3,530,690 and $2,440,663, respectively. This increase of $1,090,027 was
primarily the result of an increase in net income of $1,700,520, an increase in
derivatives of $364,867, and a decrease in unrealized gains and losses in
securities available for sale of $975,360.





4.       Stock-Based
Compensation





The
Company has four fixed option plans (the “1993 Plan,” the “2000 Plan”, the “2003
Plan” and the “2006 Plan”). Compensation cost of $118,113 and $-0- has been
recognized for these plans for the quarters ended June 30, 2008 and 2007,
respectively.  Compensation cost of $118,113 and $-0- has been
recognized for these plans for six months ended June 30, 2008 and 2007,
respectively.





Options
to purchase 211,000 shares of the Company’s common stock were granted March 31,
2008.  The fair value relating to stock-based compensation is $453,650
and will be expensed as options become available to exercise at the rate of 25%
at the end of each quarter over the twelve months ended March 31,
2009.





The
weighted-average fair value of each option granted during the six months ended
June 30, 2008 under the 2003 Plan and 2006 Plan is estimated at $2.15 per share
as of the grant date using the Black-Scholes Option Pricing Model with the
following assumptions: dividend yield of 5%, volatility of 40%, risk-free
interest of  3.4%, and an expected life of ten years.





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.







8





SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES


Notes to
Condensed Consolidated Financial Statements


June 30,
2008 (Unaudited)





5.       Earnings Per
Share





The basic
and diluted earnings per share amounts were calculated as follows:




Three
      Months Ended June 30,2008
              
              
              2007Numerator:Net
      earnings
              
              $
              2,100,633
              
              
              $
              1,031,028Denominator:Basic
      weighted-average shares outstanding
              
              
              7,658,943
              
              
              
              7,465,526Effect
      of dilutive securities:Employee
      stock options
              
              
              75,647
              
              
              
              257,075Employee
      deferred compensation rights
              
              
              -
              
              
              
              14,843Dilutive
      potential common shares
              
              
              75,647
              
              
              
              271,918Diluted
      weighted-average shares outstanding
              
              
              7,734,590
              
              
              
              7,737,444Basic
      earnings per share
              
              $
              0.27
              
              
              $
              0.14Diluted
      earnings per share
              
              $
              0.27
              
              
              $
              0.13
  Earnings
per share amounts have been adjusted for the effect of annual stock
dividends.




Six
      Months Ended June 30,2008
              
              
              2007Numerator:Net
      income
              
              $
              3,476,089
              
              
              $
              1,775,569Denominator:Basic
      weighted-average shares outstanding
              
              
              7,652,661
              
              
              
              7,463,277Effect
      of dilutive securities:Employee
      stock options
              
              
              87,086
              
              
              
              244,292Employee
      deferred compensation rights
              
              
              -
              
              
              
              14,843Dilutive
      potential common shares
              
              
              87,086
              
              
              
              259,135Diluted
      weighted-average shares outstanding
              
              
              7,739,747
              
              
              
              7,722,412Basic
      earnings per share
              
              $
              0.45
              
              
              $
              0.24Diluted
      earnings per share
              
              $
              0.45
              
              
              $
              0.23


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





9





SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES


Notes to
Condensed Consolidated Financial Statements


June 30,
2008 (Unaudited)





6.        Business Segment




Cemetery/
              
              
              
              
              
              ReconcilingLife
      Insurance
              
              
              Mortuary
              
              
              Mortgage
              
              
              Items
              
              
              ConsolidatedFor
      the Three Months EndedJune 30, 2008Revenues
      fromexternal customers
              
              $
              13,115,350
              
              
              $
              3,724,913
              
              
              $
              43,561,932
              
              
              $
              -
              
              
              $
              60,402,195Intersegment
      revenues
              
              
              1,349,995
              
              
              
              23,001
              
              
              
              91,197
              
              
              
              (1,464,193
              )
              
              
              -Segment
      profit (loss) before income taxes
              
              
              547,131
              
              
              
              (15,299
              )
              
              
              2,555,416
              
              
              
              -
              
              
              
              3,087,248For
      the Three Months EndedJune 30, 2007Revenues
      from external customers
              
              $
              11,428,079
              
              
              $
              4,347,795
              
              
              $
              38,540,014
              
              
              $
              -
              
              
              $
              54,315,888Intersegment
      revenues
              
              
              1,767,705
              
              
              
              23,001
              
              
              
              122,184
              
              
              
              (1,912,890
              )
              
              
              -Segment
      profit (loss)before income taxes
              
              
              1,039,469
              
              
              
              588,153
              
              
              
              (267,772
              )
              
              
              -
              
              
              
              1,359,850For
      the Six Months EndedJune 30, 2008Revenues
      from external customers
              
              $
              25,944,742
              
              
              $
              7,592,785
              
              
              $
              80,086,168
              
              
              $
              -
              
              
              $
              113,623,695Intersegment
      revenues
              
              
              2,977,824
              
              
              
              46,002
              
              
              
              189,187
              
              
              
              (3,213,013
              )
              
              
              -Segment
      profit (loss) before income taxes
              
              
              962,353
              
              
              
              364,108
              
              
              
              3,705,722
              
              
              
              -
              
              
              
              5,032,183Identifiable
      Assets
              
              
              393,089,113
              
              
              
              63,266,862
              
              
              
              27,116,283
              
              
              
              (65,849,015
              )
              
              
              417,623,243For
      the Six Months EndedJune 30,
      2007Revenues
      fromexternal customers
              
              $
              23,227,261
              
              
              $
              8,127,011
              
              
              $
              72,007,768
              
              
              $
              -
              
              
              $
              103,362,040Intersegment
      revenues
              
              
              3,105,062
              
              
              
              46,002
              
              
              
              242,344
              
              
              
              (3,393,408
              )
              
              
              -Segment
      profit (loss) before income taxes
              
              
              1,645,114
              
              
              
              1,018,730
              
              
              
              (246,616
              )
              
              
              -
              
              
              
              2,417,228Identifiable
      Assets
              
              
              359,542,165
              
              
              
              58,490,187
              
              
              
              22,721,012
              
              
              
              (55,169,490
              )
              
              
              385,583,874





10





SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES


Notes to
Condensed Consolidated Financial Statements


June 30,
2008, (Unaudited)








7.  Fair Value of Financial
Assets and Financial Liabilities





Financial
Accounting Standards Board (“FASB”) Statement No. 157, Fair Value Measurements(“SFAS No. 157”) is effective for fiscal years beginning after
November 15, 2007. The Company adopted the provisions of SFAS No. 157
as of January 1, 2008 for financial assets and financial liabilities that
are measured at fair value. SFAS No. 157:




·
            Defines
      fair value as the price that would be received to sell an asset or paid to
      transfer a liability in an orderly transaction between market participants
      at the measurement date, and establishes a framework for measuring fair
      value;





·
            Establishes
      a three-level hierarchy for fair value measurements based upon the
      transparency of inputs to the valuation as of the measurement
      date;





·
            Expands
      disclosures about financial instruments measured at fair
      value.








Financial
assets and financial liabilities recorded on the Condensed Consolidated Balance
Sheet at fair value are categorized based on the reliability of inputs to the
valuation techniques as follows:




Level 1:  
Financial assets and financial liabilities whose values are based on unadjusted
quoted prices for identical assets or liabilities in an active market that we
can access.





Level 2:Financial assets and financial liabilities whose values are based
      on the following:




a) Quoted
prices for similar assets or liabilities in active
markets;


b)   Quoted
prices for identical or similar assets or liabilities in non-active markets;
or
 c) Valuation models whose inputs are observable, directly or indirectly, for
substantially the full  term  of the asset or
liability





Level
3:   Financial assets and financial liabilities whose
values are based on prices or valuation techniques that require inputs that are
both unobservable and significant to the overall fair value measurement. These
inputs may reflect our estimates of the assumptions that market participants
would use in valuing the financial assets and financial
liabilities.




We utilize a combination of
third party valuation service providers, brokers, and internal valuation models
to determine fair value.




The
following tables summarize Level 1, 2 and 3 financial assets and financial
liabilities by their classification in the Condensed Consolidated Statement of
Balance Sheet at June 30, 2008.







11





SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES


Notes to
Condensed Consolidated Financial Statements


June 30,
2008 (Unaudited)





7.     
 Fair Value of
Financial Assets and FinancialLiabilities
(Continued)





Valued
      at
              
              
              Balance
      as ofamortized
              
              
              June
      30,Level
      1
              
              
              Level
      2
              
              
              Level
      3
              
              
              cost
              
              
              2008Financial
      AssetsFixed
      maturity securities
              
              $
              2,247,533
              
              
              $
              -
              
              
              $
              -
              
              
              $
              104,778,670
              
              
              $
              107,026,203Equity
      securities
              
              
              5,376,761
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,376,761Mortgage
      loans
              
              
              -
              
              
              
              -
              
              
              
              6,301,897
              
              
              
              129,965,171
              
              
              
              136,267,068Short-term
      investments
              
              
              8,902,339
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              8,902,339Total
      Investment in Financial Assets
              
              
              16,526,633
              
              
              
              -
              
              
              
              6,301,897
              
              
              
              234,743,841
              
              
              
              257,572,371Mortgage loans
      sold to investors
              
              
              -
              
              
              
              -
              
              
              
              9,659,907
              
              
              
              -
              
              
              
              9,659,907Other
      assets
              
              
              -
              
              
              
              0
              
              
              
              2,620,651
              
              
              
              1,734,811
              
              
              
              4,355,462Total
      Financial Assets
              
              $
              16,526,633
              
              
              $
              -
              
              
              $
              18,582,455
              
              
              $
              236,478,652
              
              
              $
              271,587,740Financial
      LiabilitiesOther
      liabilities
              
              $
              -
              
              
              $
              -
              
              
              $
              (989,249
              )
              
              $
              (11,389,629
              )
              
              $
              (12,378,878
              )Total
      Financial Liabilities
              
              $
              -
              
              
              $
              -
              
              
              $
              (989,249
              )
              
              $
              (11,389,629
              )
              
              $
              12,378,878






Following
is a summary of changes in the condensed consolidated balance sheet line items
measured using level 3 inputs:





MortgageLoansMortgage
              
              
              Sold
      to
              
              
              Other
              
              
              OtherLoans
              
              
              Investors
              
              
              Assets
              
              
              LiabilitiesBalance
      - December 31, 2007
              
              $
              4,152,985
              
              
              $
              66,700,694
              
              
              $
              2,809,225
              
              
              $
              (2,182,109
              )Total
      Gains (Losses):Included
      in earnings
              
              
              (1,720,125
              )
              
              
              -
              
              
              
              -
              
              
              
              -Included
      in othercomprehensive income
              
              
              -
              
              
              
              -
              
              
              
              (188,574
              )
              
              
              1,192,860Purchases,
      issuances, andsettlements
              
              
              3,869,037
              
              
              
              (20,750,044
              )
              
              
              -
              
              
              
              -Transfers
              
              
              -
              
              
              
              (36,290,743
              )
              
              
              -
              
              
              
              -Balance
      - June 30, 2008
              
              $
              6,301,897
              
              
              $
              9,659,907
              
              
              $
              2,620,651
              
              
              $
              (989,249
              )






12





SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES


Notes to
Condensed Consolidated Financial Statements


June 30,
2008 (Unaudited)





7.      
Fair Value of
Financial Assets and FinancialLiabilities
(Continued)





The items
shown under level three are valued as follows:





Mortgage
loans.  Mortgage loans have been adjusted to the realizable
market value based upon appraisals from third party appraisers.





As of
June 30, 2008, the Company had $28,838,000 in unpaid principal in its long term
mortgage portfolio, which was delinquent more than 120 days.  Of this
amount $23,314,000 is in foreclosure proceedings.  The Company has not
accrued any interest income on these loans.  During the six months
ending June 30, 2008, the Company had increased its allowance for mortgage loan
losses by $1,720,000 which allowance was charged to loan loss expense and is
included in other general and administrative expenses for the
period.  The allowance for mortgage loan losses as of June 30, 2008
was $2,706,000.





Also at
June 30, 2008, the Company had foreclosed on $7,414,000 in long term mortgage
loans.  The foreclosed property is shown in real
estate.  The Company will be able to carry the foreclosed property in
Security National Life and SecurityNational Mortgage, its life and mortgage
subsidiaries, and will rent the properties until it is feasible to
sell.





In
addition to the allowance for mortgage loan losses, the Company also accrues a
monthly allowance for indemnification losses to investors of 17.5 basis points
of total production.  The amount accrued for the six months ended June
30, 2008 was $3,308,000 and is included in other general and administrative
expenses.  The reserve for indemnification losses is included in other
liabilities and, as of June 30, 2008, the balance was $2,167,000.  The
Company believes the loan loss reserves are sufficient to cover reasonably
foreseeable future loan losses and that its formula for determining the
provision for such reserves is adequate.





Mortgage loans sold to
investors.  Through the Company’s mortgage banking operations
loans have been sold to third party investors.  The value shown is the
amount due from these investors based upon the market values at the time of the
sale.  During the second quarter of 2008, the Company repurchased and
transferred $36,291,000 of mortgage loans previously sold to investors to its
long-term mortgage portfolio.





The
Company through its wholly owned subsidiary SecurityNational Mortgage Company
(“SecurityNational Mortgage”) has warehouse lines of credit with its non
affiliated warehouse lenders.  The total amount available under these
lines of credit is $450,000,000.  The terms of the lines of credit are
for one year, with interest rates ranging from 1.5% to 1.75% over the six month
LIBOR rate (3.96% to 4.21% as of June 30, 2008).  SecurityNational
Mortgage is currently in the process of renewing one of its warehouse lines that
is set to expire September 30, 2008.  The other line is a
non-committed line and has no expiration date.





Other assets and other
liabilities, 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.








13




SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
 Notes to
Condensed Consolidated Financial Statements
 June 30,
2008 (Unaudited)


Fair Value of Financial
Assets and Financial Liabilities
(Continued)




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 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.








8.      
Other Business
Activity





On
December 29, 2006, the Company, through its wholly owned subsidiary, Security
National Life Insurance Company (“Security National Life”), entered into an
agreement to sell Southern Security Life Insurance Company (“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. The transaction was subject to and
conditioned upon the subsequent approval of the transaction by the Florida
Office of Insurance Regulation, the Florida Department of Financial Services,
and the Pennsylvania Department of Insurance by an agreed upon
date.





The
transaction to sell Southern Security Life was rescinded because the regulatory
authorities did not approve the transaction as required. As a result of the
rescission of the transaction, Articles of Dissolution of Security National Life
were filed with the Florida Division of Corporations on December 24, 2007. The
filing of the Articles of Dissolution completed the liquidation of Southern
Security Life in accordance with the terms of the Agreement and Plan of Complete
Liquidation of Southern Security Life into Security National Life, which had
been approved on December 12, 2005.








14





SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES


Notes to
Condensed Consolidated Financial Statements


June 30,
2008 (Unaudited)








8.
            Other Business
      Activity (Continued)





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 previously being marketed and sold by Southern Security Life
and now marketed and sold by Security National Life. The proposed order states
that as a result of an investigation the Florida Office of Insurance Regulation
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.





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.





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 of Insurance Regulation 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 of Insurance Regulation 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 of Insurance Regulation has
with the New Success Life Program because it has received no specific
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 of
Insurance Regulation 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 of Insurance Regulation with respect to the terms of the
proposed consent order and the Florida Office of Insurance Regulation 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.




15





SECURITY
NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES


Notes to
Condensed Consolidated Financial Statements


June 30,
2008 (Unaudited)





8.
            Other Business
      Activity (Continued)





In June
2007, the Company completed the sale of the Colonial Funeral Home property to
the Utopia Station Development Corp. for $730,242, net of selling costs of
$44,758.  The Colonial Funeral Home ceased operations in July 2006 and
has been inactive since that date.  The carrying amount on the
Company's financial statements on June 20, 2007 was $148,777.  As a
result of the sale, including payment of selling expenses, the Company
recognized a gain of $581,465.  The Company received an initial
payment of $15,242, with the remaining amount due of $715,000 to be paid in a
lump sum within a year from the date of sale.





On July
16, 2007, the Company acquired all of the membership interests of C & J
Financial, LLC. The results of C & J Financial’s operations have been
included in the consolidated financial statements from July 16,
2007.





On
December 20, 2007, the Company, through its wholly owned subsidiary, Security
National Life, acquired all of the outstanding common stock of Capital Reserve
Life Insurance Company, a Missouri domiciled insurance company. The results of
Capital Reserve Life’s operations have been included in the consolidated
financial statements from December 17, 2007.





The
$2,100,000 of funds held in escrow by the Company’s law firm have been included
in the accompanying consolidated balance sheet at December 31, 2007 in
receivables with the $1,966,760 liability payable to the shareholders included
in other liabilities and accrued expenses.





The
following unaudited pro forma information has been prepared to present the
results of operations of the Company assuming the acquisitions of C & J
Financial and Capital Reserve Life had occurred at the beginning of the
year ended December 31, 2007. This pro forma information is supplemental
and does not necessarily present the operations of the Company that would have
occurred had the acquisitions occurred on that date and may not reflect the
operations that will occur in the future:


Unaudited
      Pro FormaThree
      Months Ended
              
              
              Six
      Months endedJune
      30, 2007
              
              
              June
      30, 2007Total
      revenues
              
              $
              55,308,000
              
              
              $
              105,347,000Net
      earnings
              
              $
              1,154,000
              
              
              $
              2,021,000Net
      earnings per Class A equivalent common share
              
              $
              0.15
              
              
              $
              0.27Net
      earnings per Class A equivalent common share assuming
    dilution
              
              $
              0.15
              
              
              $
              0.26





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





Overview





The
Company’s operations over the last several years generally reflect three 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.








16





Mortgage
Operations





During
the three and six months ended June 30, 2008, SecurityNational Mortgage
experienced an increase in revenues and expenses due to the increase in loan
revenue of its mortgage operations.  SecurityNational Mortgage is a
mortgage lender incorporated under the laws of the State of Utah.
SecurityNational Mortgage 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. SecurityNational Mortgage
obtains loans primarily from independent brokers and correspondents.
SecurityNational Mortgage funds the loans from internal cash flows and lines of
credit from financial institutions. SecurityNational Mortgage receives fees from
the borrowers and other secondary fees from third party investors that purchase
its loans.  SecurityNational Mortgage sells its loans to third party
investors and does not retain servicing of these loans. SecurityNational
Mortgage pays the brokers and correspondents a commission for loans that are
brokered through SecurityNational Mortgage.  SecurityNational Mortgage
originated and sold 9,790 loans ($1,889,004,000 total volume) and 10,755 loans
($1,985,066,000 total volume), for the six months ended June 30, 2008 and 2007,
respectively.





The
mortgage industry is still experiencing substantial change due to higher than
expected delinquencies from subprime loans.  The market for new
subprime loans has been substantially reduced and several mortgage companies
whose primary product was subprime mortgage originations have ceased
operations.  The Company funded $5,505,000 (0.14% of the Company’s
production) in subprime loans during the twelve months ending December 31, 2007
and has since eliminated subprime loans from its product
offerings.  The Company believes that its potential losses from
subprime loans are minimal.





The
industry problem with subprime mortgages has created a volatile secondary market
for other products, especially alternative documentation (Alt A)
loans.  Alt A loans are typically offered to qualified borrowers who
have relatively high credit scores but are not required to provide full
documentation to support personal income and assets owned. Alt A loans can have
a loan to value ratio as high as 100%. As a result of these changes, the
Company discontinued offering and is not currently offering these
loans.





During
the second quarter, the Company repurchased and transferred $36,291,000 of
mortgage loans previously sold to investors to its long term mortgage loan
portfolio.  Of this amount $14,727,000 was in Alt A
loans.  The remaining amount transferred of $21,564,000 was in
conforming mortgage loans which had been fully underwritten. The Company will
service these loans through Security National Life its life insurance
subsidiary.





Even
though market conditions have improved somewhat, the Company expects further
significant industry challenges to continue through the remainder of
2008.  Under these circumstances it is difficult to predict
profitability, if any.  Profitability may be impacted by volume
reduction, changes in margins, increased borrowing costs, and future loan
losses.  Management has taken and will continue to take a number of
actions in response to the changing market conditions.  These include
the elimination of high risk products, modification of underwriting guidelines,
closing unprofitable branch offices, obtaining new warehousing agreements at
lower interest rates, and expense reduction initiatives.





As of
June 30, 2008, the Company has $28,838,000 in unpaid principal in its long term
mortgage portfolio which is delinquent more than 120 days.  Of this
amount $23,314,000 is in foreclosure proceedings.  The Company has not
accrued any interest income on these loans.  During the six months
ending June 30, 2008, the Company has increased its allowance for mortgage
losses by $1,720,000 which allowance was charged to loan loss expense and is
included in other general and administrative expenses for the
period.  The allowance for mortgage loan losses as of June 30, 2008
was $2,706,000.





Also at
June 30, 2008, the Company has foreclosed on $7,414,000 in long term mortgage
loans.  The foreclosed property is shown in real
estate.  The Company will be able to carry the foreclosed property in
Security National Life and SecurityNational Mortgage, its life and mortgage
subsidiaries, and will rent the properties until it is feasible to
sell.





In
addition to the allowance for mortgage loans losses, the Company also accrues a
monthly allowance for indemnification losses to investors of 17.5 basis points
of total production.  The amount accrued for the six months ended June
30, 2008 was $3,308,000 and is included in other general and administrative
expenses.  The reserve for indemnification losses is included in other
liabilities and as of June 30, 2008 the balance was $2,167,000.  The
Company believes the loan loss reserves are sufficient to cover reasonably
foreseeable future loan losses and that its formula for determining the
provision for such reserves is adequate.





SecurityNational
Mortgage has warehouse lines of credit with its non affiliated warehouse
lenders.  The total amount available under these lines of credit is
$450,000,000.  The terms of the lines of credit are for one year, with
interest rates ranging from 1.5% to 1.75% over the six month LIBOR rate (3.96%
to 4.21% as of June 30, 2008).  SecurityNational Mortgage is currently
in the process of renewing one of its warehouse lines that is set to expire
September 30, 2008.  The other line is a non-committed line and has no
expiration date.




17





Results
of Operations





Three
Months Ended June 30, 2008 Compared to Three Months Ended June 30,
2007





Total
revenues increased by $6,086,000, or 11.2%, to $60,402,000 for the three months
ended June 30, 2008, from $54,316,000 for the three months ended June 30,
2007.  Contributing to this increase in total revenues was a
$7,027,000 increase in mortgage fee income, a $1,209,000 increase in insurance
premiums and other considerations, and a $95,000 increase in other
revenues.  This increase in total revenues was partially offset by a
$1,461,000 decrease in investment income, a $43,000 decrease in net mortuary and
cemetery sales and a $741,000 decrease in realized gains on investments and
other assets.





Insurance
premiums and other considerations increased by $1,209,000, or 15.3%, to
$9,115,000 for the three months ended June 30, 2008, from $7,906,000 for the
comparable period in 2007.  This increase was primarily due to the
additional premiums realized from new insurance sales and from the acquisition
of Capital Reserve Life Insurance Company on December 20, 2007.





Net
investment income decreased by $1,461,000, or 16.2%, to $7,548,000 for the three
months ended June 30, 2008, from $9,009,000 for the comparable period in
2007.  This reduction was primarily attributable to decreased interest
income from mortgage loans on real estate but partially offset by an increase in
investment income from the purchase of C&J Financial and Capital Reserve
Life.





Net
mortuary and cemetery sales decreased by $43,000, or 1.3%, to $3,391,000 for the
three months ended June 30, 2008, from $3,434,000 for the comparable period in
2007.  This reduction was due to a decrease in at-need sales in the
cemetery and mortuary operations and a decrease in pre-need land sales of burial
spaces in the cemetery operations.





Realized
gains on investments and other assets decreased by $741,000, or 97.8% to $17,000
for the three months ended June 30, 2008 from $758,000 for the comparable period
in 2007.  This was primarily due to a gain of $581,000 from the sale
of Colonial Funeral Home in Salt Lake City during 2007.





Mortgage
fee income increased by $7,027,000, or 21.2%, to $40,106,000 for the three
months ended June 30, 2008, from $33,079,000 for the comparable period in
2007.  This increase was primarily attributable to an increase in loan
fees charged to originate loans, and secondary gain during the second quarter of
2008 on loan production at existing offices.





Other
revenues increased by $95,000, or 73.6% to $224,000, for the three months ended
June 30, 2008 from $129,000 for the comparable period in 2007.  This
increase was due to increases in several small income items throughout the
Company's operations.





Total
benefits and expenses were $57,315,000, or 94.9% of total revenues, for the
three months ended June 30, 2008, as compared to $52,956,000, or 97.5% of total
revenues, for the comparable period in 2007.  This increase primarily
resulted from increased loan costs at SecurityNational Mortgage Company and
increases in the loan loss reserve and loan allowance balances.





Death
benefits, surrenders and other policy benefits, and increase in future policy
benefits increased by an aggregate of $903,000, or 12.1%, to $8,378,000 for the
three months ended June 30, 2008, from $7,475,000 for the comparable period in
2007.  This increase was primarily due to increased insurance
business, increased reserves for policyholder benefits and death claims, and
from the acquisition of Capital Reserve Life on December 20, 2007.





Amortization
of deferred policy and pre-need acquisition costs and value of business acquired
decreased by $98,000, or 7.2%, to $1,265,000 for the three months ended June 30,
2008, from $1,363,000 for the comparable period in 2007. This decrease was
primarily due to a decrease in deferred acquisition costs associated with
interest sensitive products.








18





General
and administrative expenses increased by $5,795,000, or 14.7%, to $45,091,000
for the three months ended June 30, 2008, from $39,296,000 for the comparable
period in 2007.  This increase primarily resulted from an increase in
commission expenses of $2,071,000, from $24,856,000 in the second quarter of
2007 to $26,927,000 in the second quarter of 2008, due to increased mortgage
loan origination costs made by SecurityNational Mortgage and increased life
insurance sales during the second quarter of 2008.  Salaries increased
by $748,000 from $5,902,000 in 2007 to $6,650,000 in 2008, primarily due to
merit increases in salaries of existing employees, and an increase in the number
of employees necessitated by the Company's expanding business
operations.  Other expenses increased by $2,976,000 from $8,539,000 in
2007 to $11,515,000 in 2008.  The increase in other expenses primarily
resulted from increased costs at SecurityNational Mortgage Company and increases
in the loan reserve and loan allowances balance.





Interest
expense decreased by $2,205,000, or 53.0%, to $1,953,000 for the three months
ended June 30, 2008, from $4,158,000 for the comparable period in
2007.  This reduction was primarily due to decreased warehouse lines
of credit required for a reduced number of warehoused mortgage loans by
SecurityNational Mortgage.





Cost of
goods and services sold of the mortuaries and cemeteries decreased by $35,000,
or 5.3%, to $628,000 for the three months ended June 30, 2008, from $663,000 for
the comparable period in 2007.  This increase was primarily due to
decreased at-need cemetery sales.





Six
Months Ended June 30, 2008 Compared to Six Months Ended June 30,
2007





Total
revenues increased by $10,262,000, or 9.9%, to $113,624,000 for the six months
ended June 30, 2008, from $103,362,000 for the six months ended June 30, 2007.
Contributing to this increase in total revenues was a $10,994,000 increase in
mortgage fee income, a $1,982,000 increase in insurance premiums and other
considerations, a $36,000 increase in net mortuary and cemetery sales, and a
$146,000 increase in other revenues.  This increase in total revenues
was partially offset by a $2,200,000 decrease in investment income and a
$696,000 decrease in realized gains on investments and other
assets.





Insurance
premiums and other considerations increased by $1,982,000, or 12.5%, to
$17,851,000 for the six months ended June 30, 2007, from $15,869,000 for the
comparable period in 2007. This increase was primarily due to the additional
insurance premiums realized from new insurance sales and from the acquisition of
Capital Reserve Life Insurance Company on December 20, 2007.





Net
investment income decreased by $2,200,000, or 13.0%, to $14,753,000 for the six
months ended June 30, 2008, from $16,953,000 for the comparable period in 2007.
This reduction was primarily attributable to decreased interest income from
mortgage loans on real estate but partially offset by an increase in investment
income from the purchase of C & J Financial and Capital Reserve
Life.





Net
mortuary and cemetery sales increased by $36,000, or 0.5%, to $6,981,000 for the
six months ended June 30, 2008, from $6,945,000 for the comparable period in
2007. This increase was due to increased at-need sales in the cemetery and
mortuary operations and decreased pre-need land sales of burial spaces in
cemetery operations.





Realized
gains on investments and other assets decreased by $696,000, or 94.6%, to
$40,000 for the six months ended June 30, 2008 from $736,000 for the comparable
period in 2007.  This was primarily due to a one time gain of $581,000
from the sale of Colonial Funeral Home in Salt Lake City during
2007.





Mortgage
fee income increased by $10,994,000, or 17.6%, to $73,595,000 for the six months
ended June 30, 2008, from $62,601,000 for the comparable period in 2007. This
increase was primarily attributable to an increase in the loan fees charged to
originate loans, and secondary gain during the first six months of 2008 on loan
production at existing offices.





Other
revenues increased by $146,000, or 56.6%, to $404,000 for the six months ended
June 30, 2008 from $258,000 for the comparable period in 2007. This increase was
due to increases in several small income items throughout the Company’s
operations.




19





Total
benefits and expenses were $108,592,000, or 95.6% of total revenues, for the six
months ended June 30, 2008, as compared to $100,945,000, or 97.7% of total
revenues, for the comparable period in 2007. This increase primarily resulted
from increased loan costs at SecurityNational Mortgage Company and increases in
the loan loss reserve and loan allowance balances.





Death
benefits, surrenders and other policy benefits, and increase in future policy
benefits increased by an aggregate of $1,953,000, or 13.1%, to $16,873,000 for
the six months ended June 30, 2008, from $14,920,000 for the comparable period
in 2007. This increase was primarily due to increased insurance business,
increased reserves for policyholder benefits and death claims, and from the
acquisition of Capital Reserve Life on December 20, 2007.





Amortization
of deferred policy and pre-need acquisition costs and value of business acquired
decreased by $311,000, or 11.4%, to $2,413,000 for the six months ended June 30,
2008, from $2,724,000 for the comparable period in 2007. This decrease was
primarily due to a decrease in deferred acquisition costs associated with
interest-sensitive products.





General
and administrative expenses increased by $9,127,000, or 12.2%, to $83,856,000
for the six months ended June 30, 2008, from $74,729,000 for the comparable
period in 2007. This increase primarily resulted from an increase in commission
expenses by $2,368,000 from $47,295,000 in 2007 to $49,663,000 in 2008, due to
an increased loan origination costs made by SecurityNational Mortgage and
increased life insurance sales during the first six months of 2008. Salaries
increased by $1,229,000 from $11,687,000 in 2007 to $12,916,000 in 2008,
primarily due to merit increases in salaries of existing employees, and an
increase in the number of employees necessitated by the Company’s expanding
business operations. Other expenses increased by $5,531,000 from $15,747,00 in
2007 to $21,278,000 in 2008. The increase in other expenses primarily resulted
from increased costs at SecurityNational Mortgage Company and increases in the
loan reserve and loan allowance balance.





Interest
expense decreased by $3,113,000, or 42.9%, to $4,144,000 for the six months
ended June 30, 2008, from $7,257,000 for the comparable period in 2007. This
reduction was primarily from decreased warehouse lines of credit required for a
reduced number of warehoused mortgage loans by SecurityNational Mortgage
Company.





Cost of
goods and services sold by the mortuaries and cemeteries decreased by $10,000,
or 0.8%, to $1,305,000 for the six months ended June 30, 2008, from $1,315,000
for the comparable period in 2007. This decrease was primarily due to decreased
cemetery and mortuary sales.





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.





During
the six months ended June 30, 2008, the Company's operations provided cash of
$69,091,200, while cash totaling $16,614,000 was used by operations during the
six months ended June 30, 2007. This was due to a decrease of $57,041,000 in the
balance of mortgage loans sold to investors, which is attributed to a transfer
of loans totaling $36,291,000 to long term mortgages.  With the
transfer into long term mortgages this lessens the amount available from Company
funds for loans sold to investors.





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.








20





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 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 $107,026,000 as of June 30, 2008, compared to
$119,777,000 as of December 31, 2007. This represents 37.1% and 47.6% of the
total investments as of June 30, 2008, and December 31, 2007, respectively.
Generally, all bonds owned by the life insurance subsidiaries are rated by the
National Association of Insurance Commissioners. Under this rating system, there
are six categories used for rating bonds. At June 30, 2008, 3.4% (or $3,667,000)
and at December 31, 2007, 3.1% (or $3,708,000) of the Company’s total bond
investments were invested in bonds in rating categories three through six, which
are considered non-investment grade.





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.





Financial
Accounting Standards Board (“FASB”) Statement No. 157, Fair Value Measurements(“SFAS No. 157”) is effective for fiscal years beginning after
November 15, 2007. The Company adopted the provisions of SFAS No. 157
as of January 1, 2008 for financial assets and financial liabilities that
are measured at fair value. SFAS No. 157:




·
            Defines
      fair value as the price that would be received to sell an asset or paid to
      transfer a liability in an orderly transaction between market participants
      at the measurement date, and establishes a framework for measuring fair
      value;





·
            Establishes
      a three-level hierarchy for fair value measurements based upon the
      transparency of inputs to the valuation as of the measurement
      date;





·
            Expands
      disclosures about financial instruments measured at fair
      value.








Financial
assets and financial liabilities recorded on the Condensed Consolidated Balance
Sheet at fair value are categorized based on the reliability of inputs to the
valuation techniques as follows:




Level 1:  
Financial assets and financial liabilities whose values are based on unadjusted
quoted prices for identical assets or liabilities in an active market that we
can access.





Level 2:Financial assets and financial liabilities whose values are based
      on the following:


a)
  Quoted prices for similar assets or liabilities in active
markets;


b)
  Quoted prices for identical or similar assets or liabilities in
non-active markets; or


c) Valuation
models whose inputs are observable, directly or indirectly, for substantially
the full  term  of the asset or liability





Level 3:Financial
assets and financial liabilities whose values are based on prices or valuation
techniques that require inputs that are both unobservable and significant to the
overall fair value measurement. These inputs may reflect our estimates of the
assumptions that market participants would use in valuing the financial assets
and financial liabilities.




We utilize a combination of
third party valuation service providers, brokers, and internal valuation models
to determine fair value.





21





The
following tables summarize Level 1, 2 and 3 financial assets and financial
liabilities by their classification in the Condensed Consolidated Statement of
Balance Sheet at June 30, 2008.




Valued
      at
                
                
                Balance
      as ofamortized
                
                
                June
      30,Level
      1
                
                
                Level
      2
                
                
                Level
      3
                
                
                cost
                
                
                2008Financial
      AssetsFixed
      maturity securities
                
                $
                2,247,533
                
                
                $
                -
                
                
                $
                -
                
                
                $
                104,778,670
                
                
                $
                107,026,203Equity
      securities
                
                
                5,376,761
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,376,761Mortgage
      loans
                
                
                -
                
                
                
                -
                
                
                
                6,301,897
                
                
                
                129,965,171
                
                
                
                136,267,068Short-term
      investments
                
                
                8,902,339
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                8,902,339Total
      Investment in Financial Assets
                
                
                16,526,633
                
                
                
                -
                
                
                
                6,301,897
                
                
                
                234,743,841
                
                
                
                257,572,371Mortgage loans
      sold to investors
                
                
                -
                
                
                
                -
                
                
                
                9,659,907
                
                
                
                -
                
                
                
                9,659,907Other
      assets
                
                
                -
                
                
                
                0
                
                
                
                2,620,651
                
                
                
                1,734,811
                
                
                
                4,355,462Total
      Financial Assets
                
                $
                16,526,633
                
                
                $
                -
                
                
                $
                18,582,455
                
                
                $
                236,478,652
                
                
                $
                271,587,740Financial
      LiabilitiesOther
      liabilities
                
                $
                -
                
                
                $
                -
                
                
                $
                (989,249
                )
                
                $
                (11,389,629
                )
                
                $
                (12,378,878
                )Total
      Financial Liabilities
                
                $
                -
                
                
                $
                -
                
                
                $
                (989,249
                )
                
                $
                (11,389,629
                )
                
                $
                12,378,878





22





Following
is a summary of changes in the condensed consolidated balance sheet line items
measured using level 3 inputs:




MortgageLoansMortgage
                
                
                Sold
      to
                
                
                Other
                
                
                OtherLoans
                
                
                Investors
                
                
                Assets
                
                
                LiabilitiesBalance
      - December 31, 2007
                
                $
                4,152,985
                
                
                $
                66,700,694
                
                
                $
                2,809,225
                
                
                $
                (2,182,109
                )Total
      Gains (Losses):Included
      in earnings
                
                
                (1,720,125
                )
                
                
                -
                
                
                
                -
                
                
                
                -Included
      in othercomprehensive income
                
                
                -
                
                
                
                -
                
                
                
                (188,574
                )
                
                
                1,192,860Purchases,
      issuances, andsettlements
                
                
                3,869,037
                
                
                
                (20,750,044
                )
                
                
                -
                
                
                
                -Transfers
                
                
                -
                
                
                
                (36,290,743
                )
                
                
                -
                
                
                
                -Balance
      - June 30, 2008
                
                $
                6,301,897
                
                
                $
                9,659,907
                
                
                $
                2,620,651
                
                
                $
                (989,249
                )







The items
shown under level three are valued as follows:





Mortgage
loans.  Mortgage loans have been adjusted to the realizable
market value based upon appraisals from third party appraisers.





As of
June 30, 2008, the Company had $28,838,000 in unpaid principal in its long term
mortgage portfolio, which was delinquent more than 120 days.  Of this
amount $23,314,000 is in foreclosure proceedings.  The Company has not
accrued any interest income on these loans.  During the six months
ending June 30, 2008, the Company had increased its allowance for mortgage loan
losses by $1,720,000 which allowance was charged to loan loss expense and is
included in other general and administrative expenses for the
period.  The allowance for mortgage loan losses as of June 30, 2008
was $2,706,000.





Also at
June 30, 2008, the Company had foreclosed on $7,414,000 in long term mortgage
loans.  The foreclosed property is shown in real
estate.  The Company will be able to carry the foreclosed property in
Security National Life and SecurityNational Mortgage, its life and mortgage
subsidiaries, and will rent the properties until it is feasible to
sell.





In
addition to the allowance for mortgage loan losses, the Company also accrues a
monthly allowance for indemnification losses to investors of 17.5 basis points
of total production.  The amount accrued for the six months ended June
30, 2008 was $3,308,000 and is included in other general and administrative
expenses.  The reserve for indemnification losses is included in other
liabilities and, as of June 30, 2008, the balance was $2,167,000.  The
Company believes the loan loss reserves are sufficient to cover reasonably
foreseeable future loan losses and that its formula for determining the
provision for such reserves is adequate.





Mortgage loans sold to
investors.  Through the Company’s mortgage banking operations
loans have been sold to third party investors.  The value shown is the
amount due from these investors based upon the market values at the time of the
sale.  During the second quarter of 2008, the Company repurchased and
transferred $36,291,000 of mortgage loans previously sold to investors to its
long-term mortgage portfolio.





SecurityNational
Mortgage has warehouse lines of credit with its non affiliated warehouse
lenders.  The total amount available under these lines of credit is
$450,000,000.  The terms of the lines of credit are for one year, with
interest rates ranging from 1.5% to 1.75% over the six month LIBOR rate (3.96%
to 4.21% as of June 30, 2008).  SecurityNational Mortgage is currently
in the process of renewing one of its warehouse lines that is set to expire
September 30, 2008.  The other line is a non-committed line and has no
expiration date.








23





Other assets and other
liabilities, 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 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
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 June 30, 2008, and
December 31, 2007, the life insurance subsidiary exceeded the regulatory
criteria.








24





The
Company’s total capitalization of stockholders’ equity, and bank debt and notes
payable was $64,976,000 as of June 30, 2008, as compared to $69,120,000 as of
December 31, 2007. Stockholders’ equity as a percent of total capitalization was
92% and 81% as of June 30, 2008 and December 31, 2007,
respectively.  Bank debt and notes payable decreased $7,881,000 for
the six months ended June 30, 2008 when compared to December 31, 2007, thus
increasing the stockholders equity percentage.





Lapse
rates measure the amount of insurance terminated during a particular period. The
Company’s lapse rate for life insurance in 2007 was 7.9% as compared to a rate
of 8.4% for 2006. The 2008 lapse rate to date has been approximately the same as
2007.





At June
30, 2008, $20,484,000 of the Company’s consolidated stockholders’ equity
represents the statutory stockholders’ equity of the Company’s life insurance
subsidiaries. The life insurance subsidiaries cannot pay a


dividend
to its parent company without the approval of insurance regulatory
authorities.





Item
3.    Quantitative and Qualitative
Disclosures about Market Risk





There
have been no significant changes since the annual report Form 10-K filed for the
year ended December 31, 2007.





Item
4.    Controls and
Procedures





(a)         Evaluation of disclosure controls
and procedures – The Company’s principal executive officer and principal
financial officer have reviewed and evaluated the effectiveness of the Company’s
disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e)
under the Securities Exchange Act of 1934 (the “Exchange Act”) as of June 30,
2008. Based on that evaluation, the principal executive officer and the
principal financial officer have concluded that the Company’s disclosure
controls and procedures are effective, providing them with material information
relating to the Company as required to be disclosed in the reports the Company
files or submits under the Exchange Act on a timely basis.





(b)  Changes in internal controls
– There were no significant changes in the Company’s internal controls over
financial reporting or in other factors that could significantly affect the
Company’s internal controls and procedures subsequent to the date of their most
recent evaluation, nor were there any significant deficiencies or material
weaknesses in the Company’s internal controls. As a result, no corrective
actions were required or undertaken.





Part
II  Other Information





Item
1.   Legal Proceedings





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 previously marketed and sold by Southern Security Life and now
marketed and sold by Security National Life. The proposed order states that as a
result of an investigation the Florida Office of Insurance Regulation 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.








25





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.





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 of the Insurance Regulation 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 of Insurance Regulation 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 of Insurance Regulation has
with the New Success Life Program because it has received no specific
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 of Insurance Regulation 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 of InsuranceRegulation
issues a similar order, the Company intends totake
actionnecessary
to protect its rights and interests, including requesting a hearing before an
administrative law judge to oppose the order.





Except
for the proposed consent order from the Florida Office of Insurance Regulation,
the Company is not a party to any material 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 operation.








Item
1A.       Risk Factors





The
recent adverse developments in the mortgage industry and credit markets have
adversely affected the Company’s ability to sell certain of its mortgage loans
to investors, which has impacted the Company’s financial results by requiring it
to assume the risk of holding and servicing many of these loans.





The
mortgage industry is still experiencing substantial change due to higher than
expected delinquencies from subprime loans.  The market for new
subprime loans has been substantially reduced and several mortgage companies
whose primary product was subprime mortgage originations have ceased
operations.  The Company funded $5.4 million (0.2% of the Company’s
production) in subprime loans during the twelve months ending December 31, 2007
and has eliminated subprime loans from its product offerings.  The
Company believes that its potential losses from subprime loans are
minimal.





The
industry problem with subprime mortgages has created a volatile secondary market
for other products, especially alternative documentation (Alt A)
loans.  Alt A loans are typically offered to qualified borrowers who
have relatively high credit scores but are not required to provide full
documentation to support personal income and assets owned. Alt A loans can have
a loan to value ratio as high as 100%. As a result of these changes, the
Company discontinued offering and is not currently offering these
loans.








26





During
the second quarter the company repurchased and transferred $36,291,000 of
mortgage loans previously sold to investors to its long term mortgage loans
portfolio.  Of this amount $14,727,000 was in Alt A
Loans.    The remaining amount transferred of $21,564,000
was in conforming mortgage loans which had been fully
underwritten.  The Company will service these loans through Security
National Life its life insurance subsidiary.





As of
June 30, 2008, the Company had $28,838,000 in unpaid principal in its long term
mortgage portfolio, which was delinquent more than 120 days.  Of this
amount $23,314,000 is in foreclosure proceedings.  The Company has not
accrued any interest income on these loans.  During the six months
ending June 30, 2008, the Company had increased its allowance for mortgage loan
losses by $1,720,000 which allowance was charged to loan loss expense and is
included in other general and administrative expenses for the
period.  The allowance for mortgage loan losses as of June 30, 2008
was $2,706,000.





Also, at
June 30, 2008, the Company had foreclosed on $7,414,000 in long term mortgage
loans.  The foreclosed property is shown in real
estate.  The Company will be able to carry the foreclosed property in
Security National Life and SecurityNational Mortgage, its life and mortgage
subsidiaries, and will rent the properties until it is feasible to
sell.





In
addition to the allowance for mortgage loan losses, the Company also accrues a
monthly allowance for indemnification losses to investors of 17.5 basis points
of total production.  The amount accrued for the six months ended June
30, 2008 was $3,308,000 and is included in other general and administrative
expenses.  The reserve for indemnification losses is included in other
liabilities, and as of June 30, 2008, the balance was $2,167,000.  The
Company believes the loan loss reserves are sufficient to cover reasonably
foreseeable future loan losses and that its formula for determining the
provision for such reserves is adequate.





SecurityNational
Mortgage has warehouse lines of credit with its non affiliated warehouse
lenders.  The total amount available under these lines of credit is
$450,000,000.  The terms of the lines of credit are for one year, with
interest rates ranging from 1.5% to 1.75% over the six month LIBOR rate (3.96%
to 4.21% as of June 30, 2008).  SecurityNational Mortgage is currently
in the process of renewing one of its warehouse lines that is set to expire
September 30, 2008.  The other line is a non-committed line and has no
expiration date.





Item
2.          Unregistered Sales
of Equity Securities and Use of Proceeds





None





Item
3.          Defaults Upon
Senior Securities





None





Item
4.          Submission of
Matters to a Vote of Security Holders





None





Item
5.          Other
Information








Liquidation
of Southern Security Life Insurance Company





On
December 24, 2007, the liquidation of Southern Security Live Insurance Company
(“Southern Security Life”) was completed when Articles of Dissolution of
Southern Security Life were filed with the Florida Division of
Corporations.  Southern Security Life was formerly a Florida domiciled
insurance company and wholly owned subsidiary of Security National Life
Insurance Company (“Security National Life”).  Southern Security Life
was liquated following the rescission by the Company of the transaction to sell
Southern Security Life to American Network Insurance Company, a Pennsylvania
domiciled insurance company.  The transaction was subject to approval
by the Florida Office of Insurance Regulation and other regulatory authorities
by an agreed upon date.  Because the Florida Office of Insurance
Regulation did not approve the transaction by the required date, the transaction
was rescinded.








27





Southern
Security Life was liquidated in accordance with the terms of the Agreement and
Plan of Complete Liquidation, which the Board of Directors of both the Company
and Security National Life approved on December 12, 2005.  Under the
terms of the agreement, Southern Security Life was liquidated into Security
National Life in essentially the same manner as the liquidation described in
Private Letter Ruling 9847027 in order to achieve the same tax treatment and
consequences under Section 332 of the Internal Revenue Code of 1986, as amended,
and other applicable provisions described in such letter
ruling.  Pursuant to the Agreement and Plan of Complete Liquidation,
all of the insurance business and operations of Southern Security National Life
including $48,528,000 in assets and liabilities, were transferred to Security
National Life on December 28, 2005, by means of a reinsurance
agreement.  Southern Security Life’s remaining assets, including its
capital and surplus, were transferred to Security National Life effective
December 29, 2006.





Acquisition
of Capital Reserve Life Insurance Company





On
December 20, 2007, the Company, through its wholly owned subsidiary, Security
National Life, completed a stock purchase transaction with Capital Reserve Life
Insurance Company, a Missouri domiciled insurance company ("Capital Reserve"),
and its shareholders to purchase all of the outstanding shares of common stock
of Capital Reserve from its shareholders.  Under the terms of the
stock purchase agreement, Security National Life paid the shareholders of
Capital Reserve at closing purchase consideration equal to the capital and
surplus of Capital Reserve as of September 30, 2007 in the amount of $1,271,327,
plus the interest maintenance reserve in the amount of $30,667 and the asset
valuation reserve in the amount of $212,393 as of September 30, 2007, plus
$1,037,967, less certain adjustments.  The adjustments consist of any
losses related to two litigation matters involving Capital Reserve and $152,269,
representing the difference in the amount of Capital Reserve's adjusted capital
and surplus at closing, or $1,119,108, compared to the amount of Capital
Reserve's adjusted capital and surplus on September 30, 2007, or
$1,271,377.





As the of
December 31, 2006, Capital Reserve had 10,851 policies in force and
approximately 30 agents.  For the year ended December 31, 2006,
Capital Reserve had revenues of $5,663,000 and a net loss of
$244,000.  As of December 31, 2006, the statutory assets and the
capital and surplus of Capital Reserve were $24,084,000 and $1,960,000,
respectively.





At the
closing of the transaction, Security National Life and Capital Reserve entered
into a reinsurance agreement to reinsure the majority of the in force business
of Capital Reserve, as reinsurer, to the extent permitted by the Missouri
Department of Insurance.  Under the terms of the reinsurance
agreement, Security National Life paid a ceding commission to Capital Reserve in
the amount of $1,738,000.  In addition, following the payment of the
ceding commission, Capital Reserve declared a dividend to Security National Life
in the amount of $1,738,000.  The Missouri Insurance Department
approved both the reinsurance agreement and the dividend payment.  The
dividend payment was approved subject to Capital Reserve maintaining capital and
surplus of at least $1,500,000.





As a
result of the reinsurance agreement, certain insurance business and operations
of Capital Reserve were transferred to Security National Life, including all
policies in force as of the effective date thereof.  Any future
business by Capital Reserve is covered by this reinsurance
agreement.  Consequently, except for capital and surplus of
$1,500,000, $23,500,000 in assets and liabilities were transferred from Capital
Reserve to Security National Life pursuant to the reinsurance
agreement.  Following the closing of the transaction, Capital Reserve
will continue to sell and service life insurance, annuity products, accident and
health insurance, and funeral plan insurance.





Item
6.  Exhibits, Financial Statements Schedules and Reports on Form
8-K.





(a)(1)    
Financial
Statements





See “Table of
Contents – Part I – Financial Information” under page 2 above





(a)(2)     Financial Statement
Schedules





None





All other
schedules to the consolidated financial statements required by Article 7 of
Regulation S-X are not required under the related instructions or are
inapplicable and therefore have been omitted.








28





(3)     Exhibits





The
      following Exhibits are filed herewith pursuant to Rule 601 of Regulation
      S-K or are incorporated by reference to previous
  filings.





3.1 Articles
of Restatement of Articles of Incorporation (4)


3.2 Amended
Bylaws (6)


4.1 Specimen
Class A Stock Certificate (1)


4.2 Specimen
Class C Stock Certificate (1)


4.3 Specimen
Preferred Stock Certificate and Certificate of Designation of Preferred Stock
(1)


10.1 Restated
and Amended Employee Stock Ownership Plan and Trust Agreement
(1)


10.2 2003
Stock Option Plan (5)


10.3 2006
Director Stock Option Plan (12)


10.4 Deferred
Compensation Agreement with George R. Quist (2)
 10.5  Deferred
Compensation Plan (3)


10.6 Employment
agreement with J. Lynn Beckstead, Jr. (7)


10.7 Employment
agreement with Scott M. Quist (8)


10.8 Agreement
and Plan of Complete Liquidation of Southern Security Life Insurance Company
into Security National Life Insurance Company (9)


10.9 Assignment
between Southern Security Life Insurance Company and Security National Life
Insurance Company(9)


10.10 Assignment
between Southern Security Life Insurance Company and Security National Life
Insurance Company (10)


10.11        
U nit
Purchase Agreement among Security National Financial Corporation, C & J
Financial, LLC, Henry Culp, Jr., and Culp Industries Inc.(11)


10.12 Consulting
Agreement with Henry Culp, Jr., (11)


10.13 Employment
Agreement with Kevin O. Smith (11)


10.14 Non-Competition
and Confidentiality Agreement with Henry Culp, Jr. (11)


10.15 Stock
Purchase Agreement among Security National Life Insurance Company, Capital
Reserve Life Insurance Company, and the shareholders of Capital Reserve Life
Insurance Company (12)


10.16 Indemnification
Agreement among Security National Life Insurance Company, Capital Reserve Life
Insurance Company, and the shareholders of Capital Reserve Life Insurance
Company (13)


10.17 Escrow
Agreement among Security National Insurance Company, Capital Reserve Life
Insurance Company, the shareholders of Capital Reserve Life Insurance Company,
and Mackey Price Thompson & Ostler as Escrow Agent (13)


10.18 Reinsurance
Agreement between Security National Life Insurance Company and Capital Reserve
Life Insurance Company (13)


10.19 Subsidiaries
of the Registrant


31.1 Certification
pursuant to 18 U.S.C. Section 1350, as enacted by Section 302 of the
Sarbanes-Oxley Act of 2002


31.2 Certification
pursuant to 18 U.S.C. Section 1350, as enacted by Section 302 of the
Sarbanes-Oxley Act of 2002


32.1 Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002


32.2 Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002








(1) Incorporated
by reference from Registration Statement on Form S-1, as filed on June 29,
1987


(2) Incorporated
by reference from Annual Report on Form 10-K, as filed on March 31,
1989


(3) Incorporated
by reference from Annual Report on Form 10-K, as filed on April 3,
2002





29


(4) Incorporated
by reference from Report on Form 8-K/A as filed on January 8, 2003


(5)       Incorporated
by reference from Schedule 14A Definitive Proxy Statement, Filed on June 5,
2003, relating to the Company’s Annual Meeting of Shareholders


(6) Incorporated
by reference from Report on Form 10-Q, as filed on November 14,
2003


(7) Incorporated
by reference from Report on Form 10-K, as filed on March 30,
2004


(8) Incorporated
by reference from Report on Form 10-Q, as filed on August 13,
2004


(9) Incorporated
by reference from Report on Form 8-K, as filed on January 12,
2007


(10) Incorporated
by reference from Report on Form 10-K, as filed on March 31,
2007


(11)     Incorporated
by reference from Report on Form 8-K, as filed on August 8, 2007


(12)     Incorporated
by reference from Report on Form 8-K, as filed November 2, 2007


(13)     Incorporated
by reference from Report on Form 8-K, as filed January 14, 2008





(b)
            Reports
      on Form 8-K:





No
reports were filed by the company during the quarter ended June 30,
2008.








30




SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.








REGISTRANT





SECURITY NATIONAL FINANCIAL
CORPORATION


Registrant








Dated:
      August 14, 2008
            
            By:s/s George R.
    QuistGeorge
      R. QuistChairman
      of the Board and Chief Executive Officer(Principal
      Executive Officer)





Dated:
      August 14, 2008
            
            By:s/s Stephen M.
    SillStephen
      M. SillVice
      President, Treasurer and Chief Financial Officer(Principal
      Financial and Accounting Officer)







31